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Trusts Flashcards

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1
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Structure?

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(Elements of Trusts)

A
  1. “Trust’’
    1. Inter Vivos Trusts
    2. Testamentary Trusts
  2. Elements of a Private Express Trust
    1. Capacity
    2. Manifestation of Intent
      1. Present Intention Required
      2. Timing = At Time Settlor Owned the Property
        1. Options for Creation
          1. Inter Vivos
            1. Declaration of Trust, OR
            2. Transfer in Trust
          2. At Death By Will
      3. Writing
        1. Oral Trusts Permitted Only for Inter Vivos Trusts of Personal Property
          1. Statute of Wills or Frauds
        2. Mandatory Words Required
        3. Precatory Words Alone = Not Sufficient
          1. But May Show Trust Intent if
            1. Definite & Precise Directions
            2. Directions Addressed to Fiduciary
            3. Unnatural Disposition of Property if No Trust, OR
            4. Extrinsic Evidence of Prior Support of Intended Beneficiary by Settlor
  3. Trust Property (Res)
    1. Valid Presently Existing Interest in Property
    2. Must be Identifiable & Segregated
    3. Exception: Unfunded Life Insurance Trust
    4. Prohibited Interests
      1. No Illusory Property
      2. No Mere Expectancies
      3. Settlor’s Own Debt
  4. Delivery
    1. Actual
    2. Symbolic
    3. Constructive
      1. Common Law
      2. Modern View
  5. Trustee
    1. Capacity Required
    2. Trustee Must Have Duties
    3. Lack of Trustee = Courts Will Appoint Unless Settlor Intended Otherwise
  6. Ascertainable Beneficiary
    1. Definition
    2. Corporations = OK
    3. Unincorporated Associations
      1. Common Law = No
      2. Modern Law = Yes
    4. Class Gifts = Valid if Reasonably Definite
      1. Trustee’s Discretion
    5. Conceived Child Not Yet Born = OK
    6. Rule Against Perpetuities Applies to Private Express Trusts
  7. Trust Purpose
    1. Invalid If
      1. Illegal
      2. Performances Involves Commission of Tort or Crime
      3. Contrary to Public Policy
    2. Illegal Conditions
      1. Condition Subsequent = Condition Invalidated but Trust Valid
      2. Condition Precedent = Interest Valid Unless Evidence of Contrary Intent of Settlor
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2
Q

Topics? (11)

(Types of Trusts & Their Legal Requirements)

A
  1. Inter Vivos Trust
  2. Testamentary Trust
  3. Secret & Semi-Secret Trusts
  4. Charitable Trust
  5. Resulting Trust
  6. Constructive Trust
  7. Honorary Trust
  8. Spendthrift Trust
  9. Discretionary Trust
  10. Support Trust
  11. Will Substitutes
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(Types of Trusts & Their Legal Requirements: Inter Vivos Trust)

A
  1. Legal Requirements
    1. 7 Trust Elements
    2. Manifestation of Intent = 2 Options for Inter Vivos Trusts
      1. Transfer in Trust, OR
        1. Real Property
        2. Personal Property, OR
          1. Delivery
            1. Actual
            2. Symbolic
            3. Constructive
      2. Declaration of Trust
    3. Statute of Frauds
      1. Writing Required for Transfer of Interest in Real Property
      2. Parol Evidence Admissible if Patent Ambiguity
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4
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(Types of Trusts & Their Legal Requirements: Testamentary Trust)

A
  1. Legal Requirements
    1. 7 Trust Elements
    2. Terms Ascertainable By
      1. Terms of the Will Instrument
      2. Existing Documents Incorporated by Reference
      3. Facts Having Independent Significance, OR
      4. Exercise of the Power of Appointment Created by Wil
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5
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(Types of Trusts & Their Legal Requirements: Secret & Semi-Secret Trusts)

A
  1. Secret Trust = Constructive Trust
  2. Semi-Secret Trust = Resulting Trust
    1. Parol Evidence Admissible
    2. Burden of Proof = Clear & Convincing Evidence
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6
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(Types of Trusts & Their Legal Requirements: Charitable Trust)

