Trusts Flashcards
Express trust requirements
- Intent
- Trust property
- Valid trust purpose
- Ascertainable beneficiaries
Inter vivos trust
Created while trustor is living, trustor can designate himself as the trustee or third party
Testamentary trust
Created in writing in a will or document incorporated by reference into a will. Must meet attested or holographic requirements
Intent in creating a trust
Settlor may manifest intent orally, in writing, or by conduct. Manifestation of intent must occur prior to or simultaneously with transfer of property
Trustee not designated by settlor
Court will appoint one
Funding a trust
Needs identifiable trust property (res), described with reasonable certainty
Valid trust purpose
Trust can be created for any purpose as long as it is not illegal or contrary to public policy. If one of trust terms violates public policy, alternative terms will be honored, if none, the term will be stricken
Ascertainable beneficiaries
- Must be identifiable
- May refer to outside writings or acts to identify beneficiaries
Exceptions:
- class gifts need to be reasonably definite (my brothers, my grandchildren)
- charitable trusts do not need individual ascertainable beneficiaries
Omitted Children
Child omitted can force an intestate share IF:
1) child adopted or born after trust
2) settlor mistakenly believed child was dead
3) child unintentionally omitted
Limitation: see if child got something else other than trust
Undue influence (traditional approach)
Contestant must show:
1) susceptibility: testator susceptible to being influenced
2) motive: influencer had reason to benefit
3) Opportunity: the influencer had opportunity to influence
4) causation: influencer caused an unnatural result
(COMS)
Undue Influence re confidential relationship
Presumption of UI arises when
1) principal beneficiary has confidential relationship w testator (parent/child and attorney/client)
2) the principal beneficiary participated in executing the will AND
3) gift to beneficiary is unnatural
(If presumption arises, needs to show clear and convincing evidence of no undue influence exercised, otherwise intestate share given)
Fraud in the inducement
Misrepresentation that causes trustor to make a different trust that he otherwise would’ve made. Must show that trustor would not have made the gift if he knew the truth
Fraud in the execution
Trustor does not know he is creating a trust or is not told the true content of the trust
Charitable trusts
Purpose: benefiting community at large
Beneficiaries must be in the community at large (to this church, etc)
Failure to follow trust terms
Trustee can sue for return of funds
Cy Pres Doctrine
Court may modify charitable trust to see alternative charitable purpose if original charity becomes illegal, impractical, or impossible
Specific Intent for charitable trust
Court may not modify the trust and the trust will be terminated and become a resulting trust
General intent for charitable trust
Court will substitute a similar charity
Income beneficiary
Receives income from the trust (profits from a business or rent)
Remainder beneficiary
Entitled to trust principal upon termination of trust
Lapse and anti-lapse
Modern and CA rule: if beneficiary was related to settlor and B dies. The B’s surviving child will take the gift
Class gifts:
If trust beneficiaries are a class, only members of the class alive at the time of execution of the trust receive its benefit
Discretionary trust
Trustee given complete discretion to apply payments to beneficiary. Creditors have the same rights as beneficiary if trustee exercises option to pay
Mandatory trust
Trustee no discretion. Trust governs when and how it’s property is distributed
Alienation
Beneficiary can assign their equitable interest in trust property to third parties.
Support trusts
Directs trustee to pay income or principal AS NECESSARY to support a beneficiary. Creditors cannot receive this unless providing a necessity to beneficiary
Spendthrift clause
Not allowed to transfer interest when this in place. Creditors cannot reach trust interest unless money is owed for child or spousal support, basic necessities, or tax lien holders
Trust termination revocable
Settler has the right to modify or terminate trust (presumed)
Trust termination irrevocable
Has to be expressly stated. Modification or termination may occur while settlor is alive ONLY with consent of all beneficiaries and if the proposed change will not interfere with a primary purpose of the trust.
When will a trust terminate
Automatically when purpose is completed
If settlor deceased and has no remaining interest and all beneficiaries consent (trustee can block this by showing unfulfilled purpose)
If it becomes illegal, impracticable, or impossible
Trustee Powers
Trustee has powers granted expressly in the trust, and powers necessary to act as reasonably prudent person in managing the trust, including implied power to contract, sell, lease, or transfer property
Trustee Duty of Care
1) Duty to act as RPP and treat property as if her own
2) Duty to follow trust directions
3) Investments (not risky and diverse)
4) Duty to make property productive (pursue all possible claims, derive maximum from investments, sell when appropriate, insurance, act in reasonable time, pay expenses
5) Duty to be impartial (balance interests of present B’s, and for future B’s
R I FTD I PP
Duty of Loyalty
Duty to administer trust in good faith and to act reasonably when investing property
Managing the trust solely in the best interests of the beneficiaries
Self-dealing
When the trustee personally engages in transaction involving trust property, or conflict of interest arises
Prohibited self-dealing transactions
Buying/selling trust assets, selling property between trusts that trustee manages, borrowing from or making loans to trust, doing anything for personal gain.
Irrebuttable presumption that duty is breached when self/dealing is an issue (PER SE BREACH)
- unless authorized by Bs, S, or court, still must be reasonable transaction
Duty to disclose
Disclose complete and accurate info about property and allowing access to records and accounts
Duty to account
Periodically account for actions taken on behalf of the trust so that trustee’s performance can be assessed against the terms of the trust
Remedies for violation of trustees duties
Lost profits, interests, other losses due to T’s responsibility
Beneficiaries may sue trustee and seek damages or removal of trustee
