Trusts Flashcards
1
Q
The creation of a trust requires:
A
- Intent by the settlor to create a trust
- Ascertainable beneficiaries who can enforce the trust
- Property to be held in trust (the res)
(4. A writing may be required (if the trust is testamentary or to hold land))
2
Q
A trust must have these people
A
- Settlor
- Beneficiaries
- Trustee
However, a trust will not fail for want of a trustee. The court will appoint one.
ONE person may fill all 3 roles, however there must be another beneficiary that is not the sole trustee
3
Q
When is Delivery required?
A
- Delivery or writing is required when another besides the settlor is the trustee
- An inter vivos gift will be valid despite lack of manual delivery where manual delivery was impracticable and the donor took steps to transfer title. Constructive delivery.
4
Q
Trust Formalities
A
A testamentary trust is created by will, and must satisfy the Wills Act (with a writing)
An inter vivos trust of land must satisfy the statute of frauds (with a writing)
**An inter vivos trust of personal property does not require formalities
5
Q
What is a trust?
A
Where one person manages property for the benefit of another
- Trustee owns legal title
- Beneficiary owns equitable title
6
Q
How is the intent to create a trust manifested?
A
By written or spoken words or by conduct, and it need not be manifested in any particular form of language.
An oral trust of personal property is valid in almost all jurisdictions.
7
Q
When the settlor is also the trustee, when may the trust fail?
A
Where the settlor is also the trustee and does not notify anyone of the trust, the trust may fail for lack of intent to create a trust.
8
Q
Trust Intent
miscellaneous
A
- Delivery of Deed May Manifest Intent
- Intent Must Be Manifested While Settlor Owns Property
- Must Intend Trust to Take Effect Immediately
9
Q
Precatory Language
(intent)
A
difficulties arise when the transferor merely expresses a hope, wish, or suggestion that the property be used for a certain purpose. A direction such as “to B with the hope that B will use the property to provide for the support of C” is precatory language. Most courts today infer from such language that no trust was intended
10
Q
Trust Beneficiaries
Notice
A
Notice to the beneficiary that a trust is being created for his benefit is not essential to the validity of the trust.
However, the beneficiary must accept his rights under the trust. A trust cannot be forced on the beneficiary without his acceptance.
11
Q
Private trusts
purpose
beneficiaries
IMPORTANT
A
- A private trust must have one or more ascertainable beneficiaries to whom the trustee owes fiduciary duties and who can call the trustee to account
- A private trust must be for the benefit of the beneficiaries
- A beneficiary must be capable of coming into court and claiming the benefit of the bequest
12
Q
When are the beneficiaries ascertained?
A
Beneficiaries need not be ascertained when the trust is created
(but must be within the period of the rule of perpetuities)
13
Q
Honorary Trusts
For animals
A
As long as the person receiving the gift for the benefit of a specific animal accepts the gift and agrees to carry out the intent of the testator, a bequest for the benefit of a specific animal is not unlawful.
Can also have trusts for care of grave and saying of masses.
14
Q
Trust Res
Part 1
A
- No Res—No Trust. Where there is no trust property, the trust fails because the trustee has no property to manage.
- Property May Be of Any Type
- Trust Property Must Be an Existing Interest in Existing Property
- Future earnings from an existing contract or employment can be the res of a trust
15
Q
Trust Res
Part 2
A
- Trust Res Must Be Segregated from Other Property
- Res May Include Fractional or Undivided Interests
- A person cannot be a trustee of his own debt to another
- Unenforceable Gratuitous Promise Cannot Be Trust Res
16
Q
Removal of a trustee
court’s power
A
A court has the power to remove a trustee or to refuse judicial confirmation of the appointment of a trustee in a will.
Beneficiaries Cannot Compel Removal Without Grounds
17
Q
Grounds for removal of trustee
A
- Breach of trust
- Ineffective administration
- Change in circumstances
- By consent of all of the beneficiaries if removal is in the best interests of the beneficiaries and not contrary to a material purpose of the settlor
- Contentious relationship
18
Q
Qualifications of a trustee
A
Anyone who has capacity to acquire or hold title to property for his own benefit has capacity to take property as a trustee.
