Trusts Flashcards
Required Intent
- Must intend trust to take effect immediately
- Must express intent by words or conduct while settlor owns the property
- Precatory expressions (hope, wish, suggestion) result in inference that no trust was intended, but inference may be overcome by other evidence
Trust Property (Res)
- Property may be of any type, including future interests
- Must be property that settlor has the power to convey
- Must be described with certainty
Beneficiaries
- Must be capable of taking and holding title to property
- Must be definite (ascertainable within the period when all interests must vest under the Rule Against Perpetuities); e.g., “friends” is insufficient
- Notice not required but beneficiary must accept; acceptance is presumed
Trustee
- Failure to name trustee (or failure of trustee to accept or qualify) does not defeat a testamentary trust; court will appoint trustee
- Inter vivos trust will fail without trustee because there can be no valid delivery and
transfer of trust property (see below) - Trustee must have duties
- Settlor may declare himself trustee
Revocable Trusts
- Interest passes during life but becomes possessory at death
- Pour-over from will to revocable trust
a. Trust may be established before, after, or
concurrently with willb. Trust may be amendable and revocablec. Gift is valid even if trust unfunded during
settlor’s lifetime
Pour Over
Pour over from will pours into revocable trust
Irrevocable Trusts
Under the UTC, a settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable.
Resulting and Constructive Trusts
Resulting and Constructive trusts are implied by law or imposed by courts.
Resulting Trusts involve reversionary interests and are based on the presumed intent of the settlor.
Constructive trusts are used to prevent unjust enrichment. They arise either where there is no valid express declaration of trust or, frequently, when no trust was even intended.
Spendthrift Trusts/Provisions
- Spendthrift trust provides that beneficiary may not voluntarily or involuntarily transfer his interest (i.e., cannot sell or give away interest, and creditors cannot reach it)
- Not valid if settlor is also a beneficiary
- Unenforceable against claim brought by government or by child, spouse, or former
spouse with support order
Discretionary Trusts
Trustee has the discretion to pay or withhold income or principal.
- Before trustee makes discretionary payment, interest cannot be reached by creditors
- After trustee elects to make payments, must pay creditors directly if he has notice—unless there is a spendthrift restriction
Support Trust
Support trust cannot be assigned or reached, even without a spendthrift clause
Charitable Trusts
The purpose must benefit the public (ex. poverty relief, education, health)
- Must have indefinite beneficiaries
- May be perpetual—Rule Against Perpetuities (“RAP”) does not apply
a. RAP does not apply to limitations that
shift beneficial interest from one charity
to another (charity-to-charity exception)b. RAP does apply to a limitation shifting
the interest from private use to charitable
or from a charitable use to a private use - Enforceable by settlor, a qualified beneficiary, or attorney general
Cy Pres Doctrine
If the settlor’s intended purpose is impracticable, unlawful, or wasteful, the court may substitute a new charitable purpose.
a. Must find settlor had general charitable intent, not just interested in the named charity
b. Court will select another purpose as near as possible
c. Uniform Trust Code (“UTC”)—settlor’s general charitable intent is presumed
and application of cy pres is mandatory
Totten Trust Bank Accounts
- Trustee-depositor has full rights during lifetime
- Revoked by withdrawals, any other lifetime act indicating intent to revoke, or by
will - Subject to depositor’s creditors’ claims
- Automatically terminates if beneficiary predeceases depositor
Resulting Trusts
Resulting Trusts
1. Purchase money resulting trusts—person taking title did not supply consideration;
sole duty is to convey title to one furnishing consideration
a. No resulting trust presumption if parties
closely related
2. Failure of express trust—resulting trust arises with settlor as beneficiary
- Excess corpus—if trust property remains after purpose fulfilled, resulting trust for
settlor arises
Inter vivos Trusts Formalities
It is create during the settlor’s life (as opposed to a testamentary trust that is created by settlor’s will)
a. Declaration of trust by property owner that he holds in trust, or
b. Transfer of property by the settlor to the trustee
c. No writing required unless trust of land
Gifts Causa Mortis
Gift made in contemplation of death. Differ from inter vivos gifts
Disclaimer (trusts)
In most states, a beneficiary may disclaim an interest by filling a written instrument with the trustee or probate court.
Trust is to be read as though the disclaimer was deceased as of the relevant date
Estoppel: A beneficiary may be estopped from making a disclaimer if they have exercised any dominion or control over the interest
Disclaimer can be used to defeat creditors claims
Duty of Loyalty
Trustee owes a duty of undivided loyalty to the trust and its beneficiaries.
- cannot buy or sell trust assets, even for a fair price
- Cannot sell property of one trust to another trust where they are also the trustee
- Cannot borrow trust funds or loan their own funds to the trust unless to protect it. Interest paid on loan should be returned to trust
- Cannot use trust assets to secure a personal loan
- Cannot invest in its own stocks as a trust investment
- Self employment may be a form of prohibited self dealing outside of extraordinary circumstances
NOTE: Settlor can waive self-dealing restrictions!
Prudent Investor Requirement
Trustee must make prudent investments and must use reasonable care, skill, and caution
Must diversify investments!
Trustee with special skills held to higher standard
Investment decisions can be delegated if a prudent trustee would do so
Class Gifts
Beneficiaries may be designated by generic descriptions such as “children”. Beneficiaries may be unascertainable when the trust is created as long as they are ascertainable when they are to benefit.
Common Law – Reasonably Definite Class Required: if a private trust exists for the benefit of a class, the class must be reasonably definite. As long as the class is reasonably definite, the trust may authorize the trustee to exercise their discretion in selecting members to be benefited, or may provide that only those who meet certain requirements will benefit
UTC – Trustee may select from indefinitely class
