Trusts Flashcards
1
Q
Vocab Rapid Fire - Trustee - Res - Settlor
A
Trustee = the person who holds legal title Res = Property Settlor = trustor/grantor/donor = creator of the trust
2
Q
Is consideration required to create a trust?
A
No - most trusts are created gratuitously
3
Q
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?
A
Fiduciary Duty
Entails:
1) deal with property with reasonable care
2) utmost loyalty
3) personal liability for substandard conduct
4
Q
Does the trustee receive any benefits from holding legal title to the property?
A
No - the trustee might earn a fee but receives no benefit from legal title
5
Q
Can the beneficiary exercise control over the trust assets?
A
No, but the trustee owes a duty to them and the beneficiary can enforce the trust
6
Q
What happens when the trustee’s duties are completed?
A
The trust terminates and the trustee dstributes any remaining property to the remainder beneficiaries
7
Q
Does a trust have to go through probate?
A
No - that’s a big benefit of an inter vivos trust - it passes outside of probate
8
Q
Can a settlor impose conditions on a trust?
A
Yes, as long as the conditions don’t violate the law, public policy, or the rule against perpetuities
9
Q
What are the 4 types of trust?
A
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)
10
Q
What body of law governs express trusts?
A
The Uniform Trust Code (UTC) in almost all states
11
Q
What are the 6 requiements for an express trust?
A
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)
12
Q
What capacity is required to create a testamentary trust?
A
The same capacity as is required to make a will
13
Q
Does the beneficiary need to know that they are the beneficiary of a trust?
A
No - Don’t have to notify the beneficiary because acceptance is presumed
14
Q
Present intent is required to create a trust. What exactly do they have to intend?
A
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
15
Q
Owner transfers property as a regular outright gift. Is it too late to claim the transfer was really a transfer in trust?
A
Yes - can’t change the character of a completed gift
16
Q
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?
A
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
17
Q
What happens if there is a sole trustee and a sole beneficiary which are the same person?
A
The legal and equitable title merge and the trust terminates
18
Q
Can there be a trust without property?
What kind of property counts?
A
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
19
Q
Can a person X hold their own debt in trust?
A
No - but person Y can hold X’s debt in trust
20
Q
Is an ascertainable beneficiary always required to create a trust?
Who can be a beneficiary?
A
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”
21
Q
An ascertainable beneficiary is usually required for a trust. What is an ascertainable beneficiary?
A
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)
22
Q
What happens if there is no ascertainable beneficiaries?
A
The trust fails. The trustee should give legal title back to the settlor.
23
Q
What are the different types of beneficiaries?
A
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
24
Q
Is acceptance of a trust required?
A
Yes, but acceptance is presumed and a trust can be accepted after it is created.
25
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
26
A beneficiary of a trust disclaims their interest. Can their creditors still go after the disclaimed interest?
Average creditors cannot - federal tax lien can
27
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
28
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
29
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
30
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.
31
The RAP applies to trusts - what is the RAP?
An interest must vest if at all within 21 years of a life in being
32
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
33
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)
34
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
35
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
36
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
37
How does a trustee resign?
30 days written notice to either qualified beneficiaries, settlor, co-trustees
OR
court approval
38
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.
39
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
40
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
41
What is a testamentary trust?
A trust created in the settlor's will
42
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.
43
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
44
Can a beneficiary transfer their interest?
Yes, absent statutory restrictions or restrictions in the trust instrument itself
45
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
46
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
47
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
48
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
49
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
50
Is it possible to create a spendthrift trust where the beneficiary can alienate their interest but also prevents creditors from reaching that interest?
No
51
A beneficiary of a spendthrift trust purports to transfer/assign their interest. What is the result?
Assignees cannot force the trustee to pay them directly. The trustee can choose to recognize the assginment but can stop payments and resume paying the original beneficiary at any time. The original beneficiary can also direct the trustee to resume payments to them at any time.
52
Can a settlor use a spendthrift trust to protect their own property from their own creditors?
No if a settlor is also among the beneficiaries of the trust, creditors of the beneficiary can reach trust property
UNLESS the state allows a "domestic asset protective trust" (a trust with a spendthrift provision for your own benefit)
53
When it is unclear who the settlor is, what should you look for?
Should look for who provided the property
54
What is a support trust?
