Trusts Flashcards
1
Q
A trust is:
A
a fiduciary arrangement in which a settlor transfers property to a trustee and expresses intent to benefit identifiable beneficiaries.
2
Q
Settlor:
A
person or persons who transfer property into the trust.
3
Q
Trustee:
A
is given legal title to the property.
4
Q
The trustee’s job is:
A
to hold and manage the property in accordance with the instructions in the trust document.
5
Q
The beneficiary:
A
is given the equitable interest in the property.
6
Q
The intent to create a trust must be manifest in terms of:
A
creating ENFORCEABLE duties that take effect when the trust commences.
7
Q
Express trust:
A
created purposefully by the settlor in writing.
8
Q
Implied trusts:
A
Created by the courts and are classified either as resulting trusts and constructive trusts.
9
Q
What two types of implied trusts are created by courts?
A
Resulting trusts and constructive trusts.
10
Q
Three trust categories:
A
- Private
- Charitable
- Honorary
11
Q
A charitable trust must: (2)
A
- Have a purpose considered to benefit or better the public,
- The beneficiaries must be indefinite.
A charitable trust will be implied when there is a clear charitable purpose.
12
Q
Honorary trust:
A
Established for a SPECIFIC non-charitable purpose.
13
Q
Honorary trusts do not have:
A
human beneficiaries.
14
Q
Courts will uphold an honorary trust as long as:
A
the named trustee is WILLING to perform her duties.
15
Q
GA will void an honorary trust on the basis of:
A
The Rule Against Perpetuities
16
Q
The Rule Against Perpetuities will NOT apply to honorary trusts in three situations:
A
- it is a cemetery trust or
- expressly limited to the perpetuity period,
- or if the sum so so small it will necessarily be expended w/i 90 years.
17
Q
Honorary trusts for the care of animals alive during the settlor’s lifetime terminate:
A
Upon the death of the animal, or if there is more than one animal, upon the death of the last surviving animal.
18
Q
Time classifications of trusts: (3)
A
- Inter vivos
2. Testamentary
19
Q
An inter vivos trust is:
A
created during the settlor’s lifetime.
20
Q
Inter vivos trusts may be created in two ways: (2)
A
- Declaration of trust: settlor declares a trust.
2. Deed of trust: settlor transfers property with intent to create a trust.
21
Q
Testamentary trusts are:
A
created in a settlor’s valid will.
22
Q
The capacity to create a testamentary trust is:
A
the same as the capacity to make a will.
23
Q
The capacity to create an inter vivos trust is:
A
the capacity to hold and transfer property. The settlor must be able to completely transfer property during a lifetime. This is a greater capacity than is required for a testamentary trust.
24
Q
Elements of a valid private trust: (5)
A
- Intent
- Trustee
- Trust property (res)
- Definite beneficiary(ies)
- Valid trust purpose
25
To distinguish a trust from a gift or a loan (showing the intent to create a trust) seek to find:
mandatory enforceable duties imposed on a trustee.
26
_______ restrictions may limit trust intent.
Public policy.
27
Prohibited trust provisions: (a few examples)
Encouraging divorce, creating unreasonable demands on the beneficiary, promoting crime, and unreasonable destruction of property.
28
In GA precatory expressions (hope, wish, or mere suggestion that property is used in a particular way) will create a trust IF: (2 elements)
1. They are SUFFICIENTLY IMPERATIVE to show a settlor's intent to impose enforceable duties on the trustee, AND
2. ALL OTHER ELEMENTS of an express trust are present.
29
Trust property:
The specific, ascertainable assets to which the trust duties relate.
30
Trust property need not be tangible but it must be:
a true property interest.
31
A debtor cannot hold his own debt in trust but the debt can be held in trust by:
another person. (Debt is evidenced by an identifiable K or note.)
32
The subject matter of the trust (the property) is also known as:
the corpus or the principal property of the trust.
33
If you have no present property interest, if all you have is an expectancy in property, can that be used to create a valid trust?
No.
34
If a promise to create a trust is not supported by consideration then it is:
gratuitous.
35
Where a promise to create a trust is gratuitous a trust arises when all the elements of a valid trust have been met, but only if at that subsequent time the settlor:
manifests an intention THEN to create the trust.
(Basically, you're not bound by a gratuitous promise to create a trust unless after you get the property you THEN manifest intent.)
36
When the promise to hold property (to be received in the future) in trust is supported by consideration then:
the trust arises AUTOMATICALLY when the settlor receives property, so no further manifestation of intent is needed.
