Trusts Flashcards
Who are the parties to a Trust?
- ) Settlor
- ) Beneficiaries
- ) Trustee
What are the elements of a Private Express Trust?
- ) Intent
- ) Property
- ) Valid Purpose
- ) Ascertainable beneficiaries
What are the two ways to create Express Trusts?
1) Inter Vivos
2) Testamentary
What is the difference between a Revocable vs. Irrevocable Trust?
A revocable trust can be terminated by the settlor at any time.
An irrevocable trust usually
cannot be terminated.
What is the Majority Rule regarding Revocable and Irrevocable Trust?
a trust is presumed to be irrevocable unless it expressly states otherwise.
What is a mandatory versus Discretionary Trust?
A mandatory trust requires the trustee to distribute all trust income. In a discretionary trust,
the trustee is given the power to distribute income at his discretion. The trustee does not abuse
his discretion unless he acts dishonestly or in a way not contemplated by the trust creator.
How does the Rule Against Perpetuities apply to Trusts?
Trusts are subject to the Rule Against Perpetuities. Therefore, a trust may fail if all interests
thereunder may not vest within the applicable period of perpetuities (usually a life in being plus
21 years).
Some jurisdictions take a “wait and see” approach to the application of the rule, refraining from invalidating future interests until it is clear that they will not vest within the
perpetuities period.
What does a Private Express Trust do?
A private express trust clearly states the intention of the settlor to transfer property to a trustee
for the benefit of one or more ascertainable beneficiaries.
What must the settlor intend to make a trust?
The settlor must intend to make a gift in trust. The settlor’s intent may be manifested
orally, in writing, or by conduct
What is Trust Property?
A valid trust must contain some property that was owned by the settlor at the time the trust
was created and was at that time transferred to the trust or to the trustee.
Any property interest, including real property, personal property, money, intangibles, partial interests, or future interests (whether vested or contingent) are sufficient.
What is a Valid Trust Purpose?
A trust can be created for any purpose, as long as it is not illegal, restricted by rule of law or
statute, or contrary to public policy. Terms that violate public policy will be stricken from
the trust; the trust will not fail overall unless the removal of the terms is fatal.
How are Trust provisions that restrain a first marriage handled?
Trust provisions that restrain a first marriage have generally been held to violate public policy. However, a restraint on marriage might be upheld if the trustee’s
motive was merely to provide support for a beneficiary while the beneficiary is single.
A complete restraint on marriage is more likely invalid than a partial restraint.
Who are “Ascertainable beneficiaries”?
The beneficiaries must be identifiable so that the equitable interest can be transferred
automatically by operation of law and directly benefit the person.
What are the exceptions to the need to have identifiable beneficiaries?
1. Indefinite class - A trustee can select a beneficiary from an indefinite class (such as “my friends”), unless the trustee must distribute equally to all members of the indefinite class (not valid).
- Unborn children - Trusts for the benefit of unborn children are valid, even though
the beneficiaries are not yet ascertainable at the time the trust is created. - Class gifts - Trusts for a reasonable definite class (such as my brothers, or my grandchildren ) will be upheld
- Charitable trusts - Trusts that exist for the good of the public at large) must not have individual ascertainable beneficiaries.
What is an inter vivos Trust?
An inter vivos trust is a trust created while the trustor is living that transfers some or all of
the trustor’s property into a trust. The trustor can designate himself or a third party as the
trustee.
What is a pour over provision?
A pour-over is a provision in a will that directs the distribution of
property to a trust upon the happening of an event, so that the property passes according to the terms of the trust without the necessity of the will reciting the entire
trust.
Can a pour over will our estate assets into a trust?
will may “pour over” estate assets into a trust, even if the trust
instrument was not executed in accordance with the Statute of Wills, as long as the trust is identified in the will, and its terms are set forth in a written instrument.
Pour over will assets can be the first funding of a trust already executed but not yet funded. A future promise to create a trust is not an executed trust until the intent is remanifested (unless there was valid consideration for the promise in the first place)
Amendments to trusts and the effect on pour over wills
A later amendment to the trust will apply to the assets passed to the trust by the previously executed pour-over will.
- The amendment does not have to be executed with formalities prescribed for the execution of a will. No witness or signature requirements!
What is a testamentary Trust?
A testamentary trust is created in writing in a will or in a document incorporated by reference into a will.
The will containing the trust must meet the attested or holographic will requirements.
What is a charitable trust?
For a trust to be considered charitable, it must have a stated charitable purpose and it must exist for the benefit of the community at large or a class of persons the membership in which varies.
What is considered a charitable purpose?
Purposes considered to be charitable include the relief of poverty, the advancement of education or religion, and other purposes benefiting the community at large or a particular segment of the community.
Who are indefinite beneficiaries?
The community at large, or a class comprising unidentifiable members, not a named individual or a narrow group of individuals, must be the beneficiary of a charitable trust
Are charitable trusts subject to the rule against perpetuities?
No, charitable trusts are not subject to the rule against perpetuities and may continue indefinitely
What is the cy pres doctrine?
A court may modify a charitable trust to seek an alternative charitable purpose if the original one becomes illegal, impracticable, or impossible to perform.
Look for facts indicating that a trust was created for the benefit of a charity that no longer exists (such as a retirement home, college or university, or zoo). There will usually be a similar charity that is in existence and it will ask the court to modify the trust and substitute it as the beneficiary of the trust.
Specific vs. General Charitable Intent
If the trust was created for the benefit of a specific organization or entity, then the gift will fail for want of a beneficiary, and a resulting trust will be created.
Generally, a court will determine if a settlor had a general charitable intent.
Under the UTC, a general charitable intent is conclusively presumed. Unless the trust terms espressly provide otherwise, application of cy pres is mandatory and court must reform the trust. Court has discretion to determine the settlor’s primary charitable intent.
