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TRUSTS & WILLS > TRUSTS > Flashcards

TRUSTS Flashcards

1
Q

what is a trust?

A

fiduciary relationship where one party (trustee) holds legal title to property for benefit of beneficiaries

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2
Q

trustee’s duty

A

trustee is a fiduciary and:
- must deal with property with care
- maintain loyalty
- and is personally responsible if conduct falls beneath required standards

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3
Q

beneficary

A
  • holds equitable/beneficial interest
  • beneficiary is the person who enforces trust
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4
Q

settlor

A
  • person who causes trust to come into existence; the settlor must supply property to the trustee so they can administer trust for beneficiaries
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5
Q

basic functioning of trusts

A
  • settlor creates trust by TRANSFERRING legal title to the trustee and equitable title to beneficiary
  • trustee takes care of the property per legal duties and the settlor’s instructions as in trust instrument
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6
Q

classification of trusts

A
  • express trusts - created by express intention of settlor (private beneficiaries—certain ascertainable people; charitable beneficiaries—indefinite class of persons/public in general)
  • trusts created by operation of law (resulting trusts – arise from the presumed intention of owner of property; constructive trusts are an equitable remedy used to prevent unjust enrichment)
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7
Q

first question in any trust question

A
  • figure out if trust is valid
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8
Q

five elements of EXPRESS PRIVATE trust

C
I
C
B
S

A
  1. settlor with capacity to convey (same as required to create a will)
  2. present intent to create trust relationship
  3. competent trustee w/ duties (INTER VIVOS TRUSTS ONLY)
  4. definite beneficiary - at time of trust creation, settlor must identify them by name or describe how they’ll be ascertained
  5. same person is NOT sole trustee and sole beneficiary

trust must have valid trust PURPOSE; owner has specific property they want to place in trust

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9
Q

identifiable corpus

A
  • b/c a trust is a type of property transfer, trust prop is required; property has to be ascertainable with certainty
  • the trust res must be existing property that settlor has the power to convey
  • future interest can be held in trust
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10
Q

beneficiaries

A
  • trust cannot exist without someone to enforce it
  • ascertainable beneficiary is needed to validity of every trust except charitable and honorary trusts
  • “friends” is insufficient
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11
Q

disclaimer

A
  • beneficiary can disclaim an interest by filing a written instrument w/ trustee (or, if a trust created by will is involved, w/ the probate court)
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12
Q

definiteness of beneficiaries under private trust

A
  • beneficiaries can be definite even though not yet ascertained (e.g., unborn kids)
  • class gifts (grandchildren, siblings): beneficiaries need to be ascertainable when they are to benefit (e.g., to my children and upon their death, to my then surviving grandchildren)
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13
Q

trust purpose

A

settlor can create trust for any purpose (trust purpose is invalid if it’s illegal; impossible to achieve; contrary to public policy)

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14
Q

trustee — if they die, resign, refuse appointment

A
  • trust won’t fail b/c trustee dies or resigns or refuses appointment; court will appoint successor trustee unless it’s clear that settlor intended trust to continue so long as a particular trustee served
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15
Q

acceptance of the trusteeship

A
  • person accepts trusteeship by:
    1. signing the trust
    2. behaving like a trustee,
    3. accepting delivery of trust property
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16
Q

removal of trustee

A
  • (1) court can remove trustee on its own motion or (2) upon request by settlor, beneficiary or co-trustee
  • successor trustee has all the rights and powers as original trustee

main question: whether continuation in office would hurt the trust

grounds for removal include:
- serious breach of trust
- serious lack of cooperation among co-trustees
- unfitness or failure to administer
- substantial change in circumstances

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17
Q

inter vivos trust

declaration of trust / conveyance in trust

A
  • created while settlor is alive either by (1) settlor declaring themself trustee for another (settlor retains legal title) or (2) by transfer of property to another as trustee (settlor conveys legal title)
  • present intent required must be manifested by conduct or words
  • if present trust is not established b/c there is no trust res, the trust arises when settlor subsequently acquires the res and remanifests trust intent

NOTE: failure to name a trustee may be a LACK OF INTENT and therefore prevent delivery of the res

