Trusts 🤝 Flashcards
What is a trust?
A trust is a fiduciary relationship in which a trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title. The trustor/settlor creates a trust.
What are the three broad classifications of trusts?
- Express Trusts, which arise from the expressed intention of the owner of property to create the relationship with respect to the property;
- Resulting Trusts, which arise from the presumed intention o the owner of the property; and
- Constructive Trusts, which do not depend on intention but rather constitute a useful equitable remedy in cases involving wrongful conduct and unjust enrichment.
What are the five elements required for an express private trust?
- A settlor with capacity to convey;
- A clear and unequivocal present intent to create a present trust relationship;
- A competent trustee with duties;
- A definite beneficiary; and
- The same person is not the sole trustee and sole beneficiary.
There must also be a present and unequivocal disposition in trust of specific property then owned by the settlor, and the trust must have a valid trust purpose.
What is the effect of precatory language on an attempt to create a trust?
Most courts infer from precatory language (expressing the purported settlor’s hopes, wishes, or suggestions for the property) that no trust was intended and that the transferor only wished his desires to be known so that the transferee could comply with them if willing to do so.
Will a trust fail for want of trustee?
No. A trust will not fail for want of trustee.
A court can appoint a trustee, or, if the trustee named in the will that created the trust predeceased the testator, a successor trustee will be appointed in order to carry out the testator’s intention.
What are some qualifications of a trustee?
- Capacity to acquire or hold the title for one’s own benefit: absent a statute, anyone who has capacity to acquire or hold title to property for his own benefit has capacity to take property as a trustee.
- Admistrative capacity: the trustee must also have capacity to admister the property. Minors or insane persons would not have capacity to amdinister the trust.
- Must not violate any statutory limitations on the right to serve as trustee (e.g., limitations on persons or corporations to serve as trustees).
A court may remove a trustee on its own motion or upon request by the settlor, a beneficiary, or a co-trustee. What are some grounds for removal of a trustee?
A court may remove a trustee if his continuation in office would be detrimental to the trust. Grounds for removal include:
* Commission of a serious breach of trust;
* Lack of cooperation among co-trustees that substantially impairs trust administration;
* Unfitness, unwillingness, or persistent failure to administer the trust; or
* Substantial change of circumstances so that removal is in the best interest of all beneficiaries.
What is the effect of merger of equitable and legal title in the same trustee-beneficiary?
When the sole trustee (who holds legal title) and the sole beneficiary (who holds equitable title) are the same person, there is a merger of the legal and equitable titles, and the trust is defeated and terminated.
The trustee-beneficiary now holds the property in fee simple absolute.
The existence of multiple trustees or multiple beneficiaries will normally preclude merger.
In what way must a beneficiary have capacity?
The beneficiary or a private trust must be capable of taking and holding title to property—this could be any person, natural or artificial. An unincorporated association, however, has no capacity to take title, cannot be trustee, and cannot likely be a beneficiary.
Can a beneficiary disclaim his interest in a trust? If so, how?
Yes. No one can be compelled to accept an interest in a trust against his will.
A beneficiary may disclaim any interest by filing a written instrument with the trustee or, if the trust is created by a will, with the probate court.
If an intended beneficiary properly disclaims his interest, the trust is read as though the disclaimant was deceased as of the relevant date.
What is an anti-lapse statute? Do anti-lapse statutes apply to trusts?
Generally, anti-lapse statutes come into play only if a will beneficiary within a certain degree of relationship predeceases the testator.
Several states and the UPC apply anti-lapse statutes to trusts—even to future interests expressly made contingent on survival—unless the trust makes an alternate gift in case of a beneficiary’s nonsurvival.
What is the effect of a divorce on testamentary beneficial gifts and fiduciary appointments in favor of the former spouse?
Nearly all states have statutes under which a final decree of divorce or annulment revokes all testamentary beneficial gifts and fiduciary appointments in favor of the former spouse.. The trust is read as though the former spouse (and his relatives) is deceased.
To have a private trust, there must be definite beneficiaries. Must they be identified at the time a trust is created?
No. Beneficiaries need not be identified at the time a trust is created, but they must be susceptible of identification by the time their interests are to come into enjoyment.
May a private trust exist for the benefit of members of a class? If so, how definite must the class be?
Yes. A private trust may exist for the benefit of members of a class. So long as the class is a reasonably definite one, it is permissible that the members of the class are to be selected by the trustee in his discretion, or that the property is to be held for such members of the class as the trustee finds meet certain requirements.
If a trust fails for lack of a beneficiary, what is the result?
A resulting trust in favor of the settlor or his successors is presumed.
What type of property is sufficient to satisfy the trust property (res) requirement?
The property may be real or personal, tangible or intangible, legal or equitable, and it may be either a present interest or a future interest, whether vested or contingent.
The trust property, however, must be an existing interest in existing property.
How detailed must the testator’s identification of the trust property be?
The requirement that the trust property be identifiable and segregated means that the property is described with such certainty that it can be ascertained from existing facts:
E.g., “All of my real property to except Blackacre to Joan.”
But not, “The bulk of my estate to Joan.”
For what purposes may a trust be created?
A trust may be created for any purpose that is not deemed illegal, contrary to public policy, or impossible to achieve. A trust will fail if it was created to defraud the settlor’s creditors or was based on illegal consideration.
Is the Rule Against Perpetuities relevant to express private trusts?
Yes. Violations of RAP can arise in creating interests in trust. Pursuant to RAP, a nonvested property interest is invalid unless it is certain to vest or fail no later than 21 years after the death of a person who is alive when it is created.
What are three ways in which an express trust might be created?
A trust is generally created in one of three ways:
1. An inter vivos trust (living trust) may be created by a declaration of trust by a property owner, stating that he holds the property as trustee in trust;
2. An inter vivos trust may also be created by the transfer of property by the settlor during his lifetime; and
3. A testamentary trust is created by will.
Does a trust have to be in writing?
Generally, no. The creation of an oral trust and its terms, however, may be established only by C&C evidence.
*But most states require a writing if the subject matter of an inter vivos trust is land—must be signed by the person entitled to impress the trust upon the property.
