Trusts Flashcards
Trust
a fiduciary relationship where a trustee holds legal titles to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries who who equitable title
passes outside of probate process
tax benefits
Trustee as fiduciary
- deal with property with reasonable care
- maintain the utmost degree of loyalty
- personally responsible if their conduct falls beneath required standards
owes fiduciary duty to beneficiaries
Settlor
creates trust by supplying the initial trust property
Basic functions of trust
Settlor creates by transferring legal title to trustee and equitable titles to beneficiaries
Trustee manages and invests and makes payments in accordance with instructions and legal duties
Terminates when trustee’s duties are complete, any remaining property distributed to remainder beneficiaries
Classifications of trust
Express trusts
- private - private beneficiaries - ascertainable people
- charitable - charitable beneficiaries - indefinite class or general public
Operation of law
- resulting trust - presumed intention of owner of property - presumed to settlor if trust fails
- constructive trust - equitable remedy to prevent unjust enrichment
Elements of valid trust
Intent
Identifiable corpus
ascertainable beneficiaries
- notice not required but acceptance is
proper purpose
mechanics and formalities
Trust intent
- settlor has capacity to convey
- present intent to create trust when settlor owned property and prior to conveyance - no future intent
- competent trustee
- definite beneficiary
- same person is not the sole trustee and sole beneficiary
hope, wish, desire does not show intent
Identifiable corpus
Existing interest in existing property
- future interest
- future profits from existing contract
Qualified beneficiary
Beneficiary who is a current beneficiary or a first line remainder man
Disclaimer
Beneficiary does not ahve to accept interest
- file written instrument with trustee and treated as deceased
within 9 months of interest’s creation unless under 21, other states do not have time limit
cannot disclaim if exercised any dominion or control over interest or accepted any benefits
Anti-lapse statutes
Some states apply to future interests created by trusts, even if expressly made contingent on survival - unless trust makes an alternate gift in case of nonsurvival
Divorce
revoke gifts and fiduc appointments to former spouse
some states and UPC also revoke for relatives
treated as deceased
Private trust beneficiaries
Must be ascertainable by the time their interest are to come into enjoyment
example - class gift, unborn children
class gift
- CL requires reasonably definite class
- UTC - trustee may select from indefinite class
Trust purposes
Can create for any purposes except
- illegal
- contrary to public policy
- impossible to achieve
- intended to defraud the settlor’s creditors or based on illegal consideration
Contrary to public policy
- induct engagement in crim or tortious activities
- encourage immortality
- induce person to neglect parental, familial, or civic duties
Look at settlor’s alt desires
if it is a condition subs. - invalidate condition and trust is valid
if condition precedent - interest valid unless evidence that settlor would want it voided
Rule against perpetutities
many state abolish
some state do wait and see or 90 year vesting period
Trustee dies or refuses to accept
Will make intervivos fail
otherwise, court appoints unless evidence that settlor only wanted trust as long as that trustee served
Trustee accpetnace
Sing trust or written acceptance
substantially comply with terms
accept delivery of property unless notice of rejection
can resign after accepting by giving 30 days notice to qualified benef and cotrustees and settlor or court approval
Qualification of trustee
capacity to acquire and hold property
capacity to administer property (not minors or insane)
Removal of trustee
Court on its own or request by settlor, benef, co-trustee
- serious breach of trust
- serious lack of cooperation among cotrustees
- unfitness, unwillingness, or persistent failure to administer
- substantial change in circumstances
Intervivos trust
Created by settlor declaring himself trustee - keeps legal title - convey real property to settlor as trustee
created by transferring legal title to trustee - can keep or transfer equitable title
Statute of frauds
No writing needed for personal property
writing needed for trust of land
part performance precludes SoF defense - holder of legal titles acts as trustee
Pour over gift
Gift in will to trust
trust as exists on the date of death, even if amendment made after execution of will
can be initial funding of the trust if
- trust identified in will
- trust executed before t’s death
Secret trust
Settlor agrees with will beneficiary that the benef will hold the property in trust for someone else and relies on the promise but will does not state
intended trust benef can present c&c evidence - constructive trust created
Semi-secret trust
Will makes a gift but it fails to name benef - resulting trust for T’s successors
Spendthrift restriction
Cannot transfer interest, can only transfer once paid
settlor cannot use to protect own property unless domestic asset protection trust
exception - judgments or court orders for support or maintenance of benef child, spouse, or former spouse, or claims by the government
Support trust
pay only so much as necessary for benef support
Not assignable even without spendthrift clause
benef standard of living
Modification and termination
Settlor
- can revoke or amend unless terms expressly say irrevocable , other states say that it is irrevocable unless expressly reserve rights
- even if irrevocable - can with consent of all living persons with vested or contingent interest
Beneficiaries
- with settlor’s consent and all beneficiary
- without settlor’s consent if all beneficiaries consent and if no material purpose is frustrated
operation of law
- property exhausted or legal and equitable titles have merged
by court
- unanticipated circumstances threaten purpose
- impracticable or wasteful
- value of trust insufficient to justify cost
By trustee
- trst property less than 50,000 and insufficent to justify costs
Duties of Trustee
Duty to administer trust in good faith
- cannot delegate discretionary functions
duty of loyalty to trust and benef
- cannot deal with trust in individual capacity
- good faith or actual benefit is irrelevant
- voidable
duty to report
no commingling
duty to enforce claims and defend trust from attack
duty to preserve trust property and make it productive
Investments
Reasonably prudent investor standard
portfolio approach - overall investment strategy
must diversify unless reasonably believe trust is better served without diversification
if have special skill or knowledge, must use
social investing may breach duty of loyalty
may delegate investment and management functions
- must be prudent in selecting, establishing scope and terms, periodically reviewing
- not liable from decisions of agent
Liabilities of trustee
Breach of trust/investment - liable for greater of
- amount necessary to restore, or the profit
self dealing
- affirm
- set aside
- trace profits
not liable if
- reasonable reliance on terms of trust
- benef consented, released, or ratified
Exculpatory clause
Void if
relieve trustee of laibility for breach of trust in bad faith or reckless indifference
or abuse of confidential relationship
Liability to co-trustee
Not liable if did not join in action and exercised reasonable care in preventing or redressing breach
Charitable trust
Indefinite beneficiaries
may be perpetual
cy pres applies
RAP does not apply
- unless private to charitable trust
enforcing
- settlor
- qualified beneficiary
- state’s attorney general
Honorary or purpose trust
Pets or maintenance of burial places
CL- trustee honor to carry out terms
UTC- enforceable by someone named in trust or appointed
ant excess distributed to settlor
CL - RAP
UTC - for burial places not more than 21 years
Purchase money resulting trust
X (beneficiary) furnishes the consideration to purchase property but title is taken in the name of Y (trustee)
x expects an interest in the property, not the consideration back
exceptions when trust not presumed
- parties closely related - parent, gparent, spouse
- unlawful purpose, may if x misconduct slight compared to y’s unjust enrichment
- transferee obtained title wrongfully, but may create constructive trust
