Trusts Flashcards
What is required for the creation of a valid trust?
- Trust Property (res)
- One beneficiary
- A trustee (not fatal if absent; may be appointed by the court)
- Intent
- Creation
- Valid legal purpose
Must be able to acertain at least one beneficary, but a class or charity is sufficent.
Define
Creation of a Trust
A trust is the relationship in which a trustor gives a trustee the right to hold legal title to property under a fiduciary duty to manage, invest, and safeguard trust assets for the benefit of designated beneficiaries
Define
Precatory Language
Precatory (or wishful) language, such as “I wish” or “I hope” is inadequate. The settlor must have intent to create.
What are the types of trusts?
- Discretionary Trust
- Testamentary Trust
- Spendthrift Trust
- Support Trust
- Honorary Trust
- Constructive Trust
- Secret/Semi-secret Trust
- Totten Trust
- Charitable Trust
- Resulting Trust
Highlighted are most tested.
Define
Discretionary Trust
The testator gives sole absolute discretion to detrmine how much to pay the beneficiary.
Creditors can obtain payment when beneficiaries are paid.
Define
Testamentary Trust
Created by will, and will contains material provisions of the trust, and trust arises upon death of testator
Define
Spendthift
Can be full trust, or simply provision.
Occurs when a beneficiary cannot voluntarily alienate his interst, such that his interest is protected from creditors
Exception: When creditor has supplied necessary, child support or tax
Issue spot: A dumb beneficary who is protected from people trying to get money.
Define
Charitable Trust
A charitable trust is one that is made for charitable purposes and benefits society
What is the cy pres doctrine?
Cy Pres relates to charitable trusts. When the charitable objective becomes impossible or impractiable to fufill, sourts will substitute another similar charity that is as near as possible to settlor’s intent.
Define
Secret Trust
A secret trust, will, on its face give gift outright to A but the testator requires A to make secret oral promise to use the gift to benefit B.
Remedy is a constructive trust
Define
Semi-Secret Trust
A semi-secret trust will make a gift to a person within the trust, but names no beneficiary.
Maj: Declare semi-secret trusts invalid & apply resulting trust
Min: Allow extrinsic evidence to prove trust beneficiary.
Remedy is resulting trust
Define
Resulting Trust
A resulting trust is an implied-in-fact trust based upon the presumed intent of the parties and will transfer the property back to the settlor when:
1. purpose of trust is satisfied
2. express trust fails
3. a Charitable trust ends
4. trust is illigal
5. there is a semi-secret trust.
Define
Constructive Trust
A constructive trust is applied as a remedy to prevent unjust enrichment when:
1. Self-dealing or breach of fiduciary duties
2. Fraud in the inducement
3. Secret trusts
4. oral real estate trusts are created.
Revocable Trust
In CA, all trust are assumed revocable. Meaning they can be revoked during the Settlor’s life.
What are the duties of a trustee?
- Duty of Loyalty
- Duty of Care
- Duty to Invest
- Duty to Diversify
- Duty to Earmark
- Duty not to Comingle
- Duty not to delegatge
- Duty to account
- Duty to Collect/Protect property
- Duty to maintain marketablility
- Duty to keep trust property productive
Define
Duty of Loyalty
A duty of loyalty is owed to the trust and may not participate in self dealing, avoid conflicts of interest and must treat all beneficiaries equally
Define
Duty of Care
Must act as a reasonably prudent person dealing with trust affairs.
Define
Duty to Invest
A trustee must act as a prudent investor in the context of the entire trust portfolio.
Good investments = gov’t bonds, mutual funds
Bad investments = new business, 2nd deeds of trust
Define
Duty to Diversify
A duty to diversify investments and not put all assets into one investment stream.
Define
Duty Not to Comingle
A trustee may not comingle trust assets with personal funds or with the trust of another.
Define
Duty Not to Delegate
A trustee can rely on professional advisors but cannot delegate authority to them.
Modern trend: Trustee can delegate authoirty but the turstee may act by majority.
Define
Duty to Account
A trustee must account for assets and inform the beneficiaries with a statement of income and expenses of the trust on a regular basis, even if not requested.
Define
Duty to Keep Trust Property Productive
A trustee has a duty to continue making income with the trust property in order for beneficiaries to get full potential from trust assets.
When can a trustee terminate the trust?
A trustee has no power to terminate the trust unless provided for in the trust.
When can a beneficiary terminate the trust?
A beneficiary may compel termination of the trust if they are
- competent
- all consent
- and termination does not frustrate the purpose of the trust.
Remedies for beneficiaries due to breach of trust
- Damages
- Constructive trust
- Equitable lien on property
- Ratification of the transaction
- Waiver of the breach
- Removal of the trustee
What type of income does a life tenant of trust assets get?
A life tenant gets income from:
- Cash dividents
- Interest
- net income.
The life tenant pays for expenses on interest on loans, taxes, and minor repairs.
What income does a remainderman get?
A remainderman gets income from:
- Stock dividends
- net proceeds on sale of trust assets
The remaindermen pais expenes for principal of loan, and major repairs/improvements.
