Trusts Flashcards
Vocab Rapid Fire - Trustee - Res - Settlor
Trustee = the person who holds legal title Res = Property Settlor = trustor/grantor/donor = creator of the trust
Is consideration required to create a trust?
No - most trusts are created gratuitously
Trustee has a _____ duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of the designated beneficiaries who hold equitable title.
What does this duy entail?
Fiduciary Duty
Entails:
1) deal with property with reasonable care
2) utmost loyalty
3) personal liability for substandard conduct
Does the trustee receive any benefits from holding legal title to the property?
No - the trustee might earn a fee but receives no benefit from legal title
Can the beneficiary exercise control over the trust assets?
No, but the trustee owes a duty to them and the beneficiary can enforce the trust
What happens when the trustee’s duties are completed?
The trust terminates and the trustee dstributes any remaining property to the remainder beneficiaries
Does a trust have to go through probate?
No - that’s a big benefit of an inter vivos trust - it passes outside of probate
Can a settlor impose conditions on a trust?
Yes, as long as the conditions don’t violate the law, public policy, or the rule against perpetuities
What are the 4 types of trust?
Express trust are created by the express intention of the settlor which can be either:
1) Express trust with private beneficiary
2) Express trust with charitable beneficiary
Trusts can also be created by operation of law…
3) Resulting Trust (arise from presumed intention of the owner of property)
4) Constructive Trust (equitable remedy to prevent unjust enrichment)
What body of law governs express trusts?
The Uniform Trust Code (UTC) in almost all states
What are the 6 requiements for an express trust?
Can I Take Back DPD
1) settlor with Capacity to convey
2) present Intent to create a trust relationship
3) competent Trustee with duties
4) definite Beneficiary
5) present Disposition of trust property owned by the settlor
6) valid Purpose
7) the same person cannot be a sole trustee and sole beneficiary (Difference)
What capacity is required to create a testamentary trust?
The same capacity as is required to make a will
Does the beneficiary need to know that they are the beneficiary of a trust?
No - Don’t have to notify the beneficiary because acceptance is presumed
Present intent is required to create a trust. What exactly do they have to intend?
Need to manifest intent to split legal and equitable title between a trustee and a beneficiary - this can be written or oral and settlor doesn’t have to use the word trust.
Need to intend to charge a trustee with legal duties
Owner transfers property as a regular outright gift. Is it too late to claim the transfer was really a transfer in trust?
Yes - can’t change the character of a completed gift
What is the effect of expressions of hope, wish, suggestion as to how property should be used?
What kind of evidence indicates intent to create a trust rather than just make suggestions?
No effect becaue these are only precatory. A trust is not created because only moral obligations (not legal ones) are created.
BUT the following overcome the inference that no trust is created:
- Definite precise directions
- Directions are addressed to a fiduciary
- an unnatural disposition of property would result absent the trust (e.g. a close relative would take nothing)
- Extrinsic evidence showing the settlor previously supported the beneficiary
What happens if there is a sole trustee and a sole beneficiary which are the same person?
The legal and equitable title merge and the trust terminates
Can there be a trust without property?
What kind of property counts?
No - no property, no trust. A trust is a method of conveying property
Any kind of property counts but the settlor actually has to own it and be able to transfer/assign it. Can’t be a mere expectancy of future ownership (but future interests count because they are presently owned - just become possessory in the future)
Insurance policies/contract interests count, vested or contingent interests count, real or personal property counts
Can a person X hold their own debt in trust?
No - but person Y can hold X’s debt in trust
Is an ascertainable beneficiary always required to create a trust?
Who can be a beneficiary?
Yes an ascertainable beneficiary is required unless charitable or honorary
Any person/entity capable of owning property can be a beneficiary of a trust - do not have to be “competent”
An ascertainable beneficiary is usually required for a trust. What is an ascertainable beneficiary?
Must a beneficiary must be ascertainable by the time their interests are to come into enjoyment
So generic descriptions ("children of X") are OK as long as they are ascertainable when they are to benefit. Can also authorize the trustee to use their discretion to determine which members of a class should receive (at common law a "reasonably ascertainable" class is required but UTC allows unlimited discretion)What happens if there is no ascertainable beneficiaries?
The trust fails. The trustee should give legal title back to the settlor.
What are the different types of beneficiaries?
Qualified Beneficiary = current beneficiary or first-line remainderman (one contingency away from benefitting). Usually have additional enforcement rights
Incidential/Indirect Beneficiary = unintended beneficiary like an attorney designated by the trust instrument
Is acceptance of a trust required?
Yes, but acceptance is presumed and a trust can be accepted after it is created.
If a beneficiary does not want to accept a trust, what should they do? What is the effect of disclaimer?
What might stop a beneficiary from disclaiming?
They should “disclaim” by giving written notice either to the trustee or to the probate court. Disclaimer causes the trust to consider that person as dead.
- Many states impose a 9 month deadline after the creation of the interest. Clock may not start until beneficiary hits 21.
- If the beneficiary exercises any control over the interest or accepted any benefits, they might be estopped from disclaiming
A beneficiary of a trust disclaims their interest. Can their creditors still go after the disclaimed interest?
Average creditors cannot - federal tax lien can
What is an anti-lapse statute and when do they apply?
