Trