Trusts Flashcards
What are the execution requirements to create a valid trust?
- signed writing
- signed by settlor and trustee
- acknowledged before a notary public OR witnessed by two witnesses
What must settlor transfer to trustee to create a valid trust?
Must deliver legal title to the res (property) to the trustee for the benefit of named beneficiaries with intent to create a trust with legal purpose
What must be true of trust property (res)?
Must be owned by settlor at the time of the transfer to trustee
What is the main distinction between a lifetime/inter vivos trust and a testamentary trust?
Lifetime: created during settlor’s lifetime, no court is involved in it creation
Testamentary: created by will at settlor’s death, arise in probate proceedings in court
Who cannot be a trustee of a testamentary trust?
- under 18
- incompetent
- convicted felons
- incapable b/c of drunkenness, dishonesty, lack of understanding, or improvidence
Generally, what must be true of an identified beneficiary?
beneficiaries must be definite and ascertainable with no ambiguity (if ambiguous, trustee holds for residuary beneficiary)
What factors can render a trust unenforceable for a lack of intent?
- Precatory language (hopes, wishes, desires)
2. Trustee is given no duties
What is the main difference between charitable trusts and other types of trusts?
Charitable trusts cannot have ascertained members/beneficiaries and are established for charitable purpose (education, relief of poverty, religion etc.)
R.A.P. does not apply
What is the Cy Pres Doctrine?
If circumstances have changed making a trust’s directions impracticable (or has been accomplished ) court may redirect benefit in a manner that serves testator/settlor’s charitable intent
What is a constructive trust?
Equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct
For joint bank accounts, what 2 showings must be made for survivorship language to be set aside?
C+C evidence that:
- survivorship was not intended when account was established, AND
- account was only opened as a matter of convenience to the depositor
What is Totten Trust?
Trust where settlor deposits money in a bank account with instructions that money should go to named beneficiary upon settlor’s death
What are the 4 ways to revoke a Totten Trust?
- withdraw all the money
- express revocation – in writing, notarized and delivered to bank
- revocation in a will
- beneficiaries death
What are the 3 key duties of a custodian under the Uniform Transfers to Minors Act (UTMA)?
- hold, manage, invest property as a prudent person
- pay minor part of property deemed advisable
- pay minor what is left of property when minor turns 21
Do transfers under the UTMA create trusts?
NO, title to property does not pass to a custodian like it does to a trustee
What kinds of interests/benefits can pour over into lifetime and testamentary trusts?
- life insurance proceeds
- savings accounts
- pension benefits
What is the general rule regarding the alienability of trust interests?
Interest in income or principal may be voluntarily assigned and may be subject to claims of a beneficiaries judgment creditors
What is a Spendthrift Provision?
prohibits a beneficiary from transferring their trust interest and makes trust funds unreachable to creditors
What does that power of invasion grant a trustee?
Trustee can invade the trust principal for the living beneficiary’s support – generally the trust document must grant this power
When can a trust be amended/modified?
ONLY when the objectives of the trust would be defeated or substantially impaired if the trust is not modified.
**may be modified by trustee or beneficiary
What are main factors a trustee must consider when investing on behalf of the trust?
- consider the role each investment plays within overall trust portfolio
- consider expected total return from income and capital gain
What are the 5 prohibitions under the trustee’s general duty to refrain from self-dealing?
Trustee CANNOT:
- buy or sell trusts assets to himself
- borrow trust funds from trust
- lend money to trust
- profit from serving as trustee (aside from appropriate trustee fees) – cant take advantage of confidential info
- corp. trustee cannot by corps stock as trust investment
What are the remedies for a breach of trustee fiduciary responsibilities?
- sue for removal of trustee
- sue for any losses
* *can also ratify/waive breach (acquiesce)
When can a 3rd party NOT be sued by a beneficiary due to a prohibited transaction by a trustee?
When the 3rd party is a bona fide purchaser for value without notice
When will a 3rd party purchaser NOT qualify as a Bona Fide purchaser?
When 3rd party purchaser:
- knows they are dealing with a self-dealing trustee
- is a relative of the trustee
- is a business in which the trustee is involved
When will a trustee have personal liability for contracts or torts?
When the trustee signs personally and merely mentions the trust
**vice versa is true – if trustee signs on behalf of the trust no personal liability attaches
What happens if a trustee uses commingled funds to purchase a trust asset?
If the asset decreases in value the trustee must account (pay) for all losses, if the asset increases in value the trustee must pay all profits to the trust
