Trusts

Question 1

Private Express Trust - BTRIP

Answer 1

A trust is a fiduciary relationship with respect to property in which one person holds the legal title to the trust property subject to the enforceable equitable rights of another. A trust for personal property can be oral. A valid trust requires 1) beneficiary names, 2) trustee name and duties, 3) res - trust property, 4) intent to create a trust by a settlor with capacity, 5) purpose must be valid. The settlor can create and inter vivos trust during his life or a testamentary trust in his will. (BTRIP)

Question 2

Beneficiaries

Answer 2

The beneficiaries are those persons holding equitable title to the property and receiving the benefits of the assets. They must be clearly identified and capable of taking title to the property. Here,

Question 3

Trustee

Answer 3

The trustee is the person holding legal title to the trust property and manages the assets. A trustee’s acceptance of the trust is presumed, and once accepted, cannot be disclaimed without formal resignation. Failure to name a trustee does not defeat a testamentary trust because the court will appoint one, but it does defeat an inter vivos trust because there can be no valid delivery and transfer of trust property. Here,

Question 4

Res - Trust Property (aka Corpus)

Answer 4

The trust property must be a presently existing property interest that settlor has power to convey, but it can be for a future interest in an existing property (no illusory interests). The property can be funded inter vivos, or it can be funded as part of a testamentary trust. Here,

Question 5

Inter Vivos Trust

Answer 5

This trust takes effect during S’s life. The S must physically or symbolically deliver personal property to the trustee at the time the S shows intent to create a trust. Or, if the transfer is for real property, a written deed must be transferred to satisfy SoF. Here,

Question 6

Testamentary Trust

Answer 6

This trust takes effect at S’s death and the essential terms must be ascertained from the will (integrated), incorporated by reference, or by facts of independent significance. Here,

Question 7

Secret Trusts

Answer 7

A secret trust results when a gift is made in reliance upon the beneficiary’s promise to hold the gift property in trust for another. To prevent the unjust enrichment of the named beneficiary, courts will allow the intended trust beneficiary to offer extrinsic evidence of the agreement. If the agreement can be proved by C and C evidence, a constructive trust will be imposed on the named beneficiary. Here,

Question 8

Semi-Secret Trusts

Answer 8

A semi-secret trust is formed when the trustee is named in the devise, but the beneficiaries are not named and are thus “secret”. These trusts are unenforceable because they do not conform with the statute of wills. An no parol evidence will be presented regarding who the identity of the “secret” beneficiaries. Here,

Question 9

Intent

Answer 9

Settler must show through words or conduct an intent for the trust to take effect immediately. Precatory expressions (hope, wish) result in an inference that no trust was intended, but inference may be overcome by other evidence. Here,

Question 10

Purpose is Valid

Answer 10

The purpose of the trust cannot be to violate the law or public policy. Here,

Question 11

Charitable Trusts

Answer 11

A charitable trust confers a substantial benefit on society at large instead of defined beneficiaries, e.g. help the poor, advance education, promote religion. The RAP does not apply to charitable trusts. However, if the trust is for a small group of people for a charitable purpose, courts may interpret it as a private express trust and RAP applies. Here,

Question 12

Charitable Trusts: Cy Pres

Answer 12

The Doctrine of Cy Pres comes into play when the charity the trust names as the beneficiary is no longer in existence when the S dies. It allows the court to apply the trust property to another charitable purpose so long as the court finds the S had a “general charitable intent” and wanted the property devoted to a similar use. Here,

Question 13

Honorary Trusts

Answer 13

An honorary trust is not for a general charitable purpose and has no human beneficiaries (e.g. trust for pets or graves). This trust is not enforceable, however, the trustee may choose to carry out the settlor’s wishes for 21 years. Otherwise, a resulting trust is imposed for the settlor’s estate. Here,

Question 14

Beneficiary’s Interest - Alienable

Answer 14

Generally, beneficiaries are free to transfer interests in a trust and creditors can attach to a beneficiary’s interests fr satisfaction of a debt. However, Spendthrift trusts, Discretionary Trusts, and Support trusts can be used to restrain the free alienability and creditor rights of a trust. Here,

Question 15

Spendthrift Trusts

Answer 15

A spendthrift trust restricts the beneficiary from transferring his interest in the trust, AND creditors are unable to attach their interests prior to the B receiving funds. However, a S cannot create a spendthrift trust for himself. Special creditors such as government or those providing life necessities may be able to attach to a spendthrift trust. Here,

Question 16

Discretionary Trusts

Answer 16

A discretionary trust gives the trustee sole discretion how much and when to pay B, if anything. B can’t transfer rights and creditors can’t attach because his interest is uncertain. However, if trustee elects to make payments, he must pay creditors or assignees if he is on notice. Failing to do so makes trustee personally liable. Here,

Question 17

Support Trusts

Answer 17

A support trust requires the trustee to pay only enough to support the B’s health, maintenance, and education. B cannot transfer rights and creditors cannot attache because doing so would defeat the purpose of the trust. Here,

Question 18

Modification/Termination: By Settlor

Answer 18

A settlor must expressly reserve the power to revoke or modify. The power to revoke includes the power to modify. Here,

Question 19

Modification/Termination: By Beneficiary

Answer 19

A beneficiary may terminate or modify a trust with the consent of ALL beneficiaries (watch for remote/unborn), IF it will not interfere with a material purpose of the trust. A material purpose includes distribution ages, preserving property for remaindermen, and protecting B’s from poor decision, e.g. spendthrift trust. (Claflin Doctrine)

Question 20

Modification/Termination: By Court

Answer 20

In CA, a court may modify or terminate trust if changed circumstances make compliance incompatible with the trust purpose. Courts can also terminate if trust’s purpose is accomplished, or if its purpose becomes illegal or impossible. Here,