37
No trust fails for want of:
a trustee.
38
Trust purposes are invalid if: (3 things)
1. It is illegal.
2. Its performance requires a criminal or tortious act, or
3. It is otherwise contrary to public policy.
39
The only way that a trust can fail for want of a trustee is:
when the settlor has demanded that ONLY a particular person or entity may serve as trustee.
40
Private and honorary trusts must have _______ ________ to be valid.
ascertainable beneficiaries.
41
What happens to the money after the death of animals in honorary trusts?
Remaining assets result back to the estate of the settlor.
42
In GA, an express trust must be declared:
in writing and signed by the settlor.
43
An otherwise invalid oral trust FOR LAND may be enforced as a constructive trust if: (2)
1. The transfer was procured by fraud, duress, or mistake, or
2. The transferee was in a confidential relationship with the transferor at the time of transfer.
44
Revocable trusts: When a settlor creates a trust in order to revoke or modify it the settlor must:
retain within the trust instrument the power to REVOKE.
45
Unless the settlor has reserved the power to revoke or modify the trust in the trust instrument the trust is :
IRREVOCABLE
46
Revocable trusts are often used in estate planning as a means by which to avoid:
probate costs.
47
Totten trusts:
A bank account where the depositor declares himself trustee of the account for the person who is to receive the money in the account at the time of the depositor's death.
Depositor retains full control of the money in the acct during his lifetime.
48
Totten trusts aren't true trusts because:
they do not separate the legal and equitable title or meet the formal requirements for wills.
49
A Totten trust is revocable by: (3 ways)
1. Withdrawal of the funds.
2. Any lifetime act manifesting the intent to revoke.
3. A specific, contradictory provision in a will.
50
A Totten trust does not protect the funds in the account from:
creditors claims. Also, the depositor must pay taxes on the income.
51
Totten trusts terminate if:
the beneficiary pre-deceases the depositor.
52
Spendthrift Trust precludes the beneficiary from:
voluntarily or involuntarily transferring his interest in the trust.
53
With a spendthrift trust the beneficiaries creditors are:
precluded from reaching it to satisfy their claims.
54
For a spendthrift provision to be valid and enforceable it must:
prohibit both voluntary and involuntary transfers.
55
A ______ provision is invalid if the settlor is the beneficiary.
spendthrift
56
What three types of claims are judgment creditors able to reach 25% of a beneficiary's interest in the trust? TIT
1. Tort claims
2. Taxes
3. Involuntary services rendered.
57
Does a spendthrift provision protect a beneficiary against child support and alimony claims?
Not completely. In GA a former spouse or child can collect up to 50% of the beneficiary's interest in a trust for back alimony and child support.
58
If a beneficiary has a mental or physical disability that substantially impairs his ability to function, the spendthrift clause is ________ in isolating the trust assets from the creditors.
100% effective.
59
Discretionary trusts:
Where a trustee is given discretion whether to apply or withhold payments to the beneficiary.
60
Discretionary trusts: The beneficiary's creditors or assignees have:
the same rights as the beneficiary. They take only if the trustee exercises his discretion to pay.
61
Discretionary trusts: The beneficiary's creditors or assignees take only if the trustee exercises his discretion to pay UNLESS:
the beneficiary's interest is also protected by a spendthrift provision.
62
Where the settlor is the discretionary beneficiary his creditors:
CAN compel payment.
63
The beneficiaries of a charitable trust must benefit the:
public at large NOT private individuals.
64
If a trustee breaches their duty in a charitable trust, who can enforce the trust?
The att'y general, who acts through the local county district attorney.
65
Cy pres doctrine:
When a charitable purpose of a trust becomes impractical or impossible, the court will select an alternative that is as near as possible (the translation of 'cy pres').
66
To apply cy pres the court must find: (2 things)
1. A general charitable intent on the part of the settlor, and
2. Must be able to ascertain her primary purpose.
67
Judicial termination: Upon petition of a trustee or any beneficiary, a ct may terminate a trust upon finding that the trust purpose is affected, how? (3 ways)
1. Costs of administration are defeating the trust purpose;
2. Trust purposes have be fulfilled, become illegal or impossible to fulfill, OR
3. due to unanticipated circumstances, continuation would defeat or substantially impair the trust purpose.
