Trusts Flashcards
FL Trusts
Who are the Parties to a Trust?
TBS - Trustee, Beneficiary, Settlor
Who is the Trustee?
Trustee - the person who hols the LEAL INTEREST or TITLE to the Trust Property as the FIDUCIARY for the BENEFICIARIES.
HINT:
(We trust him to hold our stuff)
Who is the Beneficiary of a Trust?
Beneficiary - person that the trust was created for. The Bene holds an EQUITABLE INTEREST in the trust
When there is more than one beneficiary, the beneficiary may hold a present or future interest, and that interest may be vested or contingent.
HINT:
(BeneEEE)
Who is the Settlor?
Settlor- creates the trust by placing property into the trust.
“a person, including a testator, who creates or contributes property to a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person’s contribution except to the extent another person has the power to revoke or withdraw that portion.” Fla. Stat. § 736.0103 (18).
HINT:
(Settlor’s created America and there can be more than one but you can’t claim to create what someone else does. Everyone is credited as a Settlor)
Inter Vivos Trust
Settlor creates the Trust during his lifetime
HINT:
Settlor makes Trust while ALIVE - Vivos
Testamentary Trust
The trust is created upon the Settlor’s death through his Will
HINT:
(Will You Testify!!)
Revocable Trusts
A trust that can be amended or terminated by the Settlor
Irrevocable Trusts
Cannot be amended or terminated by the Settlor
Presumption of either revocable or irrevocable
There is a presumption that the trust is REVOCABLE unless otherwise stated in the trust instrument.
The revocation becomes effective when the action manifesting the intent occurs, rather than when the trustee or beneficiaries learn of the action.
HINT:
(Presumptions can be rebutted. Revoked.)
Revocation of a Trust
Any action manifesting the Settlor’s internet to revoke (unless the instrument states a specific method of revocation)
Mandatory Trusts
The Trustee MUST make distributions to the Beneficiaries
Discretionary Trusts
Trustee has SOME DISCRETION in making distributions
Express Trusts
Arises from the Express Intent of the owner of the property to create a trust; typically either a PRIVATE EXPRESS TRUST or a CHARITABLE TRUST.
Hint:
(ET we intended to be our PET or CET)
Remedial Trust
2 Types of Remedial Trusts:
- Resulting Trust
- Constructive Trust
Resulting Trust
Arises from the Presumed Intent of the Settlor when a trust fails or its purposes have been met.
Constructive Trust
An Equitable Remedy for Wrongful Conduct or Unjust Enrichment
Hint:
(ER when something goes WRONG)
Private Express Trusts
A Private Express Trust is the most common express trust.
Creating a Trust
1) Trust Creation requirements;
2) Trustee’s Duties - Good Faith, Loyalty, Inform the Benes;
3) Trust’s Purpose be Lawful, in keeping with public policy, and capable of achievement;
4) The Court’s Power to Modify/Terminate trust;
5) The effect of so-called “SPENDTHRIFT” provisions;
6) The periods of limitation for commencing a judicial proceeding; and
7) Third Party Rights - to engage in commercial transactions with the trustee.
Private Express Trust - Elements
A Private Express Trust is created when:
1) A SETTLOR
2) Who has CAPACITY to CREATE a trust
3) CLEARLY EXPRESSES a PRESENT intent to transfer ownership of
4) PROPERTY (RES) to
5) A TRUSTEE who has duties to perform
6) For the benefit of one or more DEFINITE or ASCERTAINABLE BENEFICIARIES
7) For a VALID PURPOSE.
Capacity of the Settlor
Settlor must have the LEGAL CAPACITY to manifest an INTENT to create a trust.
Capacity is needed AT THE TIME of the creation of the trust.
Capacity to create a REVOCABLE TRUST
The capacity required to:
1. Create
2. Amend,
3. Revoke,
4. Modify (add property to) a revocable trust is
THE SAME CAPACITY REQUIRED TO MAKE A WILL
To make a WILL the Testator:
- Must be at least 18years old (or an emancipated minor)
- Possess a SOUND MIND at the time of execution the will.
