Trusts Flashcards
(34 cards)
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