A
  1. Definition
    1. Statute of Elizabeth
    2. Restatement
    3. Advancement of Religion = Yes
    4. Political Trusts
      1. Dissemination of Political Views = Yes
      2. Political Parties = No
  2. Legal Requirements
    1. 6 Trust Elements
      1. Charitable Purpose
    2. Unascertainable Beneficiaries
      1. Ascertained Beneficiary or Group of Beneficiaries IS NOT a Charitable Trust
      2. Duty of Enforcement = Attorney General
    3. Rule Against Perpetuities Does Not Apply
  3. Cy Pres Doctrine
    1. Requirements
      1. General Charitable Intent
      2. Means Impracticable or Not Possible
    2. No Cy Pres if Specific Charitable Intent = Resulting Trust
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7
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(Types of Trusts & Their Legal Requirements: Resulting Trust)

A
  1. Private Express Trusts
    1. Natural Termination & No Provision for Remaining Trust Corpus
    2. Beneficiary Problems
      1. Failure Due to Lack of Ascertainable Beneficiary
      2. Beneficiary Dead or Cannot be Found
    3. Void or Unenforceable
    4. Excess Corpus
  2. Charitable Trusts
    1. Failure of Charitable Trusts & Cy Pres Inapplicable
  3. Purchase Money Resulting Trusts
    1. Timing
    2. Rebuttable Presumption
    3. Burden of Proof = Trustee
      1. Clear & Convincing Evidence on Trustee
    4. Exception: Close Personal Relationship
  4. Semi-Secret Trust
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8
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Structure?

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(Types of Trusts & Their Legal Requirements: Constructive Trust)

A
  1. Burden of Proof = Clear & Convincing Evidence
  2. Common Situations for Constructive Trust
    1. Theft or Conversion
    2. Fraud, Duress or Mistake of Fact
      1. Wills with Fraud in Inducement or Undue Influence
    3. Breach of Fiduciary Duty
    4. Homicide
    5. Breach of Promise
      1. Exceptions
        1. Fiduciary Relationship
          1. No Statute of Fraud Defense
        2. Fraudulent Promise
          1. No Statute of Fraud Defense
        3. Detrimental Reliance
          1. No Statute of Fraud Defense
        4. Secret Trust
          1. Parol Evidence Admissible
          2. Burden of Proof = Clear & Convincing Evidence
        5. Promise to Debtor by Buyer at Foreclosure Sale
  3. Bona Fide Purchaser > Beneficiary
    1. BFP?
  4. Equitable Defenses Available
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9
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(Types of Trusts & Their Legal Requirements: Honorary Trust)

A
  1. Trustee Unwilling = Resulting Trust Imposed
  2. Violates the Rule Against Perpetuities
    1. Courts Split
      1. Trust Invalidated at Inception = Resulting Trust
      2. Valid for 21 Years Followed By Resulting Trust
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10
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(Types of Trusts & Their Legal Requirements: Will Substitutes)

A
  1. Revocable Inter Vivos Trust
    1. Pour-Over Will
  2. Life Insurance Trust
  3. Totten Trust (Tentative Bank Account Trust)
    1. Depositor Serves as Trustee & Retains Full Control During Lifetime
    2. Revocable By
      1. Withdrawal of Funds
      2. Act Manifesting Intent to Revoke, OR
      3. Contradictory Will
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11
Q

Topics? (2)

(Beneficiaries’ Interests)

A
  1. Transfer of Beneficiaries’ Interests
  2. Uniform Principal & Income Act
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12
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Structure?