- However, minors or insane persons may take title to property, but because their contracts or acts are usually voidable, they are generally held to lack capacity to administer the trust.
19
Q
A trustee must have duties
A
An “active trust” exists when the trustee has duties. A “passive trust,” one where the trustee has no duties at all, will fail and the beneficiaries will take legal title immediately.
20
Q
Must there be a trustee?
A
Although a trustee is essential to the operation of a trust, once a trust is established it will not fail merely because of the trustee’s death, incapacity, resignation, or removal.
21
Q
Trustee Resignation
A
Once a trustee has accepted appointment, he cannot resign without permission of the appropriate court, unless
(i) authorized to do so by the terms of the trust, or
(ii) consent is given by all of the beneficiaries, all of whom have capacity to give this consent. The acceptance of a trustee’s resignation is within the discretion of the court.
22
Q
When the sole trustee is also the sole beneficiary
A
There is Merger of Title Where Sole Trustee Is Also Sole Beneficiary
23
Q
hypo
“I give my dollar to me in trust for my benefit.”
Valid?
A
Not valid because there needs to be at least one beneficiary besides the sole trustee.
24
Q
hypo
“I give my dollar to me for my benefit for life; at death to my sister Susan”
Valid?
A
This is valid
25
?hypo:
"I orally declare "I give my dollar to Ms. Miller for my benefit for life: at my death to my sister Susan"
Valid?
Not valid because it is an oral trust and there was not delivery
26
Hypo
By will (a testamentary trust): "One dollar to Ms. Miller, as trustee, for the benefit of my sister for life." Ms. Miller refuses.
Valid.
A trust will not fail for want of a trustee.
27
Hypo
Inter vivos: "One dollar to Ms. Miller, as trustee, for the benefit of my sister for life." Ms. Miller refuses.
Valid. The settlor becomes trustee.
28
Hypo
Inter vivos: "I declare this dollar is in trust for the benefit of my sister for life."
This fails because the settlor didn't mention a trustee.
29
Charitable trust Purposes
* Relief of **poverty**
* Advancement of **education**
* Advancement of **religion**
* Promotion of **health**
* **Govt** or municipal purposes
* Other purposes the accomplishment of which is **beneficial to the community**
30
Significant exceptions that differentiate a charitable trust from a private trust
* Charitable trust must be for a charitable purpose (rather than for beneficiaries)
* Must have indefinite beneficiaries
* Exempt from rule against perpetuities
* Subject to a different scheme of enforcement
* State attorneys general, donors, and federal tax authorities hold it responsible (rather than beneficiaries)
31
When the charitable purpose becomes illegal, impossible, or impracticable
Cy Pres: Where the specific purpose of a charitable trust is impossible or impracticable to carry out, the doctrine of cy pres allows the charitable trust to be used for a purpose that closely aligns with the original purpose.
32
Honorary Trusts
* Examples are trusts for maintenance of a cemetery plot and trusts for pets.
* no beneficiary who can enforce the trust by bringing an action against the trustee;
* the trustee is on her honor to carry out the trust.
* If, however, she fails or refuses to do so, a resulting trust will be imposed for the settlor or the testator’s estate
* Void If It May Continue Beyond Perpetuities Period
33
Distributions
Limits on Trustee Discretion
* Trustee must exercise good faith
* Best interest of beneficiaries only
* Trustee must exercise discretion
* Must actually do something
* the trustee must inquire into the needs of the beneficiary in order to exercise his discretion
* Actions must be reasonable
* Reasonableness standard
* Language of trust is taken into account when deciding reasonableness
* Considered in the context of the trust
34
mandatory distribution
If trustee does not have discretion over what, who, or when
35
Discretionary distributions
* Trustee has discretion over what to pay, who to pay, and when to pay
* Absolute discretion never means absolute discretion. The court must have some control.
36
Trustee Discretion
Exculpation clauses
Cannot exculpate:
* bad faith,
* reckless indifference, or
* intentional or willful neglect
37
Discretionary trust: Beneficiary’s rights
The beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses his power. What constitutes abuse depends upon the extent of discretion conferred upon the trustee. If the trust is a “support trust,” there is more room for a court’s interference because the trust has a specific purpose; but even if the trustee’s discretion is uncontrolled, the court will interfere if the trustee acts in bad faith or dishonestly.
