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Trusts > Trusts > Flashcards

Trusts Flashcards

1
Q

Trust defined

A

a fiduciary relationship where trustee holds legal title to specific property for the benefit of designated beneficiaries who hold equitable title. Arises from the express intent of a property owner to create it

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2
Q

3 types of trusts based on the method of their creation

A
  1. express trusts arising from express intent of owner to create it
  2. resulting trust arise from presumed intention of owner of property
  3. constructive trust arising in cases involving wrongful conduct and unjust enrichment
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3
Q

Express Trust: elements

A
  1. S has capacity
  2. S indicates intention to create a trust
  3. the trust has a definite beneficiary (with exceptions)
  4. trustee has duties
  5. the same person is not the sole trustee and sole beneficiary
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4
Q

What capacity is needed for the S to make a trust?

A

Same capacity needed to create a will. 18 and sound mind.

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5
Q

Delivery requirement

A

To create a valid trust the trust assets must be delivered to the trustee. No delivery requirement for declarations of trust or testamentary trusts.

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6
Q

What can be trust property?

A

Any property the S has the power to convey. Must be adequately described. S cannot hold his own debt in trust and the trust property cannot be an expectancy

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7
Q

What capacity does the trustee need?

A

Be at least 18, sound mind and have capacity to enter into contracts.

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8
Q

Will a trust fail for a lack of a trustee?

A

No. Court will appoint a replacement

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9
Q

Acceptance of trusteeship

A

Person accepts by

  1. substantially complying with acceptance terms
  2. accepting delivery of trust prop, exercising trust power or performing trust duties
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10
Q

Compensation of Trustee

A

Trustee entitled to reasonable compensation or compensation specified in instrument. Entitled to reimbursement of trust expenses.

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11
Q

How can a trustee resign?

A
  1. giving 28 days notice to qualified beneficiaries and co-trustees or
  2. with court approval
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12
Q

Removal of T

A

a court can remove on its own motion or upon request by S, Co-T, or Qualified Beneficiaries. grounds for removal include

  1. breach of trust
  2. lack of cooperation with co-T
  3. unfitness or persistent failure to administer
  4. change of circumstances
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13
Q

Separate Trustees

A

S can divide powers of trustee among several people. 3 types permitted
investment trustee
Distribution trustee
Resultant Trustee: all power not otherwise designated

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14
Q

Intention to create a trust: language issues

A

Words trust and trustee are not conclusive. Language like “I would like that” usually does not create.

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15
Q

Beneficiary requirement

A

A noncharitable trust must be for the benefit of ascertainable beneficiaries. Subject to RAP, unborn person may be a B. Bs do not need notice of trust creation. presumed to accept unless affirmatively disclaim

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16
Q

Qualified Beneficiary

A

B who on the date of the B’s qualification is determined is

  1. a current beneficiary or
  2. first line remainderman
    i. e. person who would be eligible to receive benefits were the events triggering the termination of B’s interest or of the trust iteslf were to occur on the qualification date.
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17
Q

Trust Purpose

A

May be established for any purpose that is not illegal, contrary to public policy or impossible to achieve

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18
Q

Promise to make a trust in the future

A

Not enforceable unless supported by consideration

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19
Q

Formalities of creation: trust involving interest in land

A

Must satisfy the SOF

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20
Q

Formalities of creation: oral trusts

A

valid if established by clear and convincing evidence

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21
Q

Is a trust revocable by the S?

A

trusts executed on or before April 1, 2010 are revocable and amendable unless expressly provide otherwise. Trusts executed before that date are irrevocable unless expressly stated otherwise.

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22
Q

What duty does the Settlor owe the beneficiaries?

