Trusts Flashcards
Trust
Relationship resulting from transfer of title to property to a person to be administered by that person as a fiduciary for another.
Settlor
Person who creates the trust.
Trustee
Person to whom title is transferred and who manages assets. Settlor can name trustee in instrument or be chosen as instrument dictates. Failure to designate a trustee doesn’t invalidate trust, court can select one.
i. If an individual, person must be an American citizen.
ii. If institutional, must be a federally insured depositary institution (FDIC) or otherwise empowered by law to exercise trust/fiduciary powers.
iii. Charities can be trustees of charitable trusts.
iv. Settlor can also be trustee.
Beneficiary
Person in whose benefit trust is established. Must be ‘in being’ and ascertainable at time of trust creation. Can have an interest in income and/or principal of trust.
i. Income Beneficiary – can be successive and concurrent income interests. Trustee can select among income beneficiaries to distribute income (conditional income interest) absent an abuse of discretion.
ii. Principal Beneficiary – no successive principal interest except as conditional substitution.
1. Can create a class trust that includes future members of the class not yet in being.
Proper Court for Trusts
Inter Vivos Trusts – district court of any parish that the trust instrument effectively designates as proper court. Has continuing jurisdiction.
- If not designated, any of the following are proper: parish of domicile of settlor, parish of domicile of trustee, or, if no LA-domiciled trustee, district court in which agent for service of process is designated.
- If none of the above, proper court is the 19th JDC.
Testamentary Trusts – district court that has jurisdiction over succession absent designation, which will gain jurisdiction after trustee gains possession of legacy.
Any court can be proper if all trustees, beneficiaries, and living settlors agree.
Types of Trusts
Inter Vivos – trusts established by settlor while living
Testamentary – established by settlor’s will
Revocable – all trusts are irrevocable unless settlor expressly reserves the right to revoke or modify. Can delegate power to revoke by express statement
i. Upon revocation, trust returns to settlor. Upon termination, trust goes to the beneficiary.
ii. Upon death of settlor, revocable trust becomes irrevocable.
Form Requirements for Trusts
Inter Vivos – must be executed in presence of notary public and two witnesses, or by act before two witnesses and duly acknowledged
Testamentary trusts – must be part of a will
If immovable property in trust, the trust must be recorded in parish where the property is located. Can record an ‘extract’ which sets out details of trust.
No special language necessary, only intent to establish trust.
Date of Creation:
i. Testamentary – at date of death
ii. Inter Vivos – on execution of trust
iii. Belated acceptance of responsibility by trustee relates back to date of creation of trust, no invalidation.
Delegating Authority
i. Trustee can delegate ministerial acts he can’t be reasonably expected to perform by power of attorney
ii. Amendment by non-settlor permissible only if expressly delegated in instrument to beneficiaries’ ascendants
Acceptance of Donation in Trust
Trustee accepts donation in trust for beneficiaries, including minor beneficiaries
Beneficiary may refuse interest in the trust, in whole or in part
Unique LA Aspects of Trusts
Forced Heirship – legitime may be placed in trust, but:
i. Income must be distributed only for health/education/maintenance of forced heir, after considering other income and support
ii. As beneficiary, forced heir may have right to require trustee to make assets productive.
Spendthrift Provisions – beneficiary cannot alienate or encumber his interest in trust, and trust income and principal exempt from seizure by beneficiary’s creditors. This requires express creation in instrument.
i. May be subject to income interest or usufruct of settlor’s surviving spouse.
Conditional Substitutions (similar to common law contingent remainder)
i. Vesting of interest of a principal beneficiary in a named substitute beneficiary if beneficiary dies without descendants during term of trust.
1. Valid for class trusts as to members of class.
2. Valid to other trusts if express conditions provided and met.
Community Property in Trust – if property transferred to trust created by spouses is wholly or partially community property, trust instrument may direct trustee to divide trust after termination of community into two trusts according to spouses’ interests. Two trusts can have completely different terms and beneficiaries.
Termination of Trusts
If principal beneficiary dies before termination, his interest generally vests in his heirs or legatees.
Trust cannot be terminated earlier than designated term, even on complete agreement, unless express authority. (Trusts are indestructible.)
i. Trustee may have express right to terminate, in whole or in part, earlier than trust’s designated termination date.
ii. Court can modify or terminate if continuance would defeat or substantially impair purposes of the trust.
Longest Terms for Trusts
i. Last of: Death of Last Income Beneficiary or 20 Years from Settlor’s Death, if settlor is natural person
ii. Last of: Death of Last Income Beneficiary or 20 Years from Trust’s Creation, if settlor is not natural person
iii. 20 Years from Death of Natural Person Settlor and Juridical Person Income Beneficiary
iv. 50 Years from Trust’s Creation if Settlor and Income Beneficiary Both Are Juridical Persons
Powers of Trustee
Buy, sell, lease, mortgage, borrow funds, and obligate trust
Duties of Trustee
Trustee is a fiduciary, with a duty of loyalty to beneficiary
Trustee must act as reasonably prudent person.
Restriction on self-dealing, affirmative duty to account and notify beneficiary, and to take steps to preserve and protect trust property
Class of Trusts
Class trust can be created with respect to all or portion of income and/or principal, but members of the class must always be the sole beneficiaries of that portion of the trust.
Class trusts permitted for blood and adopted relations.
i. Class may consist of descendants up to and including great-grandchildren.
ii. May also consist of collaterals and their descendants out to great-grandnieces and nephews.
iii. Must be at least one member of class ‘in being’ at time of trust’s creation.
A deceased member’s interest generally vests in heirs or legatees unless the trust provides otherwise
Class must ‘close’ and will close when it is no longer possible to have a member of the class (last member dies), or earlier if by stipulation of the settlor.
Charitable Trusts
May exist in perpetuity.
Split trusts (for private and charitable beneficiaries) are permissible, and the trustee of a split trust can be the beneficiary charity if the only charity beneficiary.
