Trusts Flashcards
Valid trust
Settlor: creator, must have capacity
Intent
Trustee: holds legal title, courts will appoint if not named
Ascertainable beneficary: holds equitable title
Assets: the res, cash, securities, property, etc.
Inter vivos trust
an inter vivos trust is created while the trustor is still living. The trustee can designate himself as a trustee
requires delivery if third party trustee
Testamentary trust
a testamentary trust is created in a will or document incorporated into a will. the will must satisfy the requirements of an attested or holographic will
Trust purpose
Can be created for any purpose as long as it is not illegal or contrary to public policy. Alternative terms will be honored, and if none, then offending terms stricken
Omitted children
a child who is unintentionally omitted from the trust can force an intestate share if the child was born/adopted after trust created, or settlor didn’t know about the child
exceptions: otherwise provided for, or had other children and left the estate to the omitted child’s parent
Merger of Trust
If the same person is both the sole trustee and sole beneficiary, the trust will terminate
Declaration of trust
type of inter vivos trust where settlor names self as trustee, collects income during life and property goes to beneficiaries at death; if propery is real property, must be in writing
Deed of trust
Settlor creates a trust, is not the trustee, and the deed is delivered and property is transfered to Trustee; must always be in writing
Revocability
trusts are presumed to be revocable
Settlor may amend or revoke according tot rust terms, of by manidesting clear/convincing evidence of intent
if there are multiple settlors, ability of one to revokeamend turns on whether trust contains community proeprty
Pour over gift
a will directs property to be distributed to a trust; allows probate to be avoided
trust must be in writing and identified
ma be recovable trust, but if revoked, the pour over provision fails
Secret Trust
occurs when what appears to be an outright gift in a will is actualed based on a promise by the devisee/trustee to the testator/settlor to hold the property for another’s benefit
must be proven by clear and convincing evidence
remedy is constructive trust
Semi secret trust
a will directs a gift to be held in trust without naming a beneficiary
at common law, gift fails
remedy: resulting trust in favor of T’s heirs, modern trend is constructive trust in favor of intended beneficiary
Totten trust
bank account in depositor’s name as trustee for named beneficiary
Charitable trust
created for charitable prupose to benefit community
elements: charitable purpose and large class of unidentifiable beneficiaries
Not subject to RAP
Cy Pres
applies with charitable trusts
allows court to modify terms of a charitable trust when it cannot be performed as written, so long as it is consistent with settlor’s intent
Will seek a similar charitable purpse
Honorary Trust
without charitable purpose and without definte human beneficiary
meant to care for a pet, or tend to a grave
terminates on death of last surviving animal
others: typically limited by statute or RAP
Resulting Trust
when a trust fails, court creates a resulting trust requiring the holder of property to return it to the settlor or his estate
Constructive Trust
imposed when court concludes that person holding title to property would profit by a wrong or be unjustly enriched; wrongful conduct is required
Alienation of trust interest
a beneficiary’s equitable interest is freely alienable unless a statute or trust instrument limits it.
Once property is distributed to beneficiary, no restraints on alienation at all
Support trust
directs a trustee to pay income or principal as necessary to support the trust beneficiary and maintain their lifestyle. creditors cannot access assets unless providing a necessity to the beneficiary
Discretionary trust
trustee has complete discretion regarding whether or not to apply payments to beneficiary. Creditors have same rights as beneficiary if trustee decides to pay
Mandatory trust
trustee has no discretion, must distribute in accordance with the trust
Spendthrift trust
expressly restricts beneficiary’s power to voluntarily or involuntarily transfer interest;
creditors can generally not reach trust interest until paid out to beneficiary
exceptions: child/spousal support and basic necessities
Terminating Non charitable Irrevocable trust
by all beneficiaries if no material purpose violation
all beneficiaries and settlor: even if there is a material purpose violation
must distribute as directed by trust or settlor
Unfufilled Material Purpose
if settlro dies and all beneficiaries agree to terminate, the trustee can block termination if contrary to a material trust purpose
Resignation of Trustee
a trustee can resign on 30 days notice to beneficiaries, settlor (if living) and other co- trustees.
Or can get court approval
Removal of trustee
Unless trust provides otherwise, neither S nor B can get rid of T
court can remove T if incapable or materially breaches a duty, conflict of interest, or poor performance
Principal and Income allocations
common law: income to lifetime beneficiary, principal to remainder holder
Modern: focus on total return, may recharacterize to fulfill trust purposes so long as fair and reasonable
Lapse and Anti Lapse
apply to trusts, anti lapse protects relatives if they have issue
Trustee Duty of Care
duty to follow trust directions
duty to act as reasonably prudent person
duty to act as a prudent investor (look at overall portfolio)
duty to make property productive
duty to diversify
duty to be impartial
Duty of Good faith
[DRIP DIG]
Duty of loyalty
No self dealing
No further inquiry unless otherwise specified in trust terms, but still must be fair/reasonable
if conflict of interest, T must act in good faith
Delegation of trustee
okay to delegate, but T must oversee decision making
Remedies for trustee breach of duty
Removal
Damages for lost profits
Ratify
Tracing
T may be personally liable to third party
A co-trustee is liable unless no knowledge and could not have prevented
