Trusts Flashcards
Trust Creation
Valid Trust: A valid trust requires (1) intent; (2) ascertained beneficiaries (except for class gifts and charitable trusts); (3) trust res (identified property); (4) valid purpose; and (5) a testator (need not be filled, court will appoint).
Types of Trust
Express: property is transferred from one owner to another. This is the basic kind
Testamentary: Created by will, which must contain material provisions of trust, and arises on testator’s death
Pour Over: Structured to recieve and dispose of will assets.
Spendthrift: Occurs when beneficiary cannot alienate his interest and intent is to protect beneficiary. NO creditors
Support: Support where trustee makes distributions for beneficiary’s support, health, maintenance, or education. NO creditors
Discretionary: Trustee has discretion over distributions, principal, and income.
Charitable: Charitable trust is for (1) charitable purpose; and (2) benefits society
* Cy Pres: When a charitable objective becomes impossible or impracticable to fulfill, courts apply cy pres to substitute another similar charitable object near as possible to settlor’s intent
* Resulting: if cy pres doesn’t fulfill settlor’s intent, courts apply a resulting trust.
Resulting Trust: If trust purpose is satisfied, trust fails, charitable trust ends, this trust transfers property back to settlor or his estate
Rights for Income/Principal Beneficiaries & Creditors
Beneficiares: Entitled to income from interest income, cash dividends, and net business income
Remaindermen: Entitled to trust principal from net proceeds on sale of asset, stock dividends, and profits from sale of stock
Creditors: Can reach in to trust income EXCEPT for support and spendthrift trusts. HOWEVER, (1) government creditors; (2) necessaries for life creditors; and (3) spousal/child support creditors can reach into support and spendthrift trusts.
Modification/Revocation
Trusts are presumed revocable. Settlor may revoke or amend the trust as they wish.
Testamentary trusts are revocable until the testator dies.
Court can modify/terminate the trust if continuation would defeat purpose of the trust or modification would further the trust’s purpose.
Beneficiaries can compel modification or termination of a trust (even if irrevocable) if (1) all beneficiaries consent; and (2) it would not “frustrate the material purpose.”
Termination
Termination A trust terminates when:
* Purpose fulfilled
* Stated term expires
* Beneficiaries can compel modification or termination of a trust (even if irrevocable) if (1) all beneficiaries consent; and (2) it would not “frustrate the material purpose.”
Trustee Fiduciary Duties
Trustees have enumerated powers expressed in the trust and implied powers to carry out the trust instructions.
Duty of Loyalty - No self dealing or conflicts of interest. No further Inquiry - Self dealing is a per se violation of DoL, no reasonableness or GF standard applied.
DoL - Impartiality - Trustees must be impartial and ensure that all beneficiaries, present and future, are treated relatively equitably
Duty of Care: Duty to act as a reasonably prudent trustee
Duty of Care - Prudent Investor: Act as a reasonably prudent investor by having a sound investment strategy
Duty of Care - Duty to Diversify: Ensure that trust assets are invested in a variety of things to ensure risk is spread out.
Duty to Account and Disclose: Trustee must ensure that they keep records and respond to reasoanble requests for information.
Duty to not delegate: (Traditional) Trustee should not delegate, unless using due care and skill (modern)
Duty to make productive use of property: Don’t let property sit idle or cash sit in savings, rent or invest it.
Duty to Earmark: Don’t comingle personal and trust assets.
Duty to Co-trustees: Unless stated otherwise, must have unanimity with other co-trustees
Remedies
Monetary damages
Ratification
Removal of trustee
Defenses
Laches
Unclean Hands
Omitted Child/Spouse
Works just like Wills
Omitted Child
An omitted child is a child adopted or born after the testamentary interest was made unless: (1) purposefully omitted; (2) decedent had other kids and left bulk of estate to omitted childs parent; or (3) omitted child was provided for through other means.
If the decedent didn’t know the child, even if the child was born before the testamentory instrument, if they can prove paternity through (1) dad marrying the mom; (2) court determination; or (3) clear and convincing DNA evidence, they will be considered omitted.
Omitted Spouse
Marriage to spouse after testamentary interest will be considered omitted unless: (1) purposefully omitted; (2) waiver; or (3) spouse was provided for through other means. If this is the case, spouse gets their intestate share
Intestate Share - Intestate share is determined by looking at what would have happened if the testator died intestate. Thus, basically use the regular formula for looking at spouse and kids. If no spouse, look at how many kids there are and they generally divide equally.
To determine abatement, look at how much the omitted kid gets. Then look at what percent the abated people got from the total. For example, if A and B, with no surviving spouse, each get 50% of 300k and C is an omitted child. C will get $100k (300k/3). Thus, because A and B originally got 50% of the 300k, they need to fund 50% of C’s $100k. Thus, they each pay $50k and they all get $100k.
