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Trusts Flashcards

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1
Q

What is a trust?

A

A management device. A bifurcated transfer (legal (control prop) ownership and equitable (receive benefit) ownership).

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2
Q

Trustee owns and does what?

A

Holds legal title. Manages prop for benefit of beneficiary. Can sell, gift, reinvest.

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3
Q

What is the principle?

A

The original trust prop and any increase in value.

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4
Q

What is the income?

A

The money invested by the trust.

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5
Q

Until when can a revocable trust be revoked?

A

Any time during settlor’s life.

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6
Q

Who is the settlor?

A

Person who creates the trust.

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7
Q

Is a trust presumed to be revocable or not?

A

Traditional approach: Presumed to be irrevocable unless stated otherwise.

UTC approach (majority): Presumed to be revocable unless trust instrument expressly states otherwise.

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8
Q

Mandatory trust:

A

Trustee mandated to make distributions from the trust.

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9
Q

Discretionary trust:

A

Trustee has discretion as to when to make distributions. Might still have to follow diff standards. Or may have full discretion.

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10
Q

Remedial trust/passive trust:

A

Equitable remedy. Legal remedy created by operation of law. Trustee’s only obligation is to pass title back to settlor. Not driven by intent.

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11
Q

RAP applies to trusts or not?

A

Yes

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12
Q

Wait-and-see approach:

A

Standard approach in US in which we wait to see if interests are validated or fail within perpetuities period.

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13
Q

Who can be a trustee?

A

Anyone, a bank, orgs, etc.

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14
Q

Will a trust fail for lack of trustee?

A

No

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15
Q

Who is the beneficiary?

A

Receives benefit of the trust. Holds equitable title.

  1. They enjoy the benefit of the trust.
  2. They have power to enforce the trust against ruin?
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16
Q

Can you serve as the trustee and beneficiary?

A

Not if you are the sole beneficiary.

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17
Q

Can pets act as beneficiaries?

A

Not in most jx

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18
Q

What is an express trust?

A

Owner expressly indicates intent to create a trust, private or charitable.

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19
Q

Elements of a private express trust:

A
  1. Intent: Look to trust words (not precatory or ambiguous language)
  2. Res: Prop (otherwise an empty trust)
  3. Valid purpose: as long as not illegal or contrary to public policy
  4. Beneficiaries: ascertained (specific person or criteria to determine who they will be)
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20
Q

Are oral trusts valid?

A

Yes, unless SOF applies (like real estate) or if it’s a devise (a will; trust must be in existence at time will created or created simultaneous).

Minority rule: No oral trusts.

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21
Q

What is precatory language?

A

Expresses donor’s hope or wish that donee use the prop in a certain way. Will not create a trust.

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22
Q

Trust vs. gift?

A

Intent is key–who has beneficial interest? Bifurcation is key.

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23
Q

Exceptions to res requirement for private express trust elements:

A

Pour-over trust: trust terms must be in writing at time will executed. Prop need not be in trust at time of will. Person dies gets poured into will. ???

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24
Q

Trusts vs. debts?

A

Debt is obligation to pay sum of money; source does not matter. Trust necessarily involves a segregated source of funds.

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25
Q

Exceptions to ascertained beneficiaries rule for private express trust elements:

A
  1. Unborn children
  2. Class gifts - but must be definite, have criteria
  3. Charitable trusts
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26
Q

Charitable trust (public express trust) elements:

A

Must have charitable purpose (modern trend to validate these).

RAP does not apply.

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27
Q

Does RAP apply to charitable trusts?

A

No

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28
Q

What is Cypres?

A

Court can modify trust if its charitable purpose is no longer possible. Have to find general charitable purpose. Goal is to make new purpose as close to old purpose as possible. Presume a general charitable purpose unless clear we don’t have one. If none, prop will go to resulting trust (remedial(?) trust), basically send it back to settlor.

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29
Q

Who has standing to enforce charitable trust?

A

AG, and under UTC settlor as well.

30
Q

How to create express trust:

A
  1. Inter vivos: Created during settlor’s life.
    a) declaration of trust: settlor declares himself trustee for other beneficiary.
    b) in deed of trust(?): conveys prop to a trustee
  2. testamentary transfer: created by will
31
Q

2 types of remedial trusts:

A
  1. Resulting trust

2. Constructive trust

32
Q

What is a resulting trust?

A

When trust fails. Trustee must return prop to settlor or their estate.

33
Q

What is a purchase money resulting trust?

A

Person A buys prop but title taken by person B, and if they aren’t close, court will create this. To avoid a resulting trust, you create a gift-over clause.

34
Q

What is a constructive trust?

A

Remedy for when 3rd party takes advantage (undue influence, fraud, duress, breach of duty, detrimental reliance by third party, slayer cases) of settlor in creating a will. Wrongful conduct = key characteristic. Looking for causation.

35
Q

Is a beneficiary’s equitable interest in trust prop alienable?

A

Yes, freely alienable, unless trust instrument limits that right.

36
Q

When can creditors reach a beneficiary’s interest?

A

As the money comes in to the beneficiary. Cannot reach it until payable to beneficiary or beneficiary can demand it.

37
Q

Support trust:

A

A type of asset protection trust. Beneficiary can’t demand payment. Creditors can reach when trustee makes support payment.

38
Q

Discretionary trusts are also asset protection trusts bc…

A

creditors cannot reach the prop until payment is made, bc beneficiary cannot demand payment.

39
Q

Spendthrift trust:

A

Expressly limits beneficiary’s ability to alienate the trust. Whole point is to hold trust to accumulate value for benefit of someone else but don’t give it to them because they are unreliable.

Exceptions: Spousal or child support; basic necessities to beneficiary; holders of fed or state tax liens.

