Trusts Flashcards
Trustee Powers
Trustee has all enumerated powers and all implied powers (anything helpful and appropriate to carry out the trust).
Duty of Loyalty
Requires trustee to exclusively administer the trust for the benefit of the beneficiaries. The trustee may not buy or sell assets for themselves or borrow trust funds, regardless if doing so was in good faith or reasonable. If a loss results, the trustee is surcharged. If profit results, then will be constructive trust for profits.
Duty of Due Care
Traditionally, a trustee was required to act as a reasonably prudent person dealing with his own affairs.
Modernly, the trustee must act as a reasonably prudent person dealing with another person’s property.
Duty to Account
Trustee must, on a regular basis, give the beneficiaries a statement of income and expenses. Beneficiaries are entitled to file an action for an accounting.
Duty to Invest
Trustee must act as a reasonably prudent person investing in another person’s prop., trying to maximize income while preserving corpus.
Uniform Prudent Investor Act (adopted by CA): Trustee must invest as a reasonably prudent investor. Each investment is not scrutinized. Performance based upon entire portfolio.
Duty to Earmark
Requires Trustee to label trust property as such. Modernly, the trustee is only liable if the failure to earmark causes a loss.
Duty to Segregate
Trustee can’t mingle his own funds and can’t co-mingle different trusts together. If breach, trustee is held liable for the loss.
Duty Not to Delegate
Trustee can rely on professional advisors in reaching a decision but can’t delegate decision making authority to these advisors. Trustee can’t delegate to any 3rd person or to another co-trustee. Trustees must act unanimously.
Trustee Duties to 3rd Persons
In Contract: Traditionally, a trustee could be sued in his personal capacity for breach of contract, but could be indemnified if he wasn’t at fault. Modernly, if the other party to the contract knows the trustee is entering the contract in his representative capacity, the trustee must be sued in his representative capacity.
In Tort: Traditionally, the trustee was sued in his personal capacity without personal fault then is indemnified from the trust. Modernly, the trustee is personally liable for torts only if he is personally at fault.
Qualities of a Valid Express Trust
- Property
- Beneficiaries (can be any ascertainable person or a corporations)
- Trustee
- Intent (must be present manifestation of intent to trust. Must use mandatory words, not precatory words [unless parol evidence supports precatory words showing intent]) (trusts for personal property need not be in writing, SOF only applies to real property trusts.)
- Legal Purpose
Creation of Express Trust
2 time frames - death and settlor’s lifetime
- Trust to take effect at settlor’s death - must comply with probate code (be in a will)
- Inter Vivos Trust -
Transfer in Trust (3rd party is Trustee. For real prop., S must execute and deliver deed to trustee. For personal prop., S must deliver property to trustee.
Declaration in Trust (S is Trustee. For real prop., there must be a writing satisfying the SOF indicating S is the Trustee. For personal prop., must be present manifestation of intent.
Legal Purpose
Trust must have a valid legal purpose not contrary to public policy or existing law. If the trust is illegal at its creation, courts will try to excise the illicit condition (otherwise the trust is invalid or the Trustee keeps prop. for himself). If illegal after creation, a resulting trust is decreed (trustee must transfer the prop. back to the S if alive, otherwise their estate)
Charitable Trusts
Trust created for public benefit. Charitable purpose is required as determined by the effect of the gift, not the intent of S.
Need a manifestation of trust intent which can be done at death by will or during settlor’s lifetime by declaration or transfer in trust, a corpus of presently existing interest in prop. that can be transferred. RAP does not apply.
Cy Pres: If S manifests a general charitable intent, but the mechanism is not possible or practicable, the Court, acting in equity, may modify the mechanism cy pres, as nearly as possible, to effectuate S’s general charitable intent.
Honorary Trusts
A trust that has no ascertainable beneficiary and confer no substantial benefit to society. Merely a goal of the S, which the Trustee may or may not carry out at their discretion. If Trustee refuses to carry out, resulting trust whereby prop. is returned to S or his estate. Always violates RAP but Courts can chose to impose 21 year limit on it instead of striking it.
Resulting Trusts
An implied-in-fact trust based on presumed intent of parties. If decreed by the Court, trustee will transfer property to S or estate of S. Arises when:
- Private Express Trust ends by its own terms, and no provision for aftermath
- Private Express Trust fails for lack of beneficiary or illegality
- Excess corpus in Private Express Trust
- Charitable Trust ends for impossibility/impracticability and cy pres unavailable
- Purchase money resulting trust
- Semi-Secret Trust
Constructive Trusts
An equitable remedy to prevent fraud or unjust enrichment. Wrongdoer is deemed trustee and must transfer prop. to intended beneficiary. Arises when:
- Trustee benefits from self-dealing
- Fraud in the inducement or undue influence re: a will
- Oral Real Estate Trust
- Secret Trust
Oral Real Estate Trust
S transfers title to property to A on oral condition that it be used for the benefit of B. Normally, A can invoke SOF, but cannot do do, and constructive trust imposed, where:
- S and A in a fiduciary relationship
- A committed fraud in inducement
- Beneficiary detrimentally relied
Secret Trust
Trust makes outright gift to A, but on basis of oral promise by A to use prop. for benefit of B. Parol Evidence is admissible to show that B is the intended beneficiary.
Totten Trusts
A bank account where the beneficiary takes whatever is left at S death. Revocable by:
1. Withdrawal of funds
2. Changing the name on the account
3. By will in some jx.
Spendthrift Provisions
Prevents the beneficiary from transferring, and creditors from attaching, his right to future payments. Normally a Beneficiary can voluntarily alienate his rights at will, and creditors can attach his rights if he is insolvent. No jx. recognizes self-settled spendthrift trust so that S may insulate himself from creditors.
Modification by S
S can modify trust if S expressly reserves that power. S also has power to modify if they have the power to revoke.
Modification by Court
Court can modify for charitable trust using cy pres. Courts can also modify any trust using its Deviation Power (Court has power to change administration or managerial provisions, but cannot change beneficiaries, if there are unforeseen circumstances on part of S or Trustee or necessary to preserve the Trust.)
Termination of Revocable Trusts
Majority View: To retain the power to revoke, S must expressly reserve it.
Minority View: S has power to revoke unless trust is expressly made irrevocable.
Termination of Irrevocable Trusts
3 ways to terminate prematurely
- S and ALL beneficiaries agree (must account for unborn contingent remainder)
- All beneficiaries agree to terminate and all material purposes of the trust have been accomplished
- Operation of Law
