Trusts Flashcards
settlor’s capacity
(1) a settlor with capacity to convey, (2) a present intent to create a trust relationship, (3) a competent trustee with duties (4) a definite beneficiary, and (5) the same person is not the sole trustee and sole beneficiary
present intent to create trust
settlor must intend to split legal and equitable title and to impose enforceable duties on holder of legal title; must intend for trust to take effect immediately
trustee
holds legal title to specific property and is under a fiduciary duty to manage, invest, guard, and administer the trust assets and income for the benefit of the designated beneficiaries, who hold equitable title
beneficiary’s disclaimers
beneficiary may disclaim an interest by filling a written instrument with the trustee
Generally, must be made within 9 months
anti-lapse statutes
everal states and UPC apply anti-lapse statutes to future interests created in trust
Trust makes alternative gift if related beneficiary does not survive testamentary settlor
definiteness
private trust; unascertainable beneficiaries must be definite at formaition of trust and ascertainable when their interests can be enjoyed
class gifts
gifts to class
common law: must be reasonably definite class
UTC: trustee may select from indefinite class
Failure to exercise power leads to trust in favor of settlor or their successors
trust property
Trust property is required for formation; property must be ascertainable with certainty
- Property = anything transferrable
-No trust property = trust fails
- Sufficient trust property: existing interest in existing property
- Remaindermen valid!
trust purposes
can be created for any purpose; invalid if purpose is illegal, contrary to public policy, impossible, intended to defraud settlors, RAP
Rule against perpetuities
nonvested property is invalid if uncertain to vest no later than 21 years after a person who was alive when trust was created
-Alternatives
–Wait-and see approach
–90 year vesting period
creation of trusts
Can be created by inter vivos transfer, inter vivos declarations, or by will
(1) intent, (2) identifiable corpus, (3) ascertainable beneficiaries, (4) proper purpose (5) mechanics and formalities
inter vivos trust
requires (1) present intent, expressed by conduct or words, (2) transfer/delivery to trustee, (3) satisfies SOF if required
testamentary trust
(1) Trust intent and essential terms must be ascertained from (2) will, from writing incorporated, or from power of appointment created in will
secret trust: settlor agrees trustee will hold property in trust for someone else, but will does not state purpose of gift (may present extrinsic evidence)
semi-secret trust: will makes gift in trust, fails to name beneficiary (gift fails)
oral trusts
pour over gifts from wills to trusts
Property goes into trust as the trust exists at the date of the testator’s death
Trust amendments made after will execution are effective to govern pour-over property
If trust revoked, trust fails
Pour-over property can be initial trust funding if: (1) Trust identified in will or (2) trust is executed before testator’s death
revocable trusts and irrevocable trusts
UTC: Settlor can revoke or amend trust unless the terms expressly state it is irrevocable
- Traditional rule: trust is irrevocable unless settlor expressly reserves the power to revoke or modify
charitable trusts
indefinite beneficiaries, charitable purpose, may be indefinite (RAP doesn’t apply), cy pres doctrine
cy pres doctrine
With charitable trusts, court can rewrite the trusts terms to conform with the settlor’s charitable purpose
honorary trusts
Trust that is not for charitable purpose, with no private beneficiaries
Commonly established for benefit of pets or maintenance of burial places
Common law: trustee is “on honor” to respect trust (no human beneficiary)
UTC: trust is enforceable by someone named in the trust instrument or appointed by court
spendthrift trusts
precludes beneficiary from voluntarily or involuntarily transferring their interests of trust; creditors cannot reach it to satisfy claims
discretionary trusts
Trustee is given discretion whether to apply or withhold payments to a beneficiary
Creditor cannot reach beneficiary’s interests, as beneficiary’s interest is not assignable (nothing to assign or transfer)
Exception: court can force trustee to satisfy judgment or order against beneficiary for support or maintenance of beneficiary’s spouse, child, ex-spouse
support trusts
directs trustee to pay so much of income or principal as is necessary for the beneficiary’s support