Applies only to wills when a beneficiary of a certain degree of relationship predeceases the testator. Causes the interest to go to the predeceasing beneficiary’s heirs instead of lapsing
What is the effect of divorce on a trust?
A final decree of divorce/annulment revokes all beneficial gifts and fiduciary appointments in favor of a former spouse
Several states go futher and say that any benefit to family of the former spouse that are not also relatives of the settlor are revoked
What are valid purposes for a trust?
Any purpose that is not illegal, contrary to public policy, impossible to achieve, or intended to defraud creditors
What happens if the trust has a purpose that is against public policy/illegal?
What if a condition precedent is against public policy/illegal?
What if a condition subsequent is against public policy/illegal?
If the purpose is against public policy, the settlor’s alternative desire controls if expressed
If the illegal condition is a condition subsequent, the condition is invalidated but trust remains valid
If a condition precedent is against public policy, the condition is removed unless it is evident that the settlor woud have preferred the interest to be voided altogether.
The RAP applies to trusts - what is the RAP?
An interest must vest if at all within 21 years of a life in being
What happens if there is no trustee at the initialization of the trust?
What happens if the trustee dies, refuses to accept the appt or resigns?
The trust fails if intervivos (but court will appoint a trustee if testamentary)
Court appoints a successor trustee
How does a person accept their appointment as trustee?
When is the acceptance effective as of?
1) by signing the trusts or a separate written acceptance
2) substantially complying with the acceptance terms in the trust instrument
3) accepting delivery of trust property and exercising power over itor performing trustee duties. But if notice of rejection given to settlor or beneficiary, then no acceptance
If not accepted within a reasonable time, it is rejected.
Once accepted, the aceptance relates back to the date of death (so might immediately step into tort liability that pre-existed acceptance)
Does a trustee have to be charged with duties?
Yes, a settlor must intend to impose duties on the trustee. If there are no express duties (and it is still clear the settlor intended to create a trust), then the court may imply duties
How is a trustee compensated?
In the manner specified in the trust or with a reasonable amount determined by the court. Also is entitled to reimbursement of expenses
Who can remove a trustee? What are grounds for removal?
A court can remove a trustee on motion by the settlor, a beneficiary, a co-trustee, or on its own motion.
Grounds for removal include:
Serious breach of trust, serious lack of coopertion among co-trustees, unfitness/unwillingness/failure to properly administer, substantial change in circumstances
How does a trustee resign?
30 days written notice to either qualified beneficiaries, settlor, co-trustees
OR
court approval
What are the two ways to create an intervivos trust?
1) transfer of property by settlor to trustee (settlor transfers legal title)
2) declaration that the settlor is holding property as trustee for some beneficiary (settlor retains legal title). Personal property only has to be segregated. Real property should be conveyed from settlor as owner to settlor as trustee.
Is a writing required for a trusts?
Yes for trusts containing real property (SoF) but No for trusts not containing real property. Partial performance (like trustee acting like trustee) might remove a real property trust from SoF
What is a “pour over gift”? What happens if the trust is revoked?
A will can leave money to a trust as it exists at the time of death or to an unfunded trust (Trust can be executed after the will as long as the trust was executed prior to the testator’s death.)
If the trust is revoked, the gift lapses
What is a testamentary trust?
A trust created in the settlor’s will
What is a “secret trust”? What results? Is extrensic evidence allowed?
Testamentary gift that is silent about the trust nature of the transfer, but the will beneficiary has agreed that they will hold the property in trust for someone else. If the intended trust beneficiary can prove the will beneficiary’s promise to hold the property in trust by clear and convincing evidence, a “constructive trust” can be imposed. Extrensic Evidence allowed
Constructive trust will be imposed even if the will beneficiary did not make the promise until after the will was executed.
What is a “semi-secret trust”? What results? Is extrensic evidence allowed?
Will makes a gift in trust but fails to name a beneficiary. No trust is created and the trustee holds the property in an implied “resulting trust” for the testator’s successors in interest.
Extrensic evidence not allowed
Can a beneficiary transfer their interest?
Yes, absent statutory restrictions or restrictions in the trust instrument itself
Can a beneficiary’s creditors reach the beneficiary’s interest?
Yes, unless a statute or the trust instrument itself prohibits this. Interest is subject to judicial sale, but to avoid this, the court may order the trustee to pay the beneficiay’s payments to the creditors until the debt is satisfied
What is a discretionary trust?
A trust where the trustee is given discretion whether to apply or withhold payments of income or principal (or both) to the beneficiary
What are creditor’s rights in a discretionary trust?
Creditors can attach the beneficiary’s interest but cannot compel the trustee to make any payments. If the trustee does decide to make a payment once the interest has been attached, the trustee must make the payment directly to the creditors
The exception is for child support/alimony/government creditors - they can force the trustee to make a distribution
Can creditors of a beneficiary of a discretionary or spendthrift trust reach mandatory distributions of a trust (even if they have not been paid by the trustee)?
Yes - a creditor can reach a mandatory distribution of income or principal if the trustee did not make it within a reasonable time
What are spendthrift trusts?
Spendthrift trusts are trust where the beneiciary I prevented from voluntarily or involuntarily transferring their interest and creditors are prevented from reaching it.
Most courts recogize spendthrift trusts as valid restraints on alienation
Is it possible to create a spendthrift trust where the beneficiary can alienate their interest but also prevents creditors from reaching that interest?
No
