Trusts Flashcards
Purposes of Trusts
- Avoid Probate: Costs, Publicity, Ancillary probate, Delay, Choice of law
- Tax Planning: Gift tax, Estate tax, Income tax
- Manage Property for Others: Minors, Incapacitated Persons, Spendthrifts
- Avoid Creditors: Beneficiary’s Creditors, Settlor’s Creditors
Title to trust property
Legal Title: Trustee
Equitable Title: Beneficiaries
Types of trusts
- Inter vivos
• Deed of Trust
• Declaration of Trust - Testamentary
• Deed of Trust
Elements of a valid private express trust
- Settlor with Capacity
- Intent to Create a Trust
- Property (Res, Corpus)
- Writing (Sometimes)
- Delivery of Assets
- Competent Trustee with Duties
- Ascertainable Beneficiaries
Valid trust purpose
An intended trust or trust provision is invalid if (a) its purpose is unlawful or its performance calls for the commission of a criminal or tortious act, or (b) it is contrary to public policy. Restatement (Third) of Trusts § 29
A trust may be created only to the extent its purposes are lawful, not contrary to public policy, and possible to achieve. A trust and its terms must be for the benefit of its beneficiaries.
A trust may be created by
(1) transfer of property to another person as trustee during the settlor’s lifetime or by will or other disposition taking effect upon the settlor’s death (i.e., a deed of trust);
(2) declaration by the owner of property that the owner holds identifiable property as trustee (i.e., a declaration of trust); or
(3) exercise of a power of appointment in favor of a trustee
Requirements for trust creation
A trust is created only if:
(1) the settlor has capacity to create a trust;
(2) the settlor indicates an intention to create the trust;
(3) the trust has a definite beneficiary or is:
(A) a charitable trust;
(B) a trust for the care of an animal, as provided in Section 408; or
(C) a trust for a noncharitable purpose, as provided in Section 409;
(4) the trustee has duties to perform; and
(5) the same person is not the sole trustee and sole beneficiary.
Definite beneficiary
A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities.
Trustee’s power to select beneficiary from indefinite class
A power in a trustee to select a beneficiary from an indefinite class is valid. If the power is not exercised within a reasonable time, the power fails and the property subject to the power passes to the persons who would have taken the property had the power not been conferred.
Settlor’s capacity
The capacity required to create, amend, revoke, or add property to a revocable trust, or to direct the actions of the trustee of a revocable trust is the same as that required to make a will.
Delivery of Assets (common law and majority)
Deed of Trust: assets must be delivered to the trust and placed in the trustee’s name for such assets to be in the trust
Declaration of Trust: a manifestation of intent by the settlor to hold certain items of his or her property, over which he or she already has legal title, in trust for one or more beneficiaries is sufficient for the property to be in the trust. No further document transferring title to the property is required.
Powers of Appointment - Definition
A power of appointment is a power given by one person (the “donor”) to another (the “donee”) to designate the manner of distribution of the donor’s property. It is an authority to do an act which an owner of property granting such power might lawfully perform himself. A power may be created bly deed or by will and may be exercisable by deed and/or will. Usually the donor specifies in the instrument creating the power the methods by which it must or may be exercised.
Powers of Appointment - Types
General POA: A power by which the donee can appoint the donor’s property to anyone he/she pleased, inclduign the donee or the donee’s estate.
Non-general (Limited or Special) POA: All other powers.
Powers of Appointment - Rules
- Common law rule against perpetuities or USRAP applies to POAs
- In a minority of jurisdictions (including N.C. and probably TN), a testamentary general power of appointment upon which no restrictions are imposed is exercised by a general residuary clause.
- In a majority of jurisdictions, the Restatement (Third) of Trusts, and § 302 of the Uniform Powers of Appointment Act, a power of appointment is not exercised by a general residuary clause in the will of the donee, unless an intent to exercise the power clearly appears from the will.
Trust Property
- Rule: A trust is not valid until it is funded with property
- Quasi Exceptions:
• Pour Over Wills/Trusts
• Life Insurance Trusts - Inter vivos trusts: must be funded with specifically identifiable property during the settlor’s lifetime to be valid
- Testamentary trusts: funded at the settlor’s death from probate assets
Constructive Trust
A constructive trust is an equitable remedy to prevent the unjust enrichment of the holder of title to, or of an interest in, property which such holder acquired through fraud, breach of duty or some other circumstance making it inequitable for him to retain it against the claim of the beneficiary of the constructive trust. Proof of the facts justifying a constructive trust usually must be by clear and convincing evidence.
Honorary Trust
If (i) a trust is for a specific lawful noncharitable purpose or for lawful noncharitable purposes to be selected by the trustee and (ii) there is no definite or definitely ascertainable beneficiary designated, the trust may be performed by the trustee for [21] years but no longer, whether or not the terms of the trust contemplate a longer duration.
Trust for Pets
A trust for the care of a designated domestic or pet animal is valid. The trust terminates when no living animal is covered by the trust. A governing instrument must be liberally construed to bring the transfer within this subsection, to presume against the merely precatory or honorary nature of the disposition, and to carry out the general intent of the transferor. Extrinsic evidence is admissible in determining the transferor’s intent.
Trust for Care of Animal
A trust may be created to provide for the care of an animal alive during the settlor’s lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor’s lifetime, upon the death of the last surviving animal.
A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed.
Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the sttlor, if then living, otherwise to the settlor’s successors in interest.
Rules for a noncharitable trust without an ascertainable beneficiary
(1) A trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary or for a noncharitable but otherwise valid purpose to be selected by the trustee. The trust may not be enforced for more than [21] years.
(2) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court.
(3) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intedned use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor’s successors in interest.
