Trusts Flashcards
What is a trust?
A trust is an arrangement for making gifts of property and for management of assets, under which the trustee holds legal title to trust assets for the benefit of beneficiaries.
What is required to have a valid trust?
To have a valid trust:
- settlor (grantor) delivers title to trust property to a trustee for the benefit of beneficiaries
- settlor has intent to create a trust
- trust has lawful purpose
- SoF
What is the delivery requirement?
A valid trust consists of a settlor who delivers title to trust property to a trustee for the benefit of beneficiaries with intent to create a trust.
Delivery requirement is not for self-declarations of trust (“I declare myself a trustee”) or testamentary trust, but this is required for inter vivos trusts. This requires the delivery of the subject matter of the trust with the intent to give legal title to the trustee.
*Legal title must be to a specific interest in property
W wrote a document that said: “I hereby create a trust for the benefit of my maid, and shall pay her $3000/month from dividends paid on stock that I own. After my death, Bank as trustee will continue to pay maid $3000/month until her death.”
Is this a valid trust? There is no cash, stock, or other property set aside.
This is not a valid trust. A valid trust consists of a settlor who delivers title to trust property to a trustee for the benefit of beneficiaries with intent to create a trust.
Here, W is the settlor. The issue is delivery because the trustee is named (Bank) and the beneficiary is named (maid) and there is a purpose (support the maid). This is an improper delivery because the trust property at issue (dividends on stock) is segregated and identified - the trust duties have to relate to identified property.
Why should you look out for promises and/or contracts to hold property for trusts?
Look to see if there is consideration. If there is consideration, then the trust duties automatically attach when the property is received.
What and who can be a trustee?
A trustee has the legal capacity to deal with property and must have capacity to contract and to execute a deed.
People, banks, and trust companies can serve as trustees and charities can be trustees only for charitable trusts.
Which trustees have to give bond?
Human trustees must post a fiduciary surety bond to secure the faithful performance of her duties unless the settlor waived this.
A corporate trustee (bank or trust company) does not have to give bond because it is presumed that they have adequate assets.
What if a trust does not name a trustee, but is otherwise a valid trust?
No trust ever fails because of lack of trustee. The court will appoint someone to execute the trust OR if the trust was created by will the court will appoint the executor.
What happens when a person is appointed to be trustee but he does not want to?
The court cannot compel someone to serve as trustee - cannot be compelled to accept fiduciary responsibilities and duties. Court instead appoints another trustee.
How does a trustee accept their role as a trustee?
To accept being a trustee:
- Trustee’s signature OR
- Accept by conduct (exercise trust power or perform trust duty)
How does a trustee resign from their role?
To resign, a trustee needs court approval showing that he can no longer appropriately serve as trustee AND give an accounting of: 1) property initially received, 2) receipts and disbursements, and 3) property now on hand and liabilities.
Mother conveys land to son: “John Smith, trustee.”
The deed does not have any powers or terms and the mother dies.
Was a valid trust created?
There is not a valid trust. A valid trust consists of a settlor who delivers title to trust property to a trustee for the benefit of beneficiaries with intent to create a trust.
The mother wrote three words into a deed concerning a specific property, but she did not name beneficiaries or indicate the trust’s purpose.
Mother’s land will pass to her estate either by her will or intestacy.
A’s title of Blackacre to B, as trustee for benefit of son C. “C has power to manage and control the use of Blackacre and B as trustee has no powers or active duties over the property.”
Is there a valid trust here?
This is not a valid trust. A valid trust consists of a settlor who delivers title to trust property to a trustee for the benefit of beneficiaries with intent to create a trust.
A is the settlor and the titled property is Blackacre. The beneficiary is stated C, and is to take care of C.
But this trust is invalid because if the named trustee has no powers or active duties to perform, then there is not a trust. The trustee must owe fiduciary duties.
What is a spendthrift clause?
This is a clause that prevents beneficiary from voluntarily or involuntarily transferring his interest in the trust.
For instance:
“No beneficiary shall have the power to transfer his or her interest.”
What are the exceptions to the spendthrift clause?
A spendthrift clause prevents beneficiary from voluntarily or involuntarily transferring his interest in the trust. The exceptions to this are: when the settlor is named as a beneficiary OR if the trust is revocable by the settlor.
If there is a spendthrift clause, creditors can collect for necessaries and by claimants of child support. These are subject to federal tax liens.
