Trusts Flashcards
Requirements of an Express Private Trust
Creation of a valid express trust requires:
(i) property,
(ii) a trustee with duties,
(iii) a definite or charitable beneficiary,
(iv) a manifestation of intent to create a trust by a settlor with capacity, and
(v) a valid trust purpose.
Testamentary Trust
A trust created in a will is a testamentary trust. For a testamentary trust, the essential elements must be ascertained from:
(i) the terms of the will,
(ii) an existing writing incorporated by reference, or
(iii) the exercise of a power of appointment created in the will.
Settlor with Capacity and Present Intent to Create a Trust
A person must have sufficient capacity to establish a trust.
The settlor’s intent to create a trust may be manifested by words or by conduct. Use of precatory words (wish or hope) may indicate no trust was intended.
Trustee
A trust will never fail merely because a trustee refuses to serve; instead, the court will appoint a new trustee. But failure to name a trustee may cause an inter vivos trust to fail because there can be no delivery of the trust property.
Where there is a declaration of trust, no delivery is required because the settlor is the trustee.
Trust Property (Res)
Must be an existing interest in existing property that the settlor has the power to convey.
Beneficiaries
A definite beneficiary is necessary to the validity of every trust except charitable trusts.
If a trust fails for lack of a beneficiary, a resulting trust arises in favor of the settlor or his successors, the trustee’s only duty it to convey title back to the settlor or his estate.
Valid Trust Purpose
A trust may be created for any purpose that is not illegal, criminal, tortious, or contrary to public policy. A trust that violates the Rule Against Perpetuities does not have a valid trust purpose.
Charitable Trusts
The purpose of a charitable trust must be one that is considered to benefit the public. The Rule Against Perpetuities does not apply to charitable trusts.
Cy pres
If the specified charitable use is no longer possible, the court will decide whether the settlor intended the trust to fail or would have wished the property devoted to a similar use. If a specific intent for that particular charity is found, the trust will fail and pass by resulting trust to the testator’s estate. If the settlor had a general charitable intent and would prefer the property go to a similar purpose, the court will select a purpose as near as possible to the original one.
Modification and Termination of Trust by Beneficiaries
Most jurisdictions permit the beneficiaries to terminate an irrevocable trust only if:
(i) all beneficiaries consent: consent is required of all beneficiaries (including unborn or unascertained beneficiaries) of all present and future interests, AND
(ii) termination will not impair a material trust purpose: in determining whether termination would impair a material trust purpose, the whole instrument and surrounding circumstances will be considered.
Trustee’s Liability
If a trustee commits a breach of trust, the beneficiaries may have him surcharged (i.e., sue the trustee personally for the amount necessary to restore the trust property and distribution to what they would have been without the breach. Defenses: equity will not enforce a trust if the beneficiaries expressly or impliedly consented to the breach. The beneficiaries must sue within a reasonable time or they will be barred by laches.
Duties of Trustee (I)
A trustee of an irrevocable trust owes his duties exclusively to the beneficiaries. These duties include the duty to:
(i) administer the trust in good faith and in a prudent manner, in accordance with the terms and purposes of the trust,
(ii) exercise that degree of care, skill, and caution that a reasonably prudent person would in managing his own property, and
(iii) administer the trust solely in the beneficiaries’ interest and must act impartially if there is more than one beneficiary.
Duties of Trustee (II)
Duty not to commingle: If a trustee commingles trust property with his own, any loss is presumed to be his.
Duty to make trust productive: A trustee has a duty to preserve the trust property and make it productive. A trustee who fails to invest funds within a reasonable time is chargeable with the income that would accrue from proper investments.
Duty to invest: The Uniform Prudent Investor Act requires a trustee to invest and manage trust assets as a prudent investor would. Any type of investment is permitted, and prudence is evaluated as to the overall investment strategy. In making investment decisions, the trustee is to consider: (i) general economic decisions, (ii) inflation or deflation, (iii) tax consequences, (iv) the role of each investment in the trust portfolio, …
Duty to diversify: a trustee must diversify the trust investments unless he reasonably determines that, because of special circumstances, the purpose of the trust is better served without diversification.
Duty of loyalty and duty to account: a trustee owes a duty of undivided loyalty to the trust and its beneficiaries, thus, a trustee must not deal with the trust in his personal capacity and must keep and renders accounts. A trustee is liable to the trust estate for losses resulting from and profits that would have accrued but for the breach, as well as any profit the trustee made from the breach.
Duty of fairness to all beneficiaries: trustee has a duty to administer trust impartially (he must ensure trust property produces income for the income beneficiary and will not depreciate in value for the remainderman). A trustee of a revocable trust owes his duties exclusively to the settlor, whereas a trustee of an irrevocable trust owes his duties solely to the beneficiaries.
Pour-over from will to trust
A testator can make gifts by will to a revocable and amendable trust that was executed before, concurrently with, or within 60 days after execution of the will and is adequately identified in the will.