Sound mind is that the Testator UNDERSTANDS:
- NATURE and EXTENT of his PROPERTY,
- PERSONS who were the natural objects of his bounty, and
- EFFECT of the disposition he is making.
Capacity to create a IRREVOCABLE TRUST
The capacity required to create an irrevocable trust is the same that is required to make a GIFT.
For a Irr.T. and Gift the Settlor must have:
1. LEGAL CAPACITY to transfer property.
The STANDARD is slightly higher than that for a will because, IRREVOCABLE DONATIVE TRANSFERS during life require an ability to UNDERSTAND THE EFFECTS the disposition may have on the FUTURE FINANCIAL SECURITY of the settlor/donor and of those who may be dependent on him or her
(Cause he’s still alive and there are NO TAKE BACKS)
Present Intent
The SETTLOR must have the PRESENT INTENT to create a trust—for the transferee to hold the transferred property for the benefit of the beneficiary.
Existence of intent
INTENT can be ascertained from a variety of sources including:
- LANGUAGE of the Settlor
- RELATIONSHIPS among the transferor and the other parties,
- Degree of SPECIFICITY in the transferor’s instructions to the transferee.
Why does a Settlor’s intent become an issue?
Questions of intent arise when there is a
DISPUTE
over whether the transferor of property:
- INTENDED TO CREATE A TRUST
or instead - INTENDED TO MAKE AN OUTRIGHT GIFT
of the property to the transferee.
Language used by the Transferor
The use of common trust terms like:
- “in trust”
- “as trustee”
creates a PRESUMPTION of the existence of INTENT to CREATE a TRUST
these words are not required
By contrast, precatory language like: - HOPE - DESIRE - WISH may indicate an intent to create a MORAL rather than LEGAL obligation on the transferee.
Parties’ Relationships
Relationships between
- Transferor
- Transferee
- Beneficiary/Purported Beneficiary
Can be evidence of the Transferor’s INTENT.
Personal relationships might indicate an outright gift where e as a nonhuman entity like a trust company might indicate intent for a trust
Specificity of the transferor’s instructions
The more detailed the transferor’s instructions are with regard to the transferee’s use of the property, (particularly if the instructions indicate limitations on use) the more likely the transferor intended that the transferee hold the property for the benefit of another.
Timing of Intent
Transferee MUST have the PRESENT INTENT to create a trust.
Expressing Intent to create a trust in the FUTURE is NOT SUFFICIENT.
BUT:
Expressing Intent to create a trust in the FUTURE and the
- Transferor received CONSIDERATION
may be sufficient to result in the FUTURE CREATION of a TRUST despite the lack of intent at that time.
Ways one can Form Intent
Except as limited by
- Wills (Test. Trust)
- Statute of Frauds (for real property placed in trust),
Settlor’s intent may be manifested by:
- Writing
- Spoken Words
- Conduct.
A trust of personal property CAN be created ORALLY
Communication of Intent
Intent to Create a Trust MUST be communicated by the SETTLOR to the TRUSTEE
NO Requirement that the Settlor communicate intent to the Beneficiary.
Trust Property
RES
RES = TRUST PROPERTY
A VALID Trust MUST contain some property:
- Owned by the SETTLOR
- At the time the trust was created; and
- Which was transferred to the trust or to the trustee.
If there is no trust property (RES), then the trust will generally FAIL
Types of Property (RES)
Any full or fractional property interest, including
- Real property,
- Personal property,
- Money,
- Intangibles,
- Partial Interests, or Future Interests (whether vested or contingent) will suffice, as will future earnings under an existing agreement, although a mere expectancy generally will not.
Is there a minimum amount of property required?
NO.
There is NO minimum amount of property that must be placed in a trust.
Segregation
Trust property must be:
- Identifiable
and
- Segregated
Description
The property must be described with reasonable certainty.
Subsequent transfer of property
While a trust generally must be funded at its creation,
- A Settlor may subsequently transfer other property to the trust.
As with the initial transfer of property to a trust, a trust does not contain property that a settlor has made a gratuitous promise to transfer to the trust, unless and until the settlor honors that promise.
Can there be an Unfunded Trust?
There are two circumstances in which a trust may be unfunded.
