trusts Flashcards
who can be a beneficiary
- unincorporated association couldn’t be at common law, but now can be
- any natural or artificial person capable of taking and holding title to property
- trust can name an unborn beneficiary; unascertained beneficiaries have to be determined from the will
- RAP problems!!!
settlor
the individual who creates the trust
discretionary trust
the trustee is given discretion as to when to pay a beneficiary, whether to pay a beneficiary and how much to pay him. Also discretion on WHO to pay if multiple beneficiaries.
“trustee shall have sole and absolute discretion in determining when to pay beneficiary & how much”
resulting trust- definition and when applies
implied in fact and based upon presumed intent of the parties. if decreed, the resulting trustee will transfer the property to:
a) the settlor if he is alive or
b) the settlor’s estate if he’s dead (residuary devisees if any, or if none intestate heirs)
- private express trust ends by its own terms
- charitable trust ends or fails, and cy pres can’t be used b/c settlor didn’t have general charitable intent
- excess trust property in a private express trust- purpose satisfied but left over money/assets (support x while x is a minor and money left)
- beneficiary dead, unidentifiable, or not locatable
- semi secret trusts- will says to x to hold in trust with no named bene
- purchase money resulting trusts
purchase money resulting trust
Sale of property where Y obtains legal title from the seller, but Y did not supply the consideration, another person- X- did. Once X proves he supplied the money, a presumption arises (2 different presumptions possible depending on relationship between X and Y)
*must be consideration given to buy the property
X and Y close relatives- rebuttable presumption of gift.
X and Y not close relatives- rebuttable presumption that Y is acting as a trustee (that X would have wanted to retain a benefit and not to make a gift). Y’s only duty is to convey title to X
i) can rebut by proving X made a loan to Y
a) if title in Y’s name, then NO resulting trust
b) BUT if X loaned money to Y, and title is in X’s name, then the resulting trust is in favor of Y as beneficiary
constructive trust- requirements and examples
constructive trust is a remedy to prevent unjust enrichment.
Must be requested as a remedy and must point to specific trust property harmed or wrongfully handled. Some states require clear and convincing evidence.
Examples of when available
- when trustee of private or charitable trust engages in self dealing and profits
- fraud in the inducement of a will
- breach of fiduciary duty
- invalid oral trust of land that doesn’t satisfy SOF exceptions
- secret trust
- beneficiary of a will commits homicide of testator
- joint tenant kills another joint tenant
- theft of trust property when it is no longer in possession of thief and thief used it to buy something else
oral real estate trust (imposed because of fraud in inducing conveyance)
- from the four corners of the deed, the person seems to own the real estate
1) fraud in the inducement- A conveyed real estate to B because he promised to hold it in trust for someone else, but actually did not intend to do so
2) fiduciary relationship between A and B, and A transfers to B because B makes a promise
i) family relationship
ii) attorney-client
iii) business partners
3) detrimental reliance by B
trustee duties to beneficiaries
1) duty to administer trust in good faith, PRUDENTLY, and follow its instructions
2) duty of loyalty- may not self deal and must act impartially if more than one beneficiary
3) duty to separate and earmark trust property- no commingling with own or other clients’ assets
4) duty to perform personally
5) duty to defend trust from attack and enforce trust claims
6) duty to preserve trust property and make it productive
7) duty to account at least annually and respond to requests for info about the trust
DEAL APP
DEFEND, EARMARK, ADMINISTER, LOYALTY, ACCOUNT, PERSONALLY, PRODUCTIVITY
trustee duty of care
care, skill*, and caution a reasonably prudent person would use in investing and managing his own property
*takes special skills of trustee into account to raise the standard but lower skill level is not an excuse
NOTE: Investment decisions are evaluated pursuant to uniform prudent investor act
implied powers
power to carry out the trust purpose
if trustee commingles trust property and own assets or assets of other trusts
breach of duty to separate and earmark
if some of the property is lost, it is presumed that the property lost belonged to trustee personally and any gains go to the trust
Beneficiary remedy for trustee breach of duty of loyalty by self dealing
trace the profits from the transaction,
Set aside the transaction, or
affirm the transaction if it’s beneficial
surcharge if a loss to trust- trustee must make good the loss
example of properly earmarked property
John Smith, as trustee of ABC trust
ie either in trustee’s name noting trustee capacity, or trust
duty to perform personally
must personally perform functions that a reasonably prudent person wouldn’t delegate. DISCRETIONARY FUNCTIONS CANNOT BE DELEGATED (like who to pay and when).
