Trusts

Question 1

Trust Requirements

Answer 1

1. Need Grantor/Settlor (creator of trust)
2. Intent to create trust
3. Trustee: person who holds legal interest or title to trust prop; ct will appoint if settlor fails to designate one
4. Ascertainable beneficiary: person(s) who holds equitable title to the trust prop. Beneficiary must impliedly or expressly accept his interest
5. Trust Assets

Question 2

Express Trusts

Answer 2

Owner expressly indicates intent to create a trust. Can be private or charitable.

Question 3

Express Trusts:

Private Express Trust–Def

Answer 3

Clearly states intention of settlor to transfer prop to a trustee for the benefit of one or more ascertainable beneficiaries

Question 4

Express Trusts:

Private Express Trust–Elements

Answer 4

1. Intent
2. Trust Prop/Res
3. Valid trust purpose
4. Ascertainable beneficiaries

Question 5

Express Trusts:

Private Express Trust–Intent

Answer 5

Intent: must intend to make a gift in trust

• -use of trust words create presumption of intent
• -Oral trusts valid UNLESS SoF (conveying real prop); devise (trust created in will, prop is transferred by trust not will
• -NOTE: precatory language (expresses donor’s hope or wish that donee uses prop in a certain way)–DOESNT create trust.
• -NOTE Ambiguous language–look out and make sure it’s a trust not a gift

Question 6

Express Trusts:

Private Express Trust–Trust Prop

Answer 6

Trust has to have an identifiable trust prop (res). BUT if a trust is invalid for lack of assets but is later funded, a trust arises if the settlor re-indicates his intent to create trust.
–trust prop must be identifiable and segregated, and has to be described with rsbl certainty.

(exception: pour over trust: trust terms have to be in writing at the time the will is executed but the prop need not be in the trust at the time of the will)

Question 7

Express Trusts:

Private Express Trust–Valid Trust Purpose

Answer 7

Trust can be created for any purpose as long as it’s not illegal or against public policy. Cts will simply remove the part of the trust that offends.

Question 8

Express Trusts:

Private Express Trust–Ascertainable Beneficiaries

Answer 8

Rule: beneficiaries must be ID’d by name or specific criteria that would ID that person(s).

Exceptions: unborn kids; class gifts if the class if definite; and charitable trusts.

Question 9

Express Trusts:

Private Express Trust–Ways to Create

Answer 9

Intervivos (transferred during life) and Testamentary (transferred via will)

Question 10

Express Trusts:

Private Express Trust–Intervivos transfer

Answer 10

Created during settlor’s life.

• -If settlor is the trustee, usually done by a simple declaration of trust
• -If trustee is a 3rd party, then settlor has to deliver deed/prop to trustee with his declaration so that he no longer controls trust prop
• -Only need writing for transfers of real prop

Totten Trust: designation given to bank acct in depositor’s name as trustee for a named beneficiary (no separation of legal and equitable title). Can be revoked by will or by any act of depositor that shows he intended to revoke.

Question 11

Express Trusts:

Private Express Trust–Testamentary transfer

Answer 11

Created by will or associated doc

modern: impose a constructive trust in favor of intended bens (if known) in both secret and semi-secret trusts.

Question 12

Express Trusts:

Charitable Trust

Answer 12

–Must have a charitable purpose (relief of poverty, promoting health or education, govtal purposes, etc).

–Indefinite Bens: bens must be the community at large .

–Exempt from RAP

–Cy-Pres Doctrine: court can modify a charitable trust to seek an alternative charitable purpose if the original one becomes illegal, impracticable, or impossible to perform. (make it close to original)

–Compare to Honorary Trust: Have no private beneficiaries nor a charitable purpose (usually for a pet)

Question 13

Remedial Trusts

Answer 13

It’s an equitable remedy that’s created by operation of law. Not driven by intent, and it’s passive. The trustee has one duty: to convey prop back to the beneficiary

2 types: Resulting and Constructive.

Question 14

Remedial Trust: Resulting Trust

Answer 14

• -Used when the trust fails. Ct creates resulting trust that requires trustee to return prop to settlor or settlor’s estate.
• -Imposed when purchase-money trust; failure of express trust, or incomplete disposition of trust assets due to excess corpus.

(purchase-money resulting trust: person 1 buys the prop but title in person 2’s name. If person 2 not close friend/relative, ct creates a purchase-money resulting trust bc presume that this is unjust enrichment)

Question 15

Remedial Trust: Constructive Trust

Answer 15

• -used to prevent unjust enrichment if a 3rd party takes advantage of the settlor
• -key thing: wrongful conduct that’s directed at settlor that causes settlor to create trust.

Question 16

Remedial Trust: Gift-Over Clause

Answer 16

Provides for the disposition of trust prop if trust purpose fails (i.e. give to A but if A is dead, give to B instead)

Question 17

Beneficiary/Creditor Rights to Distribution

Answer 17

Alienation: ben’s equitable interest in trust prop is freely alienable unless a statute or the trust instrument limits this right.

Pour-Over Trust: Under the terms of a pour-over will, all property that passes through the will at Testator’s death is transferred to (poured into) a trust. As long as the trust was executed before or at the same time as the will, testator’s creditors can’t reach these assets.

Support Trust: directs the trustee to pay income or principal as necessary to support the trust beneficiary. Creditors can’t reach these assets unless they’re providing necessities to the ben (in that case, trustee can pay them directly). Creditors can touch when trustee makes a support payment.

Discretionary Trust: Trustee is given complete discretion re: whether or not to apply payments of income or principal to the ben. Creditors can’t reach trust prop, but can reach when trustee makes a payment to ben.

Mandatory Trust: Trustee has no discretion; trust doc explains in detail how and when trust prop is to be distributed. Can reach when payments made to ben.