1) “Pour-over” trust
2) “Life insurance” trust
“Pour-over” Trust
A trust that is to receive a devise from a will may be unfunded.
This Trust is known as a “pour-over” trust and is created
- While the Settlor is ALIVE
- Funded typically at the time of the settlor’s death by a devise in the settlor’s will.
Created when Settlor is Alive because it’s created with the Will and doesn’t come into effect until the Settlor dies. The will devise “pours over” into a trust
“Life insurance” Trust
Trust property may consist of the trustee’s right to receive death benefits
(e.g., proceeds from a life insurance policy, annuity, death benefit).
Which is why it’s unfunded because those benefits don’t come into effect until the Settlor dies
Trustee
The TRUSTEE holds the
- LEGAL TITLE to the trust property
- For the BENEFIT of the BENEFICIARY
- Has POWERS and DUTIES imposed by the terms of the trust or by law.
How many Trustees can there be?
A trust may have ONE or MORE TRUSTEES
BUT: The same individual CANNOT serve as: - SOLE Trustee and SOLE Beneficiary of a trust - When there are other Beneficiaries.
AND:
If the SOLE Trustee is the SOLE Beneficiary,
- Title MERGES and the TRUST TERMINATES
Acceptance of Trusteeship
A person designated as a trustee can accept the position:
- By substantially complying with a method of acceptance provided for in the terms of the trust; or
- If the terms of the trust do not provide a method of acceptance, or the method is not made exclusive, by accepting delivery of the trust property,
- Exercising powers as a trustee,
- Performing duties as a trustee, or
- Otherwise indicating acceptance of the trusteeship.- WILL INDICATE ACCEPTANCE
Acceptance of a Testamentary Trust
A trustee’s acceptance of a testamentary trust RELATES BACK to the date of the SETTLOR’S DEATH.
Accordingly,
- A Trustee can become LIABLE for Tort Claims against the Trust that arise PRIOR to the time the trustee accepted the trusteeship.
Declining Trusteeship
A Designated trustee - Who DOES NOT ACCEPT Trusteeship - Within a REASONABLE TIME - After KNOWING of the designation Is deemed to have DECLINED THE TRUSTEESHIP
A person designated as trustee may,
WITHOUT ACCEPTING THE
TRUSTEESHIP,
Act to Preserve the trust property if,
- Within a REASONABLE TIME
- AFTER Acting,
- The Person sends to a QUALIFIED BENEFICIARY
- A Written Statement DECLINING the Trusteeship.
Such person also may inspect or investigate trust property to determine potential liability under environmental or other law or for any other purpose.
Replacement of a Trustee
A Trustee is essential to the creation of a trust,
Once properly created, the Trust will NOT FAIL if the only Trustee:
1. Dies.
2. Becomes disabled,
3. Resigns,
4. Fails to Accept the office within a reasonable amount of time (Declines)
The COURT will appoint a successor trustee,
UNLESS,
The Settlor expressed an intent that the trust was to continue ONLY SO LONG AS A PARTICULAR PERSON SERVED AS TRUSTEE
The Vacancy in a Trusteeship, need not be filled unless the terms of the trust require otherwise or there is no remaining trustee.
Successor Trustee
A vacancy in a trusteeship that is REQUIRED to be filled must be filled in the following order of priority:
- By a person NAMED or DESIGNATED pursuant to the terms of the trust to act as a successor trustee;
- By a person APPOINTED by UNANIMOUS AGREEMENT of the QUALIFIED BENEFICIARIES; or
iii) By a person APPOINTED by the COURT
The court may appoint an additional trustee or a special fiduciary whenever it considers the appointment necessary for the administration of the trust, whether or not a vacancy in a trusteeship exists or is required to be filled.
A Trustee’s Duties to Perform
A trustee must be given specific duties to perform.
A passive trust—
a trust in which the trustee’s only duty is to pass property to a beneficiary
—is not a valid express trust.
The expressed intention of the settlor to create a trust along with the identification of trust property and beneficiaries is usually sufficient for the court to infer duties to be performed by the trustee.