INVESTMENT DUTIES
common law- no delegation of investment decision
today- may delegate if a prudent trustee could properly delegate under the circumstances
trustee cannot delegate decisionmaking to another trustee
-must act by majority decision (today); at common law it was unanimity
duty to defend trust
must defend trust from legal attack, unless upon examination trustee discovers challenge is well founded
duty to account
keep and render accounts periodically (at least annually) and respond to requests for info about the trust administration
proxy for duty of loyalty- lets B’s monitor
duty to make productive / power to invest- state statutes
most states have adopted uniform principal investor act
some states still follow statutory legal list of approved investments (unsecured loans, land, and common and preferred stock are not allowed; mutual funds are)
uniform principal investor act evaluation of trustee decisions
- must act exclusively for beneficiary. must act impartially if more than one
- any type of investment ok if trustee is prudent
-expected to consider anticipated income, tax consequences, and effect of general economic conditions and inflation
-should consider value of an asset to a particular beneficiary or purpose - prudence of investments evaluated in light of whole portfolio and wisdom at time of decision
adjustment power- UPIA
if the trustee feels that by distributing the trust income to the beneficiary, he/she is not complying with the duty to treat all beneficiaries fairly, may adjust between principal and income if necessary
Factors:
Nature, purpose, duration of trust
Intent of settlor
Need for liquidity and regular income
Need to preserve capital
General economic conditions and impact of inflation on income
Trustees power to invade principal under the trust
Tax consequences
factors to consider in whether to use adjustment power
- nature, purpose, expected life of the trust
- intent of settlor
- identity and circumstances of beneficiaries
- need for liquidity, regularity of income, preservation and appreciation of capital
- nature of trust assets
- whether trust gives trustee power to invade principal
trustee liability to third parties
general rule: can only be sued as trustee and not personally.
A. tort: only sue trustee personally if at fault (ex: sue the trustee personally if he was negligent in managing land held in the trust)
B. contract: party to contract must sue in trustee capacity if he knows that the trustee is making the contract in his capacity as trustee. can sue trustee personally if trustee did not reveal he was a trustee for a trust.
Trustee can be indemnified from trust property if properly entered into and the trustee is not in breach
when can the trust be modified?
A. By settlor
- when he personally reserves the power to modify
- when settlor has reserved the power to revoke (by implication has power to modify)
B. By court
- charitable trusts and cy pres
- deviation
a) unforeseen circumstances by settlor
b) necessity to preserve the trust - trust becomes illegal
when can the trust be revoked?
A. Some states: settlor must reserve the power
B. UTC: trust is revocable unless made irrevocable.
how do you terminate an irrevocable trust?
- Settlor and all beneficiaries agree
- Beneficiaries agree and no material purpose will be frustrated
- Statute of uses- passive trustee duties
- Termination of trust by its own terms
Holder of legal title to trust property
The trustee. Holds for the benefit of beneficiaries.
Holder of equitable title to trust property
Beneficiary
Requirements for valid trust
*Legal capacity
*Testamentary capacity (for testamentary trust)
*Intent - present intent to immediately create trust relationship and split legal and equitable title
*Property- ascertainable and settlor has right to convey it
*Valid purpose
*Proper formalities
Writing if required by statute of frauds
Presumption regarding language like i desire the property to be used for / with the hope that
Presumed not to intend to create a trust. Rebuttable by evidence of
Directions to a fiduciary
Clear and definite directions
Settlor providing previous support to the beneficiary
If no trust is imposed a close relative will take nothing
Proper trustee
Sole trustee cannot be the same as the sole beneficiary, or two trustees cannot be the only two beneficiaries
The settlor can be a trustee during their life as long as they designate a successor
Beneficiaries requirements
Must be ascertainable at the time they are to benefit (ex: to my children is ok but to my friends is not) and able to hold title
Must be ascertainable or first line remainderman
Anti lapse statute application to trusts
Most states only apply to wills
The utc states apply them to future interests created in trusts if an alternate taker is not specified, even if the provision requires the beneficiary to survive
Effect of divorce on provisions of trust
Appointing an ex spouse as a beneficiary or trustee will be revoked under the utc and laws of many states
Some states even invalidate gifts to ex spouse relatives (step children, siblings and parents of spouse)
Trust purposes
Cannot be
Illegal (can’t encourage people to commit crimes)
Against public policy (to A so long as she is not married could be against public policy of promoting marriage or it could be consistent with appropriate policy of providing support for someone who is unmarried)
To defraud creditors
Impossible to achieve
Generally if it’s illegal the court will treat it as valid and eliminate the problematic condition unless there’s evidence the settlor would not have wanted the gift to still be valid
Trustee death or resignation - impact on trust validity
Does not invalidate the trust. The court can appoint one unless there is evidence that the settlor only wanted the trust to exist while a specific person was trustee
Lack of duties of trustee
Court will imply duties as long as other formalities are satisfied (intent, trustee, beneficiary, trust property)
Ways to transfer property to trustee
Declaration of trust - declaration itself is enough to convey personal property. Must prove oral by clear and convincing evidence. Real property should be transferred from settlor as an individual to settlor as trustee
Conveyance in trust- a deed transferring from settlor to trustee, or personal property by physical delivery or written assignment
Gift in a will - pours property over from the will to a trust that is identified clearly in the will, even if the trust is revocable or has not been signed when the will is signed, as long as the trust is executed before the settlor dies
Testamentary trusts- where the trust intent, trust property, trustee, and beneficiaries are all identified in the will or a document incorporated into the will by reference
