Trusts Flashcards
used to control assets
(anytime you want to control property, a trust is the tool to use)
§ Beneficiary is a minor, incompetent, or spendthrift
§ Beneficiary is a charit
probate avoidance
Living or revocable trust
minimize taxes
§ Marital share trusts
§ Charitable remainder trusts
§ Clifford Trusts- for small businesses.
Trusts are critical devices for…
- Estate running
- Tax work
- Charities
3 steps to create a trust
establish intent, transfer the res,identify the beneficiaries
establishing intent: (step 1)
-The creation of a trust depends on the intent of the party giving the assets — the settler
-The intent needed is that one party hold property for another’s benefit. (Absent a completed gift of the equitable title, no trust is created)
o The statute of frauds does not directly apply to the creation of a trust
§ The transfer of some assets into a trust, i.e., real estate, does require a writing
transfer the res: (step 2)
For a trust to exist, the property that is to be held in trust (the “res”) must be
§ Identified so that it is known
§ Delivered into the possession of the trustee
identify the beneficiaries (step 3)
o A private, non-charitable trust cannot exist if the beneficiaries cannot be determined. (in charitable trust, no need for this) o A class of beneficiaries can be named as long as the class is capable of objective definition
why is the administrative burden so high on the trustee?
- Annual reports (an “accounting”) are often required-
- Tax returns must be prepared (it’s the beneficiaries who usually pay taxes)
what if trusts assets are too low….
prohibits running the trust, too expensive
what are the general obligations of the trustee?
The trustee must put the beneficiary’s interest above the trustee’s
· “Prudence and reasonableness, not caprice or careless good nature, much less a desire on the part of the trustee to be relieved from trouble … furnish the standard of conduct” p. 15, ¶ 2
· (trustee must be aware of the circumstances involving the trust and canno be passive.)
3 primary obligations of a Fiduciary:
- Loyalty — The trustee must act for the beneficiaries, not anyone else (including the trustee)
- Duty to inform — The trustee must tell the beneficiaries about the status of the trust
- Prudence — The trustee must be reasonably careful in managing the trust
- (fiduciary obligations are also seen in cotenancies)
a trustee cannot self -deal….
without the prior informed consent of the beneficiaries or prior approval from a supervising court
If a trustee violates the self-deal rule….
The transaction will be undone, if possible
-Otherwise, the trustee is personally liable for damages
Who is a trustee’s primary obligation to?
the beneficiary (not the settlor)
Duty of the trustee
duty to inform the beneficiary
the settlor…
A settlor can limit the scope of the obligation with specific instructions, but cannot prevent the beneficiary from understanding his or her rights (cos after transfer, settlor becomes a stranger to the trust)
a trustee must routinely inform the beneficiary
about the status of the trust including a full accounting for the trust res, income received, and expenses incurred. (trustee must know what is going on with the beneficiary). (even if trustee takes his retainer from the trust he must let the trustee know)
Inactivity is NOT allowed…
investments of a trust must be constantly examined
§ Generally, a lack of diversification is problematic
§ Holding an asset that continues to decline is problematic
§ Holding an investment that is speculative is Problematic
Terminating The Trust
The beneficiaries do not control the termination of a trust, the intent of the settler does
· A trust that has fully achieved the settlor’s purposes can be terminated with court approval
· (If the purposes that the settlor desired have been accomplished, the trust terminates)
§ (This can be express — e.g., a child reaches adulthood
§ This can be practical — e.g., the trust becomes so small that its administrative expenses would use up the assets)
charitable purposes may include:
(a) the relief of poverty;
(b) the advancement of education;
(c) the advancement of religion;
(d) the promotion of health;
(e) governmental or municipal purposes; and
(f) other purposes the accomplishment of which is beneficial to the community
charitable trusts & RAP
they are an exception, they can last forever
Controlling a charitable trust
· A charitable limitation on a gift is enforceable. It cannot be enforced by the donor/settlor, however, unless the right to do so was expressly created in the gift instrument. (so if trustee misuses the trust settlor cant sue)
· The power of enforcement for a public charity belongs to the public — the attorney general or other appropriate governmental official.( although this does not mean the trustee is without control)
Cy Pres means what?
as near as possible
When the particular charitable purpose in trust is not possible…
cy Pres..
If property is given in trust to be applied to a particular charitable purpose, and it is or becomes impossible or impracticable or illegal to carry out the particular purpose, and if the settlor manifested a more general intention to devote the property to charitable purposes, the trust will not fail but the court will direct the application of the property to some charitable purpose which falls within the general charitable intention of the settlor
o Restatement (2d) of Trusts § 399
