Trusts Flashcards
Private Express Trust
!!!!!
Fiduciary relationship w/ respect to property, whereby 1 person “trustee,” holds legal title for the benefit of another “beneficiary,” and which arises out of a manifestation of intent to create it for a legal purpose
1. manifestation of intent
2. done @ T’s death or by will
OR
3. during S’s lifetime by declaration of trust or by transfer
4. of a presently existing interest in prop that can be transferred
*RAP applies!
elements -
1. Property of Trust:
Any presently existing interest in property that can be transferred can be corpus of a trust (fee simple, future interest, insurance policy, bonds/stocks)
*Illusory interests CANNOT be subject matter of trust (future profits of biz, debts (liability not prop), mere expectancy of getting)
2. Ascertainable Beneficiary: Any ascertainable person/group/Corp can be beneficiaries of private express trust; class gifts valid, but CAN'T be too big (all of CA); CAN be unborn child in womb Unincorporated Association: CL - CANNOT be B Modern - CAN be
! Careful of RAP violation!
- Trustee
required, but ct will not allow trust to fail solely bc of lack of trustee or he refuses to serve, ct will appoint; until then Settlor or S’ estate will hold title - Manifestation of Trust Intent
Need PRESENT manifestation of trust intent made by settlor; cannot manifest intent in future. Personal prop trust need not be in writing. can be shown by words, writing, or conduct.
- NO magic words needed, but must be MANDATORY words bc PRECATORY words ALONE (wish, hope, desire) NOT sufficient!
- If coupled w/ Parol evidence may be OK
- Creation - 2 time frames
Trust must take effect at Settlor’s Death OR DURING S’s lifetime
death - must comply w/ Statute of wills
DURING life: 2 ways to create
- Transfer in Trust -
a. Real Prop - S Executes & DELIVERs deed to trustee (Sof)
b. Pers Prop - MUST DELIVER to trustee at time manifests intent (actual, symbolic, constructive) - Declaration in Trust - Settlor is Trustee
a. Real Prop - Need writing (sof) indicating S is Trustee
b. Pers Prop - NEED present manifestation of intent, but Delivery NOT needed - Legal Purpose
Trust may be established for any legal purpose. doesn’t violate public policy.
Illegality at Creation -
- try to excise illicit condition and trust stands
- cannot excise? Ct chooses best
a. invalidate trust from beginning and S keeps
b. allow trustee to keep property for himself (as punishment to S)
Illegality AFTER creation -
declare “resulting trust”; implied in fact trust based on presumed intent of parties; trustee MUST transfer prop back to S if alive, or S’s estate if dead
*Generally, can be voluntarily alienated by B, AND can be involuntarily alienated by attached by creditors after proper legal proceedings.
Charitable Trust
Statute of Elizabeth: trusts for education, alleviation of poverty /sickness, to help orphans [religion]
vs
Restatement: any trust which confers a substantial benefit upon society
**RAP DOES NOT APPLY!
Same as private trust: +
1. manifestation of intent
2. done @ T’s death or by will
OR
3. during S’s lifetime by declaration of trust or by transfer
4. of a presently existing interest in prop that can be transferred
5. w/ legal charitable prupose
Beneficiary -
no ascertainable person/group bc SOCIETY is B, even if individual receives incidental benefit (ex. endow a chair in Univ)
!!
Small group of Bs poverty?
SPLIT
1. private trust bc few ppl getting benefit
vs
2. charitable trust bc whenever poverty eliminated society benefits
Cy Pres
if charitable purpose indicated by Settlor is accomplished or becomes impractical, the court may direct the trust property to be applied to another charitable purpose if T is deemed to have GENERAL CHARITABLE INTENT. Meant to effectuate S’s GENERAL intent “as nearly as possible” (trustee can petition ct)
Not enough $ for trust’s plan?
*look at EXtrinsic and INtrinsic evidence:
1. Specific [charitable] Intent - trust FAILS and get RESULTING trust, prop returned to settlor if alive, his estate if dead
OR
2. GENERAL intent - Cy Pres
Pour Over Will
S creates intervivos trust, w/ provision in will devising part/all of estate to Trustee of trust…
Incorporate by
1. facts of independent signif
2. incorp by reference
or 3. UTATA- Pour over provision valid by statute IF a. valid trust
b. in existence before or at time of execution of will
- RARE - 6132 (if LIMITED pers Prop)
(see wills cards for more)
Honorary Trust
trust which has NO ascertainable Beneficiary & confers no substl benefit on society; a goal of S; Trustee is not required, but is on HIS HONOR AND HAS POWER TO CARRY OUT S’S INTENT
! IF Trustee rejects/fails, trust fails & RESULTING TRUST (never happens in private/charitable trusts)
*Almost always violates RAP bc NO measuring life!
