Trusts Flashcards
What is a trust?
A fiduciary relationship between the trustee and the trust beneficiaries. When created, property is divided between legal and equitable title. Legal title goes to trustee; equitable title goes to the beneficiary
Settlor
person who creates the trust
Trustee
Holds the assets of the trust for the benefit of the beneficiaries.
Beneficiary
Person who is entitled to the assets or profits of the trust
Express trust
Created when a person has the intent to create a trust and complies with the requisite formalities
Implied trust
Created by conduct, regardless of whether there was intent to create a trust
Elements of trust
PERPS SITT BAD
Purpose (not illegal), Settlor, Intent (no specific words required but no precatory language. must also have capacity), Trust property, Trustee, Beneficiaries, Acceptance, no Disclaimers !
Trust res must either be:
(1) specifically described with certainty OR (2) ascertainable with certainty from the description of it
Ascertainable beneficiary
Must either say by name or sufficiently describe how the beneficiary is to be identified; must be able to possess the property but doesn’t need capacity to manage it
Settlors and trustees as beneficiaries
allowed, but a sole trustee cannot be the sole beneficiary. that would be a weird guy taking himself out to dinner all the time
Trust involving real property
Must comply with the SOF, one of personal property does not
Testamentary Trust
A trust that enters into existence upon the death of a person and disposes of their property. Must meet the same formalities as a will
Revocable/Irrevocable Trusts
Under the common law, a trust is irrevocable UNLESS the settlor expressly retains the right to revoke or amend the trust. Under Uniform Trust Code (minority view) a trust is revocable unless the trust expressly provides otherwise
Pourover provisions in testamentary trusts
A pourover provision in a will devises property to a previously existing trust under the terms of the trust. A pourover provision is distinguishable from a testamentary trust, as a pourover provision does NOT create a trust; it transfers property to a trust already in existence. Therefore, a pourover provision CANNOT devise property to a testamentary trust (because a testamentary trust does not come into existence until the settlor dies).
Charitable Trust
Has the purpose of accomplishing a substantial amount of social benefit to the public at large or to a reasonably large class. Beneficiaries must be indefinite
Does RAP apply to charitable trusts?
NO
Cy pres doctrine
“as near as possible.” Courts will generally select a purpose or beneficiary that is consistent with the settlor’s intent if the settlor had a general charitable intent.
Discretionary trusts
Grant the trustee absolute power and discretion to make good faith determinations regarding when and how much of the trust property should be distributed. Courts may interfere if the trustee is making determinations in bad faith
Support trusts
Trust that contains a provision directing the trustee to pay the beneficiary as much of the income as necessary for the beneficiary’s education and support
Pure support trusts
Limit the trustee’s discretion. The trustee is obligated to spend only so much of the available trust property as is necessary for the education and maintenance of the beneficiary
Spendthrift trusts
prohibits voluntary and involuntary transfers
When can creditors get a beneficiary’s interest in a spendthrift trust?
(1) the settlor is the beneficiary (can’t do that!) (2) creditor seeking reimbursement for providing necessaries; or (3) creditor has an order for child support or alimony
Rights of creditors and trusts
(1) creditors of a beneficiary have no greater rights in the trust property than the rights of the beneficiary, so if the trust prevents a beneficiary from receiving the trust principal, then his creditors have no right to reach the thrust principal either
(2) absent a spendthrift provision, the beneficiary’s creditors may reach interest by attachment of the interest income to the beneficiary (i.e., creditors cannot go after the principal, but they may go after the interest income if there are no spendthrift provisions)
(3) Creditors can each the beneficiary’s interest once it is distributed to the beneficiary
Alienability of trust interests
Trust interests are alienable, devisable, and descendible unless the terms of the trust provide otherwise
Invasion of Trust Principal
Trustee may be allowed to invade trust princiapl if: (1) only one beneficiary exists; (2) the beneficiary will ultimately receive the trust principal; (3) there is a significant change in circumstances; or (4) the trust grants the trustee discretion to invade the principal
Cy Pres doctrine is applicable only if
(1) property is placed in a trust for a charitable purpose that has become unlawful, impossible, or impracticable to carry out; AND (2) the settlor manifested a general charitable intent to devote the property to charitable purposes
**absence of a reverted clause is evidence of the settlor’s general charitable intent
Termination of a trust
may be terminated if: (1) the trust is revoked or expires pursuant to its terms; (2) the material purpose of the trust has been satisfied or becomes unlawful, contrary to public policy, or impossible to carry out; (3) the settlor and all of the beneficiaries unanimously agree to terminate (4) all of the beneficiaries agree AND no material purposes for the trust to remain; (5) termination will further the purpose of the trust due to circumstances that were not foreseen by the settlor; OR (6) the court or trustee determines that the value of the trust property is too low to justify the cost of administration
Fiduciary requirements
trustee must: (1) manage the trust property exclusively for the benefit of ALL the trust’s beneficiaries; and (2) administer the trust in good faith pursuant to the terms and purposes of the trust
Trustee duty of care
The trustee possess a duty to exercise the degree of care and skill as a person of ordinary prudence would exercise in dealing with his own property. In making this determination, the focus is on the trustee’s conduct, not the results of such conduct
Uniform Prudent Investor Act
Requires the trustee to exercise the degree of care and skill as an investor of ordinary prudence would exercise in investing his own property (diversifying investments, avoiding risky investments and speculation, etc.)
Duty of loyalty
Duty to NOT obtain any personal gain from administering the trust, except for fees. Self dealing is a per se breach of the duty of loyalty. Self-dealing includes any transaction involving trust property that the trustee enters for his own gain
**settlor may express waive the trustee’s duty of loyalty in the trust instrument. However, a waiver will not excuse the trustee for acts done in bad faith
Duty to act impartially
Trustee possess a duty to be impartial with respect to ALL the beneficiaries of the trust when investing, managing, and distributing the trust property
Trust income allocations
receipt of rental payments from trust property and corporate distributions (cash dividends, return on investments, etc.)
Trust principal allocations
Funds received from the sale of trust property and repayment of loan principal
Powers of Appointment
A power of appointment is usually conveyed by will or trust from the donor to the donee granting the donee the right to appoint of distribute property left by the donor. The holder of a power of appointment does NOT receive full title to the donor’s property, only the power to appoint or distribute it.
General power of appointment
Granted when the donor does not leave any restrictions as to the appointment of the property. Thus, the donee is free to appoint the property to himself, his creditors, or any others he chooses
Special power of appointment
Granted when the donor leaves restrictions as to the appointment of the property. Generally, the donee may not exercise a special power of appointment for his own benefit
Power of appointment in a residuary clause?
Only if: (1) the power of appointment is a general power; OR (2) the testator’s will manifests an intention to include the property subject to the power
Approaches to giving gifts to a class
Rule of convenience: when a gift is made to a group such as “my children,” the class closes when at least one member is entitled to distribution
UPC approach: when a class gift is made, each living beneficiary will take their share and the deceased beneficiary’s share will pass to their surviving descendants (if there are no surviving descendants than the gift will fail). This applies even if the beneficiary is not related to the settlor (and thus differs from most antilapse statutes).
Common law approach: Under the common law, if the gift or remainder to a deceased beneficiary has already vested and there is no applicable statute, then it will go to whomever the instrument says it should go to or whomever the deceased person has specified in their will or through intestacy (this also applies to gifts that are not made to classes)
If you see a gift to a class in a Decedent’s Estates question: If a testator gives a gift to a group of unrelated individuals and one predeceased him, the deceased would not take, and neither would his descendants, unless the antilapse statute saved the gift