Spendthrift: expressly restricts ben’s power to transfer his equitable interest. Creditors can’t reach trust prop until trustee makes payment.

EXCEPTIONS: these creditors can reach trust prop: s or child support; those providing basic necessities to the ben; holders of fed or state tax lien.

Question 18

Trust Termination

Answer 18

1. Rule: trust terms automatically only when the trust purpose has been accomplished. Trust may be terminated by:
   - -consent if the settlor is deceased or has no remaining interest, and all the bens and the trustee consent. OR
   - -by a court if the purpose has been achieved or becomes illegal, impracticable, or impossible.
   
   • **Revocable trust can be term’d at any time by settlor and irrevocable trust usually can’t be (maj: presume irrevocable unless stated otherwise. UTC says the opposite)
2. Unfulfilled Material Purpose: If ben(s) want to terminate trust prematurely and trustee opposes (settlor dead), trustee can block premature term if the trust is still serving some material purpose. (exs: discretionary trusts, support trusts, age-dependent trusts)
3. Revocation: must be expressly provided for by will or divorce.

Question 19

Trust Modification: Settlor Alive

Answer 19

• -Settlor can unilaterally modify if he expressly reserved the right in the trust doc
• -If didn’t reserve, then all bens must consent and the proposed change can’t interfere with the primary purpose of the trust.

*NOTE: no matter what, re trust mod, trustee has no power to unilaterally change or modify trust at any point

Question 20

Trust Modification: Changed Circumstances (Settlor Dead)

Answer 20

–All bens must agree AND an unforeseen event has occurred that frustrates the purpose of the trust.

Question 21

Trust Modification: Removal of Trustee

Answer 21

~Generally trustee can be removed when he has breached fiduciary duty or grossly mismanaged the prop

~Removal likely to be granted when:

• -Trustee became incapable of performing duties
• -Material beach of duty
• -Trustee develops a conflict of interest
• -A serious conflict of interest between trustee and ben
• -Trust persistently performs poorly as a result of the trustee’s action or inaction

~Trustee can resign with written notice if settlor is alive to co-trustees and bens

Question 22

Principal and Income Allocations

Answer 22

General rule: life bens are entitled to trust income, and remainder bens entitled to the trust principal upon term of trust.

Question 23

Future Interests

Answer 23

Key Q: who has right to possess prop? Possessory estate holder has right to present possession; future estate holder has a present right to future possession.

Gen rule: grantor retains reversion/PoR/RoE. Ben is given a remainder/executory interest

Class gifts: share of a deceased class member is paid to that class member’s surviving issue; for a gift to surviving children, the general rule is that the surviving issue of a deceased child DONT take unless the governing instrument says otherwise.

Question 24

Trust Administration and Trustee’s Duties:

Trustee’s Powers

Answer 24

~Always look to the trust docs first for powers (if silent, look to statutes/common law)

~Modern trend: grant trustee all those powers necessary to act as a rsbly prudent person in managing the trust, including the implied power to contract, sell, lease, or transfer the trust prop.

Question 25

Trust Administration and Trustee’s Duties:

Trustee’s Duty of Loyalty and Good Faith

Answer 25

Rule: duty to administer the trust in good faith (subj std) and to act rsbly (obj std) when investing the prop and managing it in interest of bens

2. Self Dealing: When the trustee personally engages in a transaxn involving the trust prop, a conflict of interest arises between the trustee’s duties to the bens and her own personal interest

–Prohibited Transaxns: buying or selling trust assets, selling prop between trusts that the trustee manages, borrowing from or making loans to the trust, using trust assets to secure a personal loan, engaging in porhibited transactions with friends or relatives, or otherwise acting for person gain through trustee position.

–If trustee breaches duty of loyalty when self dealing, ct doesn’t inquire rsblness or good faith of axns bc it’s a per se breach of duty of loyalty.

–Exceptions; even when self dealing is authorized (by ct, settlor, or all bens), still have to be rsbl and fair to avoid liability for breach.

3. Conflicts of Interest: Assessed under the rsbl and in good faith std if the alleged conflict isn’t self-dealing

Question 26

Trust Administration and Trustee’s Duties:

Trustee’s Duty of Prudence

Answer 26

~Delegation:
Common law: trustee couldn’t delegate authority

Modern law: permits delegation
–Trustee can delegate but must oversee

~Trust Investments:

• -Old Rule: limited to a specific list of acceptable investments, any outside investments was a breach,
• -Modern Rule: prudent investor Rule:
• *****trustee has discretion to invest and manage prop as would a prudent investor
• ****Trustee is expected to diversify assets to spread the risk of the loss.
• *****Portfolio Approach: measure success of the porfolio as a whole, not by looking at individual investments

–Duty to be impartial: trustee has duty to balance the competing interests of present and future bens by investing accordingly

Question 27

Trust Administration and Trustee’s Duties:

Trustee’s Duty to Inform and Account

Answer 27

–Duty to disclose: must give complete updates about trust prop and plans

–Duty to Account: Must periodically account for axns taken on behalf of trust

–Other duties: to secure possession of prop within rsbl time, maintain real prop, keep personal prop separate from trust assets

–Powers of Appt: Usually given to a beneficiary, enables holder to direct trustee to distribute some or all of the trust prop without regard to the provisions of the trust.

Question 28

Trustee’s Liabilities

Answer 28

Ben’s Right of Enforcement: lost profits, interests, and other losses resulting from breach of trust are trustee’s responsibilites. Ben can sue trustee and seek dmgs or removal

Liabilities for others’ acts: co-trustees are jointly liable. TRustee is liable for the predecessor’s breach if he failed to address it or was negligent in delivering prop.