Trusts Flashcards
Express Trust
Oral trust allowed in IL if unequivocal
Allows owner of property to make transfers of property and have those assets managed on behalf of someone else
Settlor (creator) gives legal title to trustee while beneficiaries have equitable title
Either Lifetime/inter vivos trust or testamentary (set up in will)
Trust Requirements (8)
(1) Settlor - anyone 18 or older w/ K capacity
(2) Delivery - place assets out of control of settlor (unless trustee)
(3) Property - settlor must own, not future expectancy and identifiable
(4) Trustee - anyone w/ capacity. Failure to name = court appoints
(5) Beneficiaries - definite and ascertainable, otherwise resulting trust for residuary beneficiary of a will (except unborn)
(6) Intent - Can’t be precatory (I request/My desire) - must give trustee duties otherwise passive and no trust
(7) Lawful purpose - can’t call for crime, destruction of property or against PP (restricting marriage or promoting divorce)
(8) Execution - trusts of land must be in writing and signed by settlor
Revocable Lifetime/Inter Vivos Trust (in IL trust are presumed irrevocable)
(1) At 1 beneficiary who is not settlor (settlor can’t be ben, trustee and settlor) - can change during lifetime
(2) Settlor can be a trustee, income ben, estate can be ben as long as one other and can have right to terminate/amend trust
(3) Reasons to have is to manage assets and avoids probate
(4) Not to have - no tax avoidance; can be included in gross estate
“Pour Over” Gifts
Testamentary gift made to existing trust
(1) Trust must be in existence or executed concurrently w/ the will and trust must be identified in the will
(2) Valid if trust unfunded/part funded during settlor’s life
(3) Life Insurance Proceeds - insured names trustee as policy ben to create unfunded revocable trust
Totten Trust: Trust-Like Option
AKA bank account trust in depositor’s name “as Trustee for Ben”
Depositor free to make deposits and withdrawals and the account only transfers at death of depositor
REVOCATION - W/D all funds, express, revoke in will, death of ben
Creditors of depositor can reach accoutn before or after death since revocable
Joint Bank Account (Not Totten Trust)
“X and Y w/ right of survivorship” (C&CE to prove otherwise)
Each holder owns fractional share, no matter who deposits
Uniform Transfers to Minors Act (UTMA) - does not create a trust, but a conservatorship (minor holds legal title)
Avoid guardianship/court imposed trust
Gifts under UTMA must be made to a custodian and can be made in a will
Duty of Custodian: hold, manage invest as prudent person; pay to minor for their needs and pay left over when they turn 21
Charitable Trust
(1) Must have indefinite bens of reasonably large group, not specifically named
(2) Charitable purpose - health, education, religion
(3) May be perpetual and not subject to RAP
(4) Cy Pres - court makes purpose as near as possible to intent if purpose cant be achieved
(5) AG reps the bens
Honorary Trust (not a trust)
Pet Trust: No human being is beneficiary (IL can have pet trust) and when the pet dies the trust ends and goes to res; Someone designated to enforce the trust
Cemetery Trust: IL for care and maintenance of burial plots
Constructive Trust - equitable remedy to disgorge unjust enrichment from wrongful conduct
Resulting Trust - equitable remedy when express trust fails and PMRT created (purchaser buys property but title put in someone elses name and they later refuse to give up title)
Spendthrift Rule
Protects ben’s interest from creditors by prohibiting voluntary or involuntary transfer of ben’s interest
Spendthrift clause must be expressly stated in trust
EXCEPTIONS: creditors furnishing necessities; child support and alimony; federal tax liens
**Does not apply to interest retained by the settlor
**All revocable trusts are fair game for settlor’s creditors
Trust Modification by Trustee and/or Ben
NOTE: In IL trusts are irrevocable and unamendable unless expressly reserved in instrument
Can be modified as long as does not interfere w/ material trust purpose
(1) all bens consent and objectives of trust would be defeated or impaired if not modified
(2) Claflin - material purpose comes first to any specific directions in the trust
First, find out material purpose, then look at specific directions in the trust that would frustrate material purpose
Trust Administration
Trustee powers - exercised pursuant to terms of trust, statute or court decree
Trustee CAN - sell, mortgage, lease, make repairs to property, contest/settle claims
CANNOT engage in self-dealing, borrow money, continue a business w/out authorization
Self-Dealing Prohbition (good faith and reasonableness are not defenses)
(1) Trustee cannot buy or sell trust assets to self
(2) Cannot borrow trust funds
(3) cannot lend money to the trust
(4) Cannot profit from serving as trustee (unless corp)
Duty to segregate trust and personal assets
Remedy - if commingled funds and asset goes down in value - personal funds used; if up in value - trust funds used
NOTE: BFP protected if trustee engages in self dealing to third party
Remedies for Breach of Fiduciary Duties
(1) Ben an sue to remove the trustee
(2) Ben can ratify transaction and waive breach
(3) Ben can sue for loss (surcharge)
Liability of Trustee in Contract and Tort
Contract - personally liable to 3rd parties on contracts related to trust property; reimbursed by trust if K w/in powers and acting in administrative duty
Tort - personally liable for torts by trustee or employees; reimbursed if acting w/in powers, taking risks normal to conduct and not personally at fault
