Trusts Flashcards
What is a trust?
A trust is a legal arrangement where one person (the settlor) gives property or money to another person (the trustee) to manage for the benefit of someone else (the beneficiary).
Imagine you have a lot of money and want to ensure it helps your children when they grow up. You create a trust, put the money into it, and name a trusted friend or a bank as the trustee. The trustee manages the money and gives it to your children (the beneficiaries) according to your rules, like paying for their education or giving it to them when they turn 25.
Trust = Transfer of property to a Trustee for others’ benefit.
Think: Trustee manages the trust to benefit others.
What are the elements of a trust? I-F-A-W
Intent: Settlor must intend to create a trust.
Funding: Property must be transferred to the trust.
Ascertainable Beneficiaries: Clearly identifiable beneficiaries.
Writing: Required for real property or testamentary trusts.
What are precatory trusts?
Precatory trusts express a hope or wish without creating a legal obligation.
Mnemonic:
Precatory = Precarious (because it’s not legally binding).
Case Example: McKinsey v. Cullingsworth – Language expressing a wish does not create a trust.
Case Connection:
McKinsey v. Cullingsworth → Think: McKinsey made a wish, but wishes don’t make trusts!
Visualization:
Imagine someone writing, “I wish my money would go to my dog,” and the court saying, “That’s nice, but it’s not a trust
What are the funding requirements for a trust?
Back:
The trust must have property transferred to it.
Case Example: Brainard v. Commissioner – Oral declaration of a trust without assets at the time does not create a valid trust.
Mnemonic:
A trust needs assets to be valid.
Brainard v. Commissioner: “Brainard forgot the brain—no assets, no trust!”
Visualization:
Imagine someone declaring a trust out loud but holding an empty wallet. The court says, “Come back when you’ve got something to put in it.”
What is required for ascertainable beneficiaries?
Beneficiaries must be identifiable, though exceptions exist for unborn children.
Case Example: Moss v. Axford – Sufficiently clear language allowed identification of the beneficiar
Mnemonic:
Beneficiaries must be clear. Think: No clear people = no trust.
Moss v. Axford: “The moss cleared up, and the beneficiary was visible.”
Visualization:
Picture moss-covered writing on a stone tablet. As the moss clears, the name of the beneficiary appears.
Living Trusts
Created during the grantor’s lifetime
Living Trusts (Revocable vs Irrevocable Living Trusts) : Grantor retains control and can amend or revoke the trusts
Revocable
Living Trusts (Revocable vs Irrevocable Living Trusts) : Grantor gives up control permanently
Irrevocable
Types of Trusts (Testamentary, Mandatory, Discretionary, Special): created through a will and effective upon the grantor’s death
Testamentary
Help remember testimony at death
Types of Trusts (Testamentary, Mandatory, Discretionary, Special): Trustee must distribute income according to fixed terms
The trustee must pay fixed amounts to the beneficiary (e.g., $1,000/month).
Mandatory Trusts
Types of Trusts (Testamentary, Mandatory, Discretionary, Special): Trustee has flexibility to distribute income or principal based on specific standards
The trustee has total flexibility to decide if and how much to give.
discretionary
Special Trusts (Honorary, support, sprinkle/spray, unitrusts, perpetual): for non-human beneficiaries (ex pets) but fail without ascertainable beneficiaries
honorary
Special Trusts (Honorary, support, sprinkle/spray, unitrusts, perpetual): Income necessary for beneficiary’s support
The trustee must pay for the beneficiary’s needs but only to the extent necessary.
Support
Special Trusts (Honorary, support, sprinkle/spray, unitrusts, perpetual): Trustee Distributed funds amound beneficiaries at their belief
Trustee distributes funds to multiple beneficiaries based on their needs, spreading the money as appropriate.
Sprinklle/spray
Special Trusts (Honorary, support, sprinkle/spray, unitrusts, perpetual): Fixed annual percentage interest for the life beneficiary
is a type of trust where the beneficiary receives a fixed percentage of the trust’s total value each year. The percentage is recalculated annually based on the value of the trust’s assets at the start of the year. This guarantees that the beneficiary gets a consistent share of the trust’s value, even if the trust grows or shrinks.
The payments continue for the life of the beneficiary (or a set term), and the trust’s remaining assets typically pass to other beneficiaries when the life beneficiary’s interest ends.
Unitrusts
