Trusts Flashcards
What is a trust?
A trust is an arrangement under which the trustee holds legal title to property for the benefit of the beneficiaries. Trustee has burdens and beneficiaries have benefits of property ownership. Trustee is subject to fiduciary standards; he is not privileged to use trust property as his own
Requisites: Creator (settlor) delivers legal title of trust assets (the res) to trustee for the benefit of beneficiaries with intent to create trust for valid purpose
When does the delivery element not apply to the creation of a trust?
When it is a self-declaration of trust or testamentary trust
When is “wish” and “desire” language sufficient to evidence of intent to create a trust?
If the language purports to create a duty based on its fairest construction. BUT, merely precatory language of suggested use is insufficient.
The “res” requirement
The corpus, the principal, the subject matter of the trust. In order to have a trust, there must be a specific interest in property to which the trustee’s duties relate. IF THERE IS NO CERTAIN AND IDENTIFIABLE TRUST PROPERTY, THERE IS NO TRUST
Expectancies insufficient
The property in the trust must be a recognized property interest, not a mere expectancy. Watch out for situations of heir expectant, who have no property interest in their prospective inheritance.
Legatee has more than mere expectancy; she has interest which may be subject matter of a trust or gift. Right to receive is certain and identifiable, even if amount is not.
Trust property can be life insurance policy beneficiary proceeds or pension plan death benefit or settlor’s will.
Reaffirmation of gratuitous trust
Where a promise to create a trust is gratuitous, a trust arises when all elements of a valid trust have been met if, but only if, at that subsequent time the settlor manifests an intention THEN to create the trust.
What if a trustee is lacking?
Rule: No trust fails for want of a trustee. If the intention to create a trust is clearly manifested but no trustee is named, or the named trustee dies or resigns with no provision for a successor trustee, the court will appoint a suitable trustee to execute the trust.
EXCEPTION: Powers personal to the named trustee (rarely invoked)
Private trust must have ascertainable beneficiaries
Unlike charitable trusts, private trusts must have ascertainable beneficiaries
Beneficiaries must be human
Charitable trust beneficiaries
Must be for a charitable purpose, and must be for a reasonably large and unidentifiable segment of the public at large
Power of appointment
Majority rule: a trust, invalid for want of definite beneficiaries cannot be given effect as a power of appointment. The property is returned to the settlor’s estate by resulting trust (implied reversion)
Minority view: power of appointment is allowed. If trustee declines to exercise it, the trust property will be returned to the settlor’s estate
Honorary trusts
E.g. money in trust for the care of my 3 dogs. Problem with these is they violate the rule against perpetuities. However, under the UTC, they are validated by statute for the lifetime of the animals. If the trust is valid, court will appoint someone to enforce the trust.
Pour-over clause
Under the Uniform Testamentary Additions to Trusts Act, a settlor can make gifts by will to a trust – even an amendable and revocable trust – established during his lifetime. The trust may remain unfunded during the settlor’s lifetime. The trust must be clearly identified from language in the will.
Does not matter that T is both trustee and beneficiary. While the sole beneficiary of a trust cannot be the sole trustee, this rule does not apply (i) if there are two trustees, even though one of the trustees is the sole beneficiary; (ii) if there are two or more beneficiaries, even though the sole trustee is one of the beneficiaries.
Totten trust
A bank account depositor declares himself trustee of the account for a person who is to receive the money in the account at the time of the depositor’s death. The depositor retains full control of the money in the account during his lifetime. A Totten trust is revocable by: (i) the withdrawal of funds; (ii) any lifetime act manifesting the intent to revoke; and (iii) unlike joint accounts, a specific contradictory provision in a will (Majority rule). It does not protect funds int eh account from creditors’ claims, and it terminates of the beneficiary predeceases the depositor.
When is an oral inter vivos trust valid?
Oral trusts of personalty are enforceable provided its terms can be established by clear and convincing evidence.
When is an oral inter vivos trust invalid?
Trusts containing land must be evidenced by a writing that satisfies the Statute of Frauds.
When might constructive trusts be imposed?
General rule is that a mere breach of a promise will not raise a constructive trust. Thus, where A transfers real property to B on B’s oral promise to hold it for C, some jurisdictions consider the SOF a bar. But the trend is to impose a constructive trust for C.
Exceptions to general “no constructive trust” rule
Fraud in the inducement (promisor a liar from the start)
Breach of promise by one in a confidential relationship
Breach of promise by the decedent’s devisee or heir to hold property for the benefit of a third person
Breach of promise by the decedent to devise property to one rendering services in reliance thereon (but no CT if damages adequate); or
Breach of promise to the debtor by the buyer at the foreclosure sale to hold the property for the debtor, causing the debtor to forgo bidding at the sale (in many jurisdictions, no CT if damages adequate)
