Trusts Flashcards
1
Q
Overview
A
- Trust - Arrangement under which trustee holds legal title to property for the benefit of the beneficiaries
- Requirements: Creator/settlor delivers legal title of trust assets (the res) to trustee for the benefit of beneficiaries with intent to create a trust for a valid purpose
- Delivery req doesn’t apply to self-declarations of trust OR testamentary trusts
- NO trust fails for want of a trustee
2
Q
Reqs - Intent
A
- Clear language putting title into someone else w a duty to manage it for others shows intent
- Mere precatory language of suggested use/”wish and desire” not sufficient
- BUT “wish and desire” language coupled w lots of detail about how to use property might
3
Q
Reqs - Valid Purpose
A
- Can’t contravene public policy
- No provisions that encourage divorce or the commission of crimes, or restraining right to procreate or practice religion freely
4
Q
Reqs - The Res
A
- Must be a specific interest in property to which the trustee’s duties relate; must be certain and identifiable
- Intangible things, like choices in action and accounts receivable, can be property
- Can’t create a trust for expectancies/future interests; if try to, it’s a gratuitous promise to create that trust in the future
(a) Trust later arises ONLY if, once interest becomes property, settlor then manifests intent
(b) Can infer intent from express words or conduct - If promise isn’t gratuitous but supported by consideration, then trust automatically attaches when interest vests
- EXCEPTIONs to above - Where a testator has died, a legatee has more than a mere expectancy; can be the subject of a trust, even if amount of residuary not known
- VALID empty trusts - Trusts named as beneficiaries of: (1) life insurance policy, (2) pension plan death benefit, or (3) settlor’s will
5
Q
Reqs - Private Trust - Beneficiaries
A
- Private trusts must have ~ascertainable~ beneficiaries
(a) NOT true for charitable trust - Can describe beneficiaries as a class (e.g. descendants) and give discretion over shares to trusteee
- NB: Might be able to make a power of appt argument in the alternative
- Honorary trusts - For animals
(a) CL - Void bc violate RAP
(b) UTC - Valid for lifetime of animals; court selects an enforcer; leftover money goes back to settlor/estate by resulting trust
6
Q
Trusts as Will Subs - Revocable Trust and Bank Acct Trusts
A
- Revocable trust - Income goes to trust during lifetime, then to beneficiaries at death (and maybe residuary estate from will goes into it too)
(b) “To the trust of which I am co-trustee w X” - Pour-over clause
(a) Valid? - Yes, even though can be revoked, altered, or amended
(b) Gifts by will to the trust - Valid; only reqs are that the trust must be identified in the will and terms must be set out in written instrument - Bank acct/TOTTEN trust - Put money into an acct, keep principal but draw out interest, say in your will you leave it to devisee
(a) Revocable during life by any manifestations of intent to revoke, including withdrawals
(b) Revocations in will? - Majority - Yes, but will must specifically mention acct
- UPC - NO
(c) Automatic revocation if beneficiary predeceases depositor
- UPC - NO
7
Q
Oral Trusts/Promises to Hold in Trust
A
- Inter vivos trusts - Oral IV trust IS enforceable provided its terms can be established by C+C ev. BUT trusts containing land must be evidenced by SoF writing.
- Oral promise supported by consideration to make devise in will
(a) Majority - Enforceable wrt personal property, assuming C+C evidence. Not enforceable wrt to real property if SoF not met.
(b) UPC - K to make a will, not to revoke, or to die intestate can be shown ONLY if:
(1) Terms are in will itself,
(2) Terms are in a written K, OR
(3) Will refers to the K and EE proves the terms - Testamentary trusts
(a) SECRET trust - Absolute devise by will w oral promise to hold in trust - Enforceable? - Yes; can admit testimony to prove promise; if established by C+C, constructive trust
- What if written evidence of promise? - Deviate from will terms ONLY if REPUDIATING a promise
(b) SEMI-SECRET trust - Devise “in trust” w oral agreement as to beneficiaries
- What if written evidence of promise? - Deviate from will terms ONLY if REPUDIATING a promise
- Majority - Trustee holds ~resulting trust~ for HEIRS
8
Q
Constructive Trust
A
- REMEDY in equity
- May be imposed where:
(1) Fraud in inducement - Promisor had no intention to perform his promise at time of promise
(2) Confidential Relationship - Grantee-trustee served in confidential relationship to grantor-settlor (attorney-client, bus assocs, husband-wife, father-child, brother-sister) - Can overcome SoF deficiencies in oral trusts
9
Q
Charitable Trusts
A
- 4 distinctive rules:
(1) Not subject to RAP or Rule Against Accumulations (can last and accumulate income in perpetuity)
(2) Must be for charitable purpose (religion, medicine, science, gov’t, research, education, humanities)
(3) Must be in favor of a reasonably large number of unidentifiable beneficiaries
(4) When charitable purpose can no longer by accomplished, reformed under Cy Pres - Enforcers:
(a) State AG
(b) UPC - While alive, also settlor and any living beneficiary
10
Q
Spendthrift Trusts
A
- Creditors of beneficiary don’t have right to actual trust assets (they’re not the beneficiary’s), but can garnish income stream
- Spendthrift trust - “No interest of any beneficiary herein shall be assignable by such beneficiary NOR shall it be subject to the claims of the beneficiary’s creditors”
(a) Valid and enforceable
(b) Exceptions:
(1) Claims for necessities
(2) Alimony and child support
(3) Claims by US or state - What if creditors are creditors of SETTLOR in a trust for benefit of settlor w spendthrift clause?