68
Judicial modification: The court may direct the trustee to modify the terms if it is shown by _____ __ ______ _______ that compliance would _____ or _____ ______ the _______ of the ________ of a trust.
it is shown by clear and convincing evidence that compliance would defeat or substantially impair the accomplishment of the purposes of a trust.
69
What is the burden of proof for judicial modification of a trust?
clear and convincing evidence.
70
Judicial power to consolidate or divide: Upon petition of a trustee or any beneficiary and after a hearing a court may:
divide a trust into two or more trusts or consolidate two or more trusts into a single trust.
71
For a court to divide or consolidate a trust, what must happen? (2 things)
1. Showing of GOOD CAUSE, and
| 2. NOTICE must be given to all the beneficiaries.
72
For good cause a ct can divide or consolidate a trust so long as such division or consolidations: (3 things)
1. is not contrary to the SETTLOR's INTENT
2. will FACILITATE TRUST MANAGEMENT, or
3. Is in the beneficiaries' best interest.
73
Resulting trusts may arise upon: (3)
1. Failure of an express trust,
2. The trust purposes have been accomplished and trust assets remain; or there arises a
3. Purchase money resulting trust.
74
Purchase money resulting trust:
If A (the 'beneficiary') furnishes the consideration for the purchase of property and then titles that property in the name of B (the 'trustee'), a presumption of a purchase money resulting trust arises in A.
75
A purchase money resulting trust presumption may be rebutted by:
the preponderance of the evidence.
76
Exception to presumed purchase money resulting trust:
When there is a close personal relationship a GIFT is presumed, but may be rebutted by showing the the resulting trust was contemplated by both parties by way of understanding or agreement.
77
The resulting beneficiaries of a resulting trust are: (3)
1. Any contingency contained in the trust instrument,
2. The settlor, or
3. The settlor's successor in interest.
78
Resulting trusts arising out of a failure of an express trust: Arises where a settlor has conveyed property to trustee under an express trust and: (2)
1. The trust is void or unenforceable, or
| 2. the beneficiary is dead or cannot be located.
79
A resulting trust may apply on the failure of a charitable trust where:
cy press is inapplicable.
80
Constructive trust:
Not really a trust, but a flexible equitable remedy to prevent unjust enrichment from wrongful conduct such as fraud, undue influence, or breach of fiduciary duty.
81
A constructive trust cannot be imposed for mere:
breach of a simple promise. Remedy here would have to be at law, such as breach of K.
82
Constructive trust: Fraud:
B who owned Blackacre transferred it to V upon V's promise that he would hold it in trust for B. At the time of transfer V had no intention of holding property in trust for B, but planned to use it for his own benefit. When V refuses to comply with the terms of the trust to use Blackacre for B's benefits, what are B's rights?
A constructive trust imposed upon Blackacre for B if B can prove the promise made.
Proof must be clear and convincing evidence.
83
Constructive trust: Fiduciary Duty:
V is the executor of the will of B's father. Upon the death of his father, V and B agree that V should take title to Blackacre in his own name so that he can better care for the property. V later refuses to transfer Blackacre to B when B demands it. What are B's rights?
Constructive trust. B/c V and B's father were in a confidential relationship and fiduciary duties arose. V breached the duty and thus a constructive trust may be imposed.
84
Constructive trust: Breach of promise concerning will:
T promised K that he would take care of G if K would execute a valid will that would give everything he had to T. K wrote a valid will doing everything that T asked, but when K died, T refused to take care of G as promised. What remedy does G have?
Constructive trust. T's broken promise is the exception to the rule that you can't have a constructive trust to remedy a simple broken promise. Here, b/c K did everything that he was supposed to do and is not here now to take care of G, it would be unjust not to fulfill the terms of the agreement through a constructive trust.
85
Three exceptions where a constructive trust may be used to remedy the breach of a mere promise:
1. Fraudulent promise (promisor never intended to keep it.)
2. Breach by one in a fiduciary or confidential relationship, or
3. Breach by the decedent's devisee or heir to hold property for the benefit of a third person.
86
If the trustee breaches his fiduciary duty, what may happen?
cts may impose a constructive trust in favor of the person to whom he owes the duty.
Explanation: The fiduciary's duty forbids him from taking title to property belonging to a beneficiary and from seizing for himself an opportunity to acquire property that comes to him in his capacity as fiduciary.
87
A secret trust occurs when:
a will makes a gift that is absolute on its face, but was in fact made in reliance on the (will) beneficiary's promise to hold the property in trust for another.
