Trusts Flashcards
To learn trusts
Private express trust
Definition:
- fiduciary relationship with respect to property
- the trustee holds legal title to benefit of beneficiary
- intent to create
- only legal purpose
Manifestation of intent to create trust
No magic words, but precatory (wishful words) are not enough.
But precatory words + parol evidence might establish intent to create a trust.
How to create private express trust
Intent, trustee, res, beneficiary, valid trust purpose.
Trust created to take effect at settlor’s death: part of will provides for creation of trust.
Trust created during lifetime:
(1) transfer in trust: writing or property delivered to trustee.
(2) declaration in trust: settlor himself is trustee
Illegal trusts
Illegal at creation: try to excise bad from good. If impossible, try to invalidate trust or allow trustee to keep everything.
Subsequently illegal: becomes a resulting trust and everything goes back to settlor or settlor’s residuary devisees
Charitable trusts
Focus is on benefit to society.
Small number of beneficiaries: two views, it’s actually a private trust or it still is a charitable trust because society still benefits.
Rule against perpetuities does not matter.
Cy pres
“As nearly as possible”
Pour over wills
Settlor creates inter-vivos trust with provision in will devising all or part of estate to trustee of the trust.
Honorary trust
A trust with no ascertainable benefit to society or any beneficiaries.
Typically, RAP problems and almost always violate because no measuring life.
Courts then treat them as resulting trusts.
Totten trust
A tentative bank account trust, whereby named beneficiary takes whatever is in the bank account.
Spendthrift trust
Definition: beneficiary cannot transfer his interest and creditors cannot attach
- Except preferred creditors: the government, necessities of life to beneficiary, child support, alimony, tort judgment.
- “Surplus” attachment for amount in excess of beneficiary’s “station in life”
Support trust
Definition: trustee is required to use only so much for beneficiary’s health, maintenance, support, education
- Beneficiary cannot alienate
- Creditors generally cannot attach
- Except preferred creditors: the government, necessities of life to beneficiary, child support, alimony, tort judgment.
- “Surplus” attachment for amount in excess of beneficiary’s “station in life”
Discretionary trusts
Definition: trustee is given sole and absolute discretion in determining how much to pay beneficiary if anything or ever
- Beneficiary generally cannot alienate because there might be nothing to assign, but if there was an assignment, then assignee steps into shows and trustee must pay.
- Creditors generally cannot attach because there might be nothing to attach, but if there is an attachment then he must pay.
Resulting trust
Definition: an implied in fact trust based on presumed intent of the parties. If a resulting trust is decreed by the court, the assets will be transferred back to settlor or to his residuary devisees, or whomever by intestate succession.
7 situations when resulting trusts arise
(1) a private trust ends by its own terms
(2) private express trust fails because no beneficiary
(3) when a charitable trust ends because of impossibility and cy pres cannot be used
(4) when private express trust fails because of illegality
(5) there’s excess corpus from very successful private trust
(6) purchase money resulting trust: someone helping facilitate a transaction
(7) Semi-secret trust: a trustee is named but no beneficiary
Constructive trusts
Definition: A remedy to prevent unjust enrichment
Where court decrees, wrongdoers have one obligation: to transfer property to intended beneficiary
Arises in 4 situations
(1) trustee of private express/charitable trust creates profit from self-dealing
(2) a will situation based on fraud in the inducement or undue influence
(3) secret trusts: the amount given to trustee had oral promise to have a beneficiary. (Similar but different to semi-secret trusts)
(4) oral real estate trusts: promise to hold a deed to later give to another.
Trustee powers
Trustee has all enumerated powers and all implied powers
Trustee duties
Revocable trust = duty to settlor
Irrevocable trust = duty to beneficiaries
Duty of loyalty: Act in the best interest of beneficiary at all times. No self-dealing (if there is, “surcharge,” trustee makes up the loss).
Duty to invest (only express trusts)
(1) some states have lists which trustee must follow (often fed gov bonds, fed insured CD’s, sometimes publicly traded corporations)
(2) common law prudent person tests: each individual investment scrutinized, add blue chip stocks and maybe mutual funds, but never new businesses.
(3) Uniform Prudent Investor Act: look at portfolio as a whole.
Duty to diversify
Duty to earmark: to label ownership of a stock as “John Smith, as trustee of ABC trust.”
- common law: if trustee breaches and stock loses value, trustee personally liable for the loss.
- modern law: if trustee breaches and stock loses value, trustee personally liable only if the failure to earmark was a cause in fact of the loss
Duty to segregate: not commingle personal and trust funds.
Duty to account
Duty of due care (reasonably prudent person)
Remedies for breaches of duty
Damages, constructive trust, tracing and equitable lien
Liability of trustee to third parties: contracts
Common law rule: If acting on behalf of trust and sued in contract, and if not personally at fault, then trust funds are liable.
Modern rule: if the other party to the contract knew the trustee was acting on behalf of trust, then trustee not personally liable.
Liability of trustee to third parties: tort
Common law rule: trustee sued in personal capacity, if not at fault can seek indemnification from trust.
Modern rule: trustee is sued in personal capacity and is personally liable for torts only if the trustee is personally at at fault.
Modification by settlor
Settlor can modify trust and to revoke entirely.
Express power to revoke will include implied power to modify. Must be expressly provided to preserve.
Modification by court
-under cy pres
- deviation power: court changes administrative powers but not the beneficiaries if
(1) unforeseen circumstances on part of settlor and
(2) necessity (needed to preserve the trust)
Termination of irrevocable trusts
Three ways
(1) Settlor and all beneficiaries agree to terminate
(2) All beneficiaries agree to terminate and all material purposes accomplished
(3) by operation of law
Writing requirement
A trust of private property requires no writing.
But trust for land must be in writing per SOF.
