Trusts Flashcards
What are the elements of a valid trust?
- Settlor with capacity and intent to create trust
- Trustee (court will appoint if none named)
- Trust property (res)–identifiable and segregated
- Ascertainable beneficiary (unless charitable)
- Valid trust purpose (not illegal or against public policy)
Elements must be met for the trust to be valid.
Does a trust require consideration?
No.
Trusts can be created without any form of consideration.
What is a ‘precatory trust’?
A statement expressing a wish or hope, not a legal obligation.
Courts will impose a trust only if:
* Specific instructions to a fiduciary exist.
* Without a trust, an unnatural disposition of property would occur.
What is required for trust property (res)?
Must be identifiable, segregated, and described with reasonable certainty.
A trust without property is invalid unless later funded.
What is a private express trust?
A trust created for specific, ascertainable beneficiaries.
What are the two types of private express trusts?
- Inter vivos trust (during settlor’s lifetime).
- Testamentary trust (created in a will, effective at death).
What are the requirements for an inter vivos trust?
A declaration of trust + delivery of trust property to a third-party trustee.
Must be in writing if involving real property.
What is a pour-over trust?
A provision in a will that transfers property into an existing trust.
Trust must be identified in the will and in writing.
What is a Totten trust?
A bank account with a named beneficiary
Revocable by depositor during their lifetime.
What is a life insurance trust?
A trust that owns a life insurance policy and receives proceeds upon death.
Typically irrevocable.
What are secret and semi-secret trusts?
- Secret trust: Looks like a gift but is meant to be held in trust.
- Semi-secret trust: A will mentions a trust but lacks specific terms.
What are the requirements for a charitable trust?
Must benefit the public at large.
Must have a valid charitable purpose.
Are charitable trusts subject to the Rule Against Perpetuities?
No.
Charitable trusts can last indefinitely.
What is the cy pres doctrine?
Allows modification of a charitable trust when the original purpose is impossible or impracticable.
What is a resulting trust?
An equitable remedy that returns property to the settlor or their estate when a trust fails.
When is a resulting trust imposed?
- Failure of an express trust
- Purchase-money resulting trust
- Excess trust property with no specified recipient.
What is a constructive trust?
An equitable remedy to prevent unjust enrichment due to fraud, mistake, or wrongdoing.
Can a trust beneficiary transfer their interest?
Yes, unless restricted by the trust.
What is a spendthrift trust?
Restricts a beneficiary from transferring their interest.
Creditors cannot reach the interest, except for:
* Child/spousal support.
* Tax liens.
* Necessities of life (sometimes).
What is a support trust?
Trustee must pay what is necessary for the beneficiary’s support.
Creditors can reach funds only for necessary goods/services.
What is a discretionary trust?
Trustee has discretion over distributions.
Creditors can only reach funds once paid to the beneficiary.
What is a mandatory trust?
Trustee has no discretion and must follow distribution instructions.
When can a settlor revoke a trust?
Majority rule: Trusts are revocable unless stated otherwise.
Minority rule: Trusts are irrevocable unless stated otherwise.
How can an irrevocable trust be modified or terminated?
By agreement of all beneficiaries (if no material purpose is violated).
By court order due to changed circumstances.
What is automatic termination?
Occurs when:
- Trust purpose is completed.
- Trust becomes unlawful or impossible.
What is the duty of loyalty?
Trustee must act solely in the beneficiaries’ best interest.
Self-dealing is strictly prohibited.
What is the duty of prudence?
Trustee must act as a prudent investor when managing trust assets.
What is the duty to diversify investments?
Trustee must spread investments to reduce risk, unless impractical.
What is the duty of impartiality?
Trustee must balance the interests of current and future beneficiaries.
What is the duty to inform and account?
Trustee must disclose trust information and provide periodic accounting.
What are the trustee’s liabilities for breach of duty?
Liable for lost profits, losses, and improper distributions.
Can be removed by a court.
When is a trustee personally liable?
For contracts entered into and torts committed while acting as trustee.
Can seek indemnity from trust if acting properly.
What are beneficiaries’ rights if a trustee mismanages trust assets?
Sue for breach of fiduciary duty, seek removal of trustee.
Seek removal of trustee.
What happens to a trust interest after divorce?
Modern rule: Ex-spouses lose trust benefits, similar to wills.
What is the Uniform Principal and Income Act (UPAIA)?
Gives trustees flexibility in classifying income vs. principal to balance interests.