What is the rule regarding sole trustee is the sole beneficiary of a trustee?
If the sole trustee is the sole beneficiary, then there is no trust.
What is it called when a trust fails for some reason?
A trust that has failed for some reason is a resulting trust.
“I hereby create a trust for my best friends.”
Is this a valid trust, in terms of the recipients?
No. To have a valid trust, there must be ascertainable beneficiaries named. You cannot use outside testimony to figure out who the settlor was talking about.
How can someone intend to create a trust?
A trust can only be created if the settlor manifests an intention to create a trust for some purpose. If there’s precatory language (“it is my wish and desire” “hope” “I would like”), then it does not create an enforceable duty.
Trusts must be created for a lawful objective or purpose. What isn’t a lawful objective or purpose for trusts?
Nothing hella illegal, spiteful (destroy property to piss out neighbors), or against public policy
Trusts must be created for a lawful objective or purpose. What is something against public policy that trusts cannot be created to do?
A trust cannot condition the beneficiary’s benefit on encouraging divorce or is a total restraint on marriage.
*Partial restraints on marriage are fine.
Do trusts need to be in writing?
All trusts must be in writing (e.g. trusts of land, Statute of Frauds).
The exceptions to this rule:
- a transfer of personal property (stocks and bonds) to a trustee other than the settlor or beneficiary + declaration of intent to create a trust simultaneously with or prior to transfer
Which trusts are revocable?
Texas law makes all inter vivos trusts revocable and amenable by settlor unless expressly made irrevocable and unamendable.
How is a trust revoked or amended?
To revoke or amend a trust, the revocation or amendment must be made in writing by settlor.
If the settlor is incapacitated, a court can revoke the trust if in ward’s best interest.
Divorce revokes all revocable trust provisions in favor of the former spouse and relatives of a former spouse.
“income to me, W, for life, then on my death the trustee shall distribute the trust principal to my son.”
Is this a valid trust?
Yes, this is a valid trust. A valid trust consists of a settlor who delivers title to trust property to a trustee for the benefit of beneficiaries with intent to create a trust.
W is the settlor and she delivered trust property (not stated, specified securities) to a specific trustee for the beneficiary, her son. The purpose is stated: to provide her own income and then go toward her son.
Even though the settlor is a benficiary, she is the sole beneficiary during her life and then the other beneficiary is her son upon her death.
What if a settlor names herself, then upon her death the trustee will distribute to her descendant. Is this a valid trust?
Yes, this is an example of a valid trust in anticipation of settlor’s future incapacity and avoids the restrictions of a guardianship.
A settlor can be a beneficiary as long as there is another beneficiary in the trust, and even if the settlor retains:
- income for life
- power to revoke, alter, or amend the trust
- power to control trustee and trust’s admin
- settlor can name herself as trustee as long as she has capacity
What is a pourover will?
A pourover will is a testamentary gift to a trust and provides a means for adding testamentary assets to a trust created by a testator during lifetime.
The gift is valid even if the trust is subject to revocation or amendment and is later amended and even if trust is unfunded.
Amendments and revocations to trust are controlled by trust and not wills law.
Father has a life insurance policy that names his minor child as a beneficiary. How should the father have the proceeds of this life insurance policy be paid in a trust to his daughter?
Father should create an unfunded revocable life insurance trust and name the trustee as beneficiary. He could also just name “the trustee named in my will” as policy beneficiary.
How do you create a right of survivorship?
Use explicit language to create a right of survivorship, like “on the death of one party, all sums in the account shall vest in and belong to the surviving party” or “with the right of survivorship.”
When it comes to joint accounts, what is the rule for spouses when it comes to joint property?
If there is an amount in a joint bank account that is community property, both spouses must sign agreement. Otherwise surviving spouse cannot gain from right of survivorship.
Father executed a power of attorney that named his son as agent. Father has severe health problems and the daughter has reason to believe that the son is abusing the power of attorney. Can the daughter have standing to take action without first being appointed guardian?
Yes. She may review her brother’s (the agent’s) conduct because she is a beneficiary of her dad/the principal’s death (will or otherwise).
Can someone with the power of the attorney compel a bank to honor the power of attorney?
Yes. Someone with the power of attorney can compel a bank to honor the power of attorney. Unless there are specified grounds for refusal, the bank must either accept the power, request certification that the power is valid, or request an attorney’s opinion.
