Trusts Flashcards
Express trust definition
Allows owners of property to make transfers of property, and have those assets managed by someone else.
NEEDS:
(1) Settlor
(2) Present intent to create
(3) trustee with duties
(4) beneficiary
(5) same person is not sole trustee and sole beneficiary
(6) specific property
(7) valid trust purpose
How can you remove a trustee?
Go to court and show
(1) breach of trust
(2) unfitness, persistent failure
(3) substantial change in circumstances
How does divorce affect trust
Final decree of divorce revokes all gifts and fiduciary appts in favor of a former spouse.
Private trust vs. charitable trust definiteness issue
Private trust: Must have definite beneficiaries
Charitable trust: not required to have definite beneficiaries
If it’s a private trust for a class - the class only needs to be reasonably definite
Unascertained beneficiaries
These are unborn beneficiaries. As long as they are ascertainable by the time their interests are to come into enjoyments its OK to list them
What if trust fails for lack of beneficiary?
Presumed it’s a trust for settlor and his successors
What are the invalid trust purposes?
(1) illegal
(2) contrary to PP
(3) impossible to achieve
(4) defrauds
(5) destruction of property
(6) Condition attaches against PP, then
- settlor’s alternative desire controls
- if condition is condition subsequent, only condition invalidated
- if condition is condition precednet, then trust void
Inter Vivos Trust
Transfer’s property during settlor’s lifetime, or
declaration of trust by property owner, where he is settlor and trustee
Is writing required for an express trust?
NO - unless it’s a trust for personal property (SOF)
Testamentary Trust
Trust created from a will.
Must have
(1) Intent
(2) Beneficiaries
(3) Trust purpose
(4) created in the will
What are the elements of a charitable trust?
(1) Must have indefinite beneficaries (reasonably large group)
(2) charitable purpose
(3) must be perpetual - not subject to rules against perpatuities (RAP)
(4) Cy Pres
(5) AG has duty of representing beneficiaries in the state
What is Rules against Perpetuities
must not be longer than a life in being plus 21 years - this rule doesn’t apply to charitable trusts but does to private trusts
Begins to run on date of settlor’s death for revocable trusts
Cy Pres meaning
if charitable purpose is impractiable - court will try to get it “as near as possible” to settlor’s intention by ascertaining the primary purpose
Honorary trust
CAN create one for your pet - terminates on death of pet and distributed to settlor’s heirs
Can beneficiary transfer his trust?
YES - as long as no statute or language limiting transfer
Creditor rights when beneficiary transfers interest in regular trust
creditors CAN levly on beneficial interest. Court CAN order trustee to pay beneficiary’s income to creditors.
Creditor rights under a Spendthrift Trust
Beneficiary CANNOT transfer rights and creditors CANNOT reach beneficiary’s interest to satisfy debts
Spendthrift Trust limitations
(1) settlor cannot be beneficiary
(2) claims for alimony, support, necessities
(3) claims by government
(4) creditor can reach a mandatory distribution once it is iincome to beneficiary
(5) court will not suspend spendthrift trust because the purpose is for someone who likely couldn’t manage the property on their own
Discretionary Trusts
Trustee has discretion when to pay - beneficiary creditor cannot compel trustee to pay
When does a trust terminate?
(1) All purposes have been accomplished or now has become unlawful/impossible to achieve;
(2) Settlr can revoke UNLESS it is irrevocable
(3) Consent of settlor and ALL beneficiaries
(4) Consent of All beneficiaries AND modification does not interfere with a material purpose of the trust
How can you terminate if not all beneficiaries consent?
Go to court and show
(1) trust could have been modified if all consented
(2) nonconsenting beneficiaries will be adequately protected
(3) unanticipated circumstances threaten purpose of trust
(4) continuation would be wasteful/impracticable
(5) value is insufficient
Can a court reform a trust to reflect settlor’s intent?
YES - must show mistake by clear and convincing evidence
Can trustee terminate trust?
YES - as long as
(1) uneconomic trust - property less than $50k and notice provided
Can also combine trusts to make it more economical - doesn’t need permission from beneficiaries, just needs to provide notice
Power of Trustee
(1) only exercise powers conferred upon her by trust, statute or court decree
What can trustee do under UTC?
