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Trusts + Estates > Trusts > Flashcards

Trusts Flashcards

1
Q

Trust

A

Legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another’s benefit

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2
Q

How did trusts begin?

A

O “to T for the use of B” enforced by the Chancellor

After 1535, operated on the use and eliminated the legal owner component, but some courts ignored it therefore creating a TRUST

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3
Q

Foreign law on trusts

A

A number of countries that did not
have trusts for wealth transfer have added them to their
law

These statutes might not have the same requirements
that we have in the USA

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4
Q

Voluntary trust

A

For creating wealth, business trusts (alternative to corporate form used to create monopolies before anti-trust laws)

For sharing/trasnferring wealth and for protecting those who might bot manage it well

Testamentary, intervivos, revocable, and irrevocable

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5
Q

Involuntary trusts

A

Constructive trust imposed for fairness

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6
Q

What does it take to make a trust? (8)

A

1) Capacity to make a transfer in the trust (varies on trust type)

2) Intent to create trust (UI, mistake, coercion, and fraud can negate)

3) Manifestation of intent

4) A res

5) A definite beneficiary (non-charitable)

6) A trustee

7) Active duty for the trustee to perform

8) Writing (sometimes)

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7
Q

Capacity to make a testamentary trust?

A

Capacity needed to execute a will

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8
Q

Capacity needed to make an inter vivos trust?

A

Capacity to execute a deed/make a gift

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9
Q

Capacity to make a revocable trust?

A

Uniform Trust Code: capacity to execute a will

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10
Q

In re Estate of Maliszewski

A

No special magic words are needed to create a trust

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11
Q

Res

A

Property in the trust that needs to be identified with reasonable certainty

Must have a pre-existing legal right for the res to work

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12
Q

Brainard v. Commissioner

A

Profits from FUTURE trading of specified stocks CANNOT be the res of a trust

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13
Q

Speelman v. Pascal

A

Gift of profits of My Fair Lady is not a res - this is just a gift of a legal right

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14
Q

Charitable trusts: definite beneficiary

A

No definite beneficiary is needed

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15
Q

Noncharitable trust: definite beneficiary

A

Someone capable of holding title

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16
Q

Can a dog be a definite beneficiary?

A

Common law: no

UTC 408: Yes for those animals alive during the life of the settlor

UPC 2-907: trusts for pets are allowed

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17
Q

What attributes must a definite beneficiary have?

A

1) Someone capable of holding title
2) Hold the trustee accountable
3) Different from the trstee

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18
Q

Grantor Trust

A

If the beneficiary is the grantor

Income tax is payable to the grantor

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19
Q

Trustee

A

Legal title holder

Can be the settlor or another person

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20
Q

Trustee

A

Legal title holder

Can be the settlor or another person

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21
Q

Does the trust fail if no trustee is listed?

A

No - most courts will appoint one in nearly all cases

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22
Q

Active duty for a trustee to perform

A

A trust WILL FAIL if this does not exist

Allows the trust to take advantage of the active-duties expectations created by the Statute of Uses

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23
Q

Passive (Dry) Trust

A

Trust where the trustee has no active duty to perform

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24
Q

Estate of Heggstad

A

Decedent/testator/settlor named himself and his son a trustee of a trust, then he was married to Nancy (who takes 1/3 of his estate as a pretermitted spouse)

The process for transferring property to the settlor as trustee is more informal because the settlor already owns full title to that property

T/C belongs in the TRUST

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25
Q

Does a testamentary will require a writing?

A

Yes

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26
Q

Does an intervivos trust to a 3rd party require a writing?

A

Personalty: no

Realty: deed is needed

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27
Q

Does an intervivos trust to the settlor as a trustee need a writing

A

Personalty: oral declaraction is fine (not a good idea, though)

Realty: Some jurisdiction are under SoF, signed by the grantor / UTC 401: oral is fine

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28
Q

Closest trust to a will?