88
What makes a trust arrangement 'secret'?
Absence of any trust language in the will.
89
For a constructive trust to be imposed in favor of the intended beneficiary in a secret trust how must the trust promise be proven?
by clear and convincing evidence.
90
Semi-secret trusts:
The will makes a gift in trust but fails to name a beneficiary.
91
What happens to a semi-secret trust?
The gift fails and the named trustee holds the property on a resulting trust for the testator's heirs.
92
Co-trustees must act _______ unless the instrument indicates otherwise or there is an emergency requiring immediate action by fewer than all.
unanimously.
93
If there are no provisions in the trust for a trustee's resignation, the trustee may apply to the court for permission to resign if: (6 reasons)
Bugs CD
1. Benefits or savings will be substantial
2. Unable to continue due to illness, etc.
3. Greater responsibilities than originally thought
4. would not Substantially disadvantage the trust
5. Co-trustee, there is one.
6. Detrimental Disagreement with beneficiary
94
Duty of loyalty: Trustee's fiduciary duty is to act with:
UNDIVIDED LOYALTY.
95
Duty of loyalty: The trustee is prohibited from self dealing even if:
the transaction results in a profit for the trust or a benefit is conferred on the trust.
96
Duty of loyalty: _________ is not a defense to the rule that prohibits self-dealing.
Good faith.
97
Duty of loyalty: Trustees are required to avoid any appearance of:
a conflict of interest.
98
Trustee's Duties: Duty to keep beneficiaries reasonably informed and to render:
accountings. Generally accountings should be rendered at least annually.
99
Trustee's Duties: To distribute the trust income at least:
annually. Unless the trust instrument specifies otherwise.
100
Trustee's Duties: Not to delegate any investment or management duty unless the trustee uses:
reasonable care, skill, and caution in selecting an agent and in monitoring the agent's activities.
101
Trustee's Duties: To use reasonable business judgment in administering the trust and to use any ______ _______ the trustee has.
special skills
| Standard of prudence rises with the skills advertised by the trustee.
102
Trustee's Investment Duties: Must exercise: 5 kind of things.
1. The judgement and care,
2. Under the circumstances THEN prevailing, that
3. persons of PRUDENCE, DISCRETION, and INTELLIGENCE exercise in the management of their own affairs, in regard to
4. The permanent disposition of their funds,
5. Considering both the probable income and the probable safety of their capital.
103
Trustee's Investment Duties: Portfolio management: Court will look at the:
entire portfolio, rather than the performance of individual investments.
104
Trustee's Investment Duties: Investments: GA allows the trustee to invest in:
every kind of investment. Real, personal, and mixed.
105
Trustee's Investment Duties: When making investment decisions trustee must consider: (Seven things)
INTENDS
```
Intent of the settlor
Nature and duration of the trust
Tax consequences of investment, anticipated.
Economic conditions, general
Needs of the beneficiary
Duration of the account, anticipated
Size of the trust corpus.
```
106
Specific duties of the trustee: (7)
Imp Disc
Impartiality, duty of
Maintain Marketability
Productive - to keep the trust that way
Diversify
not to delegate Investment w/o careful selection & oversight of the agent.
Speculation - don't do it.
Commingle - don't do it.
107
Duty of impartiality:
Trustee must balance the interest of the income and remainder beneficiaries.
108
How may a trustee balance a responsibility to both income and principal beneficiaries?
Through allocation.
109
Generally, what expenses are paid from the income of the trust? (4)
1. Ordinary expenses of administration.
2. 1/2 the trustee's compensation
3. Income taxes
4. 1/2 the cost of any accounting.
All other charges are made against the principal.
110
Trustee's liability: Causes of action for breach of trust: (7)
Raped Dr.
```
Redress the breach, compel trustee to.
Appoint a temp. trustee
Performance, to compel the trustee to
Enjoin trustee from breach
Deny trustee compensation
```
Damages, recover
Remove trustee
Alternatively, the beneficiary may ratify the breach and keep the benefits.
111
Damages w/ which the trustee may be charged: (4) LOAP
Loss in value cause by the breach,
Other amount that would have accrued, absent the breach
Attorney's fees and ct costs, at the cts discrestion
Profit made by trustee,
112
No provision in a trust may relieve a trustee from liability for a breach of trust that was committed: (3 ways)
1. In bad faith
2. Intentionally
3. With reckless indifference.
113
The RAP applies to:
trusts.
