Trusts Flashcards
A trust of personal property is valid if it
has:
- a trustee,
- ascertainable and definite beneficiary, and
- identifiable trust property.
- Intent
- purpose
Presumption of Revocability
an inter vivos trust is revocable unless the instrument expressly states otherwise. An irrevocable trust can still be terminated or modified in some circumstances
Termination by settlor
a settlor may terminate the trust if all beneficiaries are in existence and all agree to the termination.
Termination by beneficiaries after settlor dies
Generally, even an irrevocable trust can be terminated
if:
1. both the income beneficiaries and the remaindermen unanimously consent and
2. if there is no material purpose of the trust yet to be performed.
Pourover will
a will that makes a gift to a trust is valid so long as:
- trust is identified in the will and
- the terms are incorporated in a writing executed before or concurrently with the execution of the will.
.
Pourer Will - Under the modern approach, later made amendments to the trust are:
valid.
Pourer Will - under common law, amendments made after execution of the will are
not valid
Discretionary Trust
The trustee has discretion to decide when to make a distribution to a beneficiary.
- The beneficiary cannot demand any part of the income or principle.
- Nor can a creditor, unless it shows the trustee acted dishonestly or in a state of mind “not contemplated” by the settlor. (There is an exception under the UTC for child support or alimony.)
Support Trust
trustee must pay what is necessary for the beneficiary’s support.
Spendthrift Trust
restrains “both the voluntary and involuntary transfer of a beneficiary’s interest.”
Right of Creditor under a spendthrift trust
generally, a creditor may not reach (i.e., by garnishment or attachment)
part of a beneficiary’s distribution prior to the beneficiary reaching it.
There are some favored creditors that are exceptions to this rule:
(1) a child or spousal support creditor (for maintenance and support),
(2) a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust (e.g., a lawyer),
(3) a claim of the state or United States (usually for taxes), and
(4) creditors with claims for necessaries in some states (this fourth category is not recognized in states that follow the UTC).
Charitable Trust
a trust may be created for a charitable purpose (including for the relief of poverty, the advancement of education, the advancement of religion, the promotion of health, governmental or municipal purposes, or other purposes that are beneficial to the community).
-It must have a large number of not readily identifiable individuals (rather than a few identifiable individuals).
Is a charitable trust subject to the common law against perpetuities
No
Cypres
a charitable trust may terminate if the charitable purpose becomes unlawful, impracticable, or impossible. However, cy pres may save the trust.
if a particular charitable purpose has become unlawful, impracticable, or impossible to achieve; no
alternative charity is named in the trust; and the court finds that the settlor had general,
rather than specific, charitable intent, then the court may apply cy pres to modify or
terminate the trust by directing that the trust property be distributed in a manner
consistent with the settlor’s general charitable intent.
The court may apply cy pres to modify or terminate the trust by directing that the trust property be distributed in a manner consistent with the settlor’s general charitable intent when:
- if a particular charitable purpose has become unlawful, impracticable, or impossible to achieve and no alternative charity is named:
- the court finds that the settlor had general, rather than specific, charitable intent.
Honorary trust
This is a trust that does not have a charitable purpose or a definite beneficiary. It is often a trust to take care of a thing (e.g. cemetery plot) for a noncharitable purpose.
Under the UTC, this is valid but may not be enforced for more than 21 years. Under common law, such a trust would not be valid if it violates the rule against perpetuities, but a court may characterize the trust as a “power” and allow the trustee to exercise that power in accordance with the trust terms for 21 years.
Duty of loyalty
a trustee has a duty of loyalty to act in the best interest of the beneficiaries.
Duty of Care
Prudent Administration
Prudent Investor Act
a trustee must administer the estate as prudent person would using care, skill and caution.
How should a a trustee’s investment and management decisions with respect to individual assets be evaluated?
a trustee’s investment and management decisions with respect to individual assets should be evaluated in the context of the portfolio as a whole and as a part of an overall investment strategy rather than in isolation.
Duty to Diversify
This is one of the hallmarks of prudent investing. The trustee is not liable for declines in value due to a downturn resulting from general economic conditions—but is liable for failure to diversify absent directions to the contrary.
Remedies for Breach of Trust
- Suspending or removing a trustee,
- decreasing
- compensation,
- compelling a trustee to perform trust duties,
- compelling payment of damages, etc. (There are several other remedies, including asking the court to “order any other appropriate relief.”) (
Remedies in a Self Dealing Case.
the trust beneficiaries may rescind the transaction and ask for the self-dealing purchase to be set aside (the trust property is returned to the trust and the amount paid is refunded by the trust) or recover any profits the trustee made by reason of the breach.
General Power of Appointment
the class of people that the beneficiary can exercise the power of appointment in favor of is unlimited (she can use it for herself, her creditors, or someone else).
General Power of Appointment - Majority View
In most states, a general residuary clause in a will (“I give all of my estate . . . ”) does not exercise a power of appointment.
However, if the general residuary clause is coupled with a blanket exercise clause (e.g., “including all property over which I have a power of appointment”), any power of appointment held by the donee is exercised, unless the donor of the power specifically requires reference to it.
General Power of Appointment - Minority View
a general testamentary power of appointment can be exercised by general
language in the beneficiary’s will (such as the residuary clause) even if it makes no reference to the power in the instrument (e.g., “Everything to my husband”—the husband will get it), unless the creating instrument of the power made an express gift in default or the instrument stated that the power needed to be specifically mentioned.
Special (or limited) power of appointment
The class of people that the beneficiary can exercise the power in favor of is limited.
A special testamentary power needs to be specifically exercised.
The Uniform Probate Code (UPC) adopts a substantial compliance rule which says that if it could be shown that the power holder intended to exercise a power, a blanket exercise clause may be sufficient.
Rule of convenience:
when a gift is made to a group, such as “my children,” the class closes when at least one member is entitled to distribution.
Class Gifts - UPC approach
when a class gift is made, each living beneficiary will take their share and the deceased beneficiary’s share will pass to their surviving descendants. (If there are no surviving descendants then the gift will fail.)
Note: this applies even if the beneficiary is not related to the settlor (and thus differs from most antilapse statutes)
Class Gift - Common Law
if the gift or remainder to a deceased beneficiary has already vested and there is no applicable statute, then it will go to whomever the instrument says it should go to or whomever the deceased person has specified in their will or through intestacy. (This also applies to gifts that are not made to classes.)