Location of a place where the trust is administered
A trustee is under a continuing duty to administer the trust at a place appropriate to its purposes and its administration. While the terms of the trust may designate the principal place where a trust is to be administered provided the trust has sufficient connection with that place, when the terms of the trust fail to designate the place of administration, the place of administration of the trust is the trustee’s usual place of business, or if the trustee has no place of business, the trustee’s residence. Fla. Stat. § 736.0108.
Qualifications of a trustee
A trustee must have the capacity to take property and to administer the trust. Capacity to take property as a trustee is the same capacity necessary for acquiring or holding title to property for one’s own benefit. While minors and insane persons may have the capacity to hold property as a trustee, they generally lack the capacity to administer the trust and, as such, they usually cannot qualify as trustees. The court may require a bond to secure performance of the trustee’s duties if it is necessary to protect the interests of the beneficiaries. Fla. Stat. §736.0702.
Trustee compensation
If the terms of a trust do not specify the trustee’s compensation, then a trustee is entitled to reasonable compensation. If the terms of a trust specify the trustee’s compensation, then the trustee is entitled to be compensated as specified, but the court may allow greater or lesser compensation if the duties of the trustee are substantially different from those contemplated when the trust was created or if the compensation specified by the terms of the trust would be unreasonably low or high. If the trustee has rendered other services in connection with the administration of the trust, then the trustee will also be allowed reasonable compensation for such other services. Fla. Stat. § 736.0708.
Reimbursement of a trustee’s expenses
A trustee is entitled to be reimbursed out of the trust property, with interest as appropriate, for reasonable expenses that were properly incurred in the administration of the trust. An advance by the trustee of money for the protection of the trust will give rise to a lien against trust property to secure reimbursement with reasonable interest. Fla. Stat. §736.0709.
Resignation as a trustee
A trustee may resign from the position by:
i) Providing at least 30 days’ notice to the qualified beneficiaries (see §II.A.4. Beneficiaries, infra), the settlor (if living), and any co-trustees; or
ii) Obtaining court approval.
Fla. Stat. § 736.0705(1). In approving a resignation, the court may issue orders and impose conditions reasonably necessary for the protection of the trust property. Fla. Stat. §736.0705(2). In addition, any liability of a resigning trustee or of any sureties on the trustee’s bond for acts or omissions of the trustee is not discharged or affected by the trustee’s resignation. Fla. Stat. §736.0705(3).
Removal of a trustee
The settlor, a co-trustee, or a beneficiary may request the court to remove a trustee, or a trustee may be removed by the court on the court’s own initiative if:
i) The trustee has committed a serious breach of trust;
ii) The lack of cooperation among co-trustees substantially impairs the administration of the trust;
iii) Due to the unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries; or
iv) There has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, and the court finds that:
a) Removal of the trustee best serves the interests of all of the beneficiaries;
b) The removal is not inconsistent with a material purpose of the trust; and
c) A suitable co-trustee or successor trustee is available.
Fla. Stat. § 736.0706. Pending a final decision on a request to remove a trustee, or in lieu of or in addition to removing a trustee, the court may order appropriate relief to protect the trust property or the interests of the beneficiaries. Fla. Stat. §736.0706(3).
Beneficiaries
A “beneficiary” is a person who has a present or future beneficial interest in a trust, vested or contingent, or who holds a power of appointment over trust property in a capacity other than that of trustee. Unless restricted by the Rule Against Perpetuities, a beneficiary need not be currently ascertainable or alive. Fla. Stat. §736.0103(4). The beneficiary possesses the power to enforce the trust by virtue of holding equitable title to the trust property.
Number of beneficiaries
To be valid, a trust generally must name at least one definite beneficiary. A beneficiary is definite, even if unborn at the time the trust is created, provided such beneficiary will be identifiable by the time the beneficiary’s interest must vest under the Rule Against Perpetuities. Fla. Stat. § 736.0402(1), (2).
Choice of beneficiary from an indefinite class
A trustee may be given the power to select a beneficiary from an indefinite class. The power must be exercised within a reasonable time or it fails. If it fails, the property passes to the persons who would have taken the property if the power had not been conferred. Fla. Stat. § 736.0402(3).
