Trusts Flashcards
Definition and Parties
Settlor, Trustee, Beneficiary, Creditor
A trust is a management device that involves a bifurcated transfer.
Express Trusts
may be inter vivos (pour-over trust, Totten trust) or testamentary (secret, semi-secret)
(Intent) A private express trust clearly states the intention of the settlor to transfer property to a trustee for the benefit of one or more ascertainable beneficiaries. The settlor must intend to make a gift orally, in writing or by conduct, and manifestation of intent must occur prior to or simultaneously with the transfer of property. Precatory language is that which expresses hopes or wishes.
Trust Property
The trust must be funded with identifiable trust property, but if a trust that is invalid for lack of assets is later funded, a trust arises if the settlor re-manifests the intent to create a trust. In addition, the trust property must be identifiable and segregated, and the property must be described with reasonable certainty.
Trust Purpose
A trust can be created for any purpose as long as it isn’t illegal or contrary to public policy. If the terms violate public policy, alternative terms will be honored or the term will be stricken, unless removal of the term proves fatal.
Beneficiaries
Beneficiaries must be identifiable by name so that the equitable interest can be transferred automatically by operation of law and directly benefit the person. The settlor may refer to acts of independent significance to identify beneficiaries. Unborn children, class gifts, and charitable trusts do not require the beneficiary to be identifiable by name.
Pour-Over Trust
A pour-over devise is a provision in a will that directs the distribution of property to a trust upon the happening of an event, so that the property passes according to the terms of the trust without the necessity of the will reciting the entire trust.
Totten Trust
Totten trust does not involve a separation of legal and equitable title. The settlor designates himself the “trustee” of a bank account in his name for a named beneficiary. Can be revoked by any lifetime act, or by will.
Secret Trust
Secret trust is a testamentary gift created in reliance on the named beneficiary’s promise to hold and administer the property for another. The intended beneficiary may admit extrinsic evidence to prove by clear and convincing evidence the promise. The court imposes a constructive trust on the property for the intended beneficiary to prevent unjust enrichment of the secret trustee.
Semi-Secret Trust
The testator fails to name a beneficiary or specify the terms of the purpose of the trust, but directs the gift to be held in trust. Extrinsic evidence may not be presented, the gift fails, and a resulting trust is imposed on the property to be held for the testator’s heirs. Modern trend is to create a constructive trust if the intended beneficiaries are known.
Charitable Trust
(not subject to RAP)
A charitable trust must have a stated charitable purpose, which can include the relief of poverty, advancement of education/religion, good health, governmental purposes, and other purposes benefiting the community at large.
Under Cy Pres, Courts can modify a charitable trust if its purpose is no longer possible, and the trust has a general charitable purpose. The court must aim to make the new purpose as close as possible to the original purpose. If there is no general charitable purpose, the property goes to a resulting trust.
