Trusts

Question 1

Private express trust

Answer 1

FD relationship w/ respect to prop whereby 1 person, ttee, holds legal title for the benefit of another, the bene, and which arises out of a manifestation of intent to create it for a legal purpose

Question 2

Validity

Answer 2

1. settlor
2. ttee
3. bene
4. intent
5. res
6. valid purpose
7. delivery

Question 3

Settlor

Answer 3

Creator who often provides asset to create trust

Question 4

Delivery

Answer 4

Handing over prop from settlor to ttee

Question 5

Ttee

Answer 5

Person holding legal title to trust prop and manages assets
Trust won’t fail for lack of ttee
FD’s

Question 6

Intent

Answer 6

Settlor must intend to create trust in the present

Precatory language, mere stmt’s of desire or hope, are insuff - however, precatory language + parol ∑ may = a trust

Question 7

Bene

Answer 7

Persons holding equitable title and rec’g benefits of assets

Any ascertainable person or group of people

Question 8

Res

Answer 8

Must be a presently existing prop interest

Question 9

Valid purpose

Answer 9

Can’t violate law or public policy

Can be for any legal purpose

Question 10

Discretionary trusts

Answer 10

Ttee has discretion to pay income or principal

Question 11

Can bene ever xfer his interest, his rt to future payments, notwithstanding discretionary provisions?

Answer 11

No - bc bene can’t voluntarily xfer his rt to future payments bc, the Q may be asked, what exactly is bene assigning? bene might get nothing
Yes - if in fact there was an assignment, then the assignee steps into bene’s shoes - bc bene couldn’t force payment by the ttee, neither can the assignee - however, if ttee has notice of the assignment and does decide to pay, then ttee must pay assignee or be held personally liable

Question 12

Can creditors ever attach bene’s rt to future payments, notwithstanding the discretionary provisions?

Answer 12

No - creditors can’t attach bene’s rt to future payments bc there’s nothing to attach - ttee may never allocate anything to bene - bene couldn’t force payment, neither can creditor
Yes - if ttee has notice of debt and creditor’s judgment against bene, and ttee decides to pay, he must pay creditors or be held personally liable

Question 13

Mandatory trusts

Answer 13

Ttee lacks discretion, must pay per trust terms

Question 14

Support trusts

Answer 14

Req’s ttee to use so much of income or principal as nec for bene’s support, health, education, or maintenance
Bene can’t voluntarily/involuntarily alienate/xfer his rt to future payments, bc to allow any type of assignment would defeat trust purpose and violate settlor’s intent
Generally, creditors can’t attach bene’s rt to future payments - however, preferred creditors can attach bene’s rt to future payment
- not typical creditors - those who provide necessities of life, gov’t creditors, child for child support, spouse for spousal support, spouse for alimony

Question 15

Spendthrift trusts

Answer 15

Limits voluntary and involuntary alienation
Bene can’t xfer his rt to future payments of income or principal and creditors can’t attach bene’s rt to future payments of income or principal - guards against improvidence of bene and wards off creditors
Sometimes ct will recognize an assignment of future payments on the ground that bene merely has given ttee direction/order to pay the assignee
Generally, creditors can’t attach bene’s rt to future payments - however, preferred creditors can attach bene’s rt to future payment
- not typical creditors - those who provide necessities of life, gov’t creditors, child for child support, spouse for spousal support, spouse for alimony

Question 16

Secret trusts

Answer 16

Fact of trust is secret, promise is enforceable by CT
Gift made in reliance upon ttee’s promise to hold the gift prop in trust for another will be enforced if suff proof of the agmt is produced
Will always succeed

Question 17

Semi-secret trusts

Answer 17

Ttee named but bene’s are secret
Unenforceable
Will always fail

Question 18

Revocable trusts

Answer 18

Settlor retains rt to amend or revoke during lifetime

Question 19

Testamentary trusts

Answer 19

Created by way of will which is effective upon T’s death

Question 20

Charitable trusts

Answer 20

Legal charitable purpose
Society is the bene
RAP doesn’t apply
Cy pres

Question 21

Cy pres

Answer 21

As nearly as possible
If settlor manifests a general charitable intent, but the mechanism for effectuating that intent isn’t possible or practicable, ct can modiy the mechanism cy pres to effectuate settlor’s general charitable intent
If settlor manifests a specific charitable intent, but the mechanism for effectuating that intent isn’t possible or practicable, ct can’t modify

Question 22

Resulting trusts

Answer 22

Implied in fact, based upon presumed intent of the pty’s

If decreed by the ct, resulting ttee will xfer prop to settlor or his estate

Question 23

Resulting trusts

Answer 23

Arises when

• private express trust ends by its own terms and there’s no provision for what happens to the corpus thereafter
• private express trust fails bc there’s no bene or it’s illegal
• excess corpus in private express trust
• charitable trust ends bc of impossibility or impracticability and cy pres can’t be used
• purchase money resulting trust
• semi-secret trust - arises when will makes a gift to a person to hold as ttee but doesn’t name bene

Question 24

Purchase money resulting trusts

Answer 24

ex. A pays KSN to B have title to prop xferred to C, if A and C aren’t closely related then there’s a rebuttable presumption that C is holding as a purchase money resulting ttee for A’s benefit, if A and C are closely related there’s a rebuttable presumption that A simply made a gift to C

