Trusts Flashcards
Trust Creation while S is alive - S = T
Self-Declaration – S declares themselves T of the property, they retain the legal title and are subject to the self-imposed fiduciary duties.
Trust Creation while S is alive - S isn’t T
Transfer in Trust – S transfers legal title to T and imposes fiduciary duties on T.
Consideration
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.
Charitable Trust - Class and Purpose
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)
Charitable Trust AG Requirements
Notice requirement - by certified or registered mail within 30 days of filing and at least 25 before hearing
SoF - Oral Trusts
Oral trusts must be established by clear and convincing evidence. T can’t be S or B, has to be personal property
Who has standing in bankruptcy?
Alleged T or T in bankruptcy
Evaluating Trust Purpose
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.
Creditors
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
Remedies for Illegal Trusts
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
What kind of property can go into a trust?
Has to be things you can transfer yourself
No future interest or something that isn’t yours
T Acceptance
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
Corporate T Requirements
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
Discretionary Trust Violation Results
Violation can result in T removal, court orders on distributions, court scolds T and reminds them to get in line.
Discretionary Distribution - Community or Separate Property
Likely results ins separate property for B
B Incapacitation Stuff
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
RAP Information
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
Earmarking
labeling the property as belonging to the trust, T is responsible for a loss due to failure to earmark
Liability for commingling
Strict liability for losses due to commingling.
Principal distributions - Community or Separate?
Separate
Corporate T, how they can transfer trusts to trusts
“common trust fund” is okay and actually good. Diversification and lower costs
Texas K Rule
T can K if the K was within their capacity and a plaintiff can recover directly from trust
3rd Party and Trust Terms
3rd party is not bound by terms of a trust, put the clause in the K
Suing a T - Notice Requirement
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
Liquidating/Wasting Asset Allocation
Something that goes down in value as it’s used (usually IP)
Income - 10% Principal - 90%
Oil and Gas Distribution
1/1/04
Before 10% income 90% principal
Now equitable
Look at when the interest was owned
Power of T to adjust
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
Disbursement Definition
When you’re paying for something, who pays for it?
Income Disbursements
Ordinary Repairs, Insurance premiums, property taxes
Principal Disbursements
Capital improvements/extraordinary repairs
T Compensation - Distribution Source
50/50, but can come from one specifically
Accounting Expenses - Distribution Source
50/50
Debt Payment - Distribution Source
interest come from income, principal comes from principal
Income taxes - Distribution Source
pay from whichever receipt you’re looking at
Converting a P&I trust to a Unitrust
not in TX
Duty to Inform B
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
Accounting
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
Ways Court Can Modify
Deviation, Reformation, and Cy Pres
Deviation can happen if:
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
Reformation in Texas
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)
S Modification
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
T Modification
Generally no unless S gives power, there’s a division, non-judicial cy pres, or decanting
B Modification
“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
S & B Modification
If S is alive and all B are in an irrevocable spendthrift consent there can be modification or termination
Family Settlement Agreement Modification
need genuine controversy
Remedies Against T - Money Damages
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
Remedies Against T - Removal
Discretionary - T has materially violated fiduciary duty and trust suffered material financial loss
T becomes Incompetent
T becomes Insolvent
Other Cause
Court Remedies
Decree to Carry Out the Trust
Injunction
Appointment of Receiver
Increase Bond
Declaratory Judgement
Barring of Remedies
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
Resulting Trusts - General
Not a real trust - we do what S would have done had S thought about writing down what was going on
3 Situations that create a resulting trust
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
Constructive Trust General
Equitable remedy to prevent unjust enrichment
Trust Code DOES NOT APPLY to constructive trust
Grounds to impose constructive trust
Fraud
Abuse of confidential relationship
Promises made in contemplation of death
Any other evil conduct which the court finds merit the remedy
Trust Bank Account
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
Subrogation
B gets position of the creditor T paid off
Marshalling
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
Virtual Representation
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
Jurisdiction
Dist. Court; County court of law while estate is pending
Trust Termination 7 ways
Express Terms
Revocation by S
Termination by B
Termination by B and S
Merger
Lack of Property
Uneconomic
Court Order
Trust Termination - Uneconomic
under 50k, notice to all current and remainder B, no adverse tax, cost doesn’t justify continuing, NO if there’s a conservation easement
Rights of Income B Happen when…
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
Tort Liability
T can’t recover from trust/get exoneration for common incident torts, strict liability, conversion
To recoup damages paid to a K claimant
T has to prove that they entered into the K for the benefit of the trust and seek reimbursement.