A

Revocable trust (testamentary in nature, ambulatory)

DO NOT COMPLY WITH THE WILLS ACT

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29
Q

Does an intervivos trust to the settlor as a trustee need a writing

A

Personalty: oral declaration is fine (not a good idea, though)

Realty: Some jurisdiction are under SoF, signed by the grantor / UTC 401: oral is fine

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30
Q

Scalfaro

A

If there is more than one settlor, need to make sure there is clarity on who can revoke and when

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31
Q

Revocable trusts: revocation + amendments (traditional rule)

A

Right to revoke/amend had to be retained in the trust instrument and settlor had to follow the specified method

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32
Q

Revocable trusts: revocation + amendments (UTC 602)

A

Default is that the trust is revocable/amendable by:
1) following the terms of the trust

2) other method manifesting C+C evidence of the settlor’s intent (unless terms of trust EXPRESSLY make the means of revocation or amendment exclusive)

33
Q

Pourover Will

A

When a will devises assets to a trust

34
Q

Can a will fund an inter vivos trust that has no res before the death of the testator?

A

Common law: NO

UTATA/UPC 2-511(a): A will can devise property to a trustee of a trust established or TO BE ESTABLISHED (YES)

35
Q

Pourover will + amendable intervivos trust allows someone to:

A

Change what happens to property after death without complying to the will formalities

36
Q

Rights of creditors: revocable trusts

A

Settlor has ALL the crights, so the creditors of S can reach the res

Beneficiaries have no rights, their creditors CANNOT reach the res

37
Q

Rights to creditors: irrevocable trusts

A

Settlor (unless a beneficiary too) has NO rights in the property, so creditors cannot reach

Trustees have no beneficial rights, so their creditors cannot reach that either

38
Q

Can an irrevocable trust be used to defraud the settlor’s creditors?

A

NO

39
Q

Rights to creditors in mandatory trusts:

A

Creditors cannot reach unless someone like a spouse is seeking support

Often, the creditor can only reach what the debtor can

40
Q

Rights to creditors: discretionary trusts (subject to a standard)

A

Can compel payment up to the standard of comfort

41
Q

Rights to creditors: discretionary trusts (not subject to a standard)

A

A court can still find that the trustee has abused their power, even in their sole discretion, and they must act in a way in common with the purpose of the trust

42
Q

Exception Creditors

A

Common law: spouse/child seeking maintenance, IRS, child support, lawyer claims for service

UTC 504: if there an abuse of discretion, there would be a reason to compel

43
Q

Hamilton order

A

Order to compel the trustee to pay the creditor before they pay the beneficiary (RARE - not allowed in most states)

44
Q

Spendthrift Clause

A

Limits the liability of assets to be reached by the beneficiary or their creditors

45
Q

UTC 504: Spendthrift

A

only valid if the restrains both voluntary and involuntary transfer of B’s interest

46
Q

Spendthrift on Hamilton Orders

A

Not allowed because the clause protects the distribution from creditor claims

47
Q

Hurley

A

In the absence of a specific state statute otherwise, a former wife may reach the income of a spendthrift trust in favor of her former husband to satisfy an enforceable claim for alimony or child support.

48
Q

Scheffel v. Kruger

A

Under New Hampshire law, a spendthrift provision in a trust will is applicable to claims by tort creditors unless the beneficiary is also the settlor, or the assets were fraudulently transferred to the trust

Child victim cannot recover from the perpetrator’s spendthrift clause

49
Q

Pro spendthrift

A

Law ought to empower the settlor to what they want after they die, just as they could before death

50
Q

Anti-spendthrift

A

John Chapman Gary: privileged class could practice fraud

51
Q

Asset protection trusts (self-settled trusts)

A

Settlor settles a trust with the trustee – the income and principal for the benefits of the settlor, as determined by the trustee, the settlor CANNOT alienate the settlor’s interest so that creditors cannot reach it

20 states allow the settlor to create a trust to avoid tort creditors

Medicaid warning

52
Q

Protective trust

A

shifts from subject to a standard to completely discretionary when a creditor tries to attach, so they get nothing

53
Q

Trustee Duty

A

High fiduciary duty, duty to administer in good faith and in terms of the trust

54
Q

Marsman v. Nasca

A

A trustee directed by the trust to use his discretion in determining the amount of trust principle to distribute for the support of the beneficiary must inquire into the needs of the beneficiary in order to exercise his discretion with the sound judgment required of a fiduciary

55
Q

Terminating a trust - HOW?

