Trusts Flashcards
Trust
An arrangement under which the trustee holds legal title to property for the benefit of the beneficiaries. Trustee has burdens and beneficiaries have benefits of property ownership. Trustee is subject to fiduciary standards; he is not privileged to use trust property as his own. Harsh “self-dealing” rules preclude trustee from doing so
Trust Requirements
Creator Delivers Legal title of trust assets (the res) To trustee For the benefit of the beneficiaries With intent to create a trust For a valid purpose
Trust Delivery
Requirement does not apply to self-declaration of trust (“I hereby declare myself trustee”) or testamentary trust
BUT
inter vivos trust w/ 3 party as trustee, there must be delivery of subject matter of the trust
Precatory Language of Suggested Use
“To A, as it is my wish and desire that he look after X and Y”
Valid Purpose
Settlor’s motive for putting provision in trust is part of analysis.
Provisions which encourage divorce or commission of crimes and provisions restraining the right to procreate or the free practice of religion are void.
Mere statements of disapproval are fine.
Res
The corpus, the principal, the subject matter of the trust. In order to have a trust, there must e a specific interest in property to which the trustee’s duties relate, such that the beneficiary who is dissatisfied with the trustee’s performance can say “You are not doing you job w/r/t those assets.” The subject matter of the trust must be certain and identifiable.
If no certain and identifiable trust property– no trust!
Chooses in Action, Accounts Receivable
These are interests in “property”
They are sufficient to support a trust even though they are intangible
Expectancy
NOT a recognized property interest. What is written in the will is not a claim or property right. Will ripen into a property interest only if
(1) grandfather dies w/o changing his will and (2) the will is admitted to probate until then– gratuitous promise to create a trust in the future.
* No one is an heir of the living*
Gratuitous Promise to Create a Trust
i.e. not supported by consideration
A trust arises when all elements of a valid trust have been met if, but only if, at that subsequent time the settlor manifests an intention then to create the trust.
Indicia: express, conduct
If consideration– trust automatically attaches when property received
No Trust Fails for Want of a Trustee
If intention to create a trust is clearly manifested but no trustee is named, or the named trustee dies or resigns with no provision for a successor trustee, the court will appoint a suitable trustee to execute the trust.
Exception: powers personal to the named trustee, such that the trust should fail if named person is no longer capable of serving– trust terminates.
Legatees
Where T dies, although her estate has not be distributed, a legatee has more than a mere expectancy: she has an interest which may be the subject matter of a trust or a gift. This is true even though the amount which the legatee is to receive has not yet been ascertained, as where she is a legatee of the residuary estate.
“Empty” trust
An otherwise empty trust is valid if it is named the direct beneficiary of a life insurance policy or a pension plan death benefit.
Also may apply to a trust that is named the direct beneficiary of the settlor’s will.
Private Trusts: Beneficiaries
A private trust must have ascertainable beneficiaries
Charitable Trusts: Beneficiaries
In addition to being for a charitable purpose, must be for a rxbly large and unidentifiable segment of the public at large
Power of Appointment
Instrument w/ not ascertainable class– instrument may be given effect as to a valid power of appointment (majority rule today, shift from traditional rule with no power of appointments)
Given reasonable time to make appointment.
If no appointment made, property returned to settlor or settlor’s estate by resulting trust.
Resulting Trust
Implied reversion
If class of beneficiaries described…
shares may be left to trustee
Unborn Beneficiaries
Does require beneficiaries be alive, just described.
Trust enforced by guardian ad litem.
If children never born, money returned to T’s estate in a resulting trust
Honorary Trust
E.g. for the keeping of pets
At common law: violates the RAP & void. $ returned to trustee/trustee’s estate by resulting trust
UTC: valid by statute for the lifetime of the animals. Instrument may designate enforcer or court will.$ left over at death of last dog returns to Trustee/Trustee’s estate through the resulting trust
Pourover Clause
Gift in will to previously created inter vivos trust– clause in will that adds property to a previously created inter vivos trust
Revocable Trusts: What if T is the Trustee and the Beneficiary?
No problem. While the sole beneficiary of a trust cannot be the sole trustee, this rule does not apply
(1) if there are two trustees, even though one of them is the sole beneficiary
(2) if there are two or more beneficiaries, even though the sole trustee is one of the beneficiaries
Revocable Trusts: Are Revocable Trusts Valid?
Yes, by statute and case law revocable trusts are valid even though the settlor retains the right to revoke, alter, or amend the trust, keeps an income interest or other interests in the trust as a beneficiary, retains power of appointment over the trust corpus, or retains every day control over the trust either by naming herself trustee or by retaining veto power over the trustee’s decision
Revocable Trusts: Is the Gift by Will to the Revocable Trust Valid?
Yes. Uniform Testamentary Additions to Trust Act (or equivalent) requires trust must be identified in T’s will and its terms must be set out in a written instrument. Instrument may be executed before, concurrently with, or after the will. Devised property is added to the trust as it exists at T’s death, including any amendments after will was executed (even though lack of formalities)
Revocable Trust: If T revokes Trust Before She Dies
Gift in will lapses
Totten Trust
Trustee-depositor has full rights during lifetime
Revoked by withdrawwals, any other lifetime act indicating intent to revoke, or by will (majority rule– but under UPC, no revocation of totten trust by will).
Subject to depositor’s creditor’s claims.
Extrinsic evidence is admissible to show a trust was not intended despite designation on signature card.
Automatic revocation if beneficiary predeceases depositor
Oral Inter Vivos Trusts
An oral trust of personalty is enforceable provided its terms can be established by clear and convincing evidence.
However, trust containing land (whether created by trust or inter vivos transfer) must evidenced by a writing that satisfies the statute of frauds.
Constructive Trust: May Be Imposed Where
(1) Fraud in the inducement: e.g. at time land deeded to Frank (from beginning), he orally promised to serve as trustee and he had, at that time, no intention to perform his promise.
(2) Confidential relationship: grantee-trustee served in confidential relationship to grantor-settlor. Grantee-trustee must have agreed to hold property in trust.
If no constructive trust– quantum meruit
Oral Promise (Supported by Consideration) to Make Devise in Will: Majority Rule
W/r/t personal property, oral contracts to make a will are enforceable provided that terms can be established by clear and convincing evidence.
Contracts to devise land must be evidenced by a writing that satisfies the statute of frauds
Oral Promise (Supported by Consideration) to Make Devise in Will: UPC
Any contract to make a will, not to revoke a will, or to die intestate, can only be shown if:
(1) the terms are in the will itself
(2) the terms are in a written contract, or
(3) the will refers to the contract and extrinsic evidence proves the terms.
Mere existence of joint or mutual wills does not imply a contract not to revoke.
Secret Trust
T dies leaving a will that devises Greenacre to J, no mention of trust. S alleges T orally told J that J was the trustee of land for S’s benefit, and J agreed.
S’s testimony is admissible to show the existence of the promise if S can establish by clear, satisfactory, and convincing evidence. There was a constructive trust implied for her benefit and to prevent unjust enrichment of J.
Semi-Secret Trust
“To X, for purposes I have already communicated to him”
Majority rule: X holds a resulting trust (implied reversion) for T’s heirs. The semi-secret trust situation involves no element of wrongdoing, so to impress the trust for the benefit of the intended beneficiaries would violate the requirement of the statute of wills that the beneficiaries be identifiable from the language of the will.
X may not even voluntarily comply.
