Trusts Flashcards
A trust does not need…
Witnesses, writing (for personal property), delivery of trust assets (for a testamentary trust), or consideration.
What are the two main types of implied trusts?
Resulting and constructive trusts.
What is a resulting trust?
It is the kind of trust that results when an express trust fails (for lack of ascertainable beneficiaries, for example) or when an express trust does not make a total distribution. In these cases, the court will imply a trust and make the settlor or his heirs the beneficiary.
What is a purchase money resulting trust?
In a land purchase, when one party pays the purchase money for a home for a non-relative, there is a rebuttable presumption that the grantee holds title to the property in trust for the payor, and that the payor could compel a reconveyance of the land at any time.
What is a constructive trust?
A constructive trust occurs when (1) there is fraudulent, wrongful, or otherwise unconscionable conduct and unjust enrichment or (2) when there is a conveyance to one party and instructions for another party to hold onto that property for them (“I leave all my money to my son, but the money will be managed by my brother”).
Construction of the meaning of trust provisions
A court will look at the settlor’s intent when construing a trust; parol evidence may be admitted to show intent. Merely precatory language will not create an obligation and the trust may fail.
Types of trusts
Private express trust (default, as long as there is a beneficiary, intent to create a trust, a trustee, trust property and a valid trust purpose), testamentary trust, spendthrift trusts, discretionary trusts, education or support trusts, trusts for a non charitable purpose, pet care trusts, charitable trusts, and Totten trusts.
What is a Totten trust?
A Totten trust is created when someone opens a bank account in their own name as a trustee for another. They are not true trusts, therefore they are revocable, the beneficiaries have no true interest until the depositor dies, the deposit is subject to the claims of the depositor’s creditors, and the depositor can revoke funds at will and owes no fiduciary duties to the beneficiaries.
Are charitable trusts subject to the Rule Against Perpetuities?
No.
What is the cy pres doctrine?
Cy pres doctrine: when a charitable purpose becomes unlawful, impracticable, or impossible to achieve, if the court finds a general, rather than specific, charitable intent, the court may substitute another charity or modify the trust in a manner that the court believes approaches the settlor’s original intent as closely as possible. General charitable intent is presumed under the common law and the Uniform Trust Code.
Rules for pet care trusts
Pet care trusts are invalid under common law, but are valid in California and under the Uniform Trust Code. Under California law, the trust terminates at the end of the life of the pet (property reverts to the settlor’s heirs). The instrument of the animal trust shall be liberally construed and presumes against precatory or honorable nature of the disposition and to carry out the general intent of the settlor. Extrinsic evidence is admissible.
Rules for noncharitable trusts
May not exceed 21 years in duration and may not require a beneficiary (for example, that a gravesite may be taken care of).
Rules for education or support trusts
The trustee pays what is necessary for the beneficiary’s support. The beneficiary cannot compel a distribution or transfer his rights. A creditor cannot compel a distribution. Under a pure support trust, a trustee has no discretion to withhold payments of income that are necessary to support the beneficiary, but may determine what is necessary to support the beneficiary. Under a discretionary support trust, a trustee has discretion to withhold payments of trust property from a beneficiary who has a support need.
Rules for spendthrift trusts
A spendthrift trust restrains both voluntary and involuntary transfer of a beneficiary’s interest. Neither the beneficiary nor the beneficiary’s creditors can reach more than the stated distribution to the beneficiary. Some favored creditors can stand in front of the beneficiary in line for distributions (i.e. garnish the distributions), such as child and spousal support creditors, restitution creditors, state or local public entities, the United States, and creditors who furnished necessaries to the beneficiary.
What is a self-settled trust?
When a spendthrift trust or support is made and the settlor is the beneficiary. The spendthrift provision preventing involuntary transfer of the settlor-beneficiary’s interest to creditors is struck. AKA can’t hide your money from creditors using a trust!
Rules for testamentary trusts
The requirements for a trust must be ascertained from three sources: the terms of the will, an existing writing incorporated by reference, and the exercise of a power of appointment created in a will.
Rules for pour-over wills
A pour over will is valid is any of the following three conditions exist:
(1) The trust is identified in the testator’s will and the terms are incorporated in a writing executed before or concurrently with the will.
(2) There are facts of independent significance – the trust already exists before or when the will is executed.
With the exception of spendthrift trusts, trusts are __, __, and __.
