Trusts Flashcards
Trusts generally on bar exam
least heavily tested. crossed over with CP, trusts, wills*, and once, PR
Trust (definition)
a fiduciary relationship where trustee holds legal title to the property for the benefit of the beneficiary
trustee has duty to manage in good faith and in best interest of a beneficiaries
Creation of a Trust
- settlors - the creator of the trust
- intent - almost always there. present intent to create the trust and can be shown by words or conduct of the settlor
- res- the trust property
- delivery- when settlor places the property out of his control and hands it over to the trustee
- beneficiary - the people who benefit from the trust. *they must be ascertainable/identifiable [except in charitable trust]
- trustee- person who holds legal title. a trust will not fail for the lack of a trustee. If a trustee is not named then the court will appoint one
- purpose - as long as you’re not trying to do anything illegal the purpose is all good
examiners like to see all seven
(T)rust (P)urple (BIRDS)
a trust created by fraud, duress, or undue influence…
is void
check wills outline- onetimers
Express Trust
a written trust for benefit of ascertainable persons
almost all are express
Constructive trust
the court creates a fictitious trust to hand over property that was wrongfully obtained
(remedies outline)-one-timers- to prevent unjust enrichment
Testamentary Trust
Trust created based on terms of a will and takes effect on death of testator
Intervivos Trust
transfer during your lifetime
(transfer is an interest in property during settlor’s life)
do this to avoid probate (compared with testamentary trust)
revocable trust
settlor has an express term that allows trust to be revoked
this means it can still be taken by creditors
irrevocable trust
settlor’s creditor’s have no claim against the asset’s of this trust
Discretionary Trust
gives Trustee discretion in how/when to disperse the property in the trust
high fiduciary duty.
discretion to make payments
beneficiary’s creditor’s can’t compel a trustee to make a payment to beneficiary
**charitable Trust
to benefit the public at large for a charitable purpose
must be for the benefit of an indefinite class of persons so no definite beneficiaries
cy pres**
“as near as possible”
a charitable trust may be modified if the trust’s purpose becomes impractical or impossible to achieve.
often, once the settlor passes away the practical purpose because impossible to achieve
so court will look at the settlor’s general charitable intent
if they can’t ^^–> money goes to a resulting trust
spend thrift trusts
settlor has power to prevent a beneficiary from lavish spending
prevents voluntary and involuntary transfer of assets
so creditor can only attempt to collect from a B after a payment is made
settlor can’t be the beneficiary
language: “beneficiary is prohibited from transferring his interest under the trust”
voluntary transfer
beneficiary can transfer his interest in the trust
involuntary transfer
is an attachment by the Beneficiary’s creditor.
In a spendthrift:
*prevents beneficiary’s creditors from getting to assets of the trust
exceptions to spendthrift trust**
these creditors (“preferred creditors”) CAN get assets in a spendthrift trust
- government claims
- spousal support/alimony claims
- child support
- creditors who have furnished necessary services (landlords or grocery bills)
- any amount B receives that is in excess of his station in life (any surplus of education and living expenses can be attached by creditors)
the trustee will have pay the person in the exception directly
resulting trust
when an express trust or a charitable trust/cy pres fails then it goes to settlor’s estate
Duties of Trustees***
- must administer the trust according to its terms
2. duty of care*
duties of co-trustees
reasonable care and must prevent a co-trustee from committing a breach of trust
duty of care**
trsutee has fiduciary duty to exercise care, caution, and skill that a reasonably prudent person would
TIP: if breach of fid duty–> always breach of duty of care – mention it in essay
prudent investor rule
trustee is required to invest and manage the trust assets as a prudent investor would by considering purpose, terms, and distribution circumstance of teh trust
they don’t look at each individual investment. they look at investment strategy as a whole
duty to diversify**
when making investment decisions, the trustee has a futy to diversify the investments of the trust. diversification is one of the fundamental elements of prudent investing
duty to act impartially
trustee can’t favor one Beneficiary more than the others
often tested: trust will have a) an income beneficiary and b) a remainderman. trustee will
income beneficaries
rental income and stock dividens are generally distributed to these B
duty to communicate
(duty to inform and report)
a trustee is rqrd to keep the beneficiaries rsbly informed about the administration of teh trust and of the material facts necessary for them to protect their interests
provide advance notice of transactions involving
- real estate
closely-held business interests
other assets that are difficult to value or replace
thus before making a MAJOR DECISION the trustee should check with the beneficiaries to get their input`
duty of loyalty*
look for mainly self dealing transactions
trustee must not place her own interests ahead of the beneficiaries
prohibits self dealing
prohibits entering into conflicts of interst in which the trustee would benefit personally from the trust
no further inquiry rule
a transaction voidable by the beneficiary when:
a transaction involving the investment of trust property for the trustee’s OWN PERSONAL ACCOUNT
it is IMMATERIAL whether the trustee was acting in good faith or pays a fair consideration
which transactions are conflicts of interests?
a transaction between the trustee and:
1) the Trustee’s spouse or close fam member
2) any business which the trustee owns a significatn interest that might affect the trustee’s best judgement
can a trustee purchase trust property in her INDIVIDUAL CAPACITY when she pays fair market value?
no. court will automatically apply “no further inquiry” rule
remedy: indemnify the trust for any loss and may also be removed as trustee?
remedies for breach of trust
if serious breach –> may be removed as trustee
trustee is liable for ALL losses resulting from a breach
require trustee to disgorge any profit she made from the breach
set aside the transaction and impose a constructive trust
set aside the transaction unless BFP
self dealing
any transaction where trustee stands to benefit
violating this is a violation of duty of loyalty
a trust may be modified or terminated by:
i) by consent of the settlor and all beneficiaries or
ii) by consent of all beneficiaries UNLESS a material purpose still remains (instead of waiting this thing out). Claflin doctrine
iii) when the settlor expressly reserves the right
iv) express terms dictate the termination
Claflin Doctrine
the court won’t terminate/modify a trust (even when all beneficiaries agree) if the modification would be INCONSISTENT with the settlor’s intent
(i.e. ** a spendthrift trust)
termination by a trustee
only if a trustee is conferred the power to terminate,
