Trusts 2024 - DNU Flashcards
What is a Trust
A fiduciary relationship in which….
* one person (the trustee)
* holds the legal title to the trust property (the res)
* subject to enforceable equitable rights
* in another (the beneficiary).
Trustee is under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title.
Classification of trusts
-
Express trusts - created by the express intention of the settlor.
Can be one of two categories depending primarily by the identity of their beneficiaries:
* Private—private beneficiaries (certain ascertainable persons)
* Charitable—charitable beneficiaries (indefinite class of persons or
the public in general) - Trusts Created by Operation of Law
* Resulting trusts* arising from the presumed intention of the owner of the property.*
* Constructive Trusts
Constructive trusts are an equitable remedy used to prevent unjust enrichment.
Trust Formation Acronym
[Bees Can Fly SPIRIT] = [Beneficiary, [Capacity, Formalities], Settlor, Purpose, Intent, Res (corpus), (I), Trustee,
B) beneficiary (ascertainable beneficiaries);
C) Capacity
F) Formalities, compliance with any state formalities (i.e. signed in front of notary).
S) a settlor with capacity;
P) Purpose- a valid trust purpose (proper purpose);
I) present intent to create a trust by settlor;
R) trust property (the res) (the identifiable corpus); and
T) trustee;
Settler with Capacity and Present Inent to create a trust
Trustee
Trust property (res)
Beneficiaires
Valid Trust Purpose
Formalities
When conducting you analysis, if no facts indicate failure of compliance, simply state:
“As no facts indicate otherwise, it will be assumed that… the trust formation complied with all state formalities.”
Elements required for an EXPRESS TRUST
The five elements required for an express trust are:
(1) a settlor with capacity to convey,
(2) a present intent to create a trust relationship,
(3) a competent trustee with duties,
(4) a definite beneficiary, and
(5) the same person is not the sole trustee and sole beneficiary.
(7) there must be a present disposition in trust of specific property then owned by the settlor, and
(8) the trust must have a valid trust purpose.
Consideration is not required.
Trustee holds ___ title
Legal title.
Trust formation requirements: REQUIREMENTS OF AN EXPRESS PRIVATE TRUST
REQUIREMENTS OF AN EXPRESS PRIVATE TRUST:
Settler with Capacity and Present Inent to create a trust
Trustee
Trust property (res)
Beneficiaires
Valid Trust Purpose
Formalities
REQUIRMENT 1: Settlor with Capacity and Present Intent to Create a Trust
The testator or grantor who creates an express trust is the settlor, who must have had the capacity and present intent to create the trust.
Capacity required is the same as it would be to make inter vivos gift for inter vivos trust, or will for testamentary trust.
- Settlor must have **present intention to create a trust **- Must intend trust to take effect immediately; The settlor must intend to split the legal and equitable title and to impose enforceable duties on the holder of the legal title.
- Must express intent by words or conduct **while **settlor owns the property
- Settlor’s intent must be that the trust take effect immediately, not at some future time.
- Intent may be manifested by written or spoken words or by the conduct of the settlor—unless the Statute of Wills or the Statute of Frauds applies.
- Don’t need to communicate intent to beneficiary. - Precatory expressions (hope, wish, suggestion) result in inference that no trust was intended, but inference may be overcome by other evidence
REQUIREMENT 2: Trustee
- Failure to name trustee (or failure of trustee to accept or qualify) does not defeat a testamentary trust; court will appoint trustee
- Inter vivos trust will fail without trustee because there can be no valid delivery and transfer of trust property (see below)
- Trustee must have duties
- Settlor may declare himself trustee
REQUIREMENT 3: Trust property (Res)
A trust must have trust property, that is, the settlor must supply property so the trustee has property over which to exercise duties.
- Property may be of any type, including future interests
- Must be property that settlor has the power to convey
- Must be described with certainty
REQUIREMENT 4: Beneficiaries
- Must be capable of taking and holding title to property
- Must be definite (ascertainable within the period when all interests must vest
under the Rule Against Perpetuities); e.g., “friends” is insufficient - Notice not required but beneficiary must accept; acceptance is presumed
REQUIREMENT 5: Valid Trust Purpose
- Trust or provision must not be:
a. Illegal;
b. Impossible to achieve;
c. Contrary to public policy (e.g., induce crimes, torts, divorce, child neglect, etc.);
d. Intended to defraud settlor’s creditors; or
e. Based on illegal consideration - Effect of invalid condition subsequent—condition stricken, but trust is valid
- Effect of invalid condition precedent—condition stricken, but court decides
whether interest is valid or fails
REQUIREMENT 6: Formalities
- Inter vivos trust—created during settlor’s life
a. Declaration of trust by property owner that he holds in trust, or
b. Transfer of property by the settlor to the trustee
c. No writing required unless trust of land - Testamentary trust—created by settlor’s will
a. Essential terms must be ascertained from will, incorporated document, facts of independent significance, or exercise of power of appointment
b. Secret trust (absolute gift but trust intended)—constructive trust imposed
c. Semi-secret trust (gift in trust without beneficiary)—resulting trust for testator’s heirs
Same as above - express trust requirements?
1) a beneficiary;
2) a settlor with capacity;
3) present intent to create a trust by settlor;
4) a trustee;
5) a valid trust purpose;
6) trust property (the res); and
7) compliance with any state formalities (i.e. signed in front of notary).
Charitable trusts
Purpopse must be to benefit the public.
Must be indefinite beneficiaries.
Cy Pres- if settlor’s intended purpose is impracitcable, ubnlawful, or wasteful, ct substitutes a NEW charitable purpose:
- Settler must have general charitable intent, not just interested in the named charity. Presumed under UTC.
Honorary trusts
Trusts for pets, graves, etc. Not for charitable purpose, but no private beneficiaries who can enforce trust.
Enforceable by someone named in the trust or appointed by court. For 21 years or for life of the animal.
If property > needed, excess goes to settlor or successors unless trust says otherwise.
Beneficiary’s Equitable interest is Alienable
Beneficiary may voluntarily transfer interest in trust, creditors may levy on his interest.
Spendthrift trusts
- Spendthrift trust provides that beneficiary may NOT voluntarily or involuntarily transfer his interest
(cannot sell or give away interest, creditors cannot reach it). - Not valid if settlor is also a beneficiary.
- Unenforceable against claim brought by Gov, child, spouse, former spouse with support order.
Discretionary Trusts—
Trustee Has Discretion to Pay or Withhold Income or Principal
- Before trustee makes discretionary payment, interest cannot be reached by creditors;
- After trustee elects to make payments, must pay creditors directly if he was notice - unless there is a spendthrift restriction.
