Trusts Flashcards
A trust of personal property is valid if it has:
A trustee, a beneficiary, and trust property.
Trustee: manages the trust property and holds it for the benefit of the beneficiaries. A trust will not fail for lack of a specifically appointed trustee (court will appoint one).
Beneficiary: in a private express trust, beneficiaries must be definite and ascertain able. Further, the same person cannot be the sole trustee and the sole beneficiary or the trust collapses.
Trust property (trust res): must be identifiable.
Under the Uniform Trust Code, the default rule is that a trust is ___.
Revocable.
An irrevocable trust can still be terminated or modified in some circumstances.
Presumption of revocability—trusts.
Under the UTC, an inter vivos trust is revocable unless the instrument expressly states otherwise.
Termination of trust by settlor:
Settlor may terminate the trust if all beneficiaries are in existence and all agree to the termination
Termination of trust by beneficiaries after settlor dies:
Generally, even an irrevocable trust can be terminated if both the income beneficiaries and the remaindermen (1) unanimously consent and if there is (2) no material purpose of the trust yet to be performed.
Pourover will
A will that makes a gift to a trust is valid so long as the trust is identified in the will and the terms are incorporated in a writing executed before or concurrently with the execution of the will.
Under the modern approach, later-made amendments to the trust are valid.
Under common law, amendments made after execution of the will are not valid.
Discretionary trust
Trustee has discretion to decide when to make a distribution to a beneficiary. The beneficiary cannot demand any part of the income or principle. Nor can a creditor, unless it shows the trustee acted dishonestly or in a state of mind “not contemplated” by the settlor.
Support trust
Trustee must pay what is necessary for the beneficiary’s support.
Spendthrift trust
Restrains both the voluntary and involuntary transfer of a beneficiary’s interest.
Generally, a creditor may not reach part of a beneficiary’s distribution prior to the beneficiary reaching it.
- exceptions: (1) child or spousal support creditor; (2) judgment creditor; (3) claim of the state or United States; (4) claims for necessaries.
Charitable trust
May be created for a charitable purpose (poverty, education, religion, health, governmental/municipal purposes, etc.). It must have a large number of not readily identifiable individuals (rather than a few identifiable individuals). Not subject to RAP.
A charitable trust may terminate if the charitable purpose becomes unlawful, impracticable, or impossible. However, cy pres may save the trust.
Cy pres
Common law doctrine that is also part of the UTC.
If a particular charitable purpose has become unlawful, impracticable, or impossible to achieve; no alternative charity is named in the trust; and the court finds that the settlor had general, rather than specific, charitable intent, then the court may apply cy pres to modify or terminate the trust by directing that the trust property be distributed in a manner consistent with the settlro’s general charitable intent.
Honorary trust
Trust that does not have a charitable purpose or a definite beneficiary. Often a trust to take care of a thing (e.g., cemetery plot) for a non charitable purpose. Under the UTC, this is valid but may not be enforced for more than 21 years. Under common law, such a trust would not be valid if it violates RAP, but a court may characterize the trust as a power and allow the trustee to exercise that power in accordance with the trust terms for 21 years.
Duty of loyalty
Trustee has a duty of loyalty to act in the best interest of the beneficiaries.
Duty of care
Prudent administration.
Uniform Prudent Investor Act (UPIA) states that a trustee must “administer the trust as a prudent person would using reasonable care, skill, and caution.”
A trustee’s investment and management decisions with respect to individual assets should be evaluated in the context of the portfolio as a whole and as a part of an overall investment strategy rather than in isolation.
Duty to diversify—trustee not liable for declines in value due to a downturn resulting from general economic conditions, but is liable for failure to diversify absent directions to the contrary.
Remedies for a breach of trust:
Suspending or removing a trustee
Decreasing compensation
Compelling a trustee to perform trust duties
Compelling payment of damages
In a self-dealing case, the trust beneficiaries may:
Rescind the transaction and ask for the self-dealing purchase to be set aside (trust property is returned to the trust and the amount paid is refunded by the trust) or recover any profits the trustee made by reason of the breach.
A person writing a will or trust can give her beneficiaries a power of appointment, which ____.
Enables the beneficiary to designate who will receive specific property.
General power of appointment
The class of people that the beneficiary can exercise the power of appointment in favor of is unlimited (herself, creditors, etc.).
Majority view: general residuary clause in a will (“I give all of my estate…”) does not exercise a power of appointment. However, if the clause is coupled with a blanket exercise clause (“including all property over which I have a power of appointment”), any power of appointment held by the donee is exercised, unless the donor of the power specifically requires reference to it.
Minority: general testamentary power of appointment can be exercised by general language in the beneficiary’s will (residuary clause) even if it makes no reference to the power in the instrument (“everything to my husband”—the husband will get it), unless the creating instrument of the power made an express gift in default of the instrument stated that the power needed to be specifically mentioned.
Special (or limited) power of appointment
The class of people that the beneficiary can exercise the power in favor of is limited. A special testamentary power needs to be specifically exercised. The UPC adopts a substantial compliance rule which says that if it can be shown that the power holder intended to exercise a power, a blanket exercise clause may be sufficient.
Rule of convenience approach to giving gifts to a class
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 to giving gifts to a class
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 then the gift will fail.)
Note: this applies even if the beneficiary is not related to the settlor (and thus differs from most anti-lapse statutes).
Common law approach to giving gifts to a class
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 Decedents’ 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.
What is a trust?
An arrangement under which the trustee holds legal title to property for the benefit of the beneficiaries. Trustee has burdens and beneficiaries have benefits of property ownership. Trustee is subject to fiduciary standards; he is not privileged to use trust property as his own. Harsh “self-dealing” rules preclude trustee from doing so.
Delivery requirement
Does not apply to self-declaration of trust (“I hereby declare myself trustee…”) or testamentary trust.
For inter vivos trust with third party as trustee, there must be delivery of subject matter of the trust.
A trust may be created for any purpose that is not
Illegal, contrary to public policy, or impossible to achieve
Intent to create a trust:
Precatory (permissive language) does not create a trust—“it is my wish and my desire.”
Needs to show intent to require a use, not suggest a use. Or intent to impose a duty.
The “res” requirement
In order to have a trust, there must be a specific interest in property to which the trustee’s duties relate, such that the beneficiary who is dissatisfied with the trustee’s performance can say “you are not doing your job with respect to these assets.”
The subject matter of the trust must be certain and identifiable. If there is no certain and identifiable trust property, there is no trust!
Are choses in action and accounts receivable sufficient to support a trust?
Yes, they are interests in property and are thus sufficient even though they are intangible.
Ex: B states “I hereby declare myself trustee of the debt which A owes me, said trust to be for the benefit of C.”
NOT: A states “I hereby declare myself trustee of the debt which I owe to B.”
Gratuitous promise to create a trust in the future:
When a promise to create a trust is gratuitous (not supported by consideration), a trust arises when all elements of a valid trust have been met if, but only if, at that subsequent time the settlor manifests an intention then to create the trust.
Indicia of trust might include: distribution of income to beneficiary; or keeping records like a trustee would.
A private trust must have ____.
Ascertainable beneficiaries.
Ex: “friends” is not an ascertainable class.
Traditionally, a trust invalid for want of definite beneficiaries cannot be given effect as a power of appointment. However, today it can.
If class is defined, shares may be left to discretion of the trustee.
