Trusts Flashcards
Spendthrift Trust
A spendthrift trust is a private trust with a provision whereby: (a) the beneficiary cannot transfer his right to future income or principal and (b) creditors cannot attach the beneficiary’s right to future payments of income or principal
Exceptions to Spendthrift Trust
Generally, creditors cannot attach the beneficiary’s right of future income or principal in a spendthridt trust except under 2 common law exceptions:
(1) preferred creditors; and
(2) surplus station in life
Preferred Creditors–Involuntary Alienation Exception
Preferred Creditors include government creditors, child support, spousal support, alimony, tort judgment creditor, and those providing “necessities of life” to the beneficiary
Look at what the creditor is saying he paid for and analyze each item separately to determine if it is a ‘necessity of life’
Surplus / Station in Life Exception
In many jxs, any creditor (even if not a preferred creditor) has the right to attach surplus, as measured by the beneficiary’s station in life (standard of living). A beneficiary’s station in life is based on a subjective test, although only reasonable amounts are considered
If B needs $25K to year, thats his ‘station in life.’ If the trust generates 75K of income for B, the difference (50K) is considered to be the surplus.
Discretionary Trust
A discretionary trust is a trust that contains a provision whereby the trustee is given sole and absolute discretion to determine how much to pay the beneficiary, if anything, and when to pay the beneficiary, if ever.
Trustee’s Duties
LIDSPAD
A trustee has certain duties to the beneficiaries of the trust
LIDSPAD
Loyalty
Invest / Keep trust property productive [vacant prop=should rent]
Defend / protect trust
Segregate and Earmark [label property as trust property r trustee held personally liable for for loss under common law]
Perform Personally
Account to Beneficiaries
Due Care
Trustee Duty: Duty of Loyalty
Trustee has a duty of loyalty to all beneficiaries of the trust. The trustee must administer the trust for the benefit of all beneficiaries having no other considerations in mind
No self-dealing (per se voidable by beneficiaries, no proof of transactions needed when unreasonable / harmful)
Duty of Due Care
Duty of care, skill, and caution that would be exercised by reasonably prudent person in managing own property / affairs.
If greater or special skill, trustee is held to a higher standard.
ALWAYS DISCUSS THIS DUTY WHEN A TRUSTEE BREACHES.
Modifications / Termination of Irrevocable Trusts
There are 3 ways an irrevocable trust can be terminated prematurely, before the time set for termination in the trust instrument: (1) the settlor and all the beneficiaries agree to terminate, (2) (a) all beneficiaries agree to terminate & (b) all material purposes of the trust have been accomplished, or (3) by operation of law.
Duty to Invest (TINDAD)
Trustee must preserve trust property and make productive
A trustee’s investments are prudent based on a TIN DAD:
T – TRUST TERMS restricting trustee investments
I – INFLATION
N – NEEDS of beneficiaries
D – DIVERSIFICATION of investments
A – The total AMOUNT of the trust
D – DURATION of the trust
If no express provision, 3 alternative default provisions:
(1) state lists: state determines the action trustee must take
(2) common law RPP
(3) Uniform Prudent Investor (UPIA)
Exceptions to Spendthrift Trusts
Generally, creditors cannot attach the beneficiary’s right to future payments in a spendthrift trust except under 2 common law exceptions: (1) preferred creditors and (2) surplus station in life
Private Express Trust [includes inter vivos and testamentary]: Definition
A fiduciary relationship regarding property whereby one person (the trustee) holds legal title for the benefit of another (the beneficiary) and which arises out of the manifestation of intent to create it for a legal purpose
Creation of a Private Express Trust
7 elements
(a) settlor / testator
(b) trustee
(c) trust property (the res) [without this, the trust fails]
*no illusory interests = future profits, debt that S owes B
(d) beneficiaries
*any ascertainable person or group of people who hold equitable title and receive the benefit of the assets
(e) manifestation of trust intent
*present intent only
(f) delivery
(i) at death: must comply w/ the statute of wills: local probate code
(ii) during lifetime
- for property: settlor must execute & deliver deed transferring title to trustee, IN WRITING bc SOF
-Personal prop:
Deliver personals to the trustee at time settlor manifests intent to create the trust (delivery can be actrual, symbolic, or constructive) // if no delivery to trustee, then no trust.
