Trusts Flashcards
Creation of a Valid Trust:
(1-3)
(1) property
(2) beneficiary (“B”): unincorporated associations can only be beneficiary under Mod. law
(3) trustee (“T”): not fatal if absent; the court will appoint
creation of a valid trust:
(4-6)
(4) intent: must be present manifestation: precatory workds are not enough;
(5) creation;
(6) valid legal purpose: if illegal at creation: exercise the bad part. If impossible: invalidate the trust at inception and settlor remains owner or allow trustee to keep the property
—if illegal condition: the trust provided to B free of condition
—if illegal after creation: decree resulting trust
alienation
-voluntary: allow B to sell or transfer property interest
-involuntary: creditors
Types of Trusts:
-discretionary
-T given sole and absolute discretion to determine how much to pay B
-must be expressly stated in terms of the trust
-no voluntary or involuntary alienation
-settlor (“S”) can trust for himself, but can’t with regard to involuntary alienation in order to deny creditors
spendthrift trust
-prevents B from voluntarily transferring future payments, and creditors from attaching
-same rules as discretionary
-support trust
-T required to use only so much income or principle as necessary for B’s health, support, maintenance or education
-same rules as discretionary
-honorary trust
-trust has no ascertainable B and confers no substantial benefit to society, but rather a goal of the S
-T isn’t required to carry out the goal, but has the power to if he wants
-if not, resulting trust is created
constructive trust (and oral real estate trust)
-prevents fraud or unjust enrichment
-applies if self-dealing, fraud, secret trust, or oral real estate trust
—oral real estate trust: deed handed to A for B. A can’t invoke SoF if: fiduciary relationship between S and A; fraud in inducement on A’s part; detrimental reliance by B, eg. takes possession and makes improvements
-secret trust
-will on face gives gift outright to A, but T requires A to provide an oral promise to use property to benefit B
-Parol evidence is admitted to show T’s intent
-semi-secret trust
-will makes a gift to a person to hold as a trustee, but names no beneficiary
-the Court decrees a resulting trust; no parol evidence
-totten trust
-tentative bank account trust naming B who takes whatever is left in the account at death
-charitable trust
-Restatement: any trust that confers a substantial benefit on society eg. help the poor, advance education, help the sick or promote religion
-requirements: same as private express trust
*NO RAP
-if impossible or impracticable, the Court will use intrinsic and extrinsic evidence to ascertain S’s intent and determine cy pres, “as nearly as possible”
resulting trust
-implied in fact trust based on presumed intent of the parties
-T transfers property to S if alive, to S’s estate, or to intestate takers
-result if: private express trust ends or fails for illegality or lack of B; charitable trust if cy pres isn’t an option; excess corpus; or purchase money resulting trust (S purchases and is intended B but title is in the name of Y)
Modification & Termination of Trust:
-modification by S
-only if expressly reserved
-modification by Court
-cy pres; in express trust, Court can deviate from admin or management provisions, nit not the B’s if unforeseen circumstances or necessity
termination of revocable trust
-majority: S may only revoke if expressly reserved
-minority: S has the power to revoke, unless expressly said irrevocable
termination of irrevocable trust
-if all B’s and S consent; if all B’s agree and all material purposes done; operation of law (if real property in private trust and T has no active duties)
Trust Administration and Duties
-powers
-all enumerated; implied (sell property; incur expense; lease; borrow (under CL))
duty of loyalty
-admin trust for B’s benefit; no self dealing
duty to invest: (3 different authorities)
(1) state list
(1) state list: in absence of directions, good investments are fed government bonds, federally insured certificates of deposit, 1st deeds of trust; public company stock
*no new businesses or 2nd deeds of trust
(2) CL prudent person test
-requires T to act as RPP investing own money
-good investments are federal government bonds; 1st deeds of trust; federally insured certificates of deposit; blue chip stocks; mutual funds
*no new businesses or 2nd deeds of trust
(3) Uniform Prudent Investors Act
-T must act as prudent investor, as measured in the context of entire trust portfolio
duty to diversify
requires every trustee, in making and implementing investment decisions, to diversify the investments of the trust unless under the circumstances it is prudent not to do so.
duty not to speculate
It is not the province of [the Court] to allow trustees to speculate in stocks which might result in a loss to the remaindermen,’ [should not lend the court’s aid] to the trustee in speculating in stocks which might result in a loss to the contingent remaindermen but should, if such order is entered, instruct the complainant to confine its investments to investments having equal security with these that complainant now holds.’
duty to earmark
-CL: if loss, T is personally liable
-Mod: if loss, T personally liable ONLY if loss is from failure to earmark
duty to segregate
-CL: T can rely on professional advisors, but can’t delegate authority to them. Unanimous T decision required
-Mod: T can delegate to professional advisors; T may act by majority
duty to act
-T must provide B’s with statement of income and expenses on regular basis
duty of care
-must as as a RPP would as if dealing with own affairs
duty to collect/protect property
The trustee is responsible for collecting and protecting the trust property. He or she has the legal title to the property and owes a fiduciary duty to the beneficiary of the trust to preserve the property.
duty to maintain marketability of property
If the property in the trust is a house, the trustee has duty to do things like keeping the house in good repair and paying the necessary taxes
duty to keep trust property productive
-requires the person managing the trust to make trust assets productive.
-This generally requires you to ensure that assets of the trust are wisely invested.
remedies
-damages; constructive trust; tracing and equitable lien; ratify transaction if good; remove the T
liability to 3rd persons:
-contracts: (CL; Mod)
-contract: CL: T sued in personal capacity but may get indemnification from trust. T may be sued directly in representative capacity if contract stated so
-Mod: if promisee knew T was acting in representative capacity, T must be sued in representative capacity
liability to 3rd persons:
-tort (CL; Mod)
-CL: T sued in rep capacity and, if w/o fault, can get indemnification from trust
-Mod: T sued in individual capacity and personally liable if T is at fault. If agent committed negligent act in the case of strict liability, T sued in representative capacity
Income and Expenses:
-life tenant
-gets income from: cash dividends, interest income, net business income
-pays expenses for: interest on loans, taxes, minor repairs
-remainderman
-gets income from: stock dividend, stock split, net proceeds on the sale of a trust asset
-pays expenses for: principal of loans, major repairs/improvements
