Trusts Flashcards
A private trust requires
(1) settlor expresses intent (2) res (3) ascertainable beneficiaries (need not be alive yet) (4) valid purpose
A charitable trust requires
(1) settlor expresses intent (2) res (3) valid charitable purpose
For a res to be valid, the property must be
certain and identifiable, otherwise there is no trust. **Duty to pay a debt is not valid, but right to receive a debt payment is valid.
An attempt to create a trust in property expected to be received by inheritance is
invalid and treated like a gratuitous promise unless the testator has already died and the legatee is merely waiting for the estate to distribute the property.
Where a promise to create a trust is gratuitous, a trust arises when all the elements are eventually met only if
the settlor reaffirms the intent to create a trust
No trust fails for want of a ___________ unless
trustee; it is super clear that the settlor wanted ONLY that person to serve as trustee (this almost never happens)
In most states, an empty trust is valid if the trust is a named beneficiary of
a life insurance policy or a pension plan death benefit
Under the traditional rule an invalid trust for want of beneficiaries _________ be turned into a power of appointment in the named trustee, but under the modern majority _______.
cannot; the power of appointment argument should be made and if the failed trustee does not exercise it w/in a reasonable amount of time the property returns to settlor’s estate in resulting trust
Ascertainable beneficiaries (do/do not) need to be alive.
do not. If not alive, a guardian ad litem will be appointed to enforce the trust in the unborn beneficiaries interests. **If the B’s are never born, the money returns to settlor’s estate via resulting trus
Honorary trusts at common law are _______, but in about half of states _____________.
invalid as violating the RAP; are valid for the life of the pet (designated enforcer, leftover money returns to estate of settlor)
A person cannot be both trustee and beneficiary unless
(1) there is more than one trustee or (2) there is more than one beneficiary
A pour over clause in a will is
valid and the trust that receives the pour over can be created before, concurrently, or after the will itself is created. **If T revokes the trust before T dies, the gift in the will lapses.
A bank account created by a settlor as trustee of the money in the account for someone is
valid and called Totten trust. It is recovable during life. In most states it can be revoked by will, but not under the UPC. Reachable by creditors. If B predeceases S, it is revoked.
An oral trust of ______ property is enforceable.
personal. Real property must have a writing that satisfies the Statute of Frauds.
An oral trust for real property might be enforceable through constructive trust if P can show
(1) fraud in the inducement (T was a liar from the beginning and wrongly induced S to name him trustee) or (2) a confidential relationship between S and the purported T.
Oral contracts to make a will are enforceable via a constructive trust only if
the devise is for personal property and proponent proves the terms by C&C evidence. Real property requires a writing.
Under the UPC, oral contracts to make a will is enforceable if
(1) the terms are in the will itself or (2) the terms are in a written contract or (3) the will refers to the contract and extrinsic evidence proves the terms
A secret trust occurs when
a B receives property under a will and had made a promise outside the will to serve as a trustee w/r/t the received property
A secret trust is enforceable via contrustive trust if
proponent can show by C&C evidence the will beneficiary’s promise to be a trustee
A semi-secret trust occurs when
a will devises property to a T “in trust” for purposes I have already communicated to T
A semi-secret trust results in
a resulting trust of the res back to the testator’s estate. There is no trust.
Charitable trusts _______ subject to the RAP.
are not (nor are they subject to the Rule Against Accumulation, whatever the fuck that is)
A charitable trust’s charitable purpose ______ be reformed by a court under the doctrine of ______.
may; cy pre (as near as possible).
Charitable trusts are enforced by the
(1) state attorney general in most states; (2) in UTC states, the settlor while living or an interested B
Under cy pres, a court will look at the settlor’s
primary intent in creating the trust and the specific direction given by S to achieve that primary purpose
A court can reform a trust’s terms under the doctrine of __________ because of
deviation; unforeseen changed circumstances.
A creditor of a beneficiary under a mandatory distribution of income trust can
garnish the B’s income stream
is an example of
a spendthrift clause.
Creditors of a beneficiary of a spendthrift trust cannot reach the trust income stream unless ________
(1) creditor has provided necessities; (2) creditor is for alimony or child support; (3) claims by the US or states
A trustee of a discretionary support trust has a duty to
support the B if B can’t support himself, but trustee may presumptively decide not to distribute if B has other resources (especially if the trust uses words like “sole”/”absolute” discretion)
A pure discretionary trust is one that __________.
vests sole discretion for distributions in the trustee. The B has no right to receive distributions provided Trustee is honest and acts in good faith.
