Trusts

Question 1

Trust Creation while S is alive - S = T

Answer 1

Self-Declaration – S declares themselves T of the property, they retain the legal title and are subject to the self-imposed fiduciary duties.

Question 2

Trust Creation while S is alive - S isn’t T

Answer 2

Transfer in Trust – S transfers legal title to T and imposes fiduciary duties on T.

Question 3

Consideration

Answer 3

You do not need consideration for a trust, but a trust may be a promise in a contract situation.
If S transfers only promises to a trust, they need to be enforceable to give them value, otherwise the trust fails.

Question 4

Charitable Trust - Class and Purpose

Answer 4

Must have a sizable class of B’s as to have general public interest for which the purpose is attached. The description can be PEHRM (poverty, education, Health, Religion, Municipal)

Question 5

Charitable Trust AG Requirements

Answer 5

Notice requirement - by certified or registered mail within 30 days of filing and at least 25 before hearing

Question 6

SoF - Oral Trusts

Answer 6

Oral trusts must be established by clear and convincing evidence. T can’t be S or B, has to be personal property

Question 7

Who has standing in bankruptcy?

Answer 7

Alleged T or T in bankruptcy

Question 8

Evaluating Trust Purpose

Answer 8

Intent and effect– trust is illegal if the existence of the trust could induce another person to commit a crime even if T doesn’t have to perform an illegal act.

Question 9

Creditors

Answer 9

cannot do something to defraud creditors. UFTA
Spendthrift – in a self-settled spendthrift – S = sole B = defrauding creditors
You can’t send property to a trust if you’re insolvent

Question 10

Remedies for Illegal Trusts

Answer 10

Set aside the amount of the creditor’s claims
If other:
Void the trust
Resulting trust - S gets property back or
Permit T to retain property free of trust or
Remove the improper restriction and let the trust operate

Question 11

What kind of property can go into a trust?

Answer 11

Has to be things you can transfer yourself
No future interest or something that isn’t yours

Question 12

T Acceptance

Answer 12

How it is explicitly stated in the trust or
A written acceptance or
Performance of T duties
Excludes if you’re just helping to preserve the trust property and you give notice to S or B (if S is dead) or if potential T is just inspecting

Question 13

Corporate T Requirements

Answer 13

Financial institutions don’t need a separate charter but trust companies do. For foreign corporations it’s about reciprocity.
If there’s a merger then we have Substitute Fiduciary Act

Question 14

Discretionary Trust Violation Results

Answer 14

Violation can result in T removal, court orders on distributions, court scolds T and reminds them to get in line.

Question 15

Discretionary Distribution - Community or Separate Property

Answer 15

Likely results ins separate property for B

Question 16

B Incapacitation Stuff

Answer 16

Person who T believes is incapacitated
Official determination not needed
Can be applied without S’s express intent
Can give to guardian for HEMS or can reimburse person caring for B

Question 17

RAP Information

Answer 17

This is really an issue with perpetual trusts.
We look at the day the trust becomes irrevocable
In Texas, the court will reform to meet S’s intent

Question 18

Earmarking

Answer 18

labeling the property as belonging to the trust, T is responsible for a loss due to failure to earmark

Question 19

Liability for commingling

Answer 19

Strict liability for losses due to commingling.

Question 20

Principal distributions - Community or Separate?

Answer 20

Separate

Question 21

Corporate T, how they can transfer trusts to trusts

Answer 21

“common trust fund” is okay and actually good. Diversification and lower costs

Question 22

Texas K Rule

Answer 22

T can K if the K was within their capacity and a plaintiff can recover directly from trust

Question 23

3rd Party and Trust Terms

Answer 23

3rd party is not bound by terms of a trust, put the clause in the K

Question 24

Suing a T - Notice Requirement

Answer 24

Plaintiff has to tell B by registered mail within 30 days of filing and at least 31 before judgment. If they submit a written request T has to provide B info within 10 days

Question 25

Liquidating/Wasting Asset Allocation

Answer 25

Something that goes down in value as it’s used (usually IP) Income - 10% Principal - 90%

Question 26

Oil and Gas Distribution

Answer 26

1/1/04 Before 10% income 90% principal Now equitable Look at when the interest was owned

Question 27

Power of T to adjust

Answer 27

UPIA says T can look at factors to potentially change allocation depending on the nature/purpose of the trust, S’s intent, and about the B Not allowed if S prohibits, T = B, T would benefit indirect/direct, adverse tax stuff T doesn’t require notice to B, but court can reverse if T abuse

Question 28

Disbursement Definition

Answer 28

When you're paying for something, who pays for it?