The trustee is directed to pay only so much of the income or principal (or both) as is necessary for the beneficiary's support. A support trust may be mandatory or discretionary.
If the trust is silent, "support" means supporting the bneficiary's accustomed standard of living. Whether the beneficiary's income or other resources should be taken into account is a question of settlor's intent and is determined by the court
55
Can the beneficiary of a support trust assign their interest?
No - even if there is no separate spendthrift provision
56
Can creditors of a trustee reach trust property?
No
57
When does a trust automatically terminate?
Terminates automatically when it either…
- expires according to its terms
- all of the purposes have been accomplished
- all of the purposes have become unlawful, contrary to public policy, or impossible
- when the property has been exhausted
- when the legal & equitable title has merged
- When court orders termination/modifiction because of unanticipated circumstances, continuation would be impracticable/wasteful, or the value is too small to justify the expenses
58
Can a settlor revoke a trust?
Yes
Majority rule is that the trust is revocable unless the terms of the trust state that it is irrevocable
Minority rue is that the trust is irrevocable unless the terms of the trust state that it is revocable
59
Can an irrevocable trust ever be revoked?
Some states allow revocation if all living persons with vested or contingent interests consent
60
Can the beneficiaries of a trust terminate or modify it?
Can terminate or modify with the consent of the settlor and ALL beneficiaries (including unborn and unascertained via rep)
If consent of all beneficiaries (including unborn and unascertained via rep but not the settlor), can modify/terminate if no material purpose of the trust would be frustrated.
Less than 100% beneficiary agreement allowed if court order where modification could be achieved with 100% agreement and the dissenters are adequately protected
Material Purposes that must be respected include for example: support or spendthrift provisions, payments at certain ages/dates, discretionary trusts
61
What happens if ALL of the beneficiaries get together to terminate a trust?
The trustee must distribute the property as agreed by the beneficiaries. Where ALL beneficiaries consent to termination, the trustee is not liable for distributing according to their wishes even if that distribution violates a material purpose of the settlor. If inter vivos, the settlor's objections are not a bar
62
When can a trustee revoke a trust?
When it has become "uneconomic" (worth <$50K and the amt is insufficient to justify the costs of admin) if trustee gives notice to qualified beneficiaries
63
When can a trustee combine or divide trusts?
If doing so does not frustrate the purposes of the trust or impair the rights of any beneficiary. Don't have to get consent of beneficaries, but does have to give notice to the qualified beneficiaries
64
What are the duties of the trustee when the trust terminates?
1) Wind up the affairs of the trust
| 2) Distribute the remaining property to the appropriate reminder beneficiaries
65
What are the powers of a trustee?
Powers conferred upon them by the terms of the trust are controlling and other powers come from state law and by implication to carry out the terms of the trust (sell/lease/repair/incur expenses/hire agents)
66
What are the joint powers of a trustee?
Powers that are shared by co-trustees. If co-trustees are unable to reach a unanimous decision, they may act by majority decision on many states
67
What is a mandatory power of a trustee? Aka?
mandatory power = imperative power
A power that the trustee must exercise according to the terms of the trust. If the trustee does not exercise a mandatory power, a court may order the trustee to do so.
68
What is a discretionary power of a trustee?
A power that the trustee may or may not exercise in their good faith judgment. Subject to judicial review for abuse of discretion
If the trustee is granted absolute discretion, the trustees acts are still reviewable by the court (otherwise there would be no enforcable duties)
69
To whom does the trustee owe fiduciary duties?
To the beneficiaries including remote benefciaries unless otherwise specified
(or for revocable trusts in some states, to the settlor)
70
What is te duty of the trustee?
To personally administer the trust in good faith and in a prudent manner according to its terms. If the trustee has special skills, they will be held to a higher standard
71
What is required by the trustee's duty of loyalty?
No self dealing (even if at a fair price), no dealing between trusts for which they serve as trustee, trustee cannot personally borrow from or lend to the trust, cannot use the trust for personal gain, cannot invest in its own stock unless part of the original res
Trustee's good faith or actual benefit to the trust is irrelevant
72
What are a beneficiaries options if he trustee has engaged in a self-dealing transaction?
