Trusts Flashcards
What is a trust?
Relationship in which trustor gives trustee right to hold legal title to property under fiduciary duty to manage, invest, safeguard trust assets for benefit of beneficiary.
What are the methods for creating a trust?
- Declaration by property owner
- Transfer during lifetime of property transfer to another as trustee
- Transfer by will (pour-over)
- Appointment power given to someone as trustee
- Enforceable agreement to create trust
Basic requirements of trust
- Intent
- Property (Res)
- Purpose (not illegal or against public policy)
- Beneficiary
Does a trustee need to be named?
No, court will appoint.
BUT, trust by deed may fail due to lack of delivery.
Trusts - Real Property requirements
- Must be in writing
2. Signed by trustee or settlor
Trusts - Personal property reqs
Oral trust of personal property may be proven by clear and convincing evidence.
What is the max term for a non-charitable trustee?
21 years after death.
What are the types of trusts?
- Express
- Testamentary
- Pour Over
- Secret
- Semi-secret
- Spendthrift
- Support
- Discretionary
- Charitable
- Honorary
- Totten
- Resulting
- Purchase money resulting
- Constructive
What is express trust?
Property transferred from one owner to another to be held for benefit of beneficiary.
What are testamentary trusts?
- Created by will
- Will sets terms
- Trust created upon death
What is a pour-over trust?
Structured to receive and dispose of assets at settlor’s death.
Often established by will.
What is a secret trust?
If settlor leaves gift to beneficiary without indicating intent to create a trust, but in reliance on promise that beneficiary will hold property in trust.
What is a semi-secret trust?
When settlor leaves gift to person in trust in will, but doesn’t name beneficiary.
Majority: trust is invalid, applies RESULTING trust
Minority: allows extrinsic evidence to prove beneficiary.
What is a spendthrift trust?
One where beneficiary cannot alienate his interest and is protected from creditors except for necessaries.
What is a support trust?
Directs trustee to make limited distributions to pay beneficiaries support (health, education, etc). Not reachable by creditors if it would interfere with payments.
What is discretionary trust?
Gives trustee discretion to pay/withhold payments to beneficiary.
What is a charitable trust?
Duh.
What is the Cy Pres doctrine?
Applies to charitable trusts. If charitable purpose becomes impossible/impracticable, courts will substitute SIMILAR charity.
If no similar charity, courts will apply RESULTING trust.
What is an honorary trust?
One which has neither private beneficiary nor charitable purpose, and is therefore INVALID.
EXCEPTION: Pets (once pet dies, resulting trust)
What is Totten trust?
Settlor puts $ in bank account with instructions that beneficiary takes certain amount upon death.
What is a resulting trust?
Implied-in-fact trust based on presumed intent of parties. Transfers property back to settlor or estate when:
- Purpose of trust ends
- Express trust fails
- Charitable trust ends and Cy Pres doctrine doesn’t apply (no similar charity)
- Trust is illegal
- Exceeds corpus in trust
- Semi-secret trust
What is purchase money resulting trust?
Beneficiary pays for property, but allows title to be taken in name of trustee.
What is a constructive trust?
Used as REMEDY to PREVENT UNJUST ENRICHMENT when:
- Self-dealing
- Fraud/undue influence
- Secret trusts
- Oral real estate trusts
What are the trustee’s powers?
Trustee has enumerated power in trust itself and pursuant to law. Trustees have implied powers necessary to carry out terms of trust.
What are a trustee’s duties?
- Accounting
- Not delegate (traditional)/Delegate with care (modern)
- Impartiality
- Due Care
- Segregate/Not commingle
- Loyalty
- Prudent investment
- Defend/Enforce claims
What is a trustee liable for?
- Violating duties
- Torts committed by him/agents
- K’s made in scope of trust supervision
Liabilities/rights of third parties (BFP vs. Non-BFP)
BFP will CUT OFF beneficiary’s interest
Non-BFP will hold property in CONSTRUCTIVE TRUST
Allocation of trust
Beneficiaries - entitled to income from interest, dividends, but must pay interest debt, taxes, repairs
Remaindermen - entitled to principal from net proceeds, but must pay principal part of debt and major repairs.
Modification/Revocation (Majority vs. minority) (Which is CA?)
Majority - Settlor can revoke/modify ONLY if power is expressly reserved in trust
Minority (CA) - Trusts are revocable unless stated otherwise.
Trust termination: Trustee Beneficiary Settlor Court
Trustee: No power to terminate unless trust provides
Beneficiary: May compel termination if all agree and does not frustrate purpose
Settlor: Can terminate if he reserved power to do so
Court: Can terminate if purpose is frustrated/illegal
Remedies for breach of trust
Damages Constructive trust Equitable lien Tracing, Suit Removal of Trustee
Defenses: Laches