–declaration in trust: settlor = trustee (not for 3P)
prop: in writing, saying settlor is trustee
personals - no issue of delivery because mine is mine lol
(g) valid trust purpose:
a trust may be established for any purpose that does not violate the law or public policy.
if illegal – try to save good from bad, if you can we can save the trust.
Charitable Trust or its alternatives
Any trust that confers a substantial benefit to society, created the same way as a private express trust without an ascertainable person / group (beneficiaries).
If the charitable trust is impossible to carry out, 2 alt solutions for the court to use:
(1) Resulting trust [corpus is returned to settlor if alive. if hes dead, to his estate]
*this is used when there is a specific charitable intent.
OR
(2) Cy Pres Doctrine ‘as nearly as possible’
general charitable intent – like the court finds settlor had a general charitable intent to help the poor, but the mechanism for effectuating his intent is not possible or practical- court can use cy pres doctrine to effectuate his intent and allocate trust property to new use
3 trust provisions that include restraints on alienation (voluntary and/or involuntary)
(1) spendthrift trust
(2) support trust
(3) discretionary trust
Termination of irrevocable trusts
There are 3 ways an irrevocable trust can terminate prematurely, before the time set for
termination in the trust instrument:
(1) the settlor and all the beneficiaries agree to terminate,
(2)(a) all beneficiaries agree to terminate and (b) all material purposes have been accomplished; or
(3) by operation of law.
Resulting Trust
implied…
Can arise in 7 ways
An implied-in-fact trust, based upon the presumed intent of the parties
(1) private express trust fails bc no beneficiary
(2) PET ends by its own terms and no provision for the corpus
(3) PET fails bc its illegal
(4) excess corpus in PET
(5) charitable ends bc of impossibility or impracticability and cypres cant be used
(6) purchase money resulting trust
(7) semi-secret (Will makes a gift and mentions the words ‘in trust’ or ‘as trustee’ e.g.”i devise $10 to abel, as trustee” (but no named beneficiary so resulting trust (prop goes back to estate and then residuary)
Constructive Trust Remedy
A remedy to prevent fraud or unjust enrichment. A means to disgorge a wrongdoer of his ill-gotten gains
- When a court decrees a constructive trust, the wrongdoer will have only one obligation: To transfer the property to the intended beneficiary as determined by the court
look for self dealing, fraud in the inducement or undue influence (wills), secret trusts
Pour-Over Provision
POUR IT OVER AND FILLL IT UP
When the settlor creates an inter vivos trust, with a provision in his will devisiing part or all of the estate to the trust.
the will catches property you didnt put in your lifetime trust and lets the courts know you want these assets in the will transferred to the trust.
Effectuated in 3 ways:
(1) Inc by Ref
(2) Facts of Ind. Significance; OR
(3) UTATA
Support Trust (HEMS)
A trust provision whereby the trustee is required to use only so much of the income or principal necessary for the health, support, maintenance, and/ or education of the beneficiaries.
look at settlors intent.
Secret Trust
A constructive trust situation where the will doesn’t mention a trust or as trustee…..
On the face of the will, there are no facts giving rise to indicate this is a trust. Parol evidence is admitted to identify the beneficiary.
Duty of Loyalty: Trustee’s Duty
Trustee must administer the trust for the benefit of all beneficiaries, having no other consideration in mind.
No self dealing, even if FMV and in good faith.
‘Further Inquiry Rule’ – All self-dealing by trustee is per se voidable by beneficiaries, req no proof transactions were unreasonable or harmful
Duty of Loyalty: Trustee’s Duty
Trustee must administer the trust for the benefit of all beneficiaries, having no other consideration in mind.
No self dealing, even if FMV and in good faith.
‘Further Inquiry Rule’ – All self-dealing by trustee is per se voidable by beneficiaries, req no proof transactions were unreasonable or harmful
Beneficiary’s Remedies: When Trustee Breaches Duties: DCTRR
Damages [losses, lost profits, interest]
Constructive Trust
Tracing and Equitable Lien
Ratify the transaction if good for beneficiary
Remove Trustee
