TRUSTS Flashcards
Remedies for Trustee Breach of Fiduciary Duty
When a trustee commits a breach of trust, a beneficiary has a cause of action to:
- Recover damages;
- Compel the trustee to perform his duties;
- Require an accounting;
- Enjoin the trustee from committing a breach of trust;
- Compel the trustee to redress the breach by them back;
- Remove the trustee;
etc.
A trustee who commits a breach of trust will be personally liable for any resulting damages.
Statute of Limitations for Beneficiaries Suing Trustees
Without a written report, a beneficiary must bring an action for breach of trust against a trustee within 6 years of discovery of the breach, or when the beneficiary reasonably should have discovered the breach.
If the beneficiary receives a written report detailing the breach, they must bring their claim within 2 years of receipt.
SOL is tolled for minors until they reach 18.
Co-Trustee Liability
If two or more co-trustees are jointly liable to the beneficiary, each co-trustee is entitled to contribution from the other as determined by their degree of fault.
Revoking a Trust
An inter vivos trust is presumed to be revocable unless the instrument expressly states otherwise. A revocable trust is amendable.
If the trust is irrevocable, the settlor may terminate the trust if all beneficiaries are in existence, and all agree.
After the settlor dies, an irrevocable trust can only be terminated if all beneficiaries unanimously consent, and there is no remaining material purpose.
Trust Definition
A trust is a fiduciary relationship under which title to property is bifurcated among the trustee, who holds legal title, and the beneficiaries, who hold equitable title.
Precatory Language
Precatory language (“wish”, “hope”, etc.) typically will not create a trust unless they are sufficiently imperative.
“I hope you will use this property to do this.” is invalid.
Requirements of a Valid Trust
Under the Revised Georgia Trust Code, a valid trust must —
- Be in writing and signed by the settlor;
- The settlor must have had a present intent to create a trust;
- The settlor must have had capacity to do so;
- The trust must name specific and identifiable trust property (res) that is in existence at the time of creation;
- Must name reasonable ascertainable beneficiaries; and
- Must name a trustee and their duties (will not fail in the absence of this element alone, court can appoint);
- A trust purpose that is not illegal or substantially immoral.
If not all requirements are met, the court may create an implied (resulting) trust.
Class Gifts
A named class can be the beneficiary of a trust as long as the class is “sufficiently defined”. A class is “sufficiently defined” if all individuals are ascertainable within the bound of the Rule Against Perpetuities.
Members of a class can change or shift, as long as they remain ascertainable.
Proper Trust Purpose
Can be created for any purpose that is not illegal or would “tend to encourage immorality.”
Conditions Prohibiting Marriage or Requiring Divorce
Are against public policy and may render a trust invalid.
Any limitation on the freedom to marry is closely scrutinized.
Testamentary Trusts
A trust created by a will or other document in which the settlor’s death is a condition precedent to the creation of any interest.
Pour-over Provisions
When a settlor’s will devises property to a trust created during the settlor’s lifetime. Will pass outside of probate.
Valid if —
- The trust is identified in the will.
- The provisions of the trust are in a written instrument that was executed before or concurrently with the will.
Property will then be administered according to the trust, not the probate court.
Charitable Trust
Must have a stated charitable purpose recognized under Georgia law. The Rule Against Perpetuities generally does not apply to charitable trusts.
Does not name a specific beneficiary; must be an indefinite class.
Cy Pres Doctrine
Where the specific charitable purpose is no longer achievable and the settlor has not named an alternate beneficiary, the court will apply the Cy Pres doctrine to apply the gift to another charitable purpose as close as possible to the original intent.
Honorary Trust
A trust which has no beneficiary and confers no charitable purpose, but instead was created to pursue a private goal of the settlor.
(I.e., “please use this money to take care of my garden.”)
The trustee is not required to carry out the settlor’s goal since the elements of a valid will have not been met, however, the trustee is “on their honor” whether to perform or not.
If the trustee does not carry out the settlor’s intent, the trust will fail and a resulting trust may be created.
RAP applies.
Discretionary Trust
Trust in which the beneficiary has no rights to income or principle until the trustee decides to distribute.
Up to the trustee’s discretion as to when to distribute.
Prior to distribution, creditors of the beneficiary cannot compel payment.
Support Trust
Trustee must pay/distribute what is necessary for the beneficiary’s support.
Includes health, education, maintenance, and other support.
Beneficiary cannot compel more than what is needed for support, and creditors cannot reach the assets prior to distribution.
Spendthrift Trust
Prevents both voluntary and involuntary transfers of a beneficiary’s interest.
