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Trusts Flashcards

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1
Q

Legal Title Held by Trustee

A

No benefit from property, but maybe fee
Trustee is fiduciary
Care, Loyalty, Liability for failing to meet burden

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2
Q

Beneficial Title Held by Beneficiary

A

Can use gift based on instructions in the trust instrument

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3
Q

Settlor

A

Person who creates the trust
Trustor, Grantor, Donor (but use Settlor)

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4
Q

Trust Property

A

Contents of the trust
Not a legal entity, must contain property

AKA:
Principal
Corpus
Trust Res

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5
Q

Basic functioning of trusts

A

The settlor creates a trust by transferring legal title to the trustee (for example, a person with good investment skills) and equitable title to a beneficiary (a person or charity deserving of a windfall). The trustee manages and invests the property in accordance with legal duties and the settlor’s instructions as contained in the trust instrument. The trustee makes payments to or for the benefit of the beneficiary following the settlor’s instructions in the trust instrument. When the trustee’s duties are completed, the trust terminates and the trustee

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6
Q

Big Six Reasons to use Trust

A

Provide for and protect beneficiaries
Flexibility of asset distribution
Protect against own incompetence
Professional management of property
Probate avoidance
Tax benefits

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7
Q

Validity of Trust Elements

A

Trust intent
Identifiable corpus
Ascertainable Beneficiaries
Proper purpose
Compliance with mechanics and formalities

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8
Q

Validity of Will: Trust Intent

A

Two elements:
Splitting of legal and equitable title
Imposition of fiduciary duties on title holder
No special language needed, just the elements
No need to notice beneficiaries, but can show intent
Promise to make trust not binding, like contract needs consideration
Must exist at time of conveyance

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9
Q

Validity of Will: Trust Intent: Split of title

A

So long as sole trustee and sole beneficiary are not the same, this is met
But, even if same person on one side, works so long as not sole beneficiary
Just so long as not united in ONE person
Also, consider small splits like a life estate
As long as there is remainderman, split works

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10
Q

Validity of Will: Identifiable Corpus

A

Trust Property
Must be identifiable with certainty
Anything capable of transfer can be in the trust

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11
Q

Validity of Will: Ascertainable Beneficiaries

A

Private Trusts
Only requires beneficiary with capacity

Class Gifts
Beneficiaries may be designated by generic descriptions such as “children.”
Beneficiaries may be unascertainable when the trust is created as long as they are ascertainable when they are to benefit
The trustee must be able to determine who belongs to the class.
Must be ascertainable
Ie. grandchildren, siblings, etc NOT friends

Honorary Trust
Provides benefits to non-human, non-charitable purposes
Ie. maintain grandfather clock, care for pets

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12
Q

Validity of Will: Proper Purpose

A

Can create trust for any purpose not illegal or against public policy

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13
Q

Validity of Will: Compliance with Mechanics and Formalities

A

Inter Vivos trust: Trust created while settlor is alive
Must designate trustee
Delivery of trust/Funding of trust
Writing generally required

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14
Q

Validity of Will: Compliance with Mechanics and Formalities: Inter Vivos trust:

A

Inter Vivos trust: Trust created while settlor is alive

Types:
Declaration of trust
Settlor declares self trustee of property

Conveyance in trust
Settlor transfers title to trustee

Testamentary trust
Trust created in settlor’s valid will

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15
Q

Validity of Will: Compliance with Mechanics and Formalities: Must designate trustee

A

Must have:
Enforceable duties
Capacity to take and hold title
Ability to manage property

If no trustee:
Court will not allow trust to fail unless trust says that

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16
Q

Validity of Will: Compliance with Mechanics and Formalities: Delivery of trust/Funding of trust

A

Must:
Personal property identified or physically delivered
Real property conveyed by deed
OR
Property devised by will to testamentary trust
Must transfer to trustee

Trust will faIl if no property transferred

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17
Q

Pour-Over Will

A

Gift in will to inter vivos trust
Very common
Will go into trust as the terms of the trust exist, goes in on date of death

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18
Q

Testamentary Secret Trust

A

Settlor and will beneficiary orally agree that beneficiary will hold as trustee for someone else
Might allow extrinsic evidence to show constructive trust

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19
Q

Testamentary Semi-Secret Trust

A

Will leaves property in trust without beneficiary or terms
Almost always fails

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20
Q

Inter Vivos Secret Trust

A

Grant of property outright but grantee promised to hold in trust for another.
Normally grantee not bound by this due to SoF
However, if alleged beneficiary can show some wrongdoing, some courts might hold the grantee to the terms

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21
Q

Voluntary Transfers of Interest by Beneficiaries

A

Equitable interest is presumptively freely transferable

But
Spendthrift provision: Precludes voluntary transfers

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22
Q

Involuntary transfers

A

Unless a statute or the trust provides otherwise, the beneficiary’s creditors may reach the beneficiary’s interest in the trust. The interest is subject to judicial sale. To avoid this, a court may order the trustee to pay the beneficiary’s income to the creditors until the debt is satisfied

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23
Q

Discretionary Trusts

A

Trustee determines how much beneficiary receives
Beneficiary has nothing to transfer until trustee makes payment
Creditor can’t reach without payment too

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24
Q

Spendthrift Trust

A

Virtually every trust created has one

Two prongs:
Beneficiary may not transfer the interest
Once trustee pays beneficiary, they can do what they want

So, many trusts have the trust pay for the benefit of the beneficiary, directly paying rent etc.