-some cts strike at inception & get resulting Trust
Vs
-Restatement/Uniform Probate Code: allow trust for 21 years, then resulting trust
Totten Trust/Account
tentative bank savings account trust w/ bank or other financial institution, where named B take whatever is LEFT in account, if anything, at Death of owner;
*(Will Substitute) not true trust bc S owns account during life and No fid duties!
!BAR - S may do something in lifetime to elevate totten account to Private Express Trust w/ fid duties - Look to S’s actions/manifestations intent
(no magic words needed)
!! Spendthrift Provision (of Private Ex Trust)
Applies ONLY when Terms of trust include definition:
“No beneficiary of this trust shall be allowed to voluntarily transfer his right to future payments, and No creditor shall be allowed to attach any B’s right to future payments.
Voluntary Alienation - generally NOT OK as would defeat S’s intent. BUT CT may recognize assignment if B merely gives trustee direction/order to pay B’s agent, which B can revoke
INvoluntary alienation - generally NOT OK as would defeat S’s intent. BUT
EXCEPTION -
CL - PREFERRED creditors can attach B’s right even if spendthrift bc NOT typical creditors
EXs. IRS, those who provide necessities of life, child support, spousal support, alimony, Tort Judgment Creditor
MAJ exception - ANY creditor can attach to SURPLUS beyond B’s standard of living; Subjective test, but only includes REASONABLE expenses
Can you Create Spendtrift T for SELF? Splits
involuntary alienation - most NO, but some juris allow
Voluntary alienation - Most juris will ignore, but some will enforce
Support Trusts !!
Applies ONLY when Terms of trust include definition:
“Trustee is required to use only so much of the income or principal as is necessary for B’s health, support, maintenance, and education
same as spendthrift below
NO voluntary alienation
NO involuntary alienation, EXCEPT preferred creditors
Can you Create Support T for SELF? Splits. Generally yes valid trust, but provisions:
involuntary alienation - most NO, but some juris allow. insulate self from creditors
Voluntary alienation - Most juris will ignore, but some will enforce
Discretionary Trust !
Applies only when Terms of trust include definition: “Trustee shall have full, sole, and absolute discretion in determining when and how much to pay B”
Voluntary Alienation:
1 hand, NO bc WHAT exactly is B assigning?
OTHER HAND, if there was assignment, A steps into Shoes of B - neither able to force payment. And if Trustee has notice and does pay, he must pay A or be held liable.
Involuntary Alienation:
1 Hand, No, bc nothing to attach, cannot force payment
OTHER HAND, if Trustee has notice of debt and T decides to pay, he must pay C or be held liable
Can X create Discretionary for SELF?
Same as Spendthrift/Support Trust
Resulting trust !!
implied in fact trust based on presumed intent of parties; if declared RT by court, trustee MUST transfer prop back to S if alive, or S’s estate if dead (residue –>heirs)
Arises:
- Private Express Trust (PET) ends by own terms, and no provision for what happens next
- PET FAILS, bc no beneficiary
- Charitable trust ends bc of Impossibility or Impracticability (and CY PRES cannot be used)
- PET fails bc after creation, trust becomes illegal
- Excess corpus in PET (more than needed for plan); excess only becomes RT
- “Purchase money resulting trust”- PMRT
a. closely related? Rebut. presumption of gift
b. NOT closely related? rebuttable presumption C is holding as a PMR trustee for benefit of A - SEMI Secret Trust (will makes gift for Trustee to hold, but does not name beneficiary;
Has trust intent, but B cannot be ascertained; NO Parol Evidence
(DIFF than SECRET trust, which allows P evidence)
Constructive Trust
A means to disgorge a wrongdoer of his ill-gotten gains; to prevent fraud or unjust enrichment, not a trust at all;
-Wrongdoer must transfer prop to Intended B per Ct
Arises:
1. Trustee of PET or Charitable Trust makes a PROFIT bc of self dealing; re: ill gotten profits he is C-trustee
- Fraud in the inducement OR undue influence w/ respect to Wills law
- SECRET Trusts - gift made in reliance upon B’s promise to hold gift property in trust for another, will be enforced if sufficient proof of agmt is produced.
Will on its face makes gift outright to person A, Parol Ev admissible to show B is true Beneficiary bc Trusts papers look like A.
- Oral Real Estate Trusts (Breach of Promise)
Transfer Real prop to A , in oral promise for benefit of B;
becomes CT and A CANNOT invoke SOF if: - Fiduciary Relationship between S and A
- Fraud in Inducement on A’s part
- Detrimental Reliance by B, Intended Benef.
(take possession and make improvements)
Semi / Secret Trusts
1.SEMI Secret Trust (will makes gift for Trustee to hold, but does not name beneficiary);
Has trust intent, but B cannot be ascertained; NO Parol Evidence so result is RESULTING TRUST
(DIFF than SECRET trust, which allows P evidence)
- SECRET Trusts -
Will on its face makes gift outright to person A, but gift is made in reliance upon B1’s oral promise to hold the gift in trust for benefit of another.