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18
Q

inter vivos trust formal requirements

A
  • most states do not require writing for trust of personal property — oral trusts may be established by clear and convincing evidence
  • for a trust of LAND – writing needed under S of F
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19
Q

pour over gift from settlor’s will to intervivos trust

A
  • settlor can make gifts by WILL TO A TRUST established during their lifetime – pour-over is valid as long as the trust is created in testator’s lifetime
  • property goes into trust as trust exists at date of testator’s death (trust amendments made after will execution govern the poured over property)
  • the pour over property can be the INITIAL TRUST FUNDING if trust is (1) identified in the will and (2) trust is executed before testator’s death
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20
Q

testamentary trust

A
  • trust itself is created in the settlor’s will
  • court can appoint trustee

formalities:
- trust INTENT and essential TERMS of trust (trust res, beneficiaries, and trust purpose) must be ascertained from: (1) will itself, (2) from a writing incorproated by reference into the will, or (3) exercise of a power of appointment created by the will

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21
Q

transferable interests

voluntary transfers

A
  • beneficiary can freely transfer their interest in the trust
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22
Q

involuntary transfers - creditors

A

unless statute or trust says otherwise, beneficiary’s creditors may reach beneficiary’s interest in the trust

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23
Q

discretionary trusts

A
  • trustee determines whether to apply/withhold payments of income to a beneficiary
  • beneficiary CANNOT INTERFERE with exercise of trustee’s discretion unless trustee abuses power
  • beneficiary’s creditors: cannot reach the trust; beneficiary has no interest for creditors to reach
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24
Q

spendthrift trust

A
  • precludes the beneficiary from voluntarily or involuntarily transferring their interest in the trust (once trustee pays beneficiary, beneficiary can transfer property received)
  • beneficiary’s creditors are prevented from reaching it to satisfy their claims (distributions to beneficiary are reachable though)
  • NOT VALID if settlor is also a beneficiary

IN MOST STATES, spendthrift trust CANNOT be terminated without settlor’s consent!

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25
Q

when settlor is also beneficiary of spendthrift trust

A

settlor-beneficiary’s creditors can reach spendthrift trust

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26
Q

support trust

A
  • under this trust setup, trustee is REQUIRED to pay beneficiaries from trust as much as is necessary for beneficiary’s support (only this beneficiary can enjoy it; not assignable by definition)
  • can be mandatory or discretionary
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27
Q

modification and termination of the private trust
in general

A

trust will end automatically upon expiration of term specified in instrument (e.g., “when a person reaches a stated age”) or when all of the purposes of trust have been accomplished

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28
Q

by settlor

A
  • under UTC, settlor can revoke or amend trust UNLESS terms expressly say it’s irrevocable

power to revoke includes power to modify

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29
Q

by beneficiaries
with settlor’s consent

A
  • a trust may be terminated or modified upon the consent of all beneficiaries – even if the modificiation or termination conflicts with material purpose of the trust
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30
Q

by beneficiaries
without settlor consent

A

trust can end or be modified on (1) consent of all beneficiaries and (2) NO material purpose of trust would be frustrated

***watch for remote and contingent beneficiaries on early termination or modification – ALL BENEFICIAIRES MUST CONSENT, including unborn and unascertained beneficiaries (which can prelude obtaining unanimous consent)

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31
Q

examples of provisions in a trust that are likely to prevent the beneficiaries from modifying/terminating as they are mateiral purposes

A
  • payment at certain ages
  • support of beneficiary
  • spendthrift provisions
32
Q

termination of trust by operation of law

A

if the property has been exhausted or if legal and equitable titles have merged

33
Q

by court

A

if termination or modification is not available, a court can terminate or modify trust if:
1. trust could’ve been modified if all beneficiaires had consented; and
2. interests of any nonconsenting beneficairies will be protected

34
Q

by trustee

A

in some states, trustee can end trust if trust prop is less than 50k and amount is not enough to justify cost of administration (as long as truee provides qualified beneficiaires w/ notice)