38
Some states have statutes that allow SSAPT's
Conditions?
* Must move money to the jx
* Trust must be irrevocable
* Beneficiary must be discretionary
* Must use the institution in that jx
39
Creditors rights
Pure Discretionary Trust
* A creditor of a beneficiary has **no recourse** against the beneficiary’s interest in the trust
* The beneficiary **cannot voluntarily** **alienate** her interest
* A creditor **cannot by judicial order compel** the trustee to make a distribution
* The creditor may be entitled to an order requiring that if the trustee chooses to make a distribution, he must pay it to the creditor before paying the beneficiary or anyone else
* UTC: spouse or child support can be disbursed by court order
40
Creditors Rights
Support Trust
* A beneficiary of a support trust cannot alienate her interest in the trust
* An ordinary creditor of the beneficiary cannot compel a distribution
* However a child or spouse enforcing a claim for support or alimony can reach the trust
* A supplier of necessities, such as a physician or grocer has recourse against the trust property through the beneficiary’s right to support
* UTC: spouse or child support can be disbursed by court order
41
Creditors Rights
Spendthrift Trusts
Creditors cannot attach a beneficiary's interest
* This is true even if the beneficiary is entitled to mandatory distributions from the trust
* Creditors cannot obtain an order attaching a future distribution
* No exception for Tort victims
42
What is a spendthrift trust?
* Has a provision that a creditor cannot attach the beneficiary’s interest.
* A beneficiary cannot voluntarily alienate or assign her interest
* Recognized throughout the united states
43
Spendthrift Trusts
Creditors rights
Exceptions
* Judgments for child or spousal support can be enforced in a majority of states under the UTC
* Obtaining legal services for the beneficiary
* Claimant who provides beneficiary with necessities, such as medical care or food
44
Self-Settled Asset Protection Trusts (APT)
in general
* Creditors can get at the same amount that the settlor can
* If it’s revocable- creditors can get at everything
* If it is established in a foreign country, a court in the US will lack personal jx
* A “protector” is established (in a non-fiduciary role) to make decisions
* Many include a “duress clause”, where the trustee ignores any direction received from a settlor or trust protector who is under duress
* Many include a “flight clause” under which the trustee is authorized to change the situs of the trust if a claim against the trust threatens to be successful
* Exception creditors (varies across states)
* Spouse or child
* Tort victim
45
Modification and Termination
The Claflin Doctrine
Beneficiaries of a trust cannot compel the trust’s premature termination or modification unless
* All beneficiaries consent (and are competent to do so) AND
* Premature termination or modification will not defeat a “material purpose” of the trust
46
Material purpose of trust
Postponement-of-enjoyment trusts, spendthrift trusts, support trusts, and discretionary trusts are deemed to include a material purpose
Only successive-beneficiary trusts (To X for life, then to Y) without spendthrift provisions are deemed to have _no material purpose_. This is the only type of trust that is destructible without the settlor’s consent. Rare.
47
The only type of destructible trust w/out the settlor's consent
Only successive-beneficiary trusts (To X for life, then to Y) without spendthrift provisions
48
If a settlor consents to a modification or termination...
....then there is no material purpose. The trust can be destroyed (even if the trust appears to have a material purpose)
49
Hypo
Destructible?
"Income to A for life, remainder in principle at A's death to B."
Destructible, because it's a successive-beneficiary trust, therefore it does not have a material purpose. Rare.
50
Hypo
Destructible?
"Income to A for life, remainder in principat at A's death to B. A's interest may not be assigned or attached."
Not destructible because of the spendthrift provision
51
Hypo
Destructible?
"Income to A for life, remainder in principal at A's death to B. A's interest may not be assigned or attached." Settlor wants to terminate the trust but expressly made the trust irrevocable.
Destructible. Irrevocable status protects settlor, but settlor wants to terminate. Deemed no material purpose.
52
Hypo
Destructible?
"income to H for life, and upon H's death, income to son until he reaches the age of 35, at which time son is to receive the principal in fee."
Not destructible because this is a postponement-of-enjoyment trust.