Rule Against Perpetuities
Florida has enacted the Uniform Statutory Rule Against Perpetuities, under which a nonvested property interest in a trust is invalid unless:
i) At the time the interest is created, it is certain to vest or terminate no later than 21 years after the death of an individual then alive; or
ii) The interest either vests or terminates within 360 years after its creation.
For property interests created on or before December 31, 2000, the alternate vesting period is 90 years rather than 360 years. Fla. Stat. § 689.225.
In applying the Rule, an interest in an irrevocable trust is deemed to be created at the time the trust was created. An interest in a revocable trust is deemed created at the time the trust becomes irrevocable, which is generally at the settlor’s death.
Failure of a trust for lack of a beneficiary—resulting trust
If a trust fails for lack of a beneficiary, then a resulting trust (see § IV.A. Resulting Trust, infra) is presumed in favor of the settlor or her successors in interest.
Honorary trust
Traditionally, the trustee of a private express trust without a definite beneficiary could not be compelled to comply with the terms of the trust. Such a trust was described as an “honorary trust.” Under the UTC as adopted by Florida, two types of trust without a definite beneficiary are recognized as enforceable trusts—trusts for general but noncharitable purposes and trusts for a specific noncharitable purpose other than the care of an animal. Fla. Stat. § 736.0409. (For trusts for the care of an animal, see § II.A.4.b.1. Animal trust, below.) For example, a settlor by will can create a trust to fund the saying of prayers for the settlor. A settlor can create a trust that gives the trustee the discretion to choose worthy purposes to receive the income from the trust on an annual basis.
Time limit on a trust
The trust may not be enforced for more than 21 years. Fla. Stat. §736.0409(1). As a consequence, such a trust is sometimes referred to as a “21-year trust.”
Enforcement
The trust may be enforced by a person appointed in the terms of the trust, or if no person is appointed, by a person appointed by the court. Fla. Stat. §736.0409(2).
Excess trust property
Property of an honorary trust must be applied only to the intended use of the property, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Unless the trust provides otherwise, property not required for the intended use must be distributed to the settlor, if then living, or otherwise as part of the settlor’s estate. Fla. Stat. § 736.0409(3).
Excess trust property in a charitable trust
charitable trust: Unless the beneficiary is a charitable organization, the beneficiaries of a charitable trust must be indefinite (see § III.B. Indefinite Beneficiaries, infra).
Capacity
Any individual or entity can be named as a trust beneficiary, provided the individual or entity is capable of taking and holding title to property. Consequently, an animal cannot be the direct beneficiary of a trust. However, under the UTC as adopted by Florida, a trust may be created for the care of an animal. Fla. Stat. § 736.0409.
Animal trust
A trust may be created for the care of one or more animals alive during the settlor’s lifetime. Fla. Stat. § 736.0409(1).
Time limit on Animal Trust
The trust terminates on the death of the last surviving animal. Fla. Stat. §736.0409(1).
Other Applicable Rules on Animal Trusts
The rules that apply to honorary or 21-year trusts regarding enforcement and disposal of excess trust property (see § II.A.4.a.4. Honorary trust, above) also apply to an animal trust. Fla. Stat. § 736.0409(2), (3).
Incidental and indirect beneficiaries
If a trust operates only incidentally or indirectly to benefit a person, the person will not be a beneficiary and will not be able to enforce rights under the trust.
Example: The trust instrument requires a trustee to employ a specific attorney for the trust. The attorney is not a beneficiary of the trust and has no right to enforce the provision regarding her employment. A beneficiary of the trust, however, would have a right to enforce such an appointment and could bring an action against the trustee for failure to make the appointment if there was a loss to the trust resulting from the appointment of another attorney.
No notice to the beneficiary
Notice to the beneficiary that a trust is being created for her benefit is not required to create the trust.
Acceptance by the beneficiary
A beneficiary must accept her rights under a trust. A beneficiary of a trust cannot be forced to accept a trust interest. However, acceptance of a beneficial interest is generally presumed.
Disclaimer of a trust interest
A beneficiary may disclaim her interest if she has not by words or conduct manifested acceptance of the trust. A disclaimer relates back to the date of the creation of the trust.