35
Q

sources of trustee’s power

A
  • express powers granted by settlor in trust insrument
  • powers provided by state statute
  • powers granted by court
36
Q

implied powers

A

necessary or approriate to carry out terms of the trust (e.g., sell trust property so they can invest; they can lease it; incur reasonable expenses, etc)

37
Q

joint powers

A

co-trustees who are unable to reach unanimous decision may act by majority decision in many states

38
Q

imperative (mandatory powers)

A

a power is imperative if trust instrument requires its exercise (e.g., pay 1k each month to beneficiary; invest in Bell stock)

39
Q

discretionary powers

A
  • powers that the trustee may/may not perform (as trustee determines in their judgment to be the most appropriate); must exercise it in good faith
  • trustee liable only for abuse of discretion or failure to exericse discretion
40
Q

duty to administer trust

A
  • once trustee accepts position, trustee is bound to follow terms of trust and liable for noncompliance!
  • trustee must act prudently, in good faith, impartially
41
Q

duty of loyalty to the trust and its beneficiaries

A
  • cannot enter into any transaction in which trustee is dealing with the trust in their individual capaciuty - no self dealing
42
Q

trustee’s good faith is

A

irrelevant

43
Q

duty to report

A
  • trustee must keep beneficiaries reasonably informed of trust and its administration
  • trustee must respond to beneficiaries’ requests and provide accounting
44
Q

duty to enforce claims and defend trust

A

trustee must eneforce claims trust has and defend trust against claims

45
Q

duty to separate trust property and keep records

A
  • earmark trust property - keep trust property separate from his own (no commingling)
46
Q

duty to preserve property and make it productive

A

trustee must preserve trust property, including duty to make it productive (invest funds, lease or manage land, collect claims)

47
Q

investments

A
  • in virtually all states, trustee’s investment duties are governed by UPIA
  • trustee must use reasonable care to invest the property (prudent investor rule — trustee must exercise reasonable care and skill when investing and managing trust assets)
48
Q

Uniform Prudent Investor Act
portfolio approach

A
  • investment decisions by trustee must be assessed in context of entire trust portfolio and as part of an overall investment strategy that has risk and return objectives reasonably suited to the particular trust
  • some speculation may be appropriate
49
Q

diversification of investments

A

trustee must diversify the investments of the trust unless they determine that purposes of trust are better served without diversification

50
Q

fact pattern containing revocable trust and settlor directing trustee to make nondiverse investments

A

b/c trustee of a revocable trust owes their duties to settlor, such a directive may relieve the trustee of their duty to diversify

51
Q

trustee with special skills/expertise

A

are held to higher standard

52
Q

trustee with lower skills

A

cannot excuse a breach

53
Q

duty to review trust property

A

trustee must review trust assets to bring them into compliance with prudent investor rule

54
Q

loyalty and impartiality; social investing

A
  • trustee must act exclusively for the beneficiary when investing and managing trust assets
  • social investing may be problematic, especially if returns from a politically correct investment are lower than from other investments
55
Q

delegation of investment and mgmt functions permitted

A

only if a prudent trustee of comparable skills could properly delegate under the circumstances

trustee must act prudently in:

  • selecting agent
  • establishing scope of delegation; and
  • periodically reviewing agent’s actions

if delegation is proper, trustee is NOT liable to the beneficiaries for decisions or actions of the agent

56
Q

liabilities of trustee
remedies for breach of trust

A

if trustee commits a breach of trust duties, the court may:
- enforce specific performance of trustee’s duties,
- enjoin trustee from committing breach of trust
- compel trustee to pay money/restore property, or
- suspend/remove trustee

57
Q

damages to beneficiaries for breach

A

if trust commits breach of trust, trustee is liable to the beneficiaries for the greater of:
- amount necessary to restore trust property, or
- trustee’s profits from breach

a trustee is liable to a beneficiary for any profit arising from administration of the trust, EVEN IF there was no breach

58
Q

remedies for self-dealing

A

in case of self-dealing, beneficiary may have a choice of:
- affirm transaction if trust profited
- set aside transaction if trust lost money
- trace profits from trustee