(1) collect and hold trust assets
(2) operate a business
(3) acquire interest in a trust asset
(4) invest trust assets
(5) buy, sell or encumber trust assets
(6) enter into a lease
(7) vote securities
(8) pay taxes
(9) insure assets
How do you challenge trustee power?
Look at whether action was imperative or discretionary. If discretionary is subject to judicial review for abuse of discretion.
Duties of trustee
Revocable: To settlor
Irrevocable: To beneficaries
(1) Administer the trust
(2) Loyalty
(3) Report
(4) Preserve and make trust property productive
(5) No commingling
Duty of trustee: Administer the trust
Act in good faith and impartially
Duty of trustee: Loyalty
Cannot enter into any transaction which she is dealing with the trust in her individual capacity - NO SELF DEALING (therefore, good faith and actual benefit to the trust is irrelevant)
Duty of trustee: Report
(1) provide info to beneficiaries
(2) rspond to beneficiary requests about trust
(3) Provide annual accounting
Investment approaches by trustee
Prudent Investor
Legal Lists
Prudent Investor
UPIA
(1) Reasonable care, skill, caution
(2) Loyalty
(3) Evalue investments in context of entire portfolio and overall investment strategy
(4) Any type of investment permitted
(5) Can consider any investment cautionary knowledge (economic climent, tax implications, etc.)
(6) MUST diversify unless reasonably believes diversify not in best interests
Legal Lists
List will be permissive (trustee can invest in securities outside the list) or mandatory (trustee must invest in those securities listed)
Remedies for breach of trust by trustee
(1) enforce specific performance
(2) enjoin trustee from committing a breach
(3) compel trustee to pay money or restore property
(4) suspend trustee
When is trustee not liable for breach of trust duties?
(1) acted in reasonable reliance on terms of trust
(2) beneficiary consented
(3) released trustee from liability
(4) ratified the transaction
Trustee can be sued by third party?
YES - in contract or tort in representative capacity OR personally if he didn’t reveal his identity as trustee
Can beneficiaries sue third party?
NO - only trustee can on behalf of trust. Beneficiaries can bring suit in equity to compel trustee to sue
Uniform Principal and Income Act
Treat all the beneficiaries equally with income unless trust says otherwise
10% Rule
Allocate liquidated assets and mineral assets to 10% income and 90% principal
50% Rule
Expenses for accounting, paying trustee, judicial proceedings charged 1/2 to income and 1/2 to principal
Revocable Inter Vivos Trust
A transfer without will formalities of a present gift. Ex. Settlor retains great rights in his estate and power over trust property that transfers to beneficiary on settlor’s death
Pour Over Gifts
Testamentary gifts in a will made to an existing revocable trust.
Prevailing view: will can devise property to trustee of trust established OR TO BE ESTABLISHED during the testator’s lifetime.
Pour over gifts from will are valid if trust unfunded during settlor’s lifetime.
Totten Trust
Bank account in depositor’s name “in trustee for” a named beneficiary.
Depositor maintains control throughout his life and then B gets account when A dies
Gifts to Minors
Made to a CUSTODIAN, not trustee
Avoids trust - child has legal title
Custodian holds manages invests
Gives it all to kid at age 21
Resulting Trust
(1) Purchase money resulting trusts
(2) Resulting Trusts on Failure of Express Trust
(3) Resulting trust from failure to dispose of all trust assets
Constructive Trusts
Not really a trust but a court ordered equitable remedy to prevent unjust enrichment from wrongful conduct. Once conveyed trustee’s sole job is to convey legal title to beneficiary
When does a class close?
Apply rule of convenience - if there is a certain age applied, the class closes when
(1) preceding estate terminates
(2) first class member reached specified age.
Support trust
Trustee required to pay income or principal as necessary for the beneeficiary’s support. Discretionary trust would leave it all to trustee’s discretion.
Power of Appointment
specific language in trust that allows donee to specifcy a class or individuals to take property that is not for benefit of donee, estate, creditor or creditors of the estate.
Anti-Lapse statute
save a gift to predeceased beneficiary if beneficiary was in a special degree of relationship to the testator and left descendants.
What can creditors get at in a trust when no spendthrift clause present?
Can get the interest, but cannot get the trust property.
What happens to trust property when trust fails?
resulting trust in favor of the settlor or the settlor’s successors in interest is presumed. Look for settlor’s will and where the residue of the estate goes.
