Trusts Flashcards
Elements of private express trust
- Present Intent
- Trust Property - in the trust
- Valid Trust Purpose
- Ascertainable Beneficiaries
- Writing - only if RP or Testamentary
Delivery of inter vivos trust
If settlor is trustee, then simple Declaration of Trust
If third party trustee, declaration of trust must be accompanied by Delivery
charitable trusts
Purpose - benefit the community at large. Don’t need to have ascertainable grantees
Exempt from RAP
Cy pres doctrine
Cy Pres
court may modify charitable trust to seek alternative charitable purpose if the original purpose becomes illegal, impracticable, or impossible
N/A if there is specific intent
If general intent, apply Cy Pres
Two types of remedial trusts
Resulting - happens when the a trust fails. Typically results in settlor getting back property.
Constructive - person holding property engages in wrongful conduct and is unjustly enriched
When can creditors of beneficiary reach trust assets?
Only when amounts become payable to beneficiary or beneficiary can demand payment (mandatory trust)
Subject to asset protection trusts
Asset protection trusts
Support - creditors can only get at these assets if they are providing a necessity for beneficiary (can ask trustee to pay them)
Discretionary trusts - creditors can only get if the trustee exercises discretion to make payment
Spendthrift - creditors cannot get at trust property. Cannot alienate interest. Creditors can only get at distributions. EXCEPTION: spousal support, necessities, taxes
Is a trust presumed to be revocable or irrevocable?
Majority - Presumed revocable
How can an irrevocable trust be modified or terminated?
By consent of all beneficiaries
EXCEPTION: Claflin doctrine - If trust is sought to be terminated/modified by agreement by all beneficiaries, trustee can prevent by saying the trust is still serving a material purpose.
If still serving material purpose and settlor is still alive, then by consent of settlor and all beneficiaries.
Trust Income and Principal allocations to beneficiaries
CL - life beneficiaries: income, remainderman: principal
Modern: allocation must be balanced to treat life beneficiaries and remaindermen fairly.
Trustee’s power
Given powers necessary to act as a reasonably prudent person in managing the trust
Duty of loyalty
Duty to act in good faith and reasonably
No self-dealing - breach leads to application of no further inquiry rule
No conflicts of interest
Remedy for breach - either avoid transaction or get profits from it
Duty of care (prudence)
Can delegate responsibilities if reasonable. Otherwise, must perform responsibilities
Must oversee decision making
Prudent investor
diversify
impartial
make property productive
Future interests held by grantor
possibility of reverter (FSD)
right of re-entry (FSSCS)
reversion (life estate)
Future interests held by beneficiary
Remainder (follows life estate)
Executory Interest
How can trustee accept appointment?
By complying with method of acceptance
If not specified, by (1) accepting delivery of trust res, (2) exercising powers, or (3) performing duties
Semi-secret trusts
when will directs that gift is to be held in trust, but doesn’t identify a beneficiary.
It is invalid and the gift is held in trust for testator’s heirs.
Automatic termination of trust
1 - when revoked or expired
2 - when purpose is satisfied
3 - if purpose becomes illegal
When can a court modify a trust?
- Unanticipated changes
- Inability to administer the trust effectively
- Trust becomes uneconomic
- To correct mistakes
- To achieve the settlor’s tax objectives
Liability of Trustee - third parties
Trustee is personally liable if Trustee acted tortiously or when entering contracts.
Trustee can seek indemnification from Trust if acting within scope of trustee duties.
Executory Interest
Someone other than the grantor holds a future interest preceded by either
(1) vested remainder subject to divestment; or
(2) fee simple subject to an executory limitation
Two types of trust beneficiaries
Income beneficiaries - people entitled to income presently
Remainder Beneficiaries - entitled to trust principal upon termination of trust
Exceptions to identifiable beneficiaries
-Indefinite class - all my friends valid, all my friends equally invalid
-unborn children
-class gifts
-charitable trusts
When is trust required to be in writing?
-Transfer of real property
-Testamentary trust
Pour-over provisions
Intervivos trust AND will
It is ok to have will that pours over to trust that wasn’t in existence at time of will execution.
The trust does not need to meet wills requirements, because it is an intervivos trust
Disclaimer
Must disclaim within nine months of it vesting (either the possessory or future interest)
Disclaimer by income beneficiary (current) - it will pass to the future interest remainder holder
Disclaimer by future interest remainderman - treated as having predeceased the life tenant (either revert to grantor, or if anti-lapse, goes to future interest holder’s estate)
When does class gift close?
Either when (1) preceding interest dies OR (2) when one member of class entitled to possession
Anti-lapse for trusts
majority of states don’t allow anti-lapse for trusts
UPC and minority it does apply
Allocation of expenses to income and principal
Ordinary expenses charged to trust income.
Extraordinary expenses charged to trust principal
Allocating assets as principal or income
Traditional approach - money generated by trust property is income. Money generated by a conveyance of trust property is principal.
Modern - can re-allocate as deemed necessary for purpose of trust.
Power of appointment
General vs. Special
Failure to exercise special - goes to (1) takers in default or, if no takers in default, then (2) defined beneficaries
Special Power of Appointment
Specific person or groups who are the object of the power, to the exclusion of others.
Can give an interest of equal or lesser value in exercising power of appointment.
