Trusts Flashcards
Splitting Ownershp
Trusts split legal and equiatable interests
Legal interest (held by trustee) - responsibilities of ownership
Equitable interest (held by beneficiary) - benefits of ownership
Elements of a Valid Trust
- Settlor with capacity to convey
- Intent to create a trust
- Splitting equities and imposing duties on trustee
- Trustee with capacity
- Identifiable Corpus
- Ascertainable with certainty
- Ascertainable Beneficiaries
- Any person who can hold title; class gifts okay as long as ascertainible when they are to benefit
- Proper Purpose
Mechanics and Formalities of a Trust
- Creation Methods
- Inter Vivos/Living Trusts
- Testamentary Trust - Created in Settlor’s Valid will
- Designate a Trustee
- Capacity of trustee = take, hold, and manage property
- Transfer property to trust
- Declaration of trust - settlor keeps legal title (settlor = trustee); real property should be conveyed to settlor as trustree
- Transfer in trust - settlor transfers legal title
- Statute of Frauds
- Trust may be oral unless it involves real property
Private Express Trust (Definition)
A fiduciary relationshp with respect to property whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a manifestation of intent to create it for a legal purpose.
- Manifestation of Intent: precatory words (of hope) are insufficient to create a manifestation of intent; otherwise, no special words are needed
- Legal Purpose: Any Legal Purpose
- But distinguish:
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Illegality at creation: try to excise the illegal parts
- if not possible court may invalidate the trust or allow trustee to keep the property
-
Illegality after creation: a resulting trust is decreed to transfer property back to settlor or his estate
*
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Illegality at creation: try to excise the illegal parts
- But distinguish:
Creation of a Private Express Trust
- Testamentary (at death)
- Must comply with Will Formalities
- Inter Vivos (during life)
-
Transfer in Trust (third person trustee)
- Delivery of property to trustee (real property must be deeded)
-
Declaration in Trust (Settlor is trustee)
- Look for present manifestation of trust purpose; but if it involves real property it must satisfy SoF
-
Transfer in Trust (third person trustee)
Charitable Trusts
Like a private express trust but with a charitable purpose
- Society is the beneficiary
- RAP does not apply to charitable trusts
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Cy Pres: if the settlor has a general charitable intent but the mechanism fails, the court will exercise cy pres and try to effectuate the settlor’s intent as nearly as possible
- Does not apply if the charitable intent was specific
Spendthrift Trust (or Clause)
Benefeiciary cannot transfer his right to future payments of income or principal and creditors cannot attach the beneficiary’s right to same.
RESULT:
- Beneficiary cannot voluntarily transfer his rights
- Creditors cannot generally attach (involuntary alienation); but preferred creditors can (government, necessities, or tort judgments); or, any creditor can attach to surplus as measured above beneficiary’s station in life
Support Trust
The trustee is required to use only so much of the income or principal as is necessary for the beneficiary’s health, support, maintenance, and education.
- No voluntary alienation
- No involuntary alienation, except for preferred creditors or to surplus
- standard: what beneficiary was accustomed to before trust
Discretionary Trust
The Trustee is given sole and absolute discretion in determining how much to pay the beneficiary, if anything, and when to pay the beneficiary, if at all.
- Alienable? Courts are split, argue both ways
- There is nothing to transfer
- But if there is a transfer, transferee gets distributions, if any
Resulting Trust
An implied in fact trust based on the presumed intent of the parties, or can be decreed by the court, generally to transfer trust property back to the settlor.
- Generally used results when a trust fails in some way.
Constructive Trusts
A constructive trust is a remedy to prevent fraud or unjust enrichment; the wrongdoer must transfer the property to the intended beneficiary
Examples:
- Where trustee makes a profit through self-dealing
- Secret trust (where the will on its face makes a gift outright, but the gift is given on the basis of an oral promise that it be used to benefit someone else); parol evidence is alloed to show existence
- Compare semi-secret trust: Gift to A as trustee, but no beneficiary (this creates a resulting trust and property goes back to settlor)
Trustee Duties (owed to Beneficiaries)
- Duty of Loyalty: administer for the benefit of beneficiaries; no self-dealing
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Duty to Invest: Prudent Investor
- Portfolio approach considering goals and terms of trust
- Diversifiction required
- Duty to Earmark: mark trust property as trust property
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Duty to Segregate:
- If breached, trustee can be removed
- Duty to Account: provide statements of income/expense regularly
- Duty of Due Care: act as an RPP (always discuss)
Remedies for Breach of Trustee’s Duties
- Damages
- Constructive Trust
- Equitable Lien
- Ratify the transaction if it was good
- Remove the Trustee
Trustee Liability to 3rd Persons (contract and tort)
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Liability in Contract:
- Trustee personally liable, unless contract provision excludes liability
-
Liability in Tort:
- CL: trustee sued in personal capacity; but if trustee was without personal fault, he can be indemnified (indemnification for negligence of an agent or strict liability)
MOD: trustee sued in personal capacity only if personally at fault (negligent or intentional tort)
- CL: trustee sued in personal capacity; but if trustee was without personal fault, he can be indemnified (indemnification for negligence of an agent or strict liability)
Modification of Trusts
- By Settlor: can modify if he expressly reserves the right to modify
- By Benificiaries: if all agree AND settlor’s intent not frustrated
-
By Court:
- Cy pres (charitable trusts)
- Deviation Power: when (1) unforeseen circumstances and (2) necessary, thr court may modify the trust