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(Beneficiaries’ Interests: Transfer of Beneficiaries’ Interests)

A
  1. Alienability in General
    1. Voluntary Alienation
    2. Involuntary Alienation
  2. Spendthrift Trusts = Restraint on Alienation
    1. Voluntary Permitted While Involuntary Prohibited = Invalid
    2. Exceptions
      1. Preferred Creditors
        1. Government
        2. Dependents
        3. Persons Supplying Necessities
        4. Tort Creditors
      2. Settlor as Beneficiary
        1. Involuntary Alienation = Invalid
        2. Voluntary Alienation
          1. Majority View
          2. Minority View
      3. Surplus = Any Creditor May Attach
        1. Station in Life = Standard of Living
  3. Discretionary Trusts
    1. Voluntary Alienation
    2. Involuntary Alienation
    3. Settlor as Beneficiary = Creditors May Compel Payment
  4. Support Trusts
    1. Beneficiary’s Other Income
    2. Voluntary Alienation = Prohibited
    3. Involuntary Alienation = Prohibited
      1. Exception: Preferred Creditors
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13
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Structure?

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(Beneficiaries’ Interests: Uniform Principal & Income Act)

A
  1. Life Tenant = Income Beneficiary
    1. Income Allocated to Life Tenant
      1. Cash Receipts from Entities
      2. Insurance Proceeds
      3. Interest Income
      4. 10% of Deferred Compensation
      5. 10% of Mineral, Water, & Other Natural Interests
        1. Exception: Renewable Water Rights
    2. Expenses Allocated to Life Tenant
      1. Interest on Debt
      2. Minor Repairs
      3. Recurring Taxes Assessed Against Principal
      4. Insurance Premiums
      5. One-Half of Trustee’s & Advisor’s Compensation, Accounting, & Judicial Expenses
  2. Remainderman = Principal
    1. Principal Allocated to Remainderman
      1. Receipts from Entities
        1. Liquidating Distributions
        2. Capital Gains Income
        3. Property Other Than Money
          1. Stock Split
          2. Stock Dividends
      2. Insurance Proceeds
      3. Principal Assets
        1. Eminent Domain Awards
    2. Expenses Allocated to Principal
      1. Principal Portion of Debt
      2. Major Repairs or Improvements
      3. Insurance Premiums
      4. Estate Taxes
      5. Environmental Matters
      6. One-Half of Trustee’s & Advisor’s Compensation
      7. One-Half of Accounting &Judicial Expenses
  3. Trustee
    1. Duty Not to Discriminate Between Beneficiaries
    2. Adjustment Power
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14
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Structure?

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(Trustee’s Powers)

A
  1. Sources of Power
    1. Express (aka Enumerated) Powers
    2. Implied Powers
      1. Power to Sell
      2. Power to Invest
      3. Power to Lease Land
      4. Power to Pay Expenses
      5. Power to Sue 3rd Parties
      6. No Power to Incur Debts, Mortgage or Encumber Property
  2. Imperative Power
  3. Discretionary Power
  4. Joint Trustees
    1. Common Law = Unanimous Agreement
    2. Modern Law = Majority
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15
Q

Topics? (10)

(Fiduciary Duties of Trustee)

A
  1. Duty of Undivided Loyalty
  2. Duty of Due Care (Duty to Act with Skill)
  3. Duty to Administer the Trust In Accord With Its Terms
  4. Duty to Invest
  5. Duty Not to Delegate
  6. Duty to Carefully Select & Supervise Agents
  7. Duty to Physically Separate Assets
  8. Duty to Earmark Assets
  9. Remedies
  10. 3rd Party Liability
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16
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Structure?

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(Fiduciary Duties of Trustee: Duty of Undivided Loyalty)

A
  1. Must Avoid Self-Dealing
    1. Borrowing Trust Funds
    2. Using Trust Assets to Secure Personal Loan
    3. Loaning Personal Funds to Trust
    4. Personal Gain
    5. Selling Trust Assets Between Multiple Trusts of Which The Trustee Is A Trustee
    6. Purchase of Trust Property
    7. Sale of Trustee’s Property to the Trust
    8. Corporate Trustee May Not Invest In Corporation’s Own Stock
  2. Duty to Inform & Account
  3. Beneficiaries’ Remedies for Self-Dealing
    1. Ratify Transaction
    2. Recover Profits
      1. Trustee Liable for Losses
    3. Set Aside Transaction
17
Q

Structure?

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(Fiduciary Duties of Trustee: Duty of Due Care (Duty to Act with Skill))

A
  1. Special Skill or Expertise
18
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Structure?

