Trusts Flashcards
Trust creation
Trust created by
- Declaration by owner
- transfer of prop during owner’s life to trustee
- power of appt
- enforceable promise
Trust validity
A valid trust requires:
- Intent (settlor must have intent to make trust)
- Identifiable property and beneficiaries
- Legal purpose
**Trustee need NOT be named, court can appt one
Limits on trusts
- Real property needs writing (think SOF)
- Personal property can be oral
- 21 year max for trustee
- Invalidation–see wills defenses (fraud, undue influence, capacity)
Types of trusts
- Express: all validity requirements met
- Testamentary: in will
- Pour-over: in settlor’s will, disposes prop at death
- Secret: no intent on face but beneficiary named in will
- Semi-secret: no beneficiary named but intent there
Main types of trusts: Spendthrift
Beneficiary protected from own fiscal irresponsibility. two features:
- Can’t transfer his interest
- Creditors can’t reach unless money owed for child or spousal support, basic necessities, or tax lien holders
Main types of trusts: Support
Directs trustee to pay income or principal as necessary to support beneficiary
- Includes support for health, quality of life or maintenance, education
*Creditors generally can’t reach except if provider of a necessity to B can be paid directly by trustee
Main types of trusts: Discretionary
Trustee has discretion to distribute or withhold payments to beneficiary
*Creditors have same rights as beneficiaries if trustee exercises discretion to pay
Main types of trusts: Mandatory
Trustee has no discretion, governs when and how trust prop is distributed
Main types of trusts: Charitable
One that is for charitable purposes and benefits society (NOT animals but poverty, religion, gov’t).
Charitable trusts and cy pres doctrine
Cy pres doctrine and charitable trust approach: a charitable trust is one that benefits society. when a charitable trust fails for any reason, the court may invoke the cy pres doctrine to find a similar substitute to follow the settler’s intent.
Main types of trusts: Resulting
Implied in fact; goes back to settlor’s estate. Arises from:
- Purpose of trust ends
- Trust fails
- Illegal trust
- Semi-secret
Main types of trusts: Constructive
Applied to prevent unjust enrichment for fraud, self-dealing, etc
Powers of trustee
Trustee has all enumerated powers and implied ones to carry out terms of trust
Trustee’s duty of care
General duty to act as reasonably prudent person and treat prop as his/her own
Duty of care sub-duties
- Be impartial to present and future B’s
- Act as prudent investor (exercise care when investing/managing trust assets)
- Diversify trust assets
- Make property productive (pursue possible claims to make max investments)
- Follow trust directions
BADMF
Duty of Loyalty general rule
Administer trust in good faith and act in best interests of beneficiaries when managing trust.
DOL: Self-dealing
When trustee acts for personal gain through her trustee position, COI arises between her interests and B’s.
- Examples: buying/selling trust assets, borrowing or making loans to trust, using trust assets to secure loan, transacting w/ relatives
- Effect: irrebutable presumption that breach of DOL happened, per se breach, no further inquiry.
- EXCEPT: when self-dealing authorized, transaction must still be reasonable and fair
Other duties
- Disclose
- Account and inform on trust status to B’s regularly
- Not commingle
- Defend and enforce claims involving trust prop
DAND
Liabilities of trustee
Personally liable for
- violating trustee duties
- torts committed by him
- K’s made within scope of trust supervision
**If T breached duties, B’s can sue trustee and seek damages or removal
Transfer of trust prop to BFP
- Cuts off B’s interest but if not to a BFP, B can set aside transaction
- 3rd party can hold prop as constructive trustee if they knew about trust prop
Allocation of trust
- Income to beneficiary
- Principal to future beneficiary
- Trustee uses best judgment in allocating
Alienation
B can assign/transfer their interest freely unless statute or spendthrift prohibits it
Revocation
Rule: Trusts are presumed revocable unless stated otherwise.
- Revocable: Settlor has the right to modify or terminate a trust
- Irrevocable: Modification or termination while settlor is still alive can occur only with (1) consent of all B’s and (2) proposed change does not interfere with primary purpose of the trust.
Modification
Court can modify the trust.
- For cy pres purposes or changed circumstances due to unforeseen circumstances and
- Necessity, in order to meet settlor’s intent.
Termination (who can terminate a trust and how?)
- Trustee: no power unless trust says otherwise
- Beneficiary: if all B’s consent, all competent and termination does not frustrate trust purpose
- Settlor: can terminate if he reserved power to do so
- Court: can terminate if purpose becomes frustrated or impossible or changed circumstances
- Automatically when purpose accomplished
- Settlor dies or no remaining interest and all B’s consent
Unfulfilled material purpose
Trustee can block a premature trust termination by the beneficiaries if the trust is shown to have an unfulfilled material purpose.
Removal of trustee
A court can remove a trustee if
- purpose of the trust would be frustrated by the trustee’s continuance in office or
- trustee violated a fiduciary duty