53
Hypo
Destructible?
"Income to A for life to be used for A's support, remainder in principal at A's death to B."
Destructible. Worded as trick question! This is actually a mandatory successive-beneficiary trust (income to A for life, then to B)
54
Hypo
Destructible?
"Such income to A for life as is needed for A's support, remainder in principal at A's death to B."
Not destructible as this is a support trust and is discretionary.
55
Trust decanting
* Must be able to invade the corpus
* Only a beneficiary of the first trust may be a beneficiary of the second trust
* Must give notice to the beneficiaries
56
Traditional administrative deviation (Common Law- DEAD)
* Applies only to administrative terms
* Needs unforeseen circumstances
* Deviation is needed to preserve the trust
57
UTC deviation
* -Equitable deviation
* Applies to administrative or dispositive terms
* “Who gets the property” is a dispositive term
* Needs unforeseen circumstances
* Deviation will further the trust’s purposes
58
UTC Deviation
Mutant administrative deviation
* Applies only to administrative terms
* “How to invest” is an administrative term
* Does not need unforeseen circumstances
* Deviation is needed to avoid impracticable or wasteful trust or impaired trust administration
59
Trust Decanting
2
* Putting the assets of one trust into a new one
* 25 states have decanting statutes
* Does not require court involvement
* May even permit the creation of a second trust that varies from a material purpose of the first trust
* Only subject to judicial review if an interested party petitions the court and only for the trustee’s compliance with the trustee’s fiduciary duties under the first trust
60
What is a support trust?
Where the trustee is required to pay or apply only so much of the income or principal (or both) as is necessary for the support of the beneficiary.
(A trust to “pay all of the income to A for his support” is not a support trust. When the whole of the income is to be paid to A for his support, the words “for his support” merely state the motive for the transfer. The beneficiary is not limited to amounts necessary for his support.)
61
Where are the trustee's duties owed?
Under a revocable trust, a trustee’s duties are owed exclusively to the settlor.
For an irrevocable trust, a trustee owes duties to all of the trust beneficiaries.
62
Who holds ownership and title of the trust property?
Trustee holds LEGAL title;
beneficiaries have EQUITABLE ownership
63
trustee powers
* Has the same default powers in dealing with trust property as would an outright owner
* subject to the trustee’s fiduciary duties
* Whatever the trustee does, he must do it PRUDENTLY. Just because he is authorized to do something, it does not mean it is ok to do it if it is not prudent.
64
A trustee must administer the trust solely in the interests of....
the beneficiary.
Otherwise has violated the duty of loyalty!
65
What is self-dealing?
Absent court approval or contrary trust provision, a trustee cannot enter into any transaction in which she is dealing with the trust in her individual capacity.
True for trustee’s spouse as well
66
Is good faith a defense to self-dealing?
A trustee who engages in self-dealing breaches his fiduciary duty regardless of whether he was acting in good faith and the trust suffered no injury as a result.
67
No Further Inquiry Rule
| (to determine self-dealing)
* If there has been self dealing, no further inquiry is made. Even good faith and fairness are irrelevant
* The only defenses are
* The settlor authorized the particular conflict (and it was fair)
* The beneficiary consented after a full disclosure
* The trustee obtained judicial approval in advance
* HOWEVER, if the trustee is a bank, trust funds can be invested or deposited in the bank. It is still self-dealing, but is ok.
68
Remedies for breach
self dealing / conflict of interest
* Compensatory damages to restore the trust to what it would have been but for the breach
* Disgorgement of profits
69
Fiduciary duties
Conflict of interest
* When there is a reason to favor someone over the beneficiaries
* If a will’s executor sells estate property for inadequate value due to a conflict of interest, the sale is void, and the executor is liable for the property’s appreciated value at the time of trial.
70
Must trust property be kept seperate?
Trustee has Duty to Separate and Earmark Trust Property—No Commingling
71
How are trust investments regulated?
* The majority of states have enacted a version of the UPIA, which regulates the investment responsibilities of the trustee.
* A few states continue to use a statutory “legal list” approach, which establishes approved types of investments for a trust.
72
Are the investment regulations (UPIA or Legal List) absolute?