Creditors of the beneficiary of a pure discretionary trust have the following rights
Creditors cannot force distributions, but can attach to any future distributions. Under UTC, a claim by a child, spouse, or former spouse can compel a distribution out of the trust for child support or alimony
A self-settled trust created for settlor’s benefit _______ reachable by creditors.
is. Spendthrift clauses are unenforceable. Income stream is always reachable, assets are reachable if the trust is revocable OR trustee has discretionary authority to make distributions.
If settlor creates an irrevocable trust for a third person, settlor’s creditors have
no rights unless there was a fraudulent transfer under fraudulent transfer law.
Under a trustee’s duty of loyalty, the trustee cannot
(1) buy or sell trust assets to itself (2) borrow trust funds (3) sell assets from one trust to another (4) corp. trustee cannot purchase own stock as trust investment (but can maintain if part of original res) (5) engage in a transaction for personal gain
Under a trustee’s duty to invest prudently, the trustee must
(1) not commingle trust property with other property (2) balance return with potential risk (3) diversify investments (4) keep trust productive
A trustee’s compliance with the prudent investor rule is measured a
portfolio view, so if one or more assets underperform that’s okay as long as total return is reasonable
A trustee’s ancillary duties are
(1) preserve and protect trust property (i.e. casualty insurance) (2) impartiality (3) account and inform
Under modern statutes, trustee’s ______ invest in common trust funds.
can. Allows greater economy and diversification.
When there is more than one trustee, traditionally any action requires _________ but the modern majority rule requires
unanimity; a majority
A beneficiary’s options for breach of trust are
(1) ratify the transaction and waive the breach (2) sue for the resulting loss (3) for self-dealing cases, trace the property and recover it for the trust
An exculpation clause is unenforceable if
(1) to the extent it relieves the trustee of liability for reckless or bad faith action or (2) the clause was drafted by or at direction of trustee and settlor did not have independent counsel
Trustee liability for torts
Traditional rule: personally liable on all torts of self and agents, but can be reimbursed from trust estate if not personally at fault. UTC: only if trustee was personally at fault, otherwise must sue trustee in representative capacity.
Trustee liability for contracts
Traditional rule: trustee perosnally liable on Ks unless stipulation in K that relieves T of personal liability. UTC: claimant must sue T in representative capacity UNLESS T failed to reveal her representative capacity when entering the K
A co-trustee can be liable for breaches by other trustees if
(1) he participated in the breach
(2) failed to use resaonble care to prevent it
(3) neglected to take proper steps to compel his co-trustee to redress the breach
A successor trustee that becomes aware of a breach by a previous trustee must
take proper steps to compel the former trustee to redress the breach, otherwise she herself is in breach
In most states, a trustee can delegate investment decisions so long as
(1) SELECTING (2) DEFINING (3) REVIEWING trustee uses reasonable care to
(1) select the agent
(2) define the scope and terms of the delegation and
(3) periodically reviews the actions and decisions of the agent
A trustee of a revocable trust that gets consent of the settlor for a breach ______ liable.
is not.
Trust accounting rules:
income Bs get net income, remaindermen get corpus at termination. Receipts: interest rents, dividends on stock paid in cash are income. Proceeds from sale of trust assets, stock splits, and dividends paid in stock are principal. Expenses: Ordinary expenses (repairs, taxes, interst, etc.) are charged to income. Extraorindary items (capital improvements, income tax on sale of property) are charged to the principal. Trustee fee is charged half to income, half to principal. A T may adjust the normal classification rules if necessary to comply with duty of impartiality
A trust can be terminated early if
(1) all Bs consent and (2) there is no further trust purpose to be served.
Revocability: In many states, trusts by default are _________, but under the UTC and a growing number of states, trusts are _________.
irrevocable unless settlor expressly reserves right to revoke; revocable unless instrument expressly stipulates that it is irrevocable.
A resulting trust arises when
(1) semi-secret trust (2) trust has leftover corpus after purpose is served (3) express trust fails and trust is silent was to what to do in the event of failure
A purchase money resulting trust arises when
???
A sale or exhange by a trustee of a resulting or constructive trust cuts off B’s rights to the transferred asset if the purchaser is a
BFP. But trustee holds any consideration received in trust for B. If purchaser is not a BFP, B can elect to impose a trust on either the consideration received by trustee OR on the original property in the NON-BFP’s hands
Powers of appointment vocab:
donor: creator of the power of appointment donee: holder of the power of appointment general power: no limits on class of beneficiaries of the appointment power (i.e. donee can appoint to herself, her estate, or her creditors) takers in default: people who get the property if donee declines to exercise the power permissible objects: people to whom the donee can give property under the terms of the power of appointment
In order to exercise a power of appointment in a will, the will must
refer in some way to the power. The reference can be general (“and any property under which I have a power of appointment), unless the power of appointment requires a SPECIFIC REFERENCE.