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(Fiduciary Duties of Trustee: Duty to Invest)

A
  1. Legal List Jurisdictions
    1. Types of Legal Lists
      1. Permissive
      2. Mandatory
    2. Examples of Proper Investments
      1. Government Securities
      2. First Mortgages on Land
      3. High Grade Corporate Bonds
    3. Examples of Improper Investments
      1. Unsecured Loans
      2. Second Mortgages on Land
      3. Corporate Stocks
      4. Unproductive Land
      5. New Businesses
  2. Common Law = Prudent Person Standard
    1. Requirements
      1. Each Individual Investment Must Be Prudent
      2. Measured at Time of Investment
      3. Investments Constantly Reviewed & Changed if Necessary
  3. Uniform Prudent Investor Act
    1. Measured at Time of Trustee’s Action
    2. Entire Portfolio Scrutinized
    3. Any Type of Investment Permitted
    4. Diversification Required
19
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(Fiduciary Duties of Trustee: Duty Not to Delegate)

A
  1. Duty to Invest?
    1. Common Law = No
    2. Modern Law = Yes
  2. Remedy
20
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(Fiduciary Duties of Trustee: Duty to Carefully Select & Supervise Agents)

A
  1. Delegation of Investment Decisions
  2. Reasonable Skill, Care & Caution In
    1. Selecting Agent
    2. Establishing Scope & Terms of Delegation
    3. Periodically Review of Agent’s Action
21
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(Fiduciary Duties of Trustee: Duty to Physically Separate Assets)

A
  1. Remedies
    1. RemovaI of Trustee
    2. Trustee Liable for Loss
22
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(Fiduciary Duties of Trustee: Duty to Earmark Assets)

A
  1. Common Law = Strict Liability
  2. Modern Law = Liable for Damages Caused by Failure to Earmark
23
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(Fiduciary Duties of Trustee: Remedies)

A
  1. Recover Damages
    1. Offsetting Prohibited
  2. Constructive Trust Remedy
  3. Tracing & Equitable Lien on Property
  4. Ratify Transaction
  5. Set Aside Transaction
  6. Remove Trustee
24
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(Fiduciary Duties of Trustee: 3rd Party Liability)

A
  1. Non BFPs
    1. Either Knew or Should Have Known
  2. Bona Fide Purchaser > Beneficiaries
  3. Innocent Donee
25
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(Liability of Trustee)

A
  1. Exculpatory Clause
  2. Contract Liability
    1. Common Law = Sued in Personal Capacity
      1. Exception: Contract Expressly Relieves Trustee of Liability
      2. Indemnification
        1. Within the Scope of Trustee’s Power
        2. Trustee Not Personally At Fault
    2. Modern Law
  3. Tort Liability
    1. Common Law = Personally Liable
      1. Indemnification = Trustee Without Fault
    2. Modern Law = Personally Liable Only if At Fault
      1. Trustee At Fault = Personal Capacity
      2. Trustee Not At Fault = Representative Capacity
26
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(Termination & Modification)

A
  1. Modification
    1. By Settlor = Implied from the Power to Revoke
    2. By Beneficiaries
      1. Unanimous Consent
      2. Modification Does Not Frustrate Any Material Trust Purpose
    3. By Court
      1. Cy Pres Doctrine for Charitable Trusts
      2. Doctrine of Changed Circumstances
        1. Unknown & Unanticipated Changed Circumstances
        2. Continuing Under Existing Terms Would Impair Trust’s Purposes
  2. Termination
    1. Revocable Trusts
      1. Majority View = Presumed Irrevocable
        1. Settlor Reserved Right to Revoke
        2. Complies with All Provisions in Trust Agreement Regarding Revocation
      2. Minority View = Presumed Revocable Unless Trust States Otherwise
    2. Irrevocable Trusts
      1. Unanimous Agreement Between (Still-Living) Settlor & All Beneficiaries
      2. The Clarflin Doctrine
        1. All Beneficiaries Agree
        2. No Material Trust Purpose Unperformed
      3. Merger
  3. Judicial Power to Terminate = Purpose Impossible, Illegal, or Completed

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