Creditors cannot attach interest–But once paid, creditors can go after it
Just need to say “this is a spendthrift trust/provision” and it attaches these

Ineffective if settlor is beneficiary

Common Exceptions:
Support of spouse or child
Creditors who supply necessaries
Tort creditors

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25
Q

Support Trusts

A

Support provision: Use restricted to beneficiary’s:
Health
Education
Maintenance
Support

Can be mandatory or discretionary (ie, IF used, must be used for this)

Standard of support
If the instrument does not specify, the beneficiary’s accustomed standard of living prior to trust
Whether the beneficiary’s other income or resources should be taken into account is a question of the settlor’s intent and is decided by courts on a case-by-case basis

26
Q

Methods of Modification or Termination

A

By express terms of trust
By settlor unless irrevocable
By the Beneficiary
By Operation of law
By the Court

27
Q

Methods of Modification or Termination: By settlor unless irrevocable

A

Needs to be if for tax reasons
Settlor may be able to revoke irrevocable trust if they have written consent from all people with vested and contingent interests

28
Q

Methods of Modification or Termination: By the Beneficiary

A

By agreement of all beneficiaries if settlors intent not frustrated
Difficult if some not legally competent

Settlor can consent

And, modification cannot frustrate the material purpose of the trust (Claflin rule)

Provisions preventing termination by beneficiaries
Support provisions
Spendthrift provisions
Payment at certain ages
Payment at certain dates
Discretionary trust provisions

29
Q

Methods of Modification or Termination: By Operation of law

A

Property goes away, no trust
Merger, all legal and equitable title merge

30
Q

Methods of Modification or Termination: By the Court

A

Purpose of trust accomplished, illegal, impossible to fulfill

31
Q

Duty of Trustee Upon Termination

A

The trustee’s powers do not end immediately upon trust termination.
The trustee may continue to exercise powers for a reasonable period of time necessary to wind up the affairs of the trust.

32
Q

Trustees Source of Powers

A

Express powers granted in instrument
Statutes contain list of powers trustees has
Trustee could go to court and show good cause for more powers

Implied Powers
Not granted in instrument but necessary for maintaining trust
Ie:
Power to sell
Hire agents
Mortgage
Repair
Etc.

33
Q

Multiple Trustees

A

Majority of trustees can act (does not need to be unanimous)

34
Q

Trustees Exercise of Powers

A

Powers can be Mandatory or discretionary
Liability comes if trustee abuses or fails to exercise discretion
All can be reviewed with abuse of discretion

35
Q

Trustee’s Duties Overview

A

Trustees owe their fiduciary duties to the beneficiaries of the trust.
In some states, a trustee of a revocable trust owes duties only to the settlor.
Can usually walk away from being trustee, but if you agree or start administering, then accept it

36
Q

Trustee’s Duties Listed

A

Duty of Loyalty
Duty to Avoid Self-Dealing
Duty to Keep Accurate Records and Render Accountings
Duty to Use Skill and Care of Reasonable Person
Standard of Care for Investing

37
Q

Trustee’s Duty of Loyalty

A

Trustee owes beneficiary loyalty and good faith in all matters pertaining to the trust

38
Q

Trustee’s Duty to Avoid Self-Dealing

A

Except fees, trustee nor trustee’s family and associates cannot benefit

May not:
Purchase property from the trust
Sell property to the trust
Cannot borrow from trust
Cannot claim excessive compensation
Good faith is not considered here

39
Q

Trustee’s Duty to Keep Accurate Records and Render Accountings

A

The trustee must keep accurate records of all trust transactions and render accountings to the beneficiaries or the court upon demand. Beneficiaries need this information so they can enforce the trust.

