Trusts Flashcards
What is a trust?
A fiduciary arrangement in which a settlor transfers property to a trustee and expresses an intent to benefit identifiable beneficiaries.
What are the elements necessary for a trust?
1) Settlor: person transferring prop
2) Trustee: given legal title to the prop
3) Beneficiary: equitable interest in the prop
4) Prop: identifiable and specifically described (not nec. land)
5) intent: manifest in terms of creating enforceable duties that take effect when trust commences.
Types of Trust
1) Express: created purposefully by settlor in writing
2) implied: created by the courts
What are the types of implied trusts?
1) resulting trusts
2) constructive trusts
Trust Categories..what are they?
1) Private Express: between people
2) Charitable: to charities
3) Honorary Trusts: if beneficiaries can’t complain then the trust = honorary. (Ex. dogs, cemetery)
When can trusts be created (at what time)
1) Inter vivos: created during settlor’s lifetime
2) Testamentary: created during settlor’s will
Inter vivos
May be created by
1) Declaration of trust: settlor declares a trust
2) deed of trust: settlor transfers prop with intent to create a trust
Testamentary trust capacity requirement
Same as the capacity to make a will
Inter vivos trust capacity requirement
Greater of the capacity to old and transfer prop (basically settlor must be able to completely transfer property during lifetime)
Trust Intent requirement
Settlor must intend to create a trust
How do you distinguish between a settlor intending to create a trust and merely the intent to give a gift
Look for any mandatory enforceable duties imposed on the trustee.
If these duties exist = creation of trust
If these don’t exist= mere gift
Look at the surrounding circumstances of the transfer.
Public Policy Restrictions
May limit trust intent.
A trust cannot promote divorce, unreasonable demands on a beneficiary, crime or unreasonable destruction of property or waste.
If it violates public policy, the provision is void.
Requirement of Trust property
Must have an ascertainable trust property
Must be specific, identifiable, and separable prop interest to which the trustee’s duties relate
Doesn’t have to be tangible
If no ascertainable property, then there is no trust,
A promise to create a trust in the future not supported by consideration is what?
A merely gratuitous promise.
Can a gratuitous promise become a trust?
Yes, if all the elements of a valid trust is met and the settlor had manifested an intention to create a trust at the time the gratuitous promise was made.
Ex: When a promise to hold prop in a trust is supported by consideration, a trust arises automatically.
Can a trust fail for want of a trustee?
No, the court can always appoint a trustee. Only exception is when the settlor has demanded that a specific/particular individual/entity serve as trustee.
Pour over trust
A revocable trust that is structured to receive and dispose of assets at the settlor’s death
Ascertainable beneficiary requirement for trusts
Private and honorary trusts must have ascertainable beneficiaries to be valid
Charitable trusts dont need this. The indefinite nature of the people contributing to the charity is implied.
How can you establish an ascertainable beneficiary?
1) read the language of the trust
2) extrinsic evidence
What happens if the trust fails for want of ascertainable beneficiaries?
A resulting trust will occur and the property resulting back to the settlor’s estate and will pass according to the residuary clause or intestate succession
Revocable Trusts
Type of express trust
Trusts are irrevocable unless the settlor has specifically reserved the power to revoke.
Any termination/modification must be in writing
Totten Trusts
The settlor of the trust places money in a bank account or security with instructions that upon the settlor’s death, whatever is in that account will pass to a named beneficiary.
Exception b/c this is revocable by having the intent to revoke.
Settler can withdraw $ from account during lifetime.
Discretionary Trusts
Used to protect beneficiary interest from beneficiary creditors.
That gives a trustee the power to decide which beneficiary receives the funds and up to what amount. The settlor of the trust may (through an informal memorandum or letter of wishes) seek to provide guidance to the trustee but any attempt to restrict trustee’s discretion invalidates the trust.
Since no asset is clearly identifiable with any beneficiary, creditors cannot attach the trust assets in payment of a loan or liability.
Spendthrift Trusts
Used to protect beneficiary interest from beneficiary creditors.
a trust that is created for the benefit of a person (often unable to control his spending) that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary
When can a creditor reach a beneficiary’s interest in a trust?
Creditor can reach 25% of beneficiary interest for
- tort claims
- taxes
- involuntary services rendered
Spendthrift Trusts and K Beneficiary
A K beneficiary (such as a department store) which had the ability to inquire into a beneficiary’s credit will not be allowed to pierce the spendthrift trust in order to satisfy a debt owed to the K beneficiary by the beneficiary in the trust.
Spendthrift Trusts and Disabilities
IF a beneficiary has a mental or physical disability that substantially impairs his ability to function, the spendthrift clause is 100% effective in isolating the trust assets from creditors
Charitable Trusts
Must be established for public benefiting purposes.
Ga recognizes these purposes:
1) poverty relief
2) education
3) religion and ethics
4) health and welfare
5) maintenance of cemeteries
6) prevention of cruelty to animals
7) government
Beneficiaries MUST be the public at large (an indefinite group), not private individuals
Not subject to RAP
Who enforces charitable trusts if trustee fails to do so?
Attorney general acts through the local county district attorney.
Cy Pres Doctrine
Means “Like Purpose”
Charitable trusts may be modified using this doctrine.
When the original objective of the settlor or the testator became impossible, impracticable, or illegal to perform, the cy-près doctrine allows the court to amend the terms of the charitable trust as closely as possible to the original intention of the testator or settlor to prevent the trust from failing.
Ex: if a trust initially was set up for a homeless organization but that organization no longer exists, the courts will modify the trust to apply to another homeless organization that is in existence thus conferring with the settlor’s intent.
