Trusts Flashcards
Support Trust
trustee is required to pay or apply so much of the trust as is necessary for the support of the beneficiary. The trustee doesn’t have discretion to refuse to pay bills necessary for the beneficiary’s support.
Trustee’s defense to support trust
The trustee’s only possible argument is to pay less if expense is not “necessary.”
EX: large increase in cost, cost out of line with similar options, charge more than total income
Discretionary Trust
Trustee is given discretion whether to apply or withhold payment of trust property to the beneficiary. This discretion actually limits the rights of the beneficiary to the amounts the trustee decides to give her. The beneficiary can’t interfere with the exercise of the trustee’s discretion unless the trustee abuses her power. What constitutes abuse depends on the extent of discretion conferred to the trustee. Generally, a court will not interfere unless the trustee has acted in bad faith or dishonesty. Courts is more likely to interfere when the discretionary trust is a support trust.
Termination of trust by beneficiaries
Most jurisdictions permit termination of a trust by its beneficiaries only if all the beneficiaries consent and the modification won’t interfere with a material purpose of the trust.
If Testator’s parents are still living there’s always a possibility of an unborn or unacertained sibling. Although permitted by the UTC, most states don’t permit a guardian to consent to the termination of a trust on behalf of unborn beneficiaries.
Doctrine of Changed Circumstances
relief from strict interpretation of the trust’s terms because of changed circumstances
Court cannot generally change the beneficial rights of the beneficiaries, a court may strain to find an implied power of invasion of the corpus in the trust instrument
Valid Trust
To create a valid trust, there must be a settlor who, intending to create a trust for a valid trust purpose, delivers the trust property to the trustee to hold for the benefit of one or more beneficiaries. If there are no trust assets when the trust instrument is executed (the settlor promises gratuitously to create a trust in the future), a trust arises in the future only if, when the assets come into existence, the settlor manifests anew an intention to create the trust. This remanifestation is not required, however, if the promise is supported by valid consideration.
Merger of Title
results in the termination of a trust where the sole trustee is also the sole beneficiary
Pour-over Gift to the trust
Under traditional view, to create a valid pour-over gift from a will to a revocable trust, the trust must be in existence or must be executed at the time of the will’s execution. However, under the prevailing view, a will may devise property to a trustee of a trust established or to be established furing the testator’s lifetime (trust may be established after the will is executed but before the testator’s death). Pour-over gifts are valid even if the trust is unfunded during the testator’s lifetime and even if the trust is amended prior to the testator’s death.
whether the income portion of the trust fails for lack of definite beneficiaries
To create a valid trust, there must be a settlor who, intending to create a trust for a valid trust purpose, delivers the trust property to the trustee to hold for the benefit of one or more beneficiaries.
Because a trust cannot exist without someone to enforce it, definite beneficiaries are necessary to the validity of a trust. Although the beneficiaries need not be identified at the time a trust is created, they must be susceptible of identification by the time their interests are to come into enjoyment. The trust beneficiaries may be a class, provided that the class is sufficiently definite. The settlor can even allow the trustee in its discretion to select the members as long as the class is reasonably definite. If the class is too broad, however, the trust (or a portion thereof) may be invalid for lack of definite beneficiaries.
What happens when a portion of a trust fails for lack of a beneficiary?
a resulting trust in favor of the settlor or the settlor’s successors in interest is presumed.
whether a remainder beneficiary’s judgment creditor has a right to immediate payment from the trust
Except as otherwise provided by statute or as validly restricted by the terms of the trust instrument (e.g., a spendthrift provision), the interest of an insolvent trust beneficiary can generally be reached in appropriate proceedings to satisfy the claims of his creditors. However, the creditor reaches only the interest of the beneficiary and not the trust property itself.
Intent to create trust
put legal title to property in one person’s name with a duty to manage it for others
“to be used” OK
NOT only “my wish and my desire” but look at overall language
Trust purpose
not illegal (encourage commission of crimes), contrary to public policy (unreasonable restraint on marriage, procreation, free practice of religion, encourage divorce), or impossible to achieve
look at motive
Res
subject matter (trust property) of the trust must be certain and identifiable
OK if right to receive the residue is certain an identifiable
If not, there’s no trust
Gratuitous promise
Trust arises when:
(1) all elements of a valid trust met and
(2) settlor reaffirms intent to create trust
Indicia of trust might include:
- distribution of income to beneficiary; or
- keeping records like a trustee would
Promise to hold property in trust supported by consideration
trust automatically attaches when the property is received
What if no trustee?
No trust fails for want of a trustee –> court will appoint one
Exception: powers personal to the named trustee –> trust should fail is named person is no longer capable of serving (rarely invoked)
When otherwise empty trust valid
Trust named as beneficiary of
- life insurance policy
- pension plan death benefit
- gift under settlor’s will
Ascertainable beneficiaries
MUST for private trust
opposite for charitable trusts: (1) charitable purpose and (2) for a reasonably large and unidentifiable segment of the public at large
Power of appointment
Traditional rule: trust invalid for want of definite beneficiaries CANNOT be given effect as power of appointment
Majority rule: trust invalid for want of definite beneficiaries can be given effect as power of appointment
Class beneficiaries
If class is defined, shares may be left to discretion of trustee
No living beneficiaries
- Beneficiaries don’t have to be alive
- Guardian ad litem enforces trust
- No beneficiaries born –> property returned to settlor by resulting trust
Resulting trust - a reversionary interest that arises when all or part of a trust fails. The property goes back to the settlor, the trust creator
Honorary trusts
Common law - violate RAP & are void
UTC & majority - trust valid for life of animals
Trust or court designates enforcer
Leftover money returns to settlor by resulting trust
Pour-over clause
Clause in will that leaves property at settlor’s death to previously created trust
Revocable trusts
settlor retains right to revoke, alter or amend trust
Requirement for pour-over gift
- Trust must be identified in will
- Terms must be set out in written instrument
- Instrument may be executed before, concurrently with, or after will execution
Totten trust
- Revocable during life by any intent to revoke
- majority rule: can be revoked by depositor’s will
- UPC: no revocation by will
Oral inter vivos trusts
- trust of personal property enforceable if terms can be established by clear and convincing evidence
- trust of land must be evidenced by writing that satisfies SOF
