Trusts

Question 1

Requirements to form a valid trust (6)

Answer 1

• present intent to create a trust (precatory language creates inference against)
• identifiable corpus: settlor must have power to convey it
• ascertainable beneficiaries; trustee can pick from class if definite, must accept
• proper purpose: not illegal, impossible, against PP, fraud. If invalid condition precedent–strike condition, court decides whether interest is valid. invalid condition subsequent is stricken and trust survives.
• trustee: sole trustee can’t be the sole beneficiary, court will appoint testamentary trustee. trustee must accept.

-formalities
~inter vivos: declaration of trust (if settlor = trustee) OR transfer of property (no writing unless SoF)
~testamentary: requirements of a will
–> secret trust: agree with a will beneficiary to hold in trust for another, but will doesn’t mention trust = constructive trust for intended beneficiary
–> semi-secret trust: creates a trust without beneficiary = resulting trust for testator’s heirs

Question 2

transfers of interests in a trust - 4 cases

Answer 2

• default: beneficiary can voluntarily transfer/creditors can reach interest
• spendthrift trust: prevent beneficiary transfer + creditors attaching. not valid if settlor is a beneficiary, unenforceable against gov/child/spouse.
• discretionary trust: trustee has discretion over payments. Until that is made, creditors can’t reach interest, beneficiary can sue only for abuse of power
• support trust: not assignable/reachable, even without spendthrift clause. Standard = beneficiary’s accustomed standard of living.

Question 3

modification/termination of a trust

Answer 3

-by settlor: UTC allows to revoke/amend; CL requires settlor to reserve the right
Note: power to revoke = power to amend

-by beneficiaries
~with settlor’s consent and all beneficiaries
~without settlor’s consent, but with the consent of all beneficiaries if no material purpose of the trust would be frustrated

-by operation of law

-by court:
~if trust could have been modified had all beneficiaries consented + unconsenting beneficiaries’ interests are adequately protected
~unanticipated circumstances threatening trust purpose
~trust terms are impracticable/wasteful
~value of trust is insufficient to justify costs
~to reflect settlor’s intent if a mistake in terms clear + convincing

-by trustee: if trust property is less than $50k and insufficient to justify costs of administration

Question 4

trustee’s duties

Answer 4

• duty to administer trust: in good faith, prudent, by its terms
• duty of loyalty: can’t buy/sell assets, borrow, secure loan. self dealing transactions are voidable by beneficiary unless court/trust approves, SoL runs, ratifies, predates trustee
• duty to report
• duty to separate trust property: if commingled, trustee bears losses and trust gets gains
• duty to enforce claims + defend trust
• duty to preserve trust property + make productive: Uniform Prudent Investor Act, must diversify, exercise skill. prudence based on overall strategy.

Question 5

remedies available

Answer 5

• specific performance
• injunction
• damages: greater of damage to trust + trustee’s profit
• suspension/removal: incapacity, unfitness, breach of trust, conflict of interest, insolvency, hostility, lack of cooperation, unwillingness, substantial change in circumstances

Question 6

Allocation of receipts + expenses between income + principal

Answer 6

-receipts
~principal: sale proceeds, eminent domain/insurance, capital gains, stock dividends, 90% of: deferred compensation, liquidating assets, mineral interests
~income: rental income, interest, money received from an entity, 10% of: liquidating assets, deferred compensation, mineral interests

-expenses
~principal: debt payments, environmental costs, capital gains/estate tax, 50% of: trustee’s comp, accounting expenses
~income: ordinary expenses, insurance premier, 50% of: trustee’s comp, accounting expenses

Question 7

charitable and honorary trusts

Answer 7

charitable trusts:
-must be for charitable purposes, have indefinite beneficiaries
~cy pres: if court can find a general charitable purpose (presumed under the UTC), will substitute another beneficiary if needed

honorary trusts:
~no charitable purpose, no private beneficiaries
~excess property to settlor/successors

Question 8

resulting trust, 3 situations

Answer 8

-arise from settlor’s conduct, for benefit of settlor

Types:
-purchase money resulting trust: if beneficiary furnishes consideration for property, but title taken in name of trustee; resulting trust in favor of beneficiary
~alternatives to this situation: intended as a gift, or debt
-failure of express trust
-excess corpus

Question 9

constructive trust

Answer 9

-equitable remedy to prevent unjust enrichment

common situations

• theft/conversion
• fraud/duress
• breach of fiduciary duty
• breach of fraudulent promise, confidential relationship, promise on will/inheritance, to forego foreclosure bid (not just a regular promise)