Creditors cannot reach undistributed assets unless for child support or alimony, or to satisfy a tort judgment, tax lien, or restitution from a criminal conviction.
Modification of a Trust
A settlor cannot modify a trust unless the ability to do so was expressly reserved in the trust instrument.
If all beneficiaries of legal age unanimously consent, with permission from the settlor, the beneficiaries may modify.
If all beneficiaries are not in agreement, a beneficiary can compel modification if it would not prejudice the non-consenting beneficiaries.
Revocable vs. Irrevocable Trusts
A revocable trust is a trust that the trust maker can change, amend, or revoke during his or her lifetime.
An irrevocable trust is one that the settlor cannot modify or revoke. Settlor permanently relinquishes any right to make changes to the trust.
An inter vivos trust is irrevocable unless the power to revoke is expressly reserved in the trust instrument. Once a valid trust has been created, the settlor can only modify or revoke the trust to the extent that the trust instrument allows it.
If all beneficiaries are of legal age and unanimously consent, with permission of the settlor, the beneficiaries may revoke or amend.
Termination of a Trust
After the settlor dies, the trust will not be terminated if there is still a MATERIAL PURPOSE to be accomplished, even if all beneficiaries agree.
If the settlor is dead, there is no remaining material purpose, and all beneficiaries of legal age unanimously consent, the trust can be terminated.
Any conveyance from the trustee that would merge the legal and equitable title will automatically terminate the trust.
Passive Trust
If a trustee has no power or duty other than to hold the property, the trust is “passive” and will be automatically terminated.
Court Termination of Trust/Equitable Deviation
If the cost of administration of the trust would substantially defeat or impair the purpose,
If the purpose has been sufficiently fulfilled or has become illegal or impossible,
Or if unforeseen circumstances substantially impair the accomplishment of the trust purpose,
The court may terminate the trust and order distribution of the principle.
Resulting Trust
A resulting trust is created if the trust failed for any reason, the trust was fully performed without exhausting all trust property, or if a purchase-money resulting trust was created.
The trustee is then required to transfer all property to the settlor or his estate.
Trustee Liability
Trustees are personally liable for any losses due to a breach of trust. A beneficiary can seek damages and removal of the trustee upon breach.
The trustee is also personally liable for losses due to a co-trustee’s breach if the trustee approved of, consented to, negligently delegated, or concealed the co-tenant’s breach and failed to prevent or resolve it.
A successor trustee is only personally liable for the predecessor trustee if they knew of the breach and failed to redress it.
Trustee Powers
Trustee powers are established by the trust instrument and state statute. They also include all implied powers necessary to administer the trust.
Trustee powers include, but are not limited to —
- The power to sell or transfer trust property;
- The power to enter into contracts on behalf of the trust;
- The power to invest or reinvest trust property;
- The power to pay taxes/debts/insurance on the trust property.
Trustee Duty of Prudence/”Prudent Investor Standard”
The trustee must exercise the judgment and care of a reasonably prudent person acting in a like capacity. Under this standard, the trustee is authorized and required to maintain a variety of investments to diversify the trust portfolio.
Trustee Primary Duty
The primary duty of a trustee is to hold and preserve trust property and protect against loss or waste.
Principal and Income Allocations
Principal = Property held for distribution to a remainder beneficiary upon trust termination.
Income = Profits/money/property received as a return from the principal.
Ordinary expenses come out of the income, and extraordinary expenses come out of the principal.
Life beneficiaries get income; remainder beneficiaries get principal.
Trustee Duty of Loyalty
Trustee has the duty of loyalty and utmost good faith in all matters pertaining to the trust.
Must avoid all conflicts of interest including self-dealing.
Can only enter into a personal transaction with the trust if the trust instrument authorizes it, the court grants permission, or all beneficiaries of legal age unanimously consent.
Asset Allocation
Ordinary expenses come out of the income, and extraordinary expenses come out of the principal.
Life beneficiaries get income; remainder beneficiaries get principal.
Rule Against Perpetuities
Any interest must vest, if at all, within 21 years after some life in being at the time of creation of the interest.
Georgia applies the “wait and see” rule, under which a court will give a grace period of 90 years within which the interest must vest or is terminated.
Powers of Appointment
A power of appointment enables a beneficiary specified by the settlor to designate who can receive property.
A power of appointment is created when a donor gives power to a donee to choose the beneficiaries of their trust or will.
A “general power” of appointment = full discretion to the donee to appoint anyone they want.
A “specific power” of appointment = specifies the class within which the donee must choose to appoint from.
Remainder Beneficiary
Entitled to distribution from the trust principal.