The transaction is voitable by the affected beneficiary unless:
1) a court or the terms of the trust approved it
2) beneficiary failed to bring suit within the specified time period
3) beneficiary consented/ratified
4) involves a contract or claim arising before the trustee became trustee
73
What is the trustee's duty to report?
Trustee must provide qualified beneficiaries with contact info of the trustee and respond to reasonable requests for info and furnish an annual accounting
74
What happens if the trustee commingles their own property (fails to earmark) wih trust property?
Any losses are deemed to be the trustees personal losses and any gains are deemed to be the trust's
75
What governs a trustee's investment responsibilities?
The Uniform Prudent Investor Act is the baseline, but the trust instrument can expand or narrow these powers
76
What is the trustee's investment management duty under the UPIA?
Trustee must exercise resonable care, skill, and caution while investing and managing trust assets as judged by the ENTIRE portfolio's risk and return. The duty is increased if the trustee purports to have special skills, but is not lowered for incompetent trustees (need to delegate). No type of investment is inherently imprudent, but there is a duty to diversify unless there is reason the settlor would not have wanted to.
The trustee should consider economic conditions, taxes, purposes of the trust, other resources of beneficiaries, need for liquidity/regularity of income, or personal sentimental value of an asset (family home)
77
If a trust is intervivos and the settlor tells the trustee to make certain investments, does that relieve the trustee of their duty to act as a reasonably prudent investor?
If the state says that the trustee of an intervivos trust owes their duties to the settlor alone, then yes
78
How is the prudence of a trustee's investment decision measured?
At the time the decision was made
79
A new successor trustee has just stepped in to serve as trustee, what are his obligations with regard to investments
Duty to review the trust property and bring the portfolio into compliance. If imprudent investments are discovered, might need to sue the prior trustee for breach of duty
80
Can a trustee make investments that are socially responsible if they return at lower rates than other investments?
No - duty is to the beneficiary above all else (unless trust instrument states otherwise)
81
If a trustee decides to delegate investment management responsibility, what does the trustee's investment duty entail?
Trustee must be reasonably prudent in
1) selecting an agent
2) establishing scope and terms of the delegation
3) periodically reviewing the agent's actions
82
What are remedies for when a trustee breaches their duties?
1) specific performance
2) enjoin the trustee from breaching the duty
3) compel the trustee to pay money or restore property (most common)
4) suspend or remove the trustee
83
If a trustee breaches a duty of the trust, what is the extent of their financial liability?
Greater of
1) Lost profits (amt necessary to restore the trust property and distributions to what they would have been absent the breach)
and
2) trustee's profit from the breach
84
How can aminor/incapacitated beneficiary be represented in an action for breach of trust duty against the trustee?
Can be "virtually represnted" by a beneficiary with identical intersets that has capacity
85
What are the beneficiaries possible remedies in the case of a self-dealing trustee?
1) Affirm the transaction if the trust profited
2) set aside the transaction if the trust lost money
3) trace profits from the trustee if the trustee profited
86
When is a trustee not responsible for a breach of trust duties?
If the trustee…
1) acted in reasonable reliance on the terms of the trust OR
2) beneficiary consented, released trustee from liability or ratified the transaction (as long as beneficiary was not improperly induced)
87
When are clause exculpating trustees for liability for breach of trust duties void?
Exculpatory clauses are void if they…
1) exculpate bad faith or reckless indifference
2) appear in the trust instrument because of breach of confidential relationship with the settlor
88
When is a trustee not liable for the actions of co-trustees?
If the trustee did not join in the action AND
| exercised reasonable care in preventing the breach of trust or compelling the co-trustee to redress the breach
89
A trust is not a legal entity, so it cannot due or be sued
Yes
90
When can a trustee be sued by third parties?
Trustee can be sued in their fiduciary capacity for contracts entered into on behalf of the trust (and can seek reimbursement from the trust)
Can only be sued in a personal capacity if trustee failed to reveal their fiduciary capacity or reference their fiduciary capacity in their signature in a contract or is personally liable in tort (no responeat superior for the acts of the trust's agents/employees)
91
Property was improperly transferred to a third party, what can a beneficiary or successor trustee do?
Can set aside the transaction unless the property is in the hands of a BFP. If not in the hands of a BFP, the third party has to restore the property, its value, or a substitute to the trust
92
Who can bring a lawsuit for breach of trust?
Who is liable?