Qualified beneficiaries
A “qualified beneficiary” includes a living beneficiary who is currently eligible to receive a distribution of trust income or principal (i.e., a current beneficiary) or would be eligible to receive such a distribution if the current beneficiary’s interest terminated without causing the trust to terminate or if the trust itself terminated on the date that the beneficiary’s status as a qualified beneficiary is determined (i.e., an intermediate or a first remainder beneficiary). A qualified beneficiary may hold a vested or contingent interest. Fla. Stat. § 736.0103(14).
Unborn beneficiaries as well as more remote living beneficiaries or contingent beneficiaries are nonqualified beneficiaries.
A qualified beneficiary is afforded more rights and responsibilities than a nonqualified beneficiary. Qualified beneficiaries must be given notice of, or must consent to certain actions with regard to the trust (e.g., appointment of a successor trustee (see § II.A.3.e. Successor trustee, supra)).
Valid Trust Purpose
A trust may be created only to the extent that the purposes of the trust are lawful, are not contrary to public policy, and are possible to achieve. Fla. Stat. § 736.0404. Violations of public policy may include provisions encouraging divorce, preventing marriage, restraining religious freedom, discouraging performance of public duties, or unreasonably restraining alienation.
In situations in which one of several trust terms is violative of public policy, any alternative terms will be honored unless the removal of the term proves fatal to the overall purpose of the trust.
Creation of a Private Express Trust
A private express trust may be created by:
i) Transfer of property to another person as trustee either during the settlor’s lifetime or by will or disposition taking effect on the settlor’s death;
ii) Declaration by the owner of property that the owner holds identifiable property as trustee; or
iii) Exercise of a power of appointment in favor of a trustee.
Fla. Stat. § 736.0401. A private express trust may be created upon the settlor’s death through her will (i.e., a testamentary trust) or during the settlor’s life (i.e., an inter vivos trust).
Testamentary Trusts
A testamentary trust is a trust the terms of which are contained in a will. A testamentary trust must comply with the formalities for the creation of a will (see the Themis Wills outline for a discussion of these formalities). Property owned by the testator at her death is transferred by a devise in the will to the trustee of the trust as devisee.
“Secret” trust
A “secret” trust exists when a devisee promised the testator to hold and manage the devised property for the benefit of someone else. The intended beneficiary must prove the promise, which does not appear in the will, by clear and convincing evidence. If the beneficiary does so, then a constructive trust is imposed on the property for the intended beneficiary to prevent the unjust enrichment of the devisee (i.e., the “secret” trustee).
“Semi-secret” trust
A “semi-secret” trust exists when the will provides for a devisee to use the devised property for the benefit of a person but does not identify that person. In this situation, the intended beneficiary is not permitted to present extrinsic evidence. Instead, a resulting trust is imposed on the devised property.
Inter Vivos Trusts
An inter vivos trust is a trust created during the settlor’s life. The formalities required depend on whether property to be transferred to the trust is real property and whether the trust is revocable or irrevocable.
Transfer of real property to a trust
Pursuant to the Statute of Frauds, the transfer of real property to an inter vivos trust, whether the trust is revocable or irrevocable, must be in a writing that is signed by the settlor who owns the property and that contains an adequate description of the property. Fla. Stat. §736.0403(2). For a trust in which the settlor is also the trustee, the transfer is effected through a declaration of trust. Because the settlor and the trustee are the same person, there is no need for delivery of the declaration in order for it to be effective. For a trust in which the settlor is not the trustee, the transfer is effected through a deed of trust.
Personal property may be transferred to an inter vivos trust orally, but the transfer, as well as the terms of the trust, must be established by clear and convincing evidence. Fla. Stat. § 736.0407.
Creation of an irrevocable trust
Apart from the transfer of real property to the trust, an irrevocable trust (i.e., a trust that cannot be amended or terminated by the settlor) may be created without the need to adhere to any formalities.
Creation of a revocable trust
Apart from the transfer of real property to the trust, a revocable trust may be created without the need to adhere to any formalities unless the trust has testamentary aspects. A trust has testamentary aspects if it has a provision that disposes of trust property on or after the settlor’s death, other than to the settlor’s estate.
