Trusts Flashcards
Intent - Element
- Intent to split legal and equitable title
- Intent to impose enforceable duties on holder of legal title
- Settlor must have present intent to create trust
- No formal words required
- Promise to create trust in future is unenforceable unless there is binding contract
Any split of title into legal and equitable portions is permissibly if the same person does not own all the legal equitable title
- If same person owns legal and equitable title (is the trustee and beneficiary solely) the trust terminates
Elements of an Express Trust
- A settlor with capacity to convey
- Present intent to create a trust relationship
- A competent trustee with duties
- Definite beneficiary
- Same person is not the sole trustee and sole beneficiary
With a present disposition of specific property owned by settlor and trust must have a valid purpose!
Identifiable Corpus - Element
- Any property the settlor can transfer can be held in trust
- Property the settlor cannot transfer or does not yet own cannot be trust property
- Trust property must be separated from other property, but it can be a portion of
specific property
Beneficiaries - Element
Qualified Beneficiary
- Beneficiary who is current or first line remainder beneficiary
Beneficiary may disclaim interest if they have not accepted any benefits
- Once you accept benefits – CANNOT DISCLAIM!
Anti-Lapse Statutes
- Some states apply anti-lapse statutes to interests in trusts
- If requirements are met, trust interest will go to predeceased beneficiary’s
descendants
Divorce
- Divorce revokes all trust provisions in favor of ex-spouse
may allow trustee or third party to select which class members receive benefit
Class Gifts
Beneficiaries need not be identified at the time a trust is created but must be susceptible of identification by the time their interests are to come into enjoyment
Beneficiaries may be a class, provided that the class is sufficiently definite
o Grandchildren and siblings = yes!
o Friends = NO! How do we know who all your friends are?????
Settlor may allow trustee or third-party discretion to select class members, as long as the class is REASONABLY DEFINITE; if it is to broad the trust will be invalid
When a portion of the trust fails for lack of a beneficiary, a resulting trust in favor of the settlor or the settlor’s successors in interest is presumed
- Or alternatively, could be accumulated for distribution to the remainder beneficiaries down the line
Trust Purpose - Element
Trust may be created for any purpose that is not:
- Illegal
- Against public policy
- Impossible to achieve
- Intended to defraud
Trustee - Element
Trust will not fail for lack of trustee because court can appoint one
Acceptance of Trustee
- Must sign trust instrument or written acceptance
- If person starts acting like trustee, they will be deemed to have accepted
Trustee Compensation
- Trust instrument can indicate compensation
- If instrument is silent, trustee usually entitled to reasonable compensation
Court has power to remove trustee and appoint new one
Secret Trust
- Settlor agrees with Will beneficiary that beneficiary will hold property in trust for
someone else - Will does not state trust nature of gift
- Courts allow trust beneficiary to present extrinsic evidence and seek construct trust
remedy
Semi-Secret Trust
- Will makes gift in trust but fails to state beneficiary
- Gift fails -> trustee must give legal title back to settlor’s successors in interest
(resulting trust) - Extrinsic evidence NOT allowed
Creditor’s Claims in the absence of statute or spendthrift trusts
In the absence of a statutory prohibition or a spendthrift clause, the interest of an insolvent beneficiary can generally be reached to satisfy the claims of his creditors
However, the creditor reaches only the INTEREST of the beneficiary and not the trust property itself
Discretionary Trust
In a discretionary trust, the trustee is given discretion whether to apply or withhold payment of trust property to the beneficiary
o The beneficiary cannot interfere with the exercise of the trustee’s discretion unless
the trustee abuses her power
o Generally, a court will not interfere, unless the trustee acts in bad faith or
dishonestly
- Trustee determines how much beneficiary receives
- Beneficiary has nothing to transfer until trustee decides to distribute money, so
there is nothing for creditors to reach
o Exceptions for claims for child or spousal support
Spendthrift Trusts
Prohibits the voluntary and involuntary transfer of the beneficiary’s interest
- some states do not enforce against certain types of creditors
- Beneficiary cannot transfer interest
- Creditors cannot attach beneficiary’s interest
- Most states, a settlor cannot use a spendthrift provision to protect their own
property = Ineffective if Settlor is the Beneficiary
o Some states allow this -> Meaning settlor creates a trust with themselves as
the beneficiary = Domestic Asset Protection Trust
Support Trust
- Directs the trustee to pay only so much of the income/principal as is necessary
for the beneficiary’s support - Use of trust property limited to beneficiary’s support
- May be mandatory or discretionary
- Impliedly spendthrift
- Standard of support if not in instrument = Lifestyle to which beneficiary
accustomed
Creditors of Trustee?
Creditors of the trustee cannot reach trust property to satisfy their claims; they have only a personal claim against the trustee
Modification or Termination by Settlor
Settlor may modify or revoke trust for any reason unless trust instrument expressly states it’s irrevocable