Trustee must bring it - beneficiaries can't bring it directly but can bring suit in equity against the trustee to compel him to bring it. However, a beneficiary can bring suit directly IF the trustee has:
- participated in the breach
- left the jurisdiction and no successor trustee is appointed
- failed to sue a third person liable in tort or contract
A knowing participant in the breach of trust is liable (even if third party)
93
What is the UPAIA? What does it do?
The Uniforn Princpal and Income Act applies to all trusts and estates unless the instrument provides otherwise.
It gives the trustee or personal representative an "adjustment power" to reallocate the UPIA division of investment portfolio return to carryout trust purposes (especially the duty of fairness)
94
What is the trustee's duty of fairness?
It's a duty to adminster the trust impartially unless the trust creates a preference. The trustee can exercise their "adjustment power" to this end if an income and principal beneficiary are not being treated fairly
95
When is a receipt from an entity considered income or principal?
Is life insurance payment principal/income? Loss insurance?
What is the 10% rule?
Receipts of cash are income unless capital gain or distribution in liquidation for federal tax purposes. Upon sale of property, the entire amt received is principal (even if the property was appreciated) All property other than cash (e.g. stock dividend) is considered principal.
Life insurance is principal and loss insurance is income
If a payment from a deferred comp plan, from a "liquidating asset" (asset with a deteriorating life like a patent), or mineral rights that have no breakdown of principal and income, 10% is deemed income and 90% principal
96
How are expenses charged as between income and principal beneficiaries?
Income beneficiary pays for: 50% regular comp of trustee, investment advisors services, and accounting expenses and 100% of the cost of ordinary expenses, taxes on ordinary income and insurance against loss
Principal beneficiary pays for : 50% regular comp of trustee, investment advisors services, and accounting expenses and 100% of estate taxes and cap gain taxes and payments on principal
97
What are the three key differences in the rules governing charitable trusts vs private trusts?
1) charitable trusts must have indefinite beneficiaries
2) charitable trusts may be indefinite
3) cy pres applies
98
Who decides what is a charitable purpose for a charitable trust?
The court - uses a community based standard but the court is more liberal in considering a religious purpose as charitable
99
How specific does the settlor's charitable intent have to be?
The charitable purpose has to be clear but can be expressed in very general terms
100
Can a settlor of a charitable trust describe the class to be benefitted as narrowly as he wants?
No - the class can be limited but ultimate beneficiaries must be indefinite - cannot be so limited that it only includes those that the beneficiary wishes to aid personally (e.g. family members)
101
What happens when the trustee cannot carry out the charitable trust as written (and there is no contingency expressed)?
The court may select an alternative under the cy pres doctrine - cy pres means as near as possible. The court can consider extrensic evidence
102
When does cy pres apply?
Charitable trusts and charitable gifts
103
Are charitable trusts bound by RAP?
No
104
Who can sue to enforce a charitabe trust?
The settlor, a qualified beneficiary, or the state AG
105
What is an honorary trust or a purpose trust?
A trust that is not for a charitable purpose and has no private beneficiaries. For non-humans, non-charities. Often used for the maintenance of burial places or for the benefit of pets
106
Who can enforce an honorary trust or a purpose trust?
Under common law, the trustee is "on their honor" but under the UTC, a designated person in the instrument or a court designee can enforce.
107
Where does the excess property from an honorary or purpose trust go?
Goes to the settlor or their successors unless the governing instrument provides otherwise
108
Are honorary or purpose trusts subject to RAP?
Yes, and under the UTC, an honorary trust that is not for the care of animals cannot be enforced for >21 years
109
What are the two types of trust that arise by operation of law?
resulting trust and constructive trusts
110
What is a resulting trust? What are the 3 types?
Involves a reversionay interest based on the presumed intent of the settlor. The trustee ends up holding property of the busted trust and transfers it back to the settlor or the settlor's heirs/beneficiaries. There are 3 types
1) purchase money resulting trusts
2) resulting trusts arising on failure of an express trust
3) resulting tursts arising from an incomplete disposition of trust assets
111
What is a constructive trust?
A trust (but really more like an equitable remedy) used to prevent unjust enrichment from wrongful conduct. There is no valid express declaration of trust or no trust was even intended. (e.g. the carrie case where family restrains testator from signing the will)
E.g.