No matter which approach to investments a state uses, the _trust terms can expand or limit a trustee’s powers_, including investment powers. Thus, the UPIA or legal list provisions apply only if there is no contrary provision in the trust instrument.
73
The Prudent Man Standard
* Must avoid speculation
* Stopped being the law in the mid 1990’s
74
The Prudent Investor Standard
Increased sensitivity to risk/return
1. Abandons prohibition on speculative investments
2. Look at portfolio as a whole
3. Anything is a potential investment
75
Uniform Prudent Investor Act
Standard of Care
Reasonable care, skill, and caution.
Fiduciaries with Special Skills Held to Higher Standard
76
Diversification
types of risk
* Market (as a whole, cannot be diversified away)
* Industry (single industry such as oil or banking)
* Firm (particularized to one company or firm, like Apple)
77
Failure to diversify investments
Failure to diversify an investment is a breach of trust if in light of all the circumstances a prudent person would have diversified.
* But the duty to diversify is not absolute. A trustee need not diversify if “because of special circumstances, the purposes of the trust are better served without diversifying.”
* For example, a trust that holds a family vacation home
78
Is the duty to diversify trust assets always mandatory?
Absent special circumstances, the duty to diversify trust assets is mandatory _unless the trust contains specific language authorizing the trustee to retain more stock_ than would otherwise be prudent. (this is the law, but professor doesn’t like it)
79
Trustee duties
Non-delegation doctrine...
... has been repealed!
* Can delegate any function… prudently
* If the trustee has no skill in the area- must delegate to be prudent
80
What are the two types of marital property systems?
Community
Separate
81
Community Property
* Spouses retain separate ownership of property brought to the marriage, but they own all earnings and acquisitions from earnings during the marriage in equal, undivided shares
* The deceased spouse has testamentary power over her half of the community
* Even if a title has one spouse’s name, it belongs to both
* A spouse cannot make a gift of community property without the consent of the other
82
Separate Property
* Spouses own separately all earnings and acquisitions from earnings during the marriage
* To protect against disinheritance, the surviving spouse may take an elective share (also called forced or statutory share)
* The typical elective share is one-third of the decedent’s probate property plus certain nonprobate transfers
* Spouses may waive their elective share by premarital agreement
83
Can a trust be reached by the elective share?
* If a revocable trust is created w/in a marriage, then it is included w/the elected share
* If an irrevocable trust is created before marriage, then it is not reached by the elective share
84
Migrating couples and multistate community property
3 rules for choice of law
1. Situs of the land controls (trumps the other 2)
2. Law of marital domicile at time personal property acquired signifies marital or separate
3. Law of marital domicile at death controls the survivor’s rights
85
Migrating to a community property state
Some community property states (half = 5)
* Quasi-community property
* owned by the H or W acquired while domiciled elsewhere, which would have been characterized as community property if the couple had been domiciled in a community property state when the property was acquired
86
Quasi-community property (when migrating from a separate property state to a community property state)
continued
* Real property situated outside the state is not treated as quasi-community property because the spouse retains in it any elective share given by the law of the situs
* Survivor is entitled to half of the quasi-community property at spouse’s death
* But not w/respect to land (situs trumps)
87
Migrating to a separate property state
If the couple and the property move to a separate property state, it is continued to be characterized as community property (and can have testamentary disposition)
* It is not subject to the elective share
88
Intentional Omission of a Child
American Approach
In all states except louisiana, a child or descendant has no statutory protection against intentional disinheritance.
Unlike that for a spouse, there is no requirement that a testator leave any property to a child
89
Intentional Omission of a Child
English Commonwealth approach
England, Australia, New Zealand, and Canada: the court can override a decedent’s will in accordance with the court’s view of the dispositions that the testator ought to have made under the circumstances
90
Protection against unintentional omission
doctrine
* revokes will as to spouse or child if marriage or birth happens after will is executed
* Requires a strong showing to opt out of it
* Minority: applies to living children at execution of will/trust
91
Protection against unintentional omission
Spouse
* Statutes give a surviving spouse who is omitted from a premarital will an intestate share
* The statutes contain default rules that can be overcome by evidence that the testator deliberately omitted the surviving spouse and did not mistakenly fail to update the premarital will
92
Omitted spouse doctrine
California
* Does the estate plan provide for the spouse?