-Parol Ev admissible (to prevent unjust enrichment) to show by clear and convincing evidence that B2 is true Beneficiary
Result - CONSTRUCTIVE TRUST imposed on named B
bar - give rules for BOTH
Trustee Powers
Express
&
Implied: helpful and appropriate to carry out trust purpose
-sell trust prop, incur expenses, lease,
MODERN - power to borrow
Uniform Trust Code?
Trustee Duties owed to Beneficiary
- POWERS
- DUTIES
- Duty of LOYALTY - trustee owes duty of undivided loyatly to the trust and act for the benefis of all trust Bs (be impartial), having no other consideration in mind
A. No self Dealing:
NO IMPROPER allocation of Assets; preferring 1 B over another;
No Further Inquiry Rule - CANNOT SELL to FAMILY, agent or representative even if fair price and g/f ;
-CANNOT HIRE himself
-cannot borrow from or encumber funds
B. Avoid Conflicts of Interest (trust 1st)
Breach? Trustee surcharged, paying back loss as CT
- DUTY of CARE !!- exercise care, skill, and prudence of a reasonably prudent person managing her own property
Breach/Remedy:
a. Ratify transaction if Good for B
b. damages
c. Constructive Trust
d. Tracing & Equitable Lien on Prop (see remedies)
e. Remove trustee - !!! PRUDENT INVESTOR Rule (like BJR)
DUTY TO INVEST
T must exercise 1) G/F, 2) Reasonable prudence, 3) sound discretion and 4) care in making trust investments
A. DUTY TO DIVERSIFY to protect against entire loss
&
B. SPLIT
A. State Lists - some states have list trustee must follow in absence of trust direction
(Fed Gov Bonds, Fed insured Certs of Deposit, 1st deeds of trust in Real Estate, sometimes public Stock;
(NOT new Biz or 2nd deeds of trust in real estate)
NO speculating allowed
B. CL Prudent Person Test - (Each investment Scrutinized!) requires Trustee act as reasonable prudent person investing in his own prop, trying to maximize income while preserving corpus; Higher standard if holds himself out to be skilled;
Good Investments: (Fed gov bonds, 1st deeds of trust, Fed insured certs of deposit, blue chip stocks; SOME juris mutual funds)
(NOT new Biz or 2nd deeds of trust in real estate)
NO speculating allowed
C. Uniform Prudent Investor Act (Maj) -
Trustee must invest as prudent investor
Performance measured in context of ENTIRE portfolio (not each purchase), so some bad investments may be less than ideal/lists.
Breach? Trustee must make good on ALL losses, and Trust takes all profits. (no net by Trustee)
• Duty to EARMARK - trustee must LABEL as trust property; S/L sometimes
Breach? (Split)
A. CL - Trustee personally liable for loss & NO Causal link required (so stock market crash would trigger breach)
vs
B. Modern - Trustee personally liable for loss ONLY if failure to earmark CAUSED the loss
• Duty TO SEPARATE (not to Comingle trust funds with personal funds OR other trusts
Breach? Trustee can be REMOVED and liable for loss
• Duty NOT to DELEGATE - can only rely on professional advice, but cannot delegate decision making to them; OR delegate all supervision to another trustee
SPLIT
CL - could NOT delegate investing to prof $ Mgr
vs
Modern - CAN delegate duty to invest to Prof
CL - in absence of text in will, TRUSTEES Must act UNANIMOUSLY
vs
Modern - Majority trustee decision is OK
• Duty to ACCOUNT for Allocation of Principal, Income & Expenses
Traditionally, Cash Div=income;
stock div = trust prop,
increase in value of asset = credited to trust
but remember Uniform Principal & Income Act- ***Trustee has ADJUSTMENT POWER TO REALLOCATE investment portfolio return if necessary to carry out trust purpose and is FAIR and REASONABLE to all Bs.
requires trustee on regular basis to give B a statement of income and expenses of trust
Fails? file action for accounting.
• Duty to collect
• Duty to PRESERVE TRUST PROPERTY- implied is duty to make trust productive & invest w/ reasonable care
maintain Marketability of trust,not to speculate, etc.
General Remedies For Breach of Duties:
- Ratify transaction if outcome is positive
- Surcharge Trustee for any resulting Loss (interest)
- Trace and Recover property!! (except if BFP)
Duties of Trustee !!
- Loyalty
- Due Care
- Preserve Trust Property, make productive & invest w/ reasonable care (Prudent Investor Rule)
- Diversification of Investments
- Earmark
- Segregate
- NOT to delegate (even to co-trustee)
- to Account.
