Trusts Flashcards
Trusts: General Defintion
A trust is a fiduciary relationship in which one person, trustee, holds legal title to specific property owned by the settlor under a fiduciary duty for the benefit of one or more designated beneficiaries.
Trust: Private Express Trust
Intent (intend the document to serve as a trust, mere precatory words are insufficient)
Res (trust must be funded by property that the settlor has existing interest in the property, future interest okay)
Beneficiary (must be ascertainable and definite at the time their interest come to enjoyment)
Legal Purpose (not illegal, criminal, or violative of RAP)
Trustee (must have duties, but will not fail for lack thereof)
Trust: Intervivos Trust
An instrument that takes effect during the settlor’s life
Trust: Declaration of Trust
Settlor herself is the trustee.
Trust: Conveyance in Trust
Settlor and trustee are different.
Trust: Testamentary Trust
An instrument that takes effect upon the settlor’s death as established in settlor’s will.
Trust: Secret Trust
Exists when settlor agrees with beneficiary of a will that the beneficiary will hold property in trust for another. A constructive trust on behalf of the intended beneficiary will be constructed.
Trust: Semi-Secret Trust
If someone gives a gift to a person “in trust” but does not name an intended beneficiary there is no trust, instead a resulting trust results.
Trust: Beneficiary’s Right to Transfer Interest Generally
Absent a statute or trust provision, a beneficiary may freely transfer interest in trust and creditors may reach beneficiary’s interest.
Trust: Discretionary Trust
A discretionary trust is one where the trustee is given discretion whether or not to distribute income or principal.
The beneficiary has no right to payment and may not compel distribution.
The beneficiary’s interests are not assignable and cannot be reached by creditors, however creditors may attach the beneficiary’s interest but cannot compel distribution. A trustee with notice must pay the creditors first.
Trust: Spendthrift Trust
A spendthrift provision precludes the beneficiary from voluntarily or involuntarily transferring interest AND precludes creditors from reaching a beneficiary’s interest.
*Invalid if settlor is the beneficiary.
Trust: Spendthrift Trust Creditor Exceptions
Notwithstanding a spendthrift clause, creditors for claims of dependents, government, and persons supplying necessaries will be able to reach the beneficiary’s interest.
Few states allow tort creditors too.
Trust: Support Trust
A support trust provides only so much of the income or principal as necessary to provide for health, education, maintenance, and support.
- Not assignable.
Trust: Modification/Revocation of Trust By Settlor
A settlor may revoke or amend a revocable trust as long as it is not prohibited by the trust, some states require that the settlor reserve the power to revoke.
Settlor may revoke an irrevocable trust only with consent of all vested/contingent beneficiaries.
Trust: Modification/Termination by Beneficiary
Beneficiaries may modify or terminate a trust if
- all beneficiaries agree;
- all beneficiaries are legal competent; AND
- settlor consents OR - modification does not impair settlor's material purpose for the trust
Trust: Equitable Deviation
A court may deviate from the administrative terms of a trust if there is a change of circumstances unanticipated by the settlor and the deviation is necessary to achieve the settlor’s purpose.
UTC allows modification of administrative and dispositive terms.
Trust: Charitable Trust
- Intent
- Trust Property
- For the benefit of the public generally or indefinite class of members of the public
- Charitable Purpose (relief of poverty, advancement of education, science, art, or religion, promotion of health, accomplishment of government)
- Trustee
State attorney general enforces the trust.
Trust: Cy Pres Doctrine
If the charitable trust cannot be carried out as written and the court finds that the settlor intended general charitable intent modify the trust’s method of achieving that intent. If specific charitable intent is found, the trust fails.
Trust: Trustee’s Power
A trustee may exercise express power and implied power (those necessary to carry out terms)
Powers may be imperative (mandatory) or discretionary (trustee determines based on judgment).
Trust: Trustee Primary Duties
- Duty of Administer
- Duty of Loyalty
- Duty to Perform
- Duty to Account
- Duty of Care
- Duty to Earmark
- Duty to Segregate
- Duty of Impartiality
- Duty to Invest
Trust: Duty to Administer
A trustee owes a duty to administer the trust according to the terms of the trust.
Trust: Duty of Loyalty
A trustee owes the beneficiaries of a trust a duty of undivided loyalty and must not enter into any transaction in which the trustee is directly or indirectly dealing with the trust in their individual capacity.
may set aside, recover profits, affirm transaction.
Trust: Duty to Perform Personally
A trustee is prohibited from delegating duties unless duty is unreasonable to perform alone.
Trust: Duty to Account
Trustee must keep accurate records and render accounting upon demand.