- if a party obtains property by fraud, undue influence
- breach of fiducary duty,
- theft or conversion of property
- homicide and no slayer statute
the holder of the property holds in constructive trust
112
Who is the beneficiary of a resulting trust?
The settlor is the beneficiary of a resulting trust. If the settlor is deceased, the settlor's heirs or will beneficiaries are the beneficiaries
113
What are common circumstances that causes an express trust to fail and a resulting trust to form?
1) when the trust is void or unenforcable
2) when the beneficiary is dead or cannot be located
3) failure of a charitable trust where cy pres does not apply
114
What are some common circumstances where a resulting trust is not implied despite the express trust failing?
A resulting trust will not be implied where:
1) the trust instrument specifically or implicitly provides for disposition of trust property when he trust has failed or has been completed
2) the settlor was given consideration for their original transfer in trust
3) settlor created the trust for an illegal purpose
4) cy pres aplies for a charitable trust
115
What happens when a trust's purpose has been fulfilled and money is left over?
The excess property is a resulting trust for the settlor or their heirs/beneficiaries. E.g, if the trust is to pay all income from the property to X for X's life and does not name a recipient of the principal, the principal is held in resulting trust and soon distributed to the settor's heirs/beneficiaries
116
What is a purchase money resulting trust?
It is presumed when X (beneficiary & settlor) furnishes consideration for property to in Y's name. X must give the consideration at time of or before Y takes title.
There are 3 situations that explains why a person gives consideration and has another take title:
1) settor/beneficiary of a purchase money resulting trust
2) donor-donee (no PMRT)
3) creditor-debtor (no PMRT)
117
Who has the burden of proving a purchase money resulting trust?
the one claiming to be the beneficiary - must prove by clear and convincing evidence that they supplied the consideration. If the party can prove thus, a resulting trust is presumed but the party holding legal title can rebut by showing donative intent or satisfaction of a debt
118
When is a purchase money resulting trust not presumed even though a party proves that they provided the consideration?
1) if the parties are closely related (gift presumed instead of trust but presumption is rebuttable)
2) if the party takes title for an illegal purpose
3) if the holder of legal title obtained it wrongfully (e.g. by fraud) but a constructive trust might result
119
What are the mechanics of a construtive trust?
It is not automatic - must be requested as an equitableremedy in a court action. Must be pled and proved by clear and convincing evidence rather than a preponderance of evidence.
Requires particular property with a nexus to the COA - not just proof of wrongdoing and that D has assets that could be used to satisfy the judgment
120
When does a constructive trust arise in the context of stolen property?
If property is simply stolen, there is no need for a constructive trust beause title remains with the oriignal owner, BUT if the thief trades the stolen property for other property, that property is held in constructive trust for the original owner
121
When does a constructive trust arise in the context of fraudulently obtained property? To what extent is a BFP protected?
The party that fraudulently obtained holds in constructive trust for the defrauded party's benefit. If the property is conveyed to a non-BFP, that third party also holds the property for the defrauded party's benefit even if the non BFP is innocent.
122
What might be an outcome if beneficiares kill the testator in a state with no slayer statute?
The court will impose a constructive trust on any property inherited by the killer. Same applies with joint tenancies
123
Does a breach of promise create a constructive trust?
Generally no, but a broken promise might be grounds for a constructive trust if [almost fraud conditions] if promise is breached by someone who never intended to keep it and promissor/promisee are in a confidential relationship (atty-client, dr-patient, business partners, family, friends)
And if damages are inadequate a constructive trust might arise when...
- decedent breaches promise to devise property to someone rendering services in reliance on the promise
- buyer at a foreclosure sale breaches a promise to the debtor to hold property for them (inducing them not to bid)
124
What are the duties of a trustee in a constructive or resulting trust?
The trustee has 2 duties - to convey legal title to the beneficiary and account for profits taken from the property or fair rental value (no duty to invest)
125
Constructive and resulting trusts are equitable remedies - what does that mean for those seeking them?
Equitable defenses like unclear hands apply to those seeking a constructive or resulting trust (since they are equitable remedies)
"those seeking equity must do equity" which includes doing things ike reimbursing the trustee for payments of taxes/repairs that they made while in possession
But there is no requirement tht legal remedies be inadequate to pursue an equitable remedy
