Trusts Flashcards
Property in a trust
Legal title goes to trustee
Equitable title goes to beneficiary
Legal title
- responsibility of ownership
- no benefit
- fiduciary duties:
(1) must deal with the property with reasonable care; (2) must maintain the utmost degree of loyalty; and (3) is personally responsible if their conduct falls beneath required standards.
Equitable title
- receives the benefits of ownership
- has little or no control over the trust or trust property
Settlor
The person who creates the trust by supplying the initial trust property (aka principal, corpus, trust estate, res)
-aka trustor, grantor, donor
A trust is a property conveyance that
Splits title and imposes duties
NOT a contract
Why create trusts
- protect and provide for beneficiaries
- flexibility of asset distribution
- protection against settlor’s incompetence
- professional management of property
- probate avoidance
- tax benefits
Express trust
Created by express intention of settlor
Private or charitable
Trusts created by operation of law
- resulting trust: attempt to carry out implied intent
- constructive trust: equitable remedy to prevent unjust enrichment
First step is assessing trust validity
five elements
- intent
- identifiable corpus
- ascertainable beneficiaries
- proper purpose
- compliance with mechanics and formalities
Intent
- to split title, to enforce duties on holder of legal title
- settlor must have capacity (same as for inter vivos gifts and wills)
- communication to beneficiary not required
- intent must exist at time of property transfer (present intent)
- cannot change a gift to a trust later on
Precatory expressions
-expression of hope, wish, suggestion
-does not create a trust
UNLESS
-Definite and precise directions
-Directions addressed to a fiduciary (for example, executor under a will)
-A resulting “unnatural” disposition of property (for example, close relative will otherwise take nothing) if no trust imposed; or
-Extrinsic evidence showing that the settlor previously supported the intended beneficiary
Split of title
Any split into legal and equitable as long as the same person does not own all of the legal and equitable title
If they are, merger, and there is no trust
Identifiable corpus
Must be ascertainable with certainty
Can be anything transferable
Trust property must be segregated from other property
No res, no
trust
because trustee has no property to manage
Qualified beneficiary
A qualified beneficiary is a beneficiary who, on the date the beneficiary’s qualification is determined, is: (1) a current beneficiary, or (2) a first-line remainderman (that is, one who would become eligible to receive distributions were the event triggering the termination of a beneficiary’s interest or of the trust itself to occur on the qualification date).
Capacity for beneficiary
- person or entity capable of taking and holding title
- need not be competent
Can a beneficiary disclaim?
Under the law of most states, a beneficiary may disclaim an interest by filing a written instrument with the trustee (or, if a trust created by will is involved, with the probate court). If a valid disclaimer is made, the trust is read as though the disclaimant was deceased as of the relevant date.
Divorce
Final divorce revokes all beneficiary gifts and fiduciary appointments in favor of the former spouse
Class gifts
Very common for trusts (children, grandchildren)
Trustee must be able to determine who belongs to the class
-trustee can select from a class (discretionary trust)
If a trust fails, title goes
Back to the settlor
Valid purpose
- not illegal
- not against public policy
- possible to achieve
- not intended to defraud creditors
What if the purpose of the trust is contrary to public policy
- The settlor’s alternative desire controls if expressed.
- If the illegal condition is a condition subsequent, the condition is invalidated but the trust is valid.
- If the illegal condition is a condition precedent, the preferred view is to hold the interest valid unless there is evidence that the settlor’s wish would be to void the beneficiary’s interest altogether if the condition is unenforceable.
Trustee
Most trusts will not fail for lack of trustee
-court can appoint
Acceptance of a trusteeship
Acceptance by (1) signing the trust or a separate written acceptance; (2) substantially complying with the acceptance terms in the trust instrument; or (3) accepting delivery of trust property, exercising powers or performing duties as trustee, or indicating acceptance.
Removal of trustee
A court can remove a trustee on its own motion or upon request by the settlor, a beneficiary, or a co-trustee. Grounds for removal include: (1) a serious breach of trust; (2) serious lack of cooperation among co-trustees; (3) unfitness, unwillingness, or persistent failure to administer; or (4) a substantial change in circumstances. The basic factor considered
is whether continuation in office would be detrimental to the trust.
Inter vivos trust
- created by settlor when alive
- declaration of trust: settlor and trustee are the same person
- conveyance in trust: settlor transfers legal title to someone else
Testamentary trust
-all the requirements of a valid will must be effective first, before determining whether the trust is valid
Statute of frauds
- writing required for trusts of land
- part performance precludes SoF defense
Pour-over gift from will to trust
- can be initial trust funding
- a settlor can make gifts by will to a trust—even an amendable and revocable trust—established during their lifetime. The trust must be clearly identified from language in the will
Testamentary secret trust
- testamentary gift that is silent about the trust nature of the transfer
- intended trust beneficiary may present extrinsic evidence of the will beneficiary’s promise to hold the property in trust. If the promise can be proven by clear and convincing evidence, a constructive trust will be imposed on the property in favor of the intended trust beneficiary