114
Three requirements for a valid gift:
1. Donor w/ donative intent
2. Delivery
3. Acceptance by donee.
115
To extent possible delivery of a gift must be:
actual.
116
If actual delivery is not possible, then delivery may be: (2)
1. Constructive (e.g. car keys), or
| 2. Symbolic (deed.)
117
A gift causa mortis (in contemplation of death) is made by a donor who is dying and that is intended to take effect:
only if the donor ACTUALLY dies.
| Delivery requirements are more stringent and constructive delivery is generally not allowed.
118
A gift causa mortis can only be made of:
personal property
119
A gift causa mortis must be proved by at least:
one witness.
120
In GA, all powers of attorney are automatically:
durable without saying so.
121
Main responsibilities of a guardian:
to make medical decisions for the incapacitated individual. (Guardian is appt by the ct.)
122
If an individual is found by the ct to be unable to manage her financial assets the ct may appoint a:
conservator.
123
The doctrine of merger will not occur unless:
ONE PERSON is the sole beneficiary, trustee, and settlor.
If you add additional beneficiaries, you can avoid the merger.
124
If a trustee (who is also a beneficiary) exercises her discretionary power to invade the trust principal to pay herself, the exercise of this discretionary power could result in:
the appearance of a conflict of interest which would be a breach of the trustees duty of loyalty.
125
A 2002 GA law restricts a trustee/beneficiary's ability to distribute property to herself or to satisfy her own legal obligations. But if the settlor provided that the discretionary power is limited to power to provide for ___, ____, or _____ then the trustee beneficiary may distribute money to herself for one of these goals.
health, support, or maintenance
126
A 2002 GA law restricts a trustee/beneficiary's ability to distribute property to herself or to satisfy her own legal obligations. If the trustee/beneficiary can't exercise this power, who can?
a co-trustee or if there is no co-trustee then and independent trustee that is appointed by the ct.
127
Income: (rents, dividends, etc.)
is the return in money or property derived from use of the principal.
128
If assets in the trust are sold or condemned or if there are proceeds from a life insurance policy owned by the trust, all these amounts are allocated to:
the principal.
129
If the trust owns stock which pays cash dividends they are allocable to:
income
130
Most other stock distributions (other than dividends) are allocated to the:
principal.
131
Georgia Flexible Trust Income Act: In GA, to allow a trustee greater discretion in seeking to balance the interests of income and principal beneficiaries the trustee is allowed to characterize assets as income whenever:
the income portion of the trust is so small as to be unfair to the income beneficiary.
132
Georgia Flexible Trust Income Act: What two options does the trustee have for balancing the interests of income and principal beneficiaries under the Act?
1. Power of adjustment
| 2. Power to convert to a unitrust
133
Power of adjustment:
Regardless of whether the property could be characterized as income or principal, the trustee may exercise a power to adjust by allocating property that is technically income to the principal and vice versa, in a manner that is fair and impartial to all the beneficiaries.
134
Power of adjustment: Adjustment is not permitted if adjustment brings about:
adverse tax consequences.
135
Power of adjustment: Adjustment is not permitted if it would disqualify the trust for either:
marital or charitable deductions, or cause the trust to generate income taxes for the trustee. (beneficiary?)
136
Unitrust:
A trust that pays out a certain percentage of the trust every year, regardless of whether the percentage represents the actual income earned.
137
Unitrust rate provided by statute?
4%
138
The unitrust rate provided by statute is 4%, but the trustee may request a rate between:
3 and 5%
139
In order for a trustee to convert to a unitrust there must be either:
court approval or approval of ALL the beneficiaries.
140
Taxes and gifts: A present there is an annual exclusion of:
$14k for each donee of a gift.
141
Estate tax deductions: (2)
1. Marital deduction
| 2. Charitable deduction
142
Federal estate tax: Each person has an exemption for up to:
$5.37m
143
Federal estate tax: Married couples exemption is:
$10.5m by combining their personal exemptions.
144
After personal exemption the federal estate tax rate is:
40%
145
Federal estate tax: Marital deduction:
Estates are not taxed on any amount that passes by will or intestacy to a legal spouse.
146
Federal estate tax: Charitable deduction:
Estates are not taxed on any amount that passes by will to a charity.
147
Trust property must be described:
adequately and specifically.
148
Where there is a secret trust in a will, what may the intended beneficiary present to get the court to apply a constructive trust remedy?
extrinsic evidence of the promise to hold property in trust for beneficiary between breaching party and testator