A

Settlor and all beneficiaries agree: permitted

The settlor and SOME of the beneficiaries:
common law - no
UTC 411 -yes, if there is protection to other b’s

Settlor dead and beneficiaries agree:
England: yes
USA: no

56
Q

Claflin

A

America’s case deals with a dead settlor and the beneficiaries agreeing to terminate the will

NOT allowed - trust has not served its purpose yet

Limited to RAP

57
Q

Termination of the trust: economical?

A

No under UTC 414 - illegal and often impossible

58
Q

Can a court reform a trust?

A

Yes, to correct the mistakes in accordance with the settlor’s intention

59
Q

Burden of proof of trust not aligning with settlor’s intent

A

UTC 415: C+C evidence that the intent and terms were affected by a mistake

60
Q

Deviation

A

A modification to the trust contrary to the terms

61
Q

Administrative deviation

A

Change in management of the property

62
Q

Distributive deviation

A

Change in the distribution from the trust (who takes, what is taken, or when it is taken)

63
Q

When can a court allow for administrative deviation under the traditional doctrine?

A

Called “equitable deviation doctrine”

When the circumstances have changed in ways the settlor did not anticipate & the administrative terms substantially impair the purpose of the trust

64
Q

When can a court make an administrative change according to the UTC 412(B)?

A

When the terms would be impracticable, wasteful, or would impair the trust’s administration

65
Q

When can a court grant a distributive deviation?

A

Traditional rule: NEVER

UTC 412(a): if the circumstances not anticipated by the settlor and the modification or termination would further the purpose of the trust

66
Q

Can unanticipated circumstances exist when the trust is created?

A

Yes - UTC comment

67
Q

Supplemental Needs Trust

A

Provides the benefits the state will not provide, cannot make a distribution to DQ the beneficiary from state support

If settled by a 3rd party, the remainder goes to the state

68
Q

Decanting a trust

A

pouring the first trust into a second trust, no judge needed

69
Q

When does a judge review a decanting trust?

A

1) if the beneficiary is aggrieved and bring duty action
Court then determines if there was an allowance of that by the original trust

70
Q

Can trustees be removed?

A

Yes -

UTC 706(B)(2), trustees not cooperating

UTC 704(B)(4) - change in circumstance, ALL B’s request, removal best serves B’s interests, not inconsistent with the purpose of the trust, suitable successor available

71
Q

Trust protectors

A

help solve the problems of changing circumstances, can: approve equitable deviations, terminate the trust, remove trustees, remove spendthrift

72
Q

Equitable Deviations

A

change in beneficiaries

change to avoid tax/medical costs

73
Q

Trust Advantage

A

Jurisdictional choice

The standard for the incompetence of a person can be established and applied without ligation

Not on public record automatically

74
Q

Will advantages over trusts

A

Non-claim statute bar creditors of esttates

Formalities reduce opportunities for malefaction

75
Q

Other trust and will differences:

A

1) Under traditional rule, divorce did not revoke a trust provision for spouse, but the UPC and some states have changed this

2) Rules of preintermission for wills might not apply to trust

2) Rules of construction for wills do not apply to trusts

76
Q

Charitable trusts

A

Must have a charitable purpose

77
Q

Charitable purpose

A

UTC 405: relief of poverty, advancement of education/religion, promotion of health/government/municipal purposes, other purposes the achievement of which is beneficial to the community

78
Q

Adye v. Smith

A

Benevolent is not the same meaning as charitable

79
Q

Cy pres clause

A

If a charitable trust becomes illegal, impracticable, or impossible the court can reform it rather than terminate it

Reform the trust to operate as close to the intent of the settlor as possible

Requirement: settlor had general charitable intent – specific intent is NOT enough

Trusts + Estates (14 decks)

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