May be mandatory or discretionary
not assignable (impliedly spendthrift)
If instrument is silent, standard of support is accustomed standard of living
modification and termination by settlor
UTC: Settlor can revoke or amend trust unless the terms expressly state it is irrevocable
Traditional rule: trust is irrevocable unless settlor expressly reserves the power to revoke or modify
modification and termination by beneficiaries
With settlor’s consent: trust may be terminated or modified by consent of settlor and all beneficiaries (Modification valid even if conflicts with trust’s material purpose)
Without settlor’s consent: trust may also be terminated or modified on the consent of only all beneficiaries, but only if no material purpose of trust would be frustrated
UTC: court may modify trust w/o consent of all beneficiaries if (1) trust could have been terminated had all beneficiaries consent, and (2) interest of the beneficiary who does not consent would be adequately protected
modification and termination by the court
Court may terminate or modify trust if (1) trust could have been modified if all beneficiaries had consented, and (2) the interests of nonconsenting parties will be adequately protected
Court may modify or terminate if:
§ Unanticipated circumstances threaten purpose of trust
§ Continuation of trust is wasteful or impracticable
§ The value of trust is insufficient to justify cost of administration or achieve tax objectives
modification and termination by the trustee
Uneconomic trust: Trustee can terminate if property is less than $5ok and amount is insufficient to justify the cost of administration
Combo and division of trust: Trustee can combine several trust or divide, given that it doesn’t frustrate purpose, impair rights, or is contrary to terms of trust
trustee powers: imperative and discretionary
- Mandatory powers: trust instrument requires its exercise
Discretionary powers: trust instrument gives trustee discretion to exercise - liability for abuse or failure to exercise
- subject to judicial review
- Grant of absolute or uncontrolled discretion is still reviewable by court
trustee duties
- duty to administer trust (good faith and prudence)
- duty of loyalty (can’t act unfairly to beneficiaries)
- duty to report and keep records
- duty to keep trust property separate
- duty to enforce claims and defend trust
- duty to preserve trust property and make it efective
trustee’s duty for investment
Standard of care: prudent investor rule: the reasonable care, skill and caution of a prudent investor
Portfolio approach: prudence assessed as to overall investment strategy (not individual components)
- delegation ok if trustee acts prudently in agent selection, establishment of delegation terms, and periodic review of agent
trustee liability
Remedies for breach of trust:
- Specific performance
- Enjoin trustee from committing breach
- Compel trustee to pay or restore property
- Suspend or remove trustee
Damages:
- Amounts necessary to restore
- Trustee’s profit from breach
- Trustee is liable to a beneficiary for any profit from administration of trust, even if there was no breach
resulting trusts
Purchase money resulting trusts: where “beneficiary” furnishes consideration for acquisition of property but, with beneficiary’s consent, title is taken in name of trustee
Resulting trusts arising from failure of express trust
Resulting trust arising from incomplete dispositions of trust assets (excess corpus): where trust purpose is completely satisfied and some trust property remains
settlor is beneficiary; if settlor deceased, then settlor’s successor in interest
constructive trusts
not a trust but a remedy against unjust enrichment
- Clear and convincing evidence standard
- Requires particular property
Plaintiff must be able to identify the particular property as trust corpus
bad actor holds legal title to property (trustee) and has duty to deliver legal title to settlor or settlor’s successors (beneficiaries)
- theft or conversion
- fraud or duress
- breach of fiduciary duty
- homicide (slayer statute)
- breach of promise
basic trust relationship
Trustee holds legal title to specific property and is under a fiduciary duty to manage, invest, guard, and administer the trust assets and income for the benefit of the designated beneficiaries, who hold equitable title
trustee holds legal interest
beneficiary holds beneficial interest
settlor creates trust
material purposes of trust
Support of beneficiary
Spendthrift provision
Payment at certain ages
Payment at certain dates
Discretionary trust