* If yes, then omission is ok
* If will/trust is executed, then marriage happens, spouse is entitled to intestate share
* Community property- Half deceased spouse’s share + half already owned (¾)
* Quasi-community property- Half deceased spouse’s share + half already owned (¾)
* Separate property- intestate share, but cap is half
93
Protection against unintentional omission
Child
A child born after execution of the decedent’s will is not entitled to an intestate share under the omitted child statute if the decedent parent omitted all children living at the time of executing the will and left the entire estate to the omitted child’s other parent.
94
Pretermitted heir statutes. When don't they apply?
Courts have held that these statutes cannot be applied to a revocable trust used as a will substitute
95
If an after-born child is not mentioned in the will....
...they are presumptively entitled to an intestate share
Exceptions
* Will states that it won’t provide for an after-born child
* Child is provided for by will substitutes in lieu of a gift by will
* D left bulk of estate to parent of child
96
If D has 3 kids and leaves them $1m, then has another kid....
....the new kid gets a share of that $1m (not an intestate share)
97
Accidental omitted child
California
* D believed child to be dead
* D did not know about the child
Gets intestate share
98
Pretermitted heir statutes
California
* Must be born after wills/trusts/codicils
* Entitled to: all property from will & trust gets put into pot. Then child gets intestate share
* Exceptions!
* will/trust says that it’s disinheriting child
* D left substantially everything to other parent
* (and there were already 1 or more children)
* D provided for omitted child by will substitute in lieu of a gift by will/trust
99
Fiduciary Obligation
Duty of Impartiality
* The trustee is under a duty to administer the trust impartially “based on what is fair and reasonable to all of the beneficiaries,” except to the extent that the trust or the will manifests an intent that one or more of the beneficiaries is to be favored over the others.
* Consider settlor’s intent
* Give due regard to each beneficiary’s interests
* (Called the **Prinicpal and Income Problem**)
100
Fiduciary Obligation
Impartiality
The principal and income problem
If the trust is “income to A for life, the remainder to B”, the trustee must balance the investment to provide income and appreciation.
There are 2 approaches to solve this issue, and almost every state has adopted them
* Equitable Adjustment
* Unitrust
101
Fiduciary obligation
Doctrine of Equitable Adjustment
* Must have a state statute authorizing this
* The existing rules regarding principal and income are kept
* Trustee has right and power of E.A.
* If too much income, transfer part to principal
* If not enough income, invade the corpus
102
Fiduciary Obligation
Impartiality
**Unitrust**
* Balance of income vs principal does not matter.
* Invest in anything prudent
* Life tenants are entitled to a percentage of the value of trust each year
* Typically 3-4%, not more than 5%
* The beauty of this is its simplicity
* If a trustee is also a beneficiary, then can still change to a unitrust, as the initial conflict of interest goes away after the conversion to a unitrust
103
The duty to inform and account
There are two purposes of accounting
1. Beneficiaries of a trust have a right to info necessary to protect their interest
2. A trustee who accounts is protected from liability if the beneficiaries do not object to the substance of the accounting within a reasonable timeframe
104
UTC requires that the trustee informs and reports to beneficiaries
What are the default/mandatory rules?
* UTC law in most states provide that the rules are default rules, and settlors can opt out
* However, mandatory provisions do exist
* Duty of good faith
* Trust is for the benefit of the beneficiaries
* Trustee must notify beneficiaries who reach age of 25 if the trust is irrevocable
* Duty to account
105
Trustee accounting to beneficiaries
Is the accounting binding on the beneficiaries?
* An accounting is not binding on beneficiaries unless it makes full disclosure of facts upon which objection might be based.
* Trustee has the duty to investigate into situations that will affect the administration of the trust
106
Trust accounting
Affirmative Disclosure
* Allard Rule
* If the transaction is non-routine, must inform the beneficiaries
* When selling a major asset, trustee must
* Get an appraisal
* Put it on the open market
107
In the united states, the usual remedy with respect to a _semi-secret_ trust is...
... a _resulting trust_ in favor of the testator's heirs or resuduary takers.
108
What is a semi-secret trust?