40
Q

Trustee’s Duty to Use Skill and Care of Reasonable Person

A

Duty to use the skill and care of a reasonable person and protect and insulate trust property

No confusion between trust and trustee’s property allowed

Must be segregated from trustees property and other trusts

Corporations can make common trust funds though

41
Q

Prudent investor rule

A

Is default

Trustee must consider following basic factors:
Purpose of the trust
Terms of the trust
Distribution requirements

Prudence measured as to portfolio as whole – not individual investments
Some speculation and risk is appropriate
Case by case and must consider many factors
Diversification is required <–

42
Q

Standard of Care for Investing Special Skills

A

Trustee with special skills
Bound by higher standard

Trustee without special skills
Still bound by prudent investor requirements

43
Q

Standard of Care for Investing Duties

A

Duty to review investments
Duty of loyalty
Duty of Impartiality

44
Q

Standard of Care for Investing: Duty to review investments

A

Must review investments to ensure continued compliance

45
Q

Standard of Care for Investing: Duty of Loyalty

A

Must invest in sole interest of beneficiaries
Only consider monetary safety of investments

46
Q

Standard of Care for Investing: Duty of Impartiality

A

Must not favor one beneficiary over another unless specified in trust instrument

47
Q

Delegating the Investment Duty

A

If you use proper care, trustee will not be liable so long as:
Use reasonable care in selecting agent
Establish scope of delegation
Periodically review agent’s work

48
Q

Remedies: Surcharge

A

Action against trustee for money damages

Damages Beneficiaries seek:
Lost profits
Depreciation or losses to trust property
Profits trustee earned by breach (disgorged to trust)

Choice of remedy
Self-dealing transaction may improve trust
Even if breach, can be affirmed by beneficiaries

49
Q

Remedies: Removal of Trustee

A

Mere disputes are likely not enough for this
Grounds:
Dispute that interferes with proper administration of trust
Refusal to post bond
Refusal to account
Court will look at settlor’s intent

50
Q

Trustee’s Liability to Third Parties in Contracts/Torts

A

Contract Plaintiffs
General rule: trustee personally liable for contracts entered into for trust
Can put express provision in contract to make them not liable
Can simply put “as trustee” after signature to raise rebuttable presumption
Trustee may seek reimbursement if has to pay so long as valid contract for trust

Tort Plaintiffs
Trustee is liable for employees and agents only if there is personal fault on the basis of the trustee

51
Q

Charitable Trusts

A

Generally same rules unless specified here
No clearly ascertainable beneficiaries
Goal is to benefit community or society

Charitable Purposes:
Poverty relief
Education, science, or art
Religion
Health
Government or municipal
Other goals that benefit the community
No special language needed to make the charitable trust

52
Q

Charitable Trusts: Altruism Requirement

A

Must be altruistic, not setting up only for family. But benefit can still affect family incidentally.

53
Q

Cy Pres

A

When a charitable purpose selected by the settlor is accomplished or becomes impracticable, the court may select an alternative under the doctrine of cy pres, which means “as near as possible.”

The court must find a general charitable intent on the part of the settlor and ascertain their primary purpose. This doctrine applies to outright charitable gifts as well as to charitable trusts.

Doctrine of equitable approximation
Can create battles between charities for who is closer to intent

54
Q

Charitable Trust Enforced by

A

The duty of enforcement is placed upon the state attorney general. Under the UTC, however, the settlor and qualified beneficiaries (that is, current beneficiaries and first-line remaindermen) have standing to enforce the trust.

55
Q

Resulting Trusts Definition

A

Trust created by implication of law: actions speak louder than words
What would the settlor have done if put in words
Must go to court to get this

56
Q

Who benefits from a Resulting Trust

A

Settlor, alive
If settlor has died
Settlor’s successors in interest
Settlor’s heirs
Settlor’s will beneficiaries

57
Q

How Resulting Trust Created

A

Failed express trust
Ineffective trust creation
Merges beneficial interest back to settlor
Resulting Trust Implied from Excess Corpus
A resulting trust in favor of the settlor also arises when the trust purpose is fully satisfied and some trust property remains

58
Q

Purchase money resulting trust

A

When you give money to seller, seller gives title to someone else, what legal relationship is created?

In this type of situation, there are three possible explanations for the relationship between the parties:
Settlor/beneficiary of PMRT—Trustee of PMRT
Donor—Donee (gift)
Creditor—Debtor

Gift or purchase money resulting trust?
Expectation to be repaid: debtor creditor
Gift presumed if payor is close relative
PMRT if payor is not close relative

PMRT result:
Trustee is the person who gets the legal title, but owes it to the Settlor

59
Q

Constructive trust

A

Equitable remedy to prevent unjust enrichment
Equity turns the holder of legal title into a trustee when they may not in good conscience retain the beneficial interest in the property
Not automatic, must be pleaded and proven
Constructive trusts are imposed on specific property
Must do equity to get equity
Ie reimburse D for mortgage payments on improperly held property

60
Q

Grounds For Constructive Trust

A

Slayers
Fraud
Abuse of confidential relationship
Promises made in contemplation of death
Can be imposed on good faith heirs too if bad faith heirs caused creation

61
Q

Analytical Framework

A

Identify type of trust
Inter vivos or testamentary?
Private or charitable?
Look for elements of valid trust
If valid, look to traits of trust
Revocable? Irrevocable? Discretionary provisions?
Subject to being changed?
Court making any changes? Cy pres?
Can trust be terminated?
Powers of trustee
Standard of care and prudent investing and accounting
Fiduciary duties violated?
Liable to beneficiaries or third parties?

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