Trusts Flashcards
Trusts Opening Statement
The law of trusts, as standardized in the Unifrorm Trust Code, controls the dispersal of personal property to others under the protection of a fiduciary.
What is a trust?
A trust is a fiduciary relationship in which the settlor/donor/grantor/trustor intentionally places legal title to property into the hands of a trustee to keep or administer for the benefit of ascertainable beneficiaries.
What are the requirements for a trustee?
The trustee must have legal capacity, can be court-appointed if the named trustee fails, and must be someone other than or in addition to the beneficiary. He has a duty to administer the trust in good faith and has a duty of loyalty excluding self-dealing (may not take an opportunity from the trust, borrow from the trust, or use trust assets as collateral for a personal loan).
What are the requirements for the ascertainable beneficiaries?
The beneficiaries need not know of the interest. A class may not be too indefinite, but if the trust directs the trustee to select from a well-specified class and the standard for selection is defined, it is enforceable.
How is an express trust created?
It must satisfy the SOF if it involves real estate or terms lasting over one year. The instrument controls in conflict with statutes, and it needs specific directions. Corpus (income/principal) earnings go to the income beneficiary, while improvements to the corpus go to the remainder interest.
How is an implied trust created?
Where there has been an unsuccessful but good-faith effort to create a trust, a court may effect one to satisfy the intent of the grantor or to mitigate inequity and avoid unjust enrichment (the wrongdoer, if one, becomes a constructive trustee for the proper beneficiary).
Why is a trust useful?
Under a trust, there is no tax on any appreciation in value of the property from the gift date to the donor’s death. It transfers assets on death (if preferable to a will). It protects the property from CRs or the gov’t (even a beneficiary’s CRs in a spendthrift). It avoids probate delays and maintains privacy.
Can you modify or revoke a trust?
With the agreement of the donor and all the beneficiaries, and if it won’t defeat the purpose of the trust, it may be modified or revoked. This power must be reserved in the trust under the common law (not under the UTC). Interested parties may petition for judicial determination of interests.
What are the trustee’s responsibilities?
PINCALL: properly administer, inform beneficiaries, not delegate decisions, commingling disallowed, account to beneficiaries, litigate on behalf of the trust, loyalty to the trust.
What is the liability of a trustee?
Beneficiaries bring suit to enforce the trust. The trustee may be removed for significant cause (PINCALL violation, unfitness). There is j/s liability for co-trustees, and a subsequent trustee is liable to pursue a prior’s breach. An exculpatory provision will generally only be enforced for mere negligence lacking bad faith. A beneficiary who consents to a breach of duty may be estopped from complaining.
What are a beneficiary’s ownership rights?
A beneficiary’s ownership rights are absolute unless stated; he can transfer the interest if vested or a remainder. (Restraints on alienation are more likely to be allowed in an inter vivos trust than a will but must not violate public policy.)
What are a beneficiary’s creditors’ rights to the property?
A spendthrift trust prohibits assignment by the beneficiary or attachment by CRs, and a discretionary trust keeps sole discretion of distribution with the trustee (so the beneficiary has no vested attachable interest). Even with those, though, CRs get funds for debts incurred for necessities, CS and often alimony, taxes, or from fraudulent transfers set up just to protect against CRs. A CR with a valid interest places a changing order on the trustee, requiring income distributions to be paid to the CR.
What about charitable trusts?
They are registered with a state agency and enforced by the attorney general. They are exempt from the RAP. Cy pres doctrine applies, where the court will substitute a similarly-purposed charity upon impossibility if there was general-purpose intent by the grantor.
What kinds of third-party liability may there be?
A claim against the trust attaches the assets of the corpus. The trustee has no contract liability if acting in good faith but has personal liability for his own and subordinates’ torts if failure to supervise. Claims against beneficiaries are not allowed by third parties. A third party is liable to the trust and beneficiaries if he knowingly receives trust property for less than full value.
How is a trust terminated?
Consolidation (w/ other trusts), term expiration, purpose accomplished/illegal/impossible, merger (all beneficiaries and trustees are the same), income interest terminates (corpus to remainder under acceleration), donor termination (if retained), court petition (only if the purpose not defeated by termination, or if the settlor and beneficiaries request, even if the trustee objects).