Question 29

Income Disbursements

Answer 29

Ordinary Repairs, Insurance premiums, property taxes

Question 30

Principal Disbursements

Answer 30

Capital improvements/extraordinary repairs

Question 31

T Compensation - Distribution Source

Answer 31

50/50, but can come from one specifically

Question 32

Accounting Expenses - Distribution Source

Answer 32

50/50

Question 33

Debt Payment - Distribution Source

Answer 33

interest come from income, principal comes from principal

Question 34

Income taxes - Distribution Source

Answer 34

pay from whichever receipt you’re looking at

Question 35

Converting a P&I trust to a Unitrust

Answer 35

not in TX

Question 36

Duty to Inform B

Answer 36

Upon B request or When T is going to take a material and unusual action S can limit when trust is revocable, B under 25, or B is remote and not eligible for current distribution/ distribution if trust ended now

Question 37

Accounting

Answer 37

Keep good records because either S can set intervals or B can request every 12 months. Has to include trust property and its value, all receipts and disbursements, all liabilities, and the source/amount of T’s compensation. B has to write a written demand and T has to get it to them in 90 days, B can sue if not and recover from trust or T

Question 38

Ways Court Can Modify

Answer 38

Deviation, Reformation, and Cy Pres

Question 39

Deviation can happen if:

Answer 39

Trust purposes fulfilled Purposes are illegal now Prevent waste Purposes are impossible, or Circumstances have changed in a way S wouldn’t have known and a change would still follow S’s intent. Tax objectives and not contrary to S’s intent Continuing the trust isn’t necessary To achieve material purpose of the trust and All B consent (direct, virtual rep, guardian ad litem) A change not inconsistent with the material purpose of the trust if all B consent

Question 40

Reformation in Texas

Answer 40

To prevent waste There’s an impairment To achieve purposes Correct scrivener’s error (even if unambiguous if there’s C & C of S intent)

Question 41

S Modification

Answer 41

Can do all sorts of stuff; if trust is silent it is presumed revocable and they can do it or if it’s irrevocable the trust can expressly save those powers for S

Question 42

T Modification

Answer 42

Generally no unless S gives power, there’s a division, non-judicial cy pres, or decanting

Question 43

B Modification

Answer 43

“Claflin Rule” - allowed as long as no material trust purpose is unfulfilled; but TX says all purposes have to be satisfied and you need to get court approval and need all B

Question 44

S & B Modification

Answer 44

If S is alive and all B are in an irrevocable spendthrift consent there can be modification or termination

Question 45

Family Settlement Agreement Modification

Answer 45

need genuine controversy

Question 46

Remedies Against T - Money Damages

Answer 46

Lost Value - no causation, T doesn’t have to benefit Profit Made by the T - causation required, trust doesn’t have to have a loss Lost Profits Punitive Damages - the person was evil

Question 47

Remedies Against T - Removal

Answer 47

Discretionary - T has materially violated fiduciary duty and trust suffered material financial loss T becomes Incompetent T becomes Insolvent Other Cause

Question 48

Court Remedies

Answer 48

Decree to Carry Out the Trust Injunction Appointment of Receiver Increase Bond Declaratory Judgement

Question 49

Barring of Remedies

Answer 49

1) S’s Approval in Trust Instrument Can’t waive: Valid trust SOL Limits on exculpatory clauses Duty of T/ acted in good faith/ inform B 2) Prior Approval or Ratification by B 3) Court Decree 4) S.O.L. 4 years from discovery 5) Latches 6) Unreasonable delay in asserting rights to disadvantage Defendant

Question 50

Resulting Trusts - General

Answer 50

Not a real trust - we do what S would have done had S thought about writing down what was going on

Question 51

3 Situations that create a resulting trust

Answer 51

1) Failure to Create Express Trust S still has property 2) Failure of Express trust to Dispose of All Trust Property Something happens like B dies and trust doesn’t say where property should go after 3) Purchase Money Resulting Trust Something like a loan situation

Question 52

Constructive Trust General

Answer 52

Equitable remedy to prevent unjust enrichment Trust Code DOES NOT APPLY to constructive trust

Question 53

Grounds to impose constructive trust

Answer 53

Fraud Abuse of confidential relationship Promises made in contemplation of death Any other evil conduct which the court finds merit the remedy

Question 54

Trust Bank Account

Answer 54

Not a trust T/depositor has all the rights No split of title No imposition of duties B only have rights after T dies and B survived them

Question 55

Subrogation

Answer 55

B gets position of the creditor T paid off

Question 56

Marshalling

Answer 56

If a creditor has the right to pull from multiple sources, they have to pull 1st from one that no one else has claim to

Question 57

Virtual Representation

Answer 57

If you bind the one who can revoke you bind everyone, bind guardian then you bind ward, unborn/unascertained bound if interests were adequately represented and the person there had a substantially identical interest

Question 58

Jurisdiction

Answer 58

Dist. Court; County court of law while estate is pending

Question 59

Trust Termination 7 ways

Answer 59

Express Terms Revocation by S Termination by B Termination by B and S Merger Lack of Property Uneconomic Court Order

Question 60

Trust Termination - Uneconomic

Answer 60

under 50k, notice to all current and remainder B, no adverse tax, cost doesn’t justify continuing, NO if there’s a conservation easement

Question 61

Rights of Income B Happen when...

Answer 61

arises on a date specified in trust or the date the asset becomes subject to the trust if there’s no date. Inter Vivos Trust - date of trust/ when it comes in Testamentary Trust - death date

Question 62

Tort Liability

Answer 62

T can't recover from trust/get exoneration for common incident torts, strict liability, conversion

Question 63

To recoup damages paid to a K claimant

Answer 63

T has to prove that they entered into the K for the benefit of the trust and seek reimbursement.