Revocable trust with testamentary aspects
For a revocable inter vivos trust created on or after July 1, 2007, a provision that disposes of trust property upon the death of the settlor to a person other than the settlor’s estate will be ineffective unless the trust instrument and any amendments are executed in accordance with the formalities required for the execution of a will. This rule does not apply to a trust that is established as part of an employee annuity, an individual retirement account, or a Keogh or qualified retirement plan. Fla. Stat. § 736.0403(2), (3).
Exercise of a power of appointment
A person who holds a general power of appointment with regard to property may appoint the property to anyone, including herself or her estate. She may create a trust by appointment to a person as trustee for herself or others. A person holding a special power of appointment can only appoint among particular persons or classes of persons. She may create a trust by appointment to a trustee for the benefit of such persons, depending on the donor’s intent with regard to the special power of appointment.
Choice of Law
A settlor may provide in the trust instrument that the law of a specific jurisdiction is to be applied to determine the meaning and effect of the terms of the trust (i.e., a choice-of-law provision). This provision will be given effect if:
i) There is a sufficient nexus to the designated jurisdiction at the time of the creation of the trust or during the trust administration (e.g., the location of real property held by the trust, the residence or location of an office of the settlor, the trustee, or any beneficiary), and
ii) Applying the law of another state is not contrary to a strong public policy of Florida.
In the absence of an effective choice-of-law provision, the law of the jurisdiction in which the settlor resides at the time the trust is first created will govern. Fla. Stat. § 736.0107.
Challenges to the Validity of a Private Express Trust
A trust is void if its creation was procured by fraud, duress, mistake, or undue influence. Any part of the trust is void if procured by such means, but the remainder of the trust not procured by such means is valid (assuming it is not invalid for other reasons). Likewise, if the revocation of a trust, or any part of the trust, is procured by fraud, duress, mistake, or undue influence, such revocation is void. Fla. Stat. § 736.0406.
Timing of a Challenge
A challenge to the validity of a trust or the revocation of a part of the trust cannot be brought until the trust becomes irrevocable either upon the settlor’s death or by the terms of the trust. A challenge to the revocation of an entire trust cannot be brought until the settlor has died. Fla. Stat. § 736.0207.
Example: A 76-year-old woman who was married to a 32-year-old man created a revocable trust, naming herself and her bank as co-trustees. The couple divorced, and during the dissolution proceedings, the court set aside a transfer of some of the woman’s assets to her husband, finding that the transfer was the result of undue influence. Several months after the divorce, the couple remarried. Five days after the remarriage, the woman notified the bank of her desire to revoke her trust. Aware of the prior finding of undue influence, the bank refused to transfer the funds. The court held that a claim of undue influence could not be used to deprive a settlor of her right to revoke a trust in the absence of physical or mental incapacity. Florida Nat’l Bank v. Genova, 460 So.2d 895 (Fla. 1984).
An action to contest the validity of a trust that was revocable at the settlor’s death is generally barred, if not commenced within four years. However, this time period is reduced to six months if the trustee sends proper notification to the challenger. Fla. Stat. § 736.0604.
No Challenge Provision—Unenforceable
A provision in a trust that would penalize a beneficiary for contesting the trust or instituting any actions relating to the trust assets is unenforceable. Fla. Stat. §736.1108.
Rules of Construction
Typically, a trust is created through a written document, such as a deed of trust when the settlor names someone else as trustee, or a declaration of trust when the settlor names himself as trustee. In interpreting the provisions of this instrument, the following rules apply unless a contrary intent is indicated by the terms of the trust instrument. Fla. Stat. §736.1101.
Settlor’s intent controls
In general, the intent of the settlor, as expressed in the terms of the trust, controls the legal effect of the dispositions made in the trust. Fla. Stat. § 736.1101. To determine intent, the court will look at the trust instrument as a whole, taking into account the general dispositional scheme. Provost v. Justin, 19 So.3d 333 (Fla. Dist. Ct. App. 2009). When there is a conflict between the settlor’s general scheme and a specific provision, the general scheme should prevail. See West v. Francioni, 488 So.2d 571 (Fla. Dist. Ct. App. 1986) (interpreting a will). In addition, when there is conflict between two provisions in a trust instrument, the latter should prevail, as it represents the settlor’s latest expression of the settlor’s intent. See In re Tr. Estate of Smith, 75 So.2d 686 (Fla. 1954) (interpreting a will).
