Trusts Flashcards
Revocable Presumption
Presumption in TX in favor of a revocable trust.
Duty of loyalty
1) Did the trustee act reasonably?
2) Did the trustee act in good faith?
-No self-dealing, even if fair.
Uniform Principal and Income Act
Trustee should focus on the “total return” of the trust portfolio in allocating principal and interest. Allocations must be reasonable.
Oral Trusts
Valid in TX for personal property with a third party trustee.
Mandatory Trust
Trustee does not have discretion.
Powers of the trustee
1) Start with the trust instrument
2) Otherwise grants the trustee all those powers necessary to act as a reasonably prudent person in managing the trust.
Settlor
The person who creates the trust
Administrative duties
Duty to inform the beneficiaries about the trust property.
Duty to account for actions taken on behalf of the trust.
Standing for charitable trusts
Only settlor and the attorney general have standing.
Claflin doctrine
So long as the trust is serving an unfulfilled material purpose, the trustee can block a premature termination.
Doctrine of Merger
If sole trustee and sole beneficiary (no future interests), then the trust ends and that person/entity gets legal and equitable title.
Cy pres
A court can modify a trust if the trust’s charitable purpose is no longer possible.
Dynasty Trust
A trust that can continue for 100 years or longer, not subject to RAP or taxes.
Duty of care
Standard of care is that which a person of ordinary prudence would practice in the care of his own estate.
Creditor’s reach
- Creditor can reach rights the beneficiary can alienate.
- Creditor cannot reach property until the amounts become payable to the beneficiary or subject to the beneficiary’s demand.
Modification by beneficiaries
If the settlor is dead and all the beneficiaries agree to modify, a court can modify a trust if an unforeseen event frustrates the purpose of the trust.
Pour-over trust
Created for devise of property through a will, only trust that may exist for a time without trust res.
Duty of impartiality
In a trust with successive interests, trustee has a duty to balance the competing interests.
Duties of the trustee
Duty of loyalty
Duty of care
Purchase-money resulting trust
Person 1 pays for property but title taken in person 2’s name. If person 2 is not the natural object of person 1’s bounty, then court will create a resulting trust.
Constructive Trust
Looks like a testamentary gift, but created in reliance of the beneficiary holding the property for another - intended beneficiary can testify.
Also used to prevent unjust enrichment in the event a third party takes advantage of the settlor (fraud, duress, undue influence, breach of duty, etc.)
Elements of a private express trust
1) Intend to make a gift in a trust
2) Trust res (must be identifiable and segregated)
3) Trust purpose
4) Ascertained beneficiaries
Resulting Trust
Testator fails to name a beneficiary, the trust fails and the trustee holds title to be delivered back to the estate.
Declaration of trust
Settlor declares himself as the holder of the property, in trust, for beneficiaries. Settlor is also the trustee.
Exceptions to the protection of a spendthrift clause
- Spouses and children entitled to support
- Those providing basic necessities to the beneficiary
- Holders of federal or state tax liens
-Will not be valid if the beneficiary is also the settlor.
Allocation Factors
- Intent of the settlor and language of the trust instrument;
- Nature, duration, and purpose of the trust
- Identities and circumstances of the beneficiaries
- Anticipated effect of economic conditions
- Anticipated tax consequences
