Trusts Flashcards
What is a trust?
A trust is a fiduciary relationship where a trustee holds legal title to specific property + beneficiaries hold the equitable title
What does the trustee do?
Trustee is a fiduciary and must:
(1) deal with the property with reasonable care
(2) must maintain the utmost degree of loyalty AND
(3) is personally responsible if their conduct falls beneath required standards
Owes these duties to the beneficiary
Who is the beneficiary?
Hold the equitable title and receive the benefit of ownership as laid out in the trust instrument
Generally has little/no control over the trust property
Do not need capacity–just need to be able to take + hold property
Whats a settlor?
The person who creates the trust
How do trusts actually work?
(1) settlor transfers legal title to trustee + equitable title to beneficiary
(2) trustee manages + invests the property per legal duties and trust instrument
(3) trustee makes payments to or for the benefit of the beneficiary
(4) when trustee’s duties are done, the trust terminates and remaining property goes to remainder beneficiaries
Why trusts?
(1) provide for + protect beneficiaries
(2) flexibility of asset distribution
(3) protect against own incompetence
(4) professional management of property (+ someone to sue)
(5) probate avoidance (especially in states where probate is cumbersome)
(6) tax benefits
What are the types of trusts?
Express Trusts
Resulting Trusts
Constructive Trusts
What is an express trust?
MOST COMMON
They are created by the express intention of the settlor
Private Trusts: for ascertainable persons
Charitable Trusts: for indefinite class of persons/public generally
What trusts are created by operation of law?
Resulting Trusts: arises from presumed intention of owner of property
Constructive Trusts: used as an equitable remedy to prevent unjust enrichment
What makes for a valid trust?
(1) trust intent
(2) identificable corpus
(3) identificable beneficiaries
(4) proper purpose
(5) compliance with mechanics + formalities
How does trust intent work?
Settlor must INTEND to split equitable + legal title and to impose fiduciary duties on legal title holder
No specific words are required
There need not be any communication to the beneficiary–delivery of property to trustee is enough
Must intend for the trust to take effect immediately
Promise to make a future trust isn’t enforceable sans consideration
Trust purpsoe
GENERAL RULE: can be created for any purpose
Invalid if:
-illegal
-performance requires crime or tort
-contrary to public policy
-violates RAP
Inter Vivos Trusts
Trust created while settlor is still alive
Declaration of Trust
Settlor declares themselves the trustee
-no conveyance of personal property needed but real property should be conveyed from the settlor as person to settler as trustee
Conveyance of Trust
Settlor transfers legal title to a trustee + either retains or transfers equitable title
-personal property identified or physically delivered
-real property = conveyed by need OR devised by will to testamentary trust
Pour over gift from will
A gift in will to inter vivos trust
Goes into trust as to date of death
NOTE: pour over gifts can be initial trust funding as long as (1) the trust is IDed in the will AND (2) the trust is executed before the testators death`
trust is created before death but SPRINGS into existence AT death when funding comes through
Testamentary Trusts
Trusts created in the settlors will
Requirement: must be a valid will
Secret Trust
“Constructive Trust” imposed when the settlor + will beneficiary orally agree that beneficiary will hold as trustee for someone else
-settlor relies on this promise
-but the will does not explicitly note the nature of the gift
Intended beneficiary: can use extrinsic evidence + must prove by clear and convincing evidence
Semi-Secret Trust
Will makes a gift in a trust but fails to name beneficiary
Gift fails + named trustee will hold property in a resulting trust for the testator’s successors in interest
Resulting Trust + Trust Formation
If a trust fails for lack of a beneficiary–a resulting trust in favor of the settlor or their successors is presumed
How to designate a trustee
-must have enforceable duties
must have ability to manage property
-capacity to hold and take
If trustee not named or can’t do it–courts will often appoint a trustee
Spit of Title
All good unless the sole trustee and the sole beneficiary are the same person
THEN title would merge and trust is terminated
This is only OK with a life estate so long as there is a reminder beneficiary