(a) Clause NOT enforceable
(b) Creditors can even reach the actual property if (1) trust is revocable, OR (2) trustee has discretionary authority to make distributions to settlor
11
Q
Support Trusts
A
- Discretionary support trust - “To distribute or apply income for support of X during his lifetime to the extent necessary in the sole discretion of trustee; remainder to Y”
(a) Must the trustee distribute? - Duty to support beneficiary IF he can’t support himself; presumption, if the instrumental doesn’t say, that trustee can take into account other support in beneficiary’s life - Pure discretionary trust - Like above, but no support clause
(a) Beneficiary can’t compel distribution
(b) Creditor’s can’t either - BUT UTC exception - Child, spouse or ex support/alimony
12
Q
Trust Administration - Duties
A
- Loyalty - No self-dealing; trustee can’t:
(a) Buy/sell trust assets to itself
(b) Borrow trust funds
(c) Sell assets from one trust to another
(d) If corp, purchase its own stock as a trust investment
(e) Engage in any tx in which she or close family members seeks a personal gain - To Invest Prudently - Prudent Investor Rule
(a) Duty not to commingle - Includes duty to earmark/keep trust property separate
(b) Duty to balance return w potential risk
(c) Duty to diversify investments - Spread the risk
(d) Duty to keep trust productive - Earn a reasonable rate of return
(e) Portfolio view - Compliance measured against trust portfolio ~as a whole~ - To Preserve and Protect Trust Property - Insure trust against casualty losses
- Impartiality - Be fair and impartial to all beneficiaries, absent contrary provisions
- To Account and Inform - Account periodically to beneficiaries and keep them informed
- NB - If trust is revocable, as long as settlor is alive, trustee owes duties ONLY to settlor, not beneficiaries
13
Q
Trust Administration - Powers of Trustee and Successor
A
- Corp trustee may take title to stock in name of nominee
(a) Facilitates stock transfer
(b) BUT corp is liable for acts of nominee - May invest in common trust funds - NOT a breach for commingling
- Co-trustees
(a) Unilateral action? - Trad view - Except in emergencies, unanimous rule
- Modern/majority - Majority rule
(b) Nominate a new one if one dies? - Only if instrument requires
- Modern/majority - Majority rule
14
Q
Trust Administration - Liability for Breach
A
- Breach of Trust - Breach of a fiduciary duty; beneficiary can:
(1) Ratify the tx and waive the breach
(2) Sue for resulting loss - Called “surcharge” action
(3) In self-dealing cases, “trace” and recover property for trust - Exculpation Clause - Relieves trustee of liability for breach of trust
(a) UNENFORCEABLE to extent it relieves liability for reckless or bad faith actions, or if was drafted at/by direction of trustee and settlor wasn’t represented by counsel - Tort liability
(a) Trad - Trustee personally liable on all torts of self and agents
(b) UTC - Personally liable ONLY if was personally at fault - K liability
(a) Trad - Personally liable on K UNLESS stipulation in K relieves
(b) UTC - Not liable personally UNLESS failed to reveal her representative capacity - Liability of trustee for actions of agents - Not liable UNLESS didn’t exercise reasonable care in:
(1) Selecting the agent,
(2) defining the scope and terms of delegation. or
(3) Periodically reviewing actions/decisions of agent
15
Q
Trust Administration - Accounting
A
- Must allocate things to (1) income, or (2) corpus/principal
- Income:
(a) Interest
(b) Rents
(c) Dividends on stock paid in cash
(d) 10% of any amounts received as an annuity or mineral royalty - Principal:
(a) Proceeds from sale of trust assets
(b) Stock splits
(c) Dividends paid in stock - Expenses:
(a) Ordinary expenses incurred in produce of income - Charge to income
(b) Extraordinary items/capital improvements/income taxes - Charge to principal
(c) Trustee’s fee - Half to income, half to principal - Power to adjust - Trustee may adjust normal classification if necessary to comply w duty of impartiality
