Trusts

Question 1

Reasons for Trusts

Answer 1

▪ Wealth Management
▪ Tax Avoidance
▪ Avoiding Probate

Question 2

Types of Trusts

Answer 2

▪ Testamentary Trusts
▪ Inter Vivos Trust
▪ Charitable Trust

Question 3

Testamentary Trusts

Answer 3

• Created at the death of the settlor of the trust
• Created by the will
• Will not fail as a trust for want of a trustee

Question 4

Testamentary Trusts Must Have:

Answer 4

o	Intent to create a trust
o	Writing and a signature
▪	It is a testamentary trust which means that it needs to be executed with all the Wills Act formalities
o	Irrevocable
o	Ascertainable Beneficiaries
o	Property – Res
o	Duties owed to the beneficiaries
•	Need to have a valid trust purpose
o	A legal purpose, not prohibited by statue, does not offend public policy

Question 5

Inter Vivos Trust

Answer 5

• Created during the life of the settlor
• It is a valid trust during the lifetime of the settlor of the trust
• Can be revocable or irrevocable
o Can revoke during their lifetime as long as they reserved the power to do so

Question 6

Charitable Trust

Answer 6

•	Does not need ascertainable beneficiaries
	• Must have a general charitable purpose
		○ Relief of poverty
		○ Advancing edu
		○ Advancement of religion
		○ etc
	• May be perpetual, not subject to RAP
	• Cy Pres applies
	• Enforced by AG of the States

Question 7

Settlor

Answer 7

at the time of creation this is the person with legal title

Question 8

Trustee

Answer 8

holds legal title to the trust property for the benefit of the beneficiaries
• Charged with the fiduciary duties of managing the assets in the trust
• Must carry out their duties to the benefit of the beneficiaries
• The trustee could also be the settlor if it is an inter vivos trust
o The trustee cannot also be the settlor of a testamentary trust (settlor is dead at the time of its creation)

Question 9

Beneficiary

Answer 9

holds equitable title

Question 10

Creation of a Trust

Answer 10

▪ A trust can arise without a writing if it is an inter vivos trust
▪ A trust can be created for the benefit of one’s self

Question 11

Creation of Inter vivos Trust Without Writing

Answer 11

• In this case it can be established by oral declaration of a trust
• Unless it is for real property
o Statute of frauds must be met for the transfer of an interest in property for more than one year
o Statute of frauds requires a writing

Question 12

Trust to one’s self

Answer 12

• Settlor/Trustee/Beneficiary are all one in the same
• The settlor cannot be the SOLE beneficiary of the trust
o The trustee must owe fiduciary duties to someone

Question 13

Duties of Trustee

Answer 13

▪	Duty not to comingle
•	Not to engage in self-dealing
▪	Duty of performance
▪	Duty to account to the beneficiary
▪	Power to sell, buy, make investments, borrow against

Question 14

Intent to Create a Trust

Answer 14

• Donor did not expressly direct the defendant to hold the gift in trust
o Don’t need to have the word trust
• It is sufficient if the transfer if the donor’s transfer of the property is made with the intent to vest the beneficial ownership in a third person
o The most important thing is the INTENT of the donor

Question 15

Inter vivos trust v. Gift

Answer 15

• Distinction  Intent
o Did they intend to make a trust with a fiduciary duty owed to a beneficiary; or
o Did they intend to make a gift

Question 16

Delivery to Trustee

Answer 16

o A gift which is imperfect for lack of a delivery will not be turned into a declaration of trust for no better reason that that it is imperfect for lack of a delivery
o One can orally constitute himself a trustee of personal property for the benefit of another and thereby create a trust enforceable in equity, even though without consideration ad without delivery

Question 17

Trust Property

Answer 17

▪ Trust must have trust property in order to be valid
• In a testamentary trust, the settlor cannot add property to the trust later
• In an inter vivos trust, the trust property can be provided for at a later time

Question 18

Trust Res

Answer 18

Property Held in Trust

o If there is no trust res it is simply a promise to make payments

Question 19

Corpus of a Trust

Answer 19

The corpus of a trust is the sum of money or property that is set aside to produce income for a named beneficiary.

Question 20

Resulting Trusts

Answer 20

• If a trust fails  Resulting trust
• resulting trust is an equitable reversionary interest that arises by operation of law in two situations:
o (1) If an express trust fails or makes an incomplete disposition, or
o (2) If one person pays the purchase price for property and causes title to the property to be taken in the name of another person who is not a natural object of the purchaser’s bounty

Question 21

Profits & Trust Property

Answer 21

o Future profits are not sufficient to constitute trust property
▪ An expectation or hope of receiving property in the future, or an interest that has not come into existence or has ceased to exist, cannot be held in trust
o Only when the profits are made can they be trust property

Question 22

Ascertainable Beneficiaries

Answer 22

▪ The Beneficiary Principal
• A private trust must have one or more ascertainable beneficiaries to whom the trustee owes fiduciary duties and who can call the trustee to account

Question 23

Whether “friends” = Ascertainable Beneficiaries?

Answer 23

o	Under the common law – there cannot be a valid bequest to an indefinite person
o	For private trusts – there must be a beneficiary or a class of beneficiaries indicated…capable of coming into court and claiming the benefit
▪	“Friends” has no statutory use or controlling limitations – not a class of beneficiaries
▪	Not an ascertainable group
o	Beneficiaries have the right to sue for breach of fiduciary duties  Who has a right to sue if it is “friends” which is not delimited

Question 24

Beneficiary Rules for:

1) Private Trust
2) Charitable Trust
3) Public Trust

Answer 24

o	If it is a private trust  Must have ascertainable beneficiaries
o	If it is a charitable trust  Must have an unascertainable class of people to be a valid charitable trust
o	If it is a public trust  The attorney general can invoke the power of the courts – Don’t need a beneficiary or class of beneficiaries

Question 25

Pets

Answer 25

• In a will  These are not valid • The Beneficiary Principal is not applicable to charitable trusts o Statutorily, most jurisdictions permit trusts for the care of domestic animals and pets -Instead of holding in Charitable Trust, can have a Honorary Trust

Question 26

Honorary Trust

Answer 26

* Subject to Rap * Maintenance of pet or grave * Assets go to a person * Cannot be perpetual in nature

Question 27

A dog as trust property

Answer 27

▪ Distinguished from a charitable trust • This does not involve a trust established for the care of dogs or of an indefinite number of dogs, this only concerns the validity of a testamentary bequest for the benefit of a specific dog • This is too specific to be a charitable trust ▪ This would not be a valid trust because the dog is not a valid beneficiary ▪ However this is a valid Honorary trust • Rule of perpetuities applies • An Honorary trust will not fail for want of a beneficiary

Question 28

Written Instrument

Answer 28

o Although a trust need not be in writing, the creation of an oral trust must be established by clear and convincing evidence

Question 29

Oral Inter Vivos Trusts of Land and the Statute of Frauds

Answer 29

The Statute of Frauds prevents the enforcement of this arrangement as an express trust For relief: • Cases split between: o permitting X to retain the land, on the grounds that the Statute of Frauds forbids proof of the oral trust; and o allowing relief in restitution by way of constructive trust imposed on X to prevent his unjust enrichment

Question 30

Cy Pres Doctrine

Answer 30

* A salvage doctrine for when charitable purpose becomes impossible, impractical, wasteful or illegal to pursue * Attempts to satsify charitable intent, but will direct charitable trust to a general intention