Alienable, devisable, and descendible.
Majority/minority rule regarding disclaimer of interests
Majority rule: A beneficiary has nine months to disclaim an interest. In California, the rule is “a reasonable time after acquiring knowledge of the interest.” Presumed to be filed within a reasonable time if disclaimed within nine months of the decedent’s death or after the future interests indefeasibly vests. Minority rule: any time before acceptance of interest. Under both rules, the disclaimer must be in writing, signed by the disclaiming, and contain sufficient information to communicate their intent to disclaim and what they are disclaiming.
Revocability rules regarding disclaimer
A disclaimer is irrevocable. If one waives a write to disclaim, the waiver is irrevocable. A disclaimer may not be made after the beneficiary has accepted the interest.
Effect of disclaimer under California law and common law:
California law: the beneficiary is generally treated as having predeceased the testator.
Common law: Disclaimed share passes to the surviving class members.
A trust terminates when…
The trust purpose is fulfilled, becomes unlawful, or becomes impracticable (unless there is general charitable intent for a charitable trust, in which case the cy pres doctrine applies).
The trust is revoked.
Rules for revoking a trust
In California, a trust is presumed to be revocable unless otherwise stated (this applies if the settlor was domiciled in California, or if it was executed in California, or if the instrument states that California law applies).
Under the UTC, an inter vivid trust is presumed to be revocable unless the instrument expressly states otherwise.
How is a trust revoked?
A trust can be revoked by:
(1) Any method outlined in the trust instrument.
(2) A writing, OTHER than a will, signed by the settlor or any other person holding the power of revocation so long as it is delivered to the trustee during the lifetime of the settlor.
Can creditors of the settlor reach the property of a revocable trust?
Yes.
Rules for irrevocable trusts
An irrevocable trust may be modified or terminated through the following means:
(1) By the settlor or the beneficiaries during the settlor’s life, with the written consent of all beneficiaries and the settlor.
(2) By the beneficiaries after the death of the settlor, and the court determines that the continuance of the trust is not necessary to carry out a material purpose of the trust, or that the reason for terminating the trust outweighs the interest in accomplishing a material purpose of the trust.
Terminating or modifying an irrevocable trust requires ascertaining all the beneficiaries. How do you determine which remainder men are beneficiaries in terms of terminating/modifying a trust? (Three approaches)
California approach: A remainder man is a beneficiary who are reasonably likely to take under the circumstances, when the trust describes a general class of “heirs” or “next of kin” or other language hinting at intestacy.
Common law: A remainder man is a beneficiary when they are the heir (under will or intestacy) of a class of persons equally related to a common ancestor (for example, a father leaves property to his four children and then to their heirs).
The Uniform Probate Code: A remainder man is a beneficiary when they are the children of a named beneficiary, unless the trust instrument suggests an alternate disposition.
Conditions for modifying or terminating a trust
The trust’s costs of administration is higher than its principal such that the continuation of the trust would defeat or substantially impair accomplishing the purpose of the trust.
Due to unanticipated circumstances, continuation would defeat or substantially impair the purposes of the trust.
Order of priority for distribution of trust assets
- As directed by the settlor, then
- As directed by the trust instrument, then
- To the settlor or his estate.
Accepting the role as trustee
A trustee accepts the trust by signing the trust instrument or a written acceptance, or
Knowingly exercising powers or performing duties under the trust instrument.
Rules for more than one trustee
Unanimous action is required, unless provided otherwise.
Duties of the trustee
Duty to administer the trust,
Duty to account,
Duty of loyalty,
Duty of care – prudent administration, and
Duty to allocate properly to principal and income.
Duty to administer the trust: duty of loyalty for revocable and irrevocable trusts.
The trustee shall administer the trust prudently and in accordance with the terms of the trust.
If the trust is irrevocable, the trustee must administer the trust solely in the interest of the beneficiaries.
If the trust is revocable, the trustee has a duty of loyalty to the settlor.
Powers of the trustee
In order to administer the trust, the trustee has all the powers listed in the trust instrument and the implied necessary powers to accomplish the trust purpose.
Trustee’s duty to account
The trustee must keep and render financial accounts and furnish information to the beneficiaries at their request.
Trustee’s duty of loyalty
If the trust is irrevocable, the trustee must administer the trust solely in the interest of the beneficiaries.
If the trust is revocable, the trustee has a duty of loyalty to the settlor.