Question 21

Trustee Powers

Answer 21

A trustee can only exercise expressed or implied powers. Express powers are those allocated to the trustee within the four corners of the trust. Implied powers are those that the trustee reasonably believes are necessary to carry out the trust purpose, including the power to sell/lease trust property and incur expenses. The power to borrow money must be granted in the trust instrument. Here,

Question 22

Co-Trustees

Answer 22

Co-trustees must act unanimously in administering the trust and will remain liable for any breaches of duty committed by co-trustees unless they formally resign as a trustee. Here,

Question 23

Trustee Duties

Answer 23

A trustee is in a fiduciary relationship to the trust and its beneficiaries and will be held personally liable for a breach of this fiduciary duty. In revocable trusts, the duty is to the settlor. In an irrevocable trust, the trustee owes her duties to the trust beneficiaries. Here,

Question 24

Trustee - Duty of Care

Answer 24

A trustee must act as a reasonably prudent person would in managing her own property. Trustees with higher skills are held to a higher standard. Here,

Question 25

Trustee - Duty of Loyalty: Self-Dealings

Answer 25

Trustee owes a duty of undivided loyalty to the trust and its B’s. The trustee’s good faith or the reasonableness of the transactions are irrelevant. Specifically, a trustee may not buy/sell trust assets for personal gain, borrow trust funds, or hire himself. Here,

Question 26

Self-Dealings REMEDIES

Answer 26

If the trustee engages in self-dealing, courts give beneficiaries the ability to: 1) waive the breach if the outcome is beneficial, 2) disgorge profits from trustee and sue for any resulting losses, or 3) trace and recover the property, unless property went to a BFP. Here,

Question 27

Trustee- Duty to Segregate/Earmark

Answer 27

Trustee must earmark trust property and cannot commingle it with his own personal funds. If the commingled property is lost or decreases in value, the trustee is liable for losses. Increases in value are awarded to the trust. Here,

Question 28

Trustee - Duty to Personally Perform

Answer 28

Trustee cannot delegate the administration of the trust, but is allowed to rely on professional advisors. If trustee improperly delegates control, he is liable for actual losses. Here,

Question 29

Trustee - Duty to Preserve and Invest

Answer 29

A trustee has a duty to preserve trust property through diversification and prudent investments. The trustee must invest funds within a reasonable time of receiving them and continually review those investments. If a trustee fails to invest, he will be liable for the amount of income that would normally accrue from a prudent investment. Here,

Question 30

Trustee - Duty to Preserve and Invest: Diversification

Answer 30

There is a duty to diversify the trust investments unless the trustee reasonably determines the purpose of the trust is better served without diversification. Here,

Question 31

Trustee - Duty to Preserve and Invest: Uniform Prudent Investor Act

Answer 31

Under the UPIA, a trustee must invest as a prudent investor would, i.e. invest as if trustee were investing his own property. The prudent trustee should take into account the purpose, distribution requirements, and other circumstances of the trust. Performance is based on the entire trust portfolio, not individual investments. Trustees with higher skills may be held to a higher standard. Here,

Question 32

Trustee - Duty to Account

Answer 32

Trustee must regularly give B’s a statement of trust income and expenses. Here,

Question 33

Trustee Liabilties

Answer 33

A trustee is liable for all losses to the trust caused by a breach of trustee duty, and for any profits that would have accrued absent the breach. Losses from on breach may not be offset by gains from another. Trustee is liable to 3rd parties for breaches but may be indemnified by the trust if within powers as trustee. Trustee can claim a defense to breach of laches or express/implied consent to the breach. Here,

Question 34

Trustee - 3rd Party Liabilities

Answer 34

A third party (non-trustee) who knowingly participates in a breach of trust is liable for the resulting loss to the trust estate. An unknowing participant is generally not liable except to the extent the trust property can be traced and returned to the estate. Here,

Question 35

Principal v. Income (UPAIA)

Answer 35

Under the Uniform Principal and Interest Act, all assets received by the trustee must be allocated as principal or income and fairly distributed to B’s accordingly. e.g. B-1 for life, remainder to B-1 –> B-1 gets all income, B-2 gets the principal at B-1’s death. However, the trustee can disregard this allocation between life tenant and remaindermen if different allocation is required to administer the trust fairly. Here,

Question 36

Will Substitutes - Pour Over Will (Revocable Trust)

Answer 36

A pour over will is created to “catch” any assets that were left out of a living trust. Upon T’s death, property pours over into the trust. While such trusts violate the requirements that trust res be immediately delivered to the trustee, courts in CA have sustained pour over wills on tow theories: 1) incorporation by reference and 2) acts of independent significance. Here,

Question 37

Will Substitutes - Life Insurance Trust

Answer 37

The benefits of a life insurance policy can be assigned to a party to hold in trust for a beneficiary. Here,

Question 38

Will Substitutes - Totten Trust

Answer 38

This is not a true trust, rather a beneficiary is named to take over a bank account with any remaining funds after the death of the owner. Trustee-depositor has full rights to the bank account during lifetime and owes no fiduciary duty to beneficiary. If trustee states “I create this trust for you” then a Totten account may be a full private express trust. Here,

Question 39

Resulting Trust

Answer 39

A resulting trust is an implied trust created by the court based on the parties’ presumed intent. This occurs when a trust fails and the property is returned to the Settlor as a resulting trust. Or, if the trust has excess property after fulfilling trust purposes, then excess is a resulting trust. Here,

Question 40

Constructive Trust

Answer 40

This is an equitable remedy that constructs a trust to transfer property to the intended B in instances of fraud, mistake, undue influence, or breach of a fiduciary duty. The constructive trustee’s only duty is to convey the property to the rightful owner absent the wrongdoing. Here,