A provision in a will that purports to devise property to a devisee who shall hold the property as trustee, but which _fails to specify the beneficiary_ or important terms of the trust is a semi-secret trust.
109
A spendthrift provision is only valid if it...
... restrains both voluntary and involuntary transfer of a beneficiary's interest.
His creditors may not attach his interest prior to the beneficiary receiving the distribution from the trust.
110
Can this be terminated?
"Income to A for life, remainder in principal at A's death to B. A's interest may not be assigned or attached." Settlor wants to terminate the trust but failed to retain a power to revoke.
Spendthrift trust, which has a material purpose. However, the material purpose is to protect the settlor's wishes, and here, the settlor wishes to revoke.
Can be terminated.
111
What is a resulting trust?
In resulting trusts, the person who is declared by equity to be the beneficiary of the resulting trust is _the one responsible for supplying the trust property_ (corpus). He has either directly conveyed the property to the person held to be the trustee, or he has supplied the consideration for a transaction through which the other person, the “trustee,” acquired title to the property. Thus, the person who holds title did not give consideration. From this fact, equity presumes that he was not intended to have the benefits of ownership and that he should be a trustee for the person who did furnish the consideration or conveyed title to him.
112
Is a tort judgment creditor a valid exception creditor for a spendthrift trust?
Not under the UTC
Only child, spouse, or former spouse who have a judgment or court order
113
What is a secret trust?
When a will purports to make an absolute gift, but there is an undisclosed agreement between T and the legatee that the latter will hold the property in trust for another.
114
With respect to an irrevocable trust, a creditor or assignee of the settlor may reach....
... the maximum amount that can be distributed to or for the settlor's benefit.
This rule applies regarless of whether the trust contains a spendthrift provision.
115
Does an inter vivos trust of personal property need to be in writing?
no.
But an oral trust must be established only by clear and convincing evidence.
116
The usual remedy with respect to a secret trust is
a constructive trust in favor of the intended beneficiaries
117
Will a spendthrift provision be enforced if the settlor/grantor is a beneficiary?
No. It can be enforced against the creditors of 3rd parties though
118
Powers of Appointment
terminology
* Donor: the person who creates a power of appointment
* Donee (or powerholder): the person who holds the power of appointment
* Objects of the power (or permissible appointees): the persons in whose favor a power may be exercised
* Takers in default: the persons who will receive the property if a donee fails to exercise a power of appointment
119
Creating the power of appointment
The donor must manifest an intent to do so, either expressly or by implication.
* It is not necessary to use the words “power of appointment”
The power of the donee is presumptively unlimited. Only limited if the donor says so
120
POA
General vs. Special/Nongeneral
* General:
* donee can appoint to **herself,** her estate, her creditors, or the creditors of her estate
* Special/Nongeneral:
* donee can appoint to anyone **except herself**, her estate, etc.
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POA
Time and manner of exercise
* Inter Vivos- By deed during life
* Testamentary- by will at death
* or by deed or by will.
122
POA
Failure to specify Takers in Default
general power-
* The appointive property passes back to the donor or the donor’s estate
nongeneral power-
* Divided equally by the _defined limited class_
* If there is not a defined limited class, the property passes back to the donor or the donor’s estate
123
POA
To whom does the property belong prior to appointment?
* special/nongeneral power- donee does not own property
* Creditors of donee cannot get at property
* General power
* Creditors of inter vivos powerholder can get at the property at any time
* Creditors of testamentary powerholder- creditors _may not_ get at property
124
POA
Exercising Power
* Presumption is that residuary clause does not exercise the power
* Cannot exercise a power in favor of a non-object
125
POA
Fraud on a power
* Voids the entire gift
* Given to the takers in default (or the heirs of the donor if none)
126
POA
Contracting to exercise a power
* Testamentary- not enforceable
* Inter vivos
* General- yes can contract to exercise in favor of an object
* Special- cannot contract, it is a fraud on the power
127
Self dealing
defenses
* that a transaction was fair and reasonable is not alone a defense
* defenses
* the settlor authorized it
* (and it was fair & reasonable)
* the beneficiaries consented after full disclosure
* (and it was fair & reasonable)
* the court approved it
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