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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
Does a testamentary will require a writing?
Yes
26
Does an intervivos trust to a 3rd party require a writing?
Personalty: no Realty: deed is needed
27
Does an intervivos trust to the settlor as a trustee need a writing
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
28
Closest trust to a will?
Revocable trust (testamentary in nature, ambulatory) DO NOT COMPLY WITH THE WILLS ACT
29
Does an intervivos trust to the settlor as a trustee need a writing
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
30
Scalfaro
If there is more than one settlor, need to make sure there is clarity on who can revoke and when
31
Revocable trusts: revocation + amendments (traditional rule)
Right to revoke/amend had to be retained in the trust instrument and settlor had to follow the specified method
32
Revocable trusts: revocation + amendments (UTC 602)
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
Pourover Will
When a will devises assets to a trust
34
Can a will fund an inter vivos trust that has no res before the death of the testator?
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
Pourover will + amendable intervivos trust allows someone to:
Change what happens to property after death without complying to the will formalities
36
Rights of creditors: revocable trusts
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
Rights to creditors: irrevocable trusts
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
Can an irrevocable trust be used to defraud the settlor's creditors?
NO
39
Rights to creditors in mandatory trusts:
Creditors cannot reach unless someone like a spouse is seeking support Often, the creditor can only reach what the debtor can
40
Rights to creditors: discretionary trusts (subject to a standard)
Can compel payment up to the standard of comfort
41
Rights to creditors: discretionary trusts (not subject to a standard)
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
Exception Creditors
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
Hamilton order
Order to compel the trustee to pay the creditor before they pay the beneficiary (RARE - not allowed in most states)
44
Spendthrift Clause
Limits the liability of assets to be reached by the beneficiary or their creditors
45
UTC 504: Spendthrift
only valid if the restrains both voluntary and involuntary transfer of B's interest
46
Spendthrift on Hamilton Orders
Not allowed because the clause protects the distribution from creditor claims
47
Hurley
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
Scheffel v. Kruger
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
Pro spendthrift
Law ought to empower the settlor to what they want after they die, just as they could before death
50
Anti-spendthrift
John Chapman Gary: privileged class could practice fraud
51
Asset protection trusts (self-settled trusts)
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
Protective trust
shifts from subject to a standard to completely discretionary when a creditor tries to attach, so they get nothing
53
Trustee Duty
High fiduciary duty, duty to administer in good faith and in terms of the trust
54
Marsman v. Nasca
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
Terminating a trust - HOW?
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
Claflin
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
Termination of the trust: economical?
No under UTC 414 - illegal and often impossible
58
Can a court reform a trust?
Yes, to correct the mistakes in accordance with the settlor's intention
59
Burden of proof of trust not aligning with settlor's intent
UTC 415: C+C evidence that the intent and terms were affected by a mistake
60
Deviation
A modification to the trust contrary to the terms
61
Administrative deviation
Change in management of the property
62
Distributive deviation
Change in the distribution from the trust (who takes, what is taken, or when it is taken)
63
When can a court allow for administrative deviation under the traditional doctrine?
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
When can a court make an administrative change according to the UTC 412(B)?
When the terms would be impracticable, wasteful, or would impair the trust's administration
65
When can a court grant a distributive deviation?
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
Can unanticipated circumstances exist when the trust is created?
Yes - UTC comment
67
Supplemental Needs Trust
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
Decanting a trust
pouring the first trust into a second trust, no judge needed
69
When does a judge review a decanting trust?
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
Can trustees be removed?
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
Trust protectors
help solve the problems of changing circumstances, can: approve equitable deviations, terminate the trust, remove trustees, remove spendthrift
72
Equitable Deviations
change in beneficiaries change to avoid tax/medical costs
73
Trust Advantage
Jurisdictional choice The standard for the incompetence of a person can be established and applied without ligation Not on public record automatically
74
Will advantages over trusts
Non-claim statute bar creditors of esttates Formalities reduce opportunities for malefaction
75
Other trust and will differences:
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
Charitable trusts
Must have a charitable purpose
77
Charitable purpose
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
Adye v. Smith
Benevolent is not the same meaning as charitable
79
Cy pres clause
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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