Trusts Flashcards
What is a trust?
- A trust is a fiduciary relationship
- where one or more trustees are called upon
- to manage, protect, and invest certain property
- and any income generated
- for the benefit of one or more named beneficiaries
A trust is valid so long as it has what?
- a trustee
- an ascertainable beneficiary
- assets
Unless terms provide otherwise, trust interests are what?
- alienable
- devisable
- descendible
3 main types of trusts
- express
- resulting
- constructive
5 trust requirements
- grantor/settlor
- intent
- trustee
- ascertainable beneficiary
- trust assets
private express trust
clearly states the intention of the settlor to transfer property to trustee for the benefit of one or more ascertainable beneficiaries
what is a precatory trust?
expresses hope or wish that the property transferred be used for the benefit of another rather than creating a legal obligation
To be valid it must:
- contain specific instructions to a fiduciary
- must be shown that without imposition of a trust, there would be an unnatural disposition of the donor’s property because of familial relations or history of support between donor and intended beneficiary
Trust Property
- must be identifiable and segregated and it must be described with reasonable certainty
- A trust must be funded with identifiable property, but if a trust that is invalid for a lack of assets is later funded, a trust arises if the settlor re-manifests the intent to create a trust
Valid trust purpose
A trust can be created for any purpose so long as it is not illegal or contrary to public policy and is possible to achieve; and is for the benefit of its beneficiaries
Inter vivos trust
Delivery - must accompany the declaration of trust if a third-party trustee is named, where the settlor parts with dominion and control over the trust property
Writing - required ONLY FOR REAL PROPERTY; a court will impose a constructive trust when writing is lacking
Parol evidence - allowed to show settlor’s intent if writing is ambiguous on its face
Pour over trust
provision in a will that directs the distribution of property to a trust upon the happening of an event
Totten trust
a designation given to a bank account in a depositor’s name as trustee for a named beneficiary (no separation of legal and equitable title)
- can be revoked by any lifetime act manifesting the depositor’s intent to revoke, or by will
Life-insurance trust
proceeds go to trust upon insured’s death; trust is owner of policy and trust is irrevocable
Living trust
- typically settlor names himself the trustee until death;
- settlor can change successor trustee and beneficiaries until death;
- trust property not protected from creditors or federal estate taxation
testamentary trust
occurs when the terms of a trust are contained in writing in a will or in a document incorporated by reference into a will
“secret” trust
looks like a testamentary gift, but is created in reliance on the named beneficiary’s promise to hold and administer the property for another (a constructive trust is imposed on the property for the intended beneficiary)
“semi-secret” trust
occurs when a gift is directed in a will to be held in trust, but the testator fails to name a beneficiary or specify the terms or purpose of the trust ( a resulting trust is imposed on the property to be held for the testator’s heirs)
cy pres doctrine
a court may modify a charitable trust to seek an alternative charitable purpose if the original one becomes illegal, impracticable, or impossible to perform
revocability of trusts?
Majority rule - trust is presumed irrevocable
Uniform Trust Code - trust is presumed revocable
mandatory trust
trustee must make distributions from the trust
discretionary trust
trustee may make distributions in her discretion
remedial trust
a legal remedy created by operation of law
resulting trust
used when a trust fails
- trustee must return property to settlor or settlor’s estate
purchase-money resulting trust
person one buys the property but title is taken in person two’s name
constructive trust
a remedy used to prevent unjust enrichment if a 3rd party takes advantage of the settlor
Look for:
- fraud
- duress
- undue influence
- breach of a duty
- detrimental reliance by a third party
alienation?
a beneficiary’s equitable interest in trust property is freely alienable unless a statute or trust instrument limits this right
Claflin Doctrine
a trustee can block a premature trust termination if the trust is shown to have an unfulfilled material purpose
trust termination
automatically - when trust purpose has been accomplished
by consent -
- if settlor is deceased or has no remaining interest and all beneficiaries and the trustee consent,
- or by a court if the purpose has been achieved or becomes illegal, impracticable, or impossible for any reason
principal and income allocation
allocation must be balanced so as to treat present and future trust beneficiaries fairly unless otherwise authorized
- UPAIA = trustee can re-categorize and reallocate as necessary to fulfill trust purpose
- stock distribution = treated as the distribution of principal whether classified as a dividend or a split
trustee’s powers
power to act as a reasonably prudent person in managing the trust, including implied power to contract, sell, lease, or transfer trust property
trustee’s duties
Loyalty (objective) & Good Faith (subjective)
duty of prudence
trustee may delegate responsibilities if it would be unreasonable for the settlor to require the trustee to perform such tasks; however, a critical function concerning the property is discretionary and not delegable
trustee’s liabilities
- liable for lost profits, interests, and other losses resulting from a breach of trust
- liable for a predecessor trustee’s acts if he failed to address it or was negligent in delivering property
- personally liable on contracts entered into and for tortious acts committed while acting as trustee
