Trusts Flashcards
Basic definition of a trust
Fiduciary relationship in which a trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer trust assets and income for the benefit of designated beneficiaries who hold equitable title.
Elements of a valid trust
Intent Identifiable corpus Ascertainable beneficiaries Proper purpose Mechanics and formalities
Express trust elements
settlor with capacity to convey
present intent to create a trust relationship (no specific words required)
competent trustee with duties
definite beneficiary
same person is not the sole trustee and sole beneficiary
present disposition in trust of specific property then owned by settlor
trust has a valid purpose
trustee
trust will not fail because trustee dies, refuses to accept appointment, or resigns. court will appoint a successor trustee. Trustee entitled to reasonable compensation or to whatever compensation is specified in the trust instrument.
removal of trustee
(1) serious breach of trust
(2) serious lack of cooperation among co-trustees
(3) unfitness, unwillingness, or persistent failure to administer
(4) substantial change in circumstances
Trustee can resign by either
(1) giving 30 days notice to qualified beneficiary, settlor if living, and co-trustees
(2) obtaining court approval
Inter vivos trust
created while settlor is alive either by settlor declaring themselves trustee for another or by transfer of property to another as trustee.
If conveying property to a trust, the property must be properly conveyed.
Pour over gift from will to trust
settlor can make gifts by will to a trust, even an amendable and revocable trust.
Trust may remain unfunded during the settlor’s lifetime. The pour-over property can be the initial trust funding if
(1) trust identified in the will and
(2) trust executed before testator’s death
Testamentary trusts
Created in settlor’s valid will.
Trust intent and essential terms of the trust must be ascertained from the will itself, from a writing incorporated by reference into the will, or from the exercise of a power of appointment created by the will.
Secret trust
settlor agrees with a will beneficiary that the beneficiary will hold the property in trust for someone else and relies on beneficiary’s promise. Will does not state trust nature of the gift. Intended trust beneficiary may present extrinsic evidence of the will beneficiary’s promise to hold the property in trust. If promise can be proven by clear and convincing evidence, constructive trust will be imposed on property.
Semi-secret trust
Will makes a gift in trust but fails to name the beneficiary. Gift fails and named trustee holds property in a resulting trust for testator’s successors in interest.
Transfer of beneficiary’s interest
absent restrictions by statute or by the trust instrument, a beneficiary may freely transfer their interest in the trust. The assigned interest remains subject to all pervious conditions and limitations.
Unless statute or the trust provides otherwise, beneficiary’s creditors may reach beneficiary’s interest in the trust
Discretionary trust
Trustee is given discretion whether to apply or withhold payments of income or principal to a beneficiary.
Before trustee exercises their discretion to make payments, the beneficiary’s interest is not assignable and cannot be reached by their creditors.
Creditors can attach to the beneficiary’s interest but may not compel the trustee to make a distribution. If trustee has notice of an attachment, they must make payment directly to creditors.
Exception is that the court can force trustee to satisfy a judgment or order against beneficiary for support or maintenance of child, spouse, or former spouse of beneficiary.
Spendthrift trust
Precludes beneficiary from voluntarily or involuntarily transferring their interest in the trust and the beneficiary’s creditors are precluded from reaching it to satisfy their own claims.
In most states, a settlor cannot use a spendthrift trust to protect their own property from their own creditors. But a growing number of states allow self-settled spendthrift trusts.
Spendthrift clause cannot be used to shield beneficiary from judgments for support or maintenance of child, spouse, or former spouse or claims by the government.
Support trust
directs trustee to pay only so much of the income or principal as is necessary for the beneficiary’s support. Can be mandatory or discretionary.
These trusts are impliedly spendthrift because the beneficiary cannot assign their interest.
If the instrument is silent, standard of support is the beneficiary’s accustomed standard of living. Whether or not to take beneficiary’s other income and resources into account is a question of settlor intent and is decided by courts on a case-by-case basis.
termination of trust
Expiration of term specified in instrument or when all of the purposes of the trust have been accomplished or have become unlawful, contrary to public policy, or impossible to achieve.
Settlor can revoke or amend a trust unless terms expressly state it is irrevocable. In some states settlor can revoke irrevocable trust on written consent of all living persons with vested or contingent interests.
