Trusts Flashcards
A trust requires
A settlor who delivers trust property to the trustee with the intent to create a trust, for the benefit of designated beneficiaries, for a lawful purpose.
Does a trust require consideration to be created?
NO.
When is there no delivery requirement for a trust?
(1) declarations of trust – settlor names himself trustee, OR
(2) trusts created by will
The trustee must have
duties to perform
The same person cannot be both
the sole trustee AND the sole beneficiary of a trust.
Can a trust fail because there’s no trustee?
NO. Court will appoint if needed.
How can a trustee accept her role?
Expressly By any method allowed in trust By accepting trust property By performing duties Any other way of indicating acceptance
If the trust is an inter vivos trust, it can only be created if the trust property is
DELIVERED to trustee
with the INTENT of creating a trust
What is sufficient to constitute trust property?
Legal title to a specific interest in property (certain and identifiable) must be conveyed.
An expectancy in property is
NOT sufficient to form a trust.
Promises to make future gifts are __________ to create a trust but may be ________.
insufficient; enforceable as a contract if there was consideration.
Both the trustee and the settlor of a trust must have
capacity.
If a trustee fails to notify settlor that he accepts his role, and performs no actions that show he accepts,
he has NOT accepted. Won’t presume that a trustee accepts if he doesn’t do so within a reasonable time.
Three duties of a trustee are to
- keep beneficiaries reasonably informed about the trust’s administration
- give annual accountings
- give notice to current beneficiaries within 30 days after accepting the trust, or after a trust becomes irrevocable
Charitable trusts cannot
benefit identifiable individuals
Where the specific beneficiaries of a trust are not identifiable on the face of the instrument, extrinsic evidence to establish who they are is
NOT admissible; resulting trust will be created if this happens.
A trust whose beneficiaries are “my family” or “next of kin” is
OK – these are sufficiently definite beneficiaries.
Precatory wording
does not show the intent to create a trust.
“For the use and benefit of…”
does show intent to create a trust. Don’t have to say “trust.”
Trusts that give full benefits upon divorce, or that restrain marriage, are
invalid as against public policy (but if it’s a marriage restraint, it must TOTALLY restrain marriage).
Trusts created after 7/2012 are
presumed revocable
Self-declarations of trust are _______ and they ARE/ARE NOT revocable.
where the settlor names himself as trustee. They are revocable.
The settlor of a trust cannot also be its
sole beneficiary.
A Totten trust is _______ and it IS/IS NOT revocable.
deposit of money placed in depositor’s own bank account, in trust for another; IS revocable.
To whom does a trustee owe fiduciary duties?
Revocable trust – only to settlor
Irrevocable trust – only to beneficiaries
Pourover wills are wills that make
a bequest to an inter vivos trust
Wills that make bequests to trusts that are not yet created are
valid
Wills that make bequests to trusts that are subject to revocation and amendment, and/or are later amended, are
valid
Can creditors access the property that is the subject of a pourover will?
Yes, but only if probate assets are first exhausted.
Charitable trusts must be for a
charitable purpose
Must a charitable trust name a specific charity as beneficiary?
No, need only be for a charitable purpose.
Are trusts benefiting political parties charitable trusts?
NO
Cy pres is when
the charitable purpose of a trust can no longer be performed (i.e. because charity no longer exists; social problem you’re fighting no longer exists, etc.) – court will reform so that the purpose of the trust is “as near as possible” to the original purpose.
The liability of a charitable trust for injuries caused by trustee is
capped at $20k.
An animal trust is
valid for the life of the animal.
Courts may reduce the amount of property left in a trust if they determine that the amount is
far in excess of what’s needed to accomplish the trust’s purpose.
Constructive trust applies only if there is
(1) wrongful conduct, and
(2) unjust enrichment
If there is wrongdoing by one of the partners with a right of survivorship, the right is
forfeited, but the 1/2 interest (e.g. in the land) survives.
Oral trusts involving interests of land are
invalid, but if deed was given to trustee, a constructive trust may be imposed if there was fraud in the inducement, or if trustee was in a confidential relationship with the settlor.
If a will beneficiary promises that if testator bequeaths her property to him, he will distribute it to testator’s children, court will impose a
constructive trust to make sure the money gets to the intended beneficiary.
A purchase-money resulting trust is one where
A pays for the land, but takes title in B’s name. B holds on a “purchase money resulting trust” and A can compel reconveyance at any time, if A and B are not related.
But, parties can introduce evidence to show that the land was intended as a gift or that the payment of the purchase price was a loan.
Spendthrift clauses in trusts
bar the beneficiary from freely transferring his interest in his trust and bar that interest from being reached by creditors.
Spendthrift clauses in MA are
fully enforceable, except in: contracts for necessaries, alimony/child support obligations, any interests retained by the settlor (revocable trusts), and federal tax liens.