Question 25

CT

Answer 25

Remedy to prevent fraud or unjust enrichment Wrongdoer has 1 obligation - xfer prop to intended bene as determined by the ct Arises when - ttee of private express trust or a charitable trust makes a profit bc of self-dealing - fraud in the inducement or in the execution re a will - secret trust - will, on its face, makes a gift outright to A, but the gift is given on the basis of an oral promise by A to use prop for B's benefit, ct's don't impose CT's for semi-secret trusts, rather impose a resulting trust

Question 26

Modification by settlor

Answer 26

Can modify the trust if he expressly reserves power to modify Has power to modify if he has power to revoke

Question 27

Modification by ct

Answer 27

Cy pres - charitable trusts | Changed circumstances - unforeseen circumstances mean continuation in same manner would defeat trust purpose

Question 28

Modification and termination

Answer 28

If settlor and all bene's consent, trust may be modified or terminated - only possible when settlor is still alive If all bene's agre to terminate and all material purposes have been accomplished - need to acct for remaindermen

Question 29

Claflin doctrine

Answer 29

Trust can't be modified or terminated, even if all bene's agree, if to do so would be contrary to a material purpose of the settlor

Question 30

Ttee FD writing approach

Answer 30

Discuss ttee's sources of power to make decisions Isolate axn's by ttee (circle each axn and inaxn) ID each duty implicated Remedies

Question 31

Ttee's sources of powers

Answer 31

``` Express/enumerated powers Implied powers - power to sell trust prop - power to incur expenses - power to lease - power to borrow ```

Question 32

FD

Answer 32

Ttee owes FD to administer trust solely in bene's best interest Breach can mean personal liability

Question 33

K liability

Answer 33

Ttee sued in his personal capacity - personal assets at stake - can get indemnification from trust if ttee acted w/in his power and wasn't personally at fault Ttee sued in his rep capacity - only if K itself provided that in the event of breach by ttee Modernly, if other person to the K knows that ttee's entering K in his rep capacity, then ttee must be sued in his rep capacity - can't get to personal assets

Question 34

Tort liability

Answer 34

Ttee sued in personal capacity - if ttee was w/o personal fault, can get indemnification from trust Modernly, if ttee sued in his personal capacity - personally liable for torts if personally at fault

Question 35

Duty of care

Answer 35

Ttee must exercise that degree of care that a reas prudent person would exercise in managing his own prop - includes duty to make reas decisions w/ respect to investing trust prop

Question 36

Prudent investor rule

Answer 36

Ttte has a duty to invest and manage trust assets as a prudent investor would, in light of purposes, terms, distributions req's adn other circumstances of the trust Ttee must exercise good faith, reas prudence, sound discretion, and care in making trust investments

Question 37

Duty of loyalty

Answer 37

Ttee owes a duty of undivided loyalty to the trust and all bene's Self-dealing COI

Question 38

Self-dealing

Answer 38

Ttee can't buy or sell trust assets for himself or spouse Ttee can't borrow trust funds If he engages in self-dealing, ct's apply the no further inquiry rule - ttee's good faith and reasonableness are irrelevant

Question 39

Remedies for self-dealing

Answer 39

``` Ratify transaxn Surcharge ttee - sue for any resulting loss Trace and recover prop - CT - except if purchaser is BFP ```

Question 40

COI

Answer 40

Not acting in best interests of bene's | Remedies include ratification and surcharge

Question 41

State lists - duty to invest

Answer 41

``` Good investments - fed gov't bonds - fed insured cert's of deposit - 1st deed of trust in real estate - sometimes stocks in publicly traded corp's Ttee can never invest - in a new biz - 2nd deeds of trust in real estate No speculating allowed ```

Question 42

CL prudent person test - duty to invest

Answer 42

``` Ttee must exercise good faith, reas prudence, sound discretion and care in making trust investments - if he holds himself out as having greater skill, then held to that standard Each individual investment is scrutinizedGood investments - fed gov't bonds - fed insured cert's of deposit - 1st deed of trust in real estate - blue chip stocks - mutual funds may be OK Ttee can never invest - in a new biz - 2nd deeds of trust in real estate No speculating allowed ```

Question 43

Uniform Prudent Investor Act - UPIA - duty to invest

Answer 43

Ttee must invest prudently | Performance is measured in context of entire trust portfolio - any individual investment isn't per se invalid

Question 44

Duty to diversity

Answer 44

Ttee must diversify investments so that if there's a loss, entire portfolio isn't wiped out

Question 45

Breach of duty to invest

Answer 45

If there's a profit, bene's can affirm transaxn If ttee makes 2 investments that breach duty where 1 makes a profit and the other loses $, ttee is surcharged for loss while bene's can affirm profiting transaxn

Question 46

Duty to earmark

Answer 46

Must label trust prop as trust prop

Question 47

Duty to segregate

Answer 47

Can't commingle personal funds w/ trust funds

Question 48

Duty not to delegate

Answer 48

Can rely on professional advisors in reaching a decision, but can't delegate decision-making authority to these advisors

Question 49

Duty to acct

Answer 49

On a regular basis, ttee must give bene's a stmt of income and expenses of the trust

Question 50

Remedies for breach of FD

Answer 50

``` Damages CT Tracing and EL on prop Ratify transaxn if good for bene's Remove ttee ```

Question 51

Co-ttee

Answer 51

Liable for breach of FD's if improperly delegated authority to co-ttee's or neg disregarded duties of admin so as to facilitate breach by co-ttee

Question 52

Duty to deal impartially w/ all bene's

Answer 52

Treat all bene's fairly