A

In a revocable trust, S owes no duties. Does not need to tell Bs of the Trusts existence. If S is incapacitated, T must tell qualified beneficiaries about the trust and keep them informed about trust admin

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23
Q

Time limit on contest of revocable trust after S’s death

A

If trust was revocable at S’s death, its validity may be contested by filing within the earlier of

  1. 2 years after S’s death or
  2. 6 months after the T gives notice of the Trust’s existence
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24
Q

Do S’s creditors have a claim to the trust assets?

A

Assets held in a revocable trust are subject to creditor’s claims during S’ life and at his death. When S dies, the claims can be charged against the trust only if the probate estate is insufficient.

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25
Q

Pour over trusts

A

MI authorizes a settlor to makes gifts by will to a trust. Can make a gift to a revocable trust that eas established during S’ lifetime. Trust can be unfunded during S’s lifetime. If trust is revoked before S’s death, the gift lapses.

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26
Q

Declarations of Trust

A

Where S declares himself T for Bs are valid. S can be a B so long as he is not the sole B. No delivery required. If S orally declares the trust is must be evidenced by acts or words of a clear and unequivocal character

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27
Q

Life insurance/death benefits as trust assets

A

May be paid into unfunded trust whose only purpose is to receive the funds. language designation =”trustee named in my will”

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28
Q

Totten Bank Account

A

Bank acount depositer declares that she is the trustee of the account for a person who is to receive the money at time of depositer’s death. D retains full control during lifetime.

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29
Q

How to revoke a totten trust

A
  1. withdrawl of funds
  2. lifetime act manifesting intent to revoke
  3. contradicotry provision in D’s will
    Terminates if B predeceases D.
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30
Q

What is a bank deposit made in the name of the depositer and another person to be paid to either or the survivor called?

A

Joint tenancy with rights of survivorship. Either co-owner can withdraw. Creditors of one can only reach their interest in teh account. Cannot be revoked by will!

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31
Q

Uniform Transfer to Minors Act

A

Gift to a custodian for a minor creates a statuotry trust under which the custodian has flexible benefits to deal with the assets

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32
Q

Durable Power of attorney

A

Creates agency relationship. Does not terminate on the disability or incapacity of the principal. Automatically reminates on death. is revocable by the principal. Third parties protected if did not know of P’s death.

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33
Q

Relationship between durable power of attorney and conservatorship

A

DPA reports to P and the Conservator. C can revoke the DPA

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34
Q

Charitable Trusts: Purpose

A

Must have a charitable purpose. Can’t limit class of Bs to just personal firends

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35
Q

Charitable Trusts: beneficiaries

A

need not be identified. Court can select a charity consistent with S’s intent

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36
Q

Charitable Trusts: RAP

A

does not apply. Does not apply to shifting beneficial interest in a trust from one charity to another

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37
Q

Charitable Trusts: Cy Pres

A

When the charitaible purpose is impracticable the court will select an alternative under Cy Pres. “as near as possible”

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38
Q

Charitable Trusts: Time limit on gift over to S’s successors

A

A provision in a charitable trust that would result in a distribution to noncharitable Bs prevails over court’s selection only if, when provision takes effects
1. the property is to revert back to S and S is living
2 or fewer than 50 years have elapsed since the trust was created.

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39
Q

Charitable Trusts: Who can sue to enforce the charitable trust?

A

S, named B, or MI AG

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40
Q

Honorary Trusts

A

No human beneficiary. Trustee enforces the trust on his honor. Upheld so long as T is willing to perform duties.
Trust for animal terminates when no animal left.

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41
Q

Honorary trust for a noncharitable purpose

A

valid for 21 years only. Doesnt matter if intent was for longer. May be enforced by person named in the trsut or a court appointee.

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42
Q

Resulting Trust: definition

A

Remedy whereby the court implies a trust and declare the Settlor or his heirs to be the beneficiary

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43
Q

Resulting Trust: Failure of express trust

A

If an express trust fails and the S has not decalred his intent, the beneficial interest in the trust proeprty is in the S or his heirs

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44
Q

Resulting Trust: by reversion

A

When trust purpose is fully satisfied and some trust property remaind (i.e. S made an incomplete disposition of his assets)

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45
Q

Resulting Trust: Purchase Money Resulting Trust

A

When A pays purchase price for property and puts title in B’s name (not related to A). Not recognized in MI unless there is fraud, mistake or deceit. RT arises in favor of the payor’s creditors to extent necessary to pay their claims.