Three ways a trustee can impermissibly self-deal with a trust are:
- buy or sell assets of the trust to himself (fairness of price doesn’t matter)
- borrow from or loan to trust
- profit from serving as trustee, except by receiving compensation.
When does the statute of limitations begin to run against a trustee?
When he repudiates the trust (i.e. denies that it exists), dies or resigns, or gives an accounting that fully reveals the facts on which the action is based.
Is reasonableness a defense when a trustee breaches his fiduciary duty?
NO. In a case involving self-dealing, the only question is damages – breach of duty is an automatic wrong.
Beneficiaries’ three options when a trustee breaches a fiduciary duty are:
- ratify transaction and waive breach
- bring “surcharge” action to recover resulting loss
- claim any profit that the trustee wrongly made as property of the trust (constructive trust theory)
A trust can exculpate its trustee for ______ but not for _____.
ordinary negligence; bad faith, gross negligence or fraud.
A trustee needs ______ to sell or mortgage real property, unless the trust instrument provides otherwise.
court approval
Under the Uniform Prudent Investor Act, trustees should invest for
total return, based on whole portfolio
Prudence in investing is measured based on
trustee’s conduct at time investment was made, not hindsight.
Trustees have adjustment power under the Uniform Prudent Investor Act, which means they can
reallocate some principal and capital gains to income beneficiaries if appropriate under the circumstances.
MA courts would probably hold that a trustee who invests trust property in a very new company with no track record is
OK as a growth investment as part of a balanced, overall portfolio.
What qualifies as “principal” vs. “income”?
Principal: capital gain, stock dividends, 90% of receipts from “liquidating assets” that deplete over time, like distributions from retirement accounts and principal
Income: money (unless capital gain); 10% of receipts from liquidating assets.
A trustee’s ordinary expenses include ______ and are charged against _____.
annual stuff like property taxes, insurance premiums, repair costs, mortgage INTEREST payments
income
A trustee’s capital expenditures include _______ and are charged against ________.
capital improvements, environmental expenses, mortgage principal payments
principal
A trustee is generally not personally liable, unless
tort case where she’s personally at fault
contract case where the contract imposes personal liability, or where trustee fails to disclose that she was acting in her capacity as trustee.
A trustee must exercise his discretionary power in
good faith
What are the three ways to terminate a trust early?
- by express agreement of beneficiaries
- because of changed circumstances
- because trust no longer makes financial sense (“uneconomic trust”)
Beneficiaries can agree to end a trust before it’s time, if
all agree and no material purpose of the trust would be adversely affected.
If not all beneficiaries agree to end/modify a trust before it’s time, can the court order the trust terminated/modified?
Yes, if it determines that no material purpose of the trust would be adversely affected and the nonconsenting beneficiary’s interest is adequately protected.
NB: All present AND future beneficiaries must agree, including unborn or unascertained ones (represented by a representative, generally).
Changed circumstances allow
the court to authorize modification or termination of the trust when circumstances unanticipated by settlor threaten or adversely affect the purposes of the trust.
An uneconomic trust is one where
the value of the trust doesn’t justify the costs of administration. Can be terminated without court approval if the property is less than $200k and amount is insufficient to justify costs. Trustee must provide notice to all beneficiaries before terminating.
If it’s proved by clear and convincing evidence that the settlor’s intent or the terms of the trust were affected by a mistake of fact or law, the court may
reform the terms of the trust, even if they’re unambiguous.
Can a beneficiary assign his right to trust income or principal?
Generally, yes. If there’s a spendthrift clause, no.
Co-trustees must act by a
majority decision.
Where a trustee is self dealing, the trustee’s good faith, or the actual benefit to the trust, are
irrelevant.
Two questions to ask when considering whether fiduciary has breached a duty:
- Was the trustee authorized to do what he did (by terms of trust, by statute, by implication)?
- If the act was proper for trustee to perform, did he perform it with reasonable prudence?
Trustees are not generally liable for breaches by their co-trustees if they
did not join in the action AND exercised reasonable care in preventing the breach or compelling the co-trustee to redress the breach.
Transfer of trust property to a bona fide purchaser
cuts off the beneficiaries’ equitable interests.
Beneficiaries CAN/CANNOT sue third parties who damage trust property.
CANNOT; only the trustee can do so. But if trustee fails, beneficiaries can bring a suit in equity to force him to do so.
Assets in a ___________ trust are subject to surviving spouse’s elective share.
revocable
Creditors can reach the trust assets if the settlor ________.
retains the power to revoke the trust.
A nominee trust is
a way of holding title to land so that the identity of the true owner is undisclosed. Trustee may act ONLY at the direction of the beneficiary (true owner) – so here it’s OK if trustee doesn’t have any duties.
Oral trusts of personal property are
valid if they are about existing personal property AND the trust’s existence can be proven by clear and convincing evidence.