40
Q

Ways to terminate a trust:

A
  1. Expiration
  2. Material purpose: trust has been satisfied
  3. Unfulfilled material purpose (Clayfin doctrine?)
41
Q

How does unfulfilled material purpose/Clayfin doctrine work?

A

Conflict btw trustee and beneficiary, beneficiary wants to end the trust early. Trustee can lock trust if there is still a material service to serve by the trust.

42
Q

Settler’s power to terminate:

A
  1. Can do so unilaterally if it reserve that power expressly.
  2. Otherwise can terminate if all beneficiaries accept.
43
Q

To modify if settlor is alive:

A
  1. Settlor can unilaterally modify if reserved that power expressly.
  2. If not, can do so if other beneficiaries accept.

Cannot go against trust’s purpose though.

44
Q

To modify if settlor dead:

A
  1. If all beneficiaries agree consistent with material purpose of trust; or
  2. unforeseen event has frustrated its purpose (equitable deviation)

Must still be consistent with material purpose of trust.

45
Q

Can trustee terminate or mod trust unilaterally?

A

No

46
Q

How can you remove a trustee?

A

Likely to be granted if they became incapable of doing duties, or breach of duties, or COI, a serious conflict between trustee and beneficiary, they perform poorly.

Trustee can resign with written notice if settlor’s alive(?) and to co-trustees and beneficiaries.

47
Q

Rules for principal income allocation:

A

Old rule: Life stakeholder got income; holder of remainder interest entitled to trust principal.

Modern approach (UPAIA): Trustee should focus on total return; he can recategorize/reallocate to increase money, but factors to consider:

  1. Intent of settlor
  2. Nature, duration, and purpose of trust
  3. IDs and circs of beneficiaries
  4. Anticipated effect of economic conditions
  5. Anticipate tax consequences
48
Q

What can trustee do/their powers?

A

Look to trust docs for this. If silent, go to statutory law/common law.

Modern trend: Give them powers necessary to act as reasonably prudent purpose.

49
Q

Trustee’s duties:

A
  1. Duty of loyalty: objective standard; did trustee act reasonably.
  2. Duty of care: subjective; did they act in good faith

So trustee must act in best interest of all beneficiaries.

50
Q

Which beneficiaries have standing to enforce against trustee?

A

Any of them

51
Q

No further inquiry rule

A

good faith doesn’t matter, per se breach wrt duty of loyalty. Doesn’t matter whether trust harmed or not. Even if trust docs allow self-dealing, must be reasonable and FMV.

52
Q

What does trustee duty of loyalty include?

A

No self-dealing. No further inquiry rule: good faith doesn’t matter, per se breach. Doesn’t matter whether trust harmed or not. Even if trust docs allow self-dealing, must be reasonable and FMV.

No COI, assessed using reasonableness and good faith.

53
Q

What is trustee duty of care standard?

A

care that a person of ordinary prudence would practice in care of his own estate. If have special skills must use those.

54
Q

Can a trustee delegate?

A

Before now, but modern delegation is to allow it. But still have to choose reasonable person and oversee delegee and still held accountable.

55
Q

Investments trustees rules

A

Old rule: Limited to specific list of acceptable investments. Outside of that in breach.

Modern rule: Prudent investor rule: has discretion to invest and manage prop as would a prudent investor; should diversify assets; portfolio approach.

56
Q

Duty of impartiality

A

Trustee has duty to balance competing interests of present equitable holders and future ones.

Old rule: life B got income, remainder got prinicpal

Modern rule: allocation must be balanced to treat them fairly, based on total return; trustee can reallocate if reasonable and satisfies trust purpose.

57
Q

Admin duties of trustee:

A

Duty to inform, account.

58
Q

Possessory state has right to…

A

present possession

59
Q

Future interest holder has right to…

A

future possession

60
Q

Fee simple/fee simple absolute interest

A

Largest estates; can last forever; inheritable

No future interest involved.

61
Q

Defeasible fee and types:

A

Fee simple that can be cut short.

  1. Determinable: For durational period (“so long as”; “while”; “during which time”). Grantor has possibility of reverter.
  2. Subject to condition subsequent: Terminated upon happening of event/condition. Could last forever but condition can cut it short. Grantor has right of entry (not automatic). (But if; on the condition that)
62
Q

Life estate:

A

Present possessory estate that lasts life of life tenant. Equitable interest in trust. Grantor has a reversion.

63
Q

What is a remainder?

A

Future interest capable of becoming possessory at natural termination of prior estate. Held by transferee.

64
Q

What is a vested remainer?

A

Where remainder holder is ascertained and no condition precedent. Goes to transferee’s estate if he dies beforehand (because vested).

65
Q

Vested as a class gift/vested subject to open:

A

Where class of people, and at least one vested (otherwise contingent).

66
Q

When does class close?

A

When feeder dies??

67
Q

Contingent remainder:

A

Taker is unascertained, or its subject to condition precedent.

68
Q

Executory interests:

A

Held by grantee that will divest a prior interest. Will cut it short.

  1. Springing: Divests the grantor (so grantor has fee simple subject to executory interest)
  2. Shifting: Divests a grantee (so grantee has fee simple subject to executory interest)
69
Q

Class gifts

A

Gift to group of individuals with automatic right of survivorship. On death of class member, that member shares automatically redivided among surviving class members. But 3rd restatement says on death of class member, that member shares go to member’s surviving issue.

CL: Survival of child not essential. Grandchild’s estate takes interest??

UPC: Contingent on beneficiary surviving until distribution. Gift fails. ???

70
Q

What to ask yourself for any estate/future interest problem:

A
  1. Who is in possession now?
  2. Who has future interest?
  3. When will future interest become possessory/vest?

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