46
Q

Constructive Trust: definition

A

Equitable remedy to prevent unjust enrichment resulting from fraud, mistake, breach of fiduciary duty etc. Probate court may impose.

47
Q

Constructive Trust: Trustee’s duty

A

to convey property to the person who would have owned it but for the wrongful conduct

48
Q

Constructive Trust: oral trusts of land–lifetime tarnsfers

A

SOF bars oral proof of trust of land. Where deed is absolute on its face but an oral trust of land is alleged, the general rule is that grantee takes title. Constructive trust will arise where

  1. grantee agreed to hold land in trust and at the time had no intention to do so
  2. transfer obtained through duress or undue influence
  3. grantee in confidential relationship with grantor OR
  4. grantee promised to sell land and hold proceeds in trust.
49
Q

Constructive Trust: Secret Trust

A

Will makes an absolute gift over but it is alleged that gift was made in reliance on grantee’s promise to hold the prop in trust. Courts will allow evidence of the agreement

50
Q

Semi-secret trust

A

Where gift over says person will hold in trust but doesn’t name the Bs. Resulting trust arises in favor of S’s heirs.

51
Q

Can a B transfer his trust interest?

A

Yes unless spendthrift provision

52
Q

Can a B’s creditors reach his trust interest

A

Yes unless spendthrift provision

53
Q

Spendthrift Trust

A

Trust where B can not voluntarily transfer his interest and creditors cannot reach it.

54
Q

Spendthrift Trust: when can creditors reach the money?

A

When income is distributed to B, creditors can reach it.

55
Q

Spendthrift Trust: when can B transfer interest?

A

Provision only last his lifetime. can make a testamentary gift over.

56
Q

Spendthrift Trust: exceptions

A

may be reached for alimony, child support, gov claims and claims by creditor that enhance B’s interest. Also where the trust provides for mandatory payments, a creditor of necessaries can reach through judicial process

57
Q

Spendthrift Trust: interest retained by S

A

Spendthrift provision is invalid with respect to any interest retained by S. Creditor can reach the max amount that can be distirbuted to S. A settlor-B can trasnfer his interest.

58
Q

Pure Discretoin Trust

A

Where the distribution of assets is in T’s discretoin, creditors cannot compel a distribution. This applies to ALLLLLLL creditors

59
Q

Support Trust

A

If T’s discretion is tied to distributions for the support of B, B may be able to compel distribution. Court will consider other resources. Creditors cant reach it.

60
Q

Termination of Trust

A

automatically on expiration of the term specified in the instrument or when all of the purposes have been accomplished or have become unlawful etc.

61
Q

Modification or termination of the trust by Court

A

May do so with the consent of T and the qualified Bs if consistent with the material trust purposes.

62
Q

Modification or termination of the trust by court when there is not consent

A

can be done if

  1. trust could have been modified with consent and
  2. the interest of the non-consenting qualified Bs are portected.
63
Q

Additional reasons the court can modify or terminate the trust

A
  1. unexpected circumstances threaten purpose
  2. continuation would be wasteful or impracticable
  3. value of trust does not justify the cost
  4. achieve S’s tax objectives.
  5. to fix a mistake if shown by clear and convincing evidence
64
Q

Modification/termination by trustee: uneconomic trusts

A

T may terminate a trust that is valued at less than is less than $78k and the amount is insufficient to justify the cost of admin. Must give 63 days notice to Qualified Bs (or to AG if a chartiable trust).