Plain meaning rule
Generally, in interpreting the meaning of the language in a trust instrument, the court will look only at the text of the instrument itself (i.e., within its four corners). Admission of extrinsic evidence is prohibited. Roberts v. Sarros, 920 So.2d 193 (Fla. Dist. Ct. App. 2006).
Exception—reformation to correct a mistake
In determining a settlor’s original intent for the purposes of determining whether to reform a trust to correct a mistake of fact or law, the court may consider evidence relevant to the settlor’s intent even though the evidence contradicts an apparent plain meaning of the trust instrument. Fla. Stat. § 736.0415.
Use of extrinsic evidence when there is ambiguity
If the language in a trust instrument is ambiguous, evidence of the surrounding circumstances is admissible to explain and determine, but not to contradict, the meaning and intent of the terms employed in the instrument. Words in the instrument should be given their ordinary and usual meanings. The fact that parties ascribe different meanings to the language of a trust does not mean that the language is ambiguous so as to permit the admission of extrinsic evidence. Bryan v. Dethlefs, 959 So.2d 314 (Fla. Dist. Ct. App. 2007). In determining the intent of the settlor, a technical term used in a trust instrument should be accorded its legal definition, unless obviously used by the settlor in a different sense. Timmons v. Ingrahm, 36 So.3d 861 (Fla. Dist. Ct. App. 2010).
Rules of construction applicable to intestate succession and wills 1) Adopted persons and persons born out of wedlock
Rules of construction applicable to intestate succession and wills 1) Adopted persons and persons born out of wedlock
The laws used to determine paternity and relationships for the purposes of intestate succession apply when determining whether class gift terminology and terms of relationship include adopted persons and persons born out of wedlock. Fla. Stat. § 736.1102.
Class gifts
Class gifts to descendants, issue, and other multigenerational classes are distributed per stirpes, unless otherwise indicated by the terms of the trust instrument. Fla. Stat. § 736.1103.
Securities—Non-ademption and accession
As is the case with a devise in a will, a distribution of specific securities, rather than their equivalent value, mandated by the trust instrument entitles the beneficiary only to (i) as much of the gifted securities of the same issuer held by the trust estate at the time of the occurrence of the event entitling the beneficiary to distribution, (ii) any additional or other securities of the same issuer held by the trust estate because of action initiated by the issuer (e.g., a stock split), excluding any acquired by exercise of purchase options, and (iii)securities of another issuer held by the trust estate as a result of a merger, consolidation, reorganization, or other similar action initiated by the original issuer. Fla. Stat. §736.1107.
CHARITABLE TRUSTS
For a trust to be considered charitable, it must have a stated charitable purpose. Charitable purposes include, but are not limited to (i) the relief of poverty, (ii) the advancement of arts, sciences, education, or religion, and (iii) the promotion of health, governmental, or municipal purposes. Fla. Stat. § 736.0405(1). If the terms of a charitable trust do not indicate a particular charitable purpose, then the court may select one or more charitable purposes, so long as the selection is consistent with the settlor’s intent, to the extent that such intent can be ascertained. Fla. Stat. §736.0405(2). A trust for profit (unless the profits are to go to a charitable purpose) or a trust for named persons is not a charitable trust.
Charitable Purpose
For a trust to be considered charitable, it must have a stated charitable purpose. Charitable purposes include, but are not limited to (i) the relief of poverty, (ii) the advancement of arts, sciences, education, or religion, and (iii) the promotion of health, governmental, or municipal purposes. Fla. Stat. § 736.0405(1). If the terms of a charitable trust do not indicate a particular charitable purpose, then the court may select one or more charitable purposes, so long as the selection is consistent with the settlor’s intent, to the extent that such intent can be ascertained. Fla. Stat. §736.0405(2). A trust for profit (unless the profits are to go to a charitable purpose) or a trust for named persons is not a charitable trust.