59
Q

when trustee is not liable for breach

A

not liable to a beneficiary for a breach of trust if:
- trustee acted in reasonable reliance on trust terms, or
- beneficiary consented to conduct, released trustee from liability

60
Q

exclupatory clauses

A

void if they: relieve trustee of liability for breach of trust committed in bad faith or with reckless indifference

61
Q

liability of co-trustees

A

trustee won’t be liable for acts of co-trustees if trustee did not join in action and exercised reasonable care in preventing breach of trust

62
Q

trustee’s liability to 3rd parties

A

3rd party can sue the trustee personally only if the trustee failed to reveal the fidicuary relationship

63
Q

charitable trusts distinctive rules

CONSIDERED AN EXPRESS TRUST; very similar to an express private trust

A
  • charitable trust must have INDEFINITE beneficiaries (test: beneficiaries are indefinite and unascertainable if they’re unnamed and changing over time)
  • may be perpetual
  • and cy pres doctrines applies
  • trust must be for charitable PURPOSE / SETTLOR must be altruistic in giving benefits (DETERMINED BY COURT) - benefit the public (e.g., relief of poverty; promotion of health)
64
Q

cy pres

A
  • when charitable purpose selected by settlor is not practicable, court can select alternative – under cy pres, which means “as near as possible” by ascertaining settlor’s main purpose
  • under UTC, settlor’s general charitable intent is conclusively presumed (traditionally — to apply cy pres, the court had to determine that the settlor had a general charitable intent, i.e., settlor didn’t intend to limit gift to certain charity)
  • court has discretion to determine the settlor’s main charitable intent
65
Q

rule against perpetuities

A
  • does not apply to charitable trusts
  • rule does apply to shifts b/w private and charitable uses
66
Q

who can enforce the charitable trust?

A
  • brought by settlor
  • qualified beneficiary
67
Q

honorary trusts

A
  • commonly created for benefit of pets – trust property (usually money to care for the pet) can be applied only to carry out terms of the trust
  • CL: no human beneficiary to enforce honorary trust, so trustee is on their honor to carry out its terms; under UTC, trust is enforceable by someone named in the trust instrument or appointed by the court
68
Q

resulting trust

A
  • involve reversionary interests and based on presumed intent of settlor
  • settlor is the beneficiary of resulting trust
  • arises by operation of law whenever a person has created an express intentional trust, but the express trust fails or does not completely dispose of the trust property - when the trust fails or does not completely dispose of the trust property, the undisposed property goes back to the settlor in a resulting trust
69
Q

circumstances giving rise to resulting trust

A

arises where a settlor has conveyed prop to a trustee under express trust and
1) trust is void or unenforceable, or
2) beneficiary is dead or can’t be located

*resulting trust may also apply on failure of a charitable trust where cy pres is not applicable
*express trust ends and settlor becomes beneficiary of resulting trust and trustee conveys title back to settlor

70
Q

when else is a resulting trust implied?

A
  • resulting trust in favor of settlor also arises when trust purpose is fully satisfied and some trust property remains
  • purhcase money resulting trusts
71
Q

constructive trusts

A
  • an equitable remedy (must be requested) to prevent unjust enrichment resulting from wrongful conduct; equity turns holder of legal title into trustee when they may not retain beneficial interest in the property
  • proof of facts necessary to create constructive trust must be made by clear and convincing evidence
  • pff must be able to identify certain property as the trust res
72
Q

constructive trustee’s only duty

A

convey the property to the person who would have owned it but for wrongful conduct

73
Q

constructive trust arising from theft

A
  • if Y steals property from X, title remains in X; there is no need to imply a trust
  • BUT if Y uses prop to acquire other items, Y (the thief) takes title to the items and holds them in constructive trust for X
74
Q

constructive trust arising from fraud, duress, etc.

A
  • where Y acquires prop from X by fraud, duress, etc, or by breach of fiduciary duty owed to X, Y holds property in constructive trust for X’s benefit
75
Q

obligation of trustee of constructive or resulting trust

A
  • once court has said such a trust exists, the trustee’s sole duty is to convey legal title to the beneficiary
  • no duty on trustee to invest trust property

TRUSTS & WILLS (2 decks)

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