65
Q

Trustee can combine and divide trusts

A

Must give notice to qualified Bs. Can combine if substantially identical terms

66
Q

Jurisdiction and Venue

A

Probate court has exclusive JD. Venue = place where T is registered or could be registered.

67
Q

Duties of T: prudent person standard

A

General duty to admin in good faith and expeditiously for benefit of Bs. Act as prudent person or if T has special skills use those.

68
Q

Duties of T: duty to inform Bs

A

Except for revocable trusts, T must give notice to qualifeid Bs of the existence of trust, identity of S, where regisetered, trustee’s information. Must keep Qualified Bs infomred

69
Q

Duties of T: duty to inform Bs of revocable trust

A

arises when T determines that S is incapciptated and has no designated agent or 63 days after the trust becomes irrevocable. which ever is later.

70
Q

Duties of T: duty to give annual accounting

A

Provide statement of account to QBs at least annually or when
change in trustee
termination of trust
Or when QB requests

71
Q

Duties of T: duty to segregate and not commingle trust property

A

must segregate trust assets from personal assets

72
Q

Duties of T: what if property is commingled and some portion is a loss or some portion icnreases in value

A

assumed it was trustee’s own prop if loss. assume trust prop if a win.

73
Q

Duties of T: duty to enforce claims and defend trust from attack

A

yes

74
Q

Duties of T: duty to confidentiality

A

T cannot disclose facts or knowledge pertaining to trust prop or affairs without consent of the beneficiaries except in response to legal process

75
Q

Powers of trustee: sources

A

express confirmation by trust
that unmarried person has over prop
appropriate to acheive proper investment and mangement
conferred by MTC

76
Q

Powers of trustee: Powers given by MTC

A

a ton

77
Q

Powers of trustee: Co-trustees

A

Must act by majority decision.

78
Q

Powers of trustee: Separate trustees

A

Can act alone in separate function. No duty to monitor actions of other trsutee or to notify or warn an S or B of possible breach.

79
Q

Prudent Investor Rule

A

fiduciary must invest and manage assets as a prudent investor would taking into account the purposes, terms, distribution reqs etc. Must exercise reasonable care, skill and caution Prudence in investment applies to the WHOL PORTFOLIO

80
Q

Investment: T must establish overall invest strategy

A

T must create a custom investment strategy for trust. take into account

  1. general econ conditions
  2. infalation and deflation
  3. tax consequences
  4. role each investment plays
  5. exepcted returns
  6. other resources of Bs
  7. need for liquidity
  8. relationship between assets and purpose of trust
81
Q

Investment: any type of investment permitted

A

thats al

82
Q

Investment: must diversfiy

A

thats it

83
Q

Investment: delegation of investment function permitted

A

Must use reasonable care in selecting agent and periodicalyl review the agent’s performacne

84
Q

Investment: Rules apply absent contrary provision

A

that’s it.

85
Q

Investment: fiduciary with special skills

A

must use them

86
Q

Uniform Principal and Income Act

A

applies to all trusts and estate unless the governing instrument provides otherwise. Gives the T an adjustment power to allocate investment returns.

87
Q

Uniform Principal and Income Act: duty of fairness to all Bs

A

Exception where trust indicates intent that one B is favored

88
Q

Uniform Principal and Income Act: adjustment power

A

If trust says distribute the income and that effectuates S’ intent, do that. IF doing that means T can’t treat all B’s fairly, then T may adjust between pricnipal and income Consider all relevant facts before doing so. Cannot do so if teh conseuqnce is that trust would be disqualified from federal tax deudction.

