Trusts Flashcards
Legal Interest
Held by the trustee
Does not include legal title
Trustee: Definition and Duties
Holds the legal interest
Fiduciary duties:
(1) Must deal with the property with reasonable care
(2) Must maintain the utmost degree of loyalty
(3) Is personally responsible if conduct falls beneath required standards
(4) Must exercise powers in accordance with the terms of the trust (failure to do so constitutes breach)
Equitable or Beneficial Interest
Held by the beneficiary, who receives the benefits of ownership in the trust
Usually has little or no control over trust or trust property
Settlor
Person who causes the trust to come into existence by supplying the initial trust property
Also known as the trustor, grantor, donor
Trust property
Required for a trust
Also known as the principle, trust corpus, trust res
Basic Functions of a Trust
Settlor creates a trust by transferring legal title to the trustee and equitable title to the beneficiary
Trustee manages and invests in accordance with legal duties and settlor’s instructions as contained in the trust instrument
Purposes and Uses of a Trust
(1) Providing for and protecting trust beneficiaries
(2) Flexibility of asset distribution
(3) Protection against settlor’s incompetence
(4) Professional management of property
(5) Probate avoidance
(6) Tax benefits
Express Trusts
Created by express intention of the settlor
(1) Private: private beneficiaries/individual people
(2) Charitable: charitable beneficiaries
Trusts Created by Operation of Law
(1) Resulting trusts: attempt to carry out implied intent
(2) Constructive trusts: equitable remedy to prevent unjust enrichment
Elements of a Valid Trust
(1) Intent
(2) Identifiable Corpus
(3) Ascertainable Beneficiaries
(4) Proper Purpose
(5) Mechanics and Formalities
Elements of a Valid Trust: Intent - Elements
(1) Intend to split legal and equitable title,
(a) communication to beneficiary not required
(b) present intent required
and
(2) Impose enforceable (fiduciary) duties on holder of legal title
(a) precatory language is no good – “I hope”, “I wish” is insufficient
Elements of a Valid Trust: Intent - Split of Title
Sole trustee cannot be the sole beneficiary. If they are, merger occurs and the trust terminates, leaving the person with all legal and equitable title
Elements of a Valid Trust: Identifiable Corpus
The property must be ascertainable with certainty, which means cannot include property you cannot transfer or do not yet own
Elements of a Valid Trust: Ascertainable Beneficiaries - Private Trusts - Capacity
Any person or entity that can take and hold title may be a beneficiary – need not be competent
Elements of a Valid Trust: Ascertainable Beneficiaries - Private Trusts - Class Gifts
Beneficiaries may be designated by generic designations such as “children”
(a) Unascertained class members at time of trust creation: okay as long as ascertainable when they are to benefit
(b) Third party or trustee may select which class members are to receive benefits (e.g., discretionary trust for children)
(c) Membership of class must be ascertainable
If there are no ascertainable beneficiaries, property reverts to the settlor
Elements of a Valid Trust: Ascertainable Beneficiaries - Charitable Trusts
Trusts set up to provide benefits for non-human, non-charitable purposes (e.g. a pet)
Trustee can carry it out, but is not bound to do so. If trustee chooses not to, property returns to settlor or settlor’s successors in interest (resulting trust)
Elements of a Valid Trust: Purpose of a Trust
Settlor may create trust for any purpose, EXCEPT
(1) Illegal purpose (e.g. encourage commission of a crime)
(2) Require trustee to commit a crime or tort
(3) Purpose contrary to public policy (often case by case)
Elements of a Valid Trust: Mechanics & Formalities - Creation Methods
(1) Inter vivos or living trust (created while settlor is alive)
(a) Settlor can declare himself to be trustee of specific property for beneficiary, and he keeps legal title
(b) Settlor can transfer legal title to trustee, and may choose
(2) Testamentary Trusts: created in settlor’s valid will
Elements of a Valid Trust: Mechanics & Formalities - Trustee Designation
Must have trustee with real powers or duties, otherwise all title will vest in the beneficiary
(a) Capacity of trustee: take, hold, and manage
(b) Court will fill vacancy if trust is silent
Elements of a Valid Trust: Mechanics & Formalities - Delivery to Trustee
Personal property: does not need to be physically conveyed, as long as it is identified and segregated
Real property: should be conveyed from settlor as person to settlor as trustee, then transferred via deed
Elements of a Valid Trust: Mechanics & Formalities - Oral
Trust may be oral unless it involves (a) real property or (b) is contained in a will
(statute of frauds)
Elements of a Valid Trust: Mechanics & Formalities - Pour over wills
Definition: will that leaves property to a previously existing inter vivos trust
Property goes into trust as trust exists at the date of the testator’s death, so amendments made to the trust after the will execution are effective to pour over
The property can be the initial trust funding if:
(1) Identified in the will and
(2) Trust executed before testator’s death