89
Q

Allocation of receipts

A

net rental income is income and proceeds of sale of trust asset is principal

90
Q

Allocation of receipts: Receipts from entity

A

Money received from an entity is income unless money is characterized as a captial gain for federla income tax pruposes. All other property is principal

91
Q

Deferred compensation plan receipts

A

receipt is income to the extent the payor characterizes it as income and the balance in principal. If no payment is characterized as income, 10% of the payment is income

92
Q

Allocation of receipts: liquidating assets like copyright and patents (and mineral interests)

A

asset whose value will diminish over time because will only produce receipt for a limited time. proceeds are 10% income and 90% principal

93
Q

Allocation of expenses: expenses charged against income

A
  1. 1/2 T’s compensation
  2. 1/2 expense of accounting, judicial proceedings and matters affecting both P and I
  3. ordinary expenses
  4. casulty insurance premiums
94
Q

Allocation of expenses: expenses charged against principal

A
  1. 1/2 T’s compensation
  2. 1/2 expenses of accounting
  3. payments of trust debt
  4. estate taxes
  5. distribuution of environmental matters.
95
Q

Duty of Loyalty

A

T cannot enter into any transactions in which he is dealing with the trust in his individual capacity. Can have a contrary provision in the trust. He cannot perosnally gain from his position of T.

96
Q

No further inquiry rule

A

No defense to self-dealing. Automatic wrong for which the only issue is damages. B may ratify a breach or sue T for damages.

97
Q

B’s rights in case of prohibited transaction

A

A transaction involving T’s self-dealing or substantial conflict of interest is voidable by B unless

  1. court or terms of trust approve it
  2. B failed to bring suit in tme
  3. B gave consent or ratified
  4. it involves a contract claim arising before T became T
  5. permitted by statute
98
Q

Trustee Liability: General test for liability

A

Whether T exercised a degree of care and diligence that a person of ordinary prudence would exercise in the mangement of affairs of another. If he has special skills he is required to use them

99
Q

Trustee Liability: remedies for breach of trust

A

court may

  1. enforce specific performacne of T duties
  2. enjoin T from committing breach
  3. compel T to pay money or restore property
  4. suspend or remove T
100
Q

Trustee Liability: Damages to Bs for breach

A

If T commits breach he is liable to Bs for the GREATER of
1. ammount necessary to restore the trust prop to what they would have been absent breach
2. T’s profit from breach
T is liable to B for any profit arising from admin of trust even if there was no breach

101
Q

Trustee Liability: SOL

A 
B must bring action 1 year after she receives any report disclosing the breach. If no report, 5 years from 
1. T's removal
2. termination of her interest
or 3. termination of trust 
which ever is first
102
Q

Trustee Liability: When T is not liable for breach

A
  1. acted in reasonable reliance on Trust terms

2. B consented or ratified

103
Q

Trustee Liability: Effect of exclupatory clauses

A

Valid if T acted in good faith
unenforceable if they relieve T of action taken in bad faith or reckless indifference or appear in the instrument because of T’s abuse of fiduciary relationship

104
Q

Trustee Liability: liability of co-trustees

A

T is not liable for acts of co-T if he does not join in the action or dissents in writing before action is taken.

105
Q

Trustee Liability: liability of seprate Ts

A

Not liable unless there is evidence of collusion

106
Q

Trustee Liability: Liability of successor T

A

not liable unless

  1. he knew or should have known of the breach and failed to take steps to redress or
  2. failed to obtain delivery of all propr that should hve been turned over to him
107
Q

Trustee Liability: contract liability to 3rd parties

A

T not perosnally liable on ks unless fails to reveal T capacity. if acted properly entitled to indemnification

108
Q

Trustee Liability: Tort liability to 3rd parties

A

Not personalyl liable unless personally at fault

109
Q

Liability of 3rd parties to trust

A

Any party dealing with a T may assume the existence of trust power and their proper exercise by T. If they ahve actual knowledge that T is exceeding his power, may be liable to the trust for resulting loss. B cannot bring action against 3rd party who damages Trust property unless the T participates in the breach, fails to sue or abandons office.

110
Q

Nonjudicial settlements

A

Interested person may enter into a binding nonjudicial settlemtn agreement with respect to any matter involving the trust. Valid only to the extent that it does not vioalte trust purpose.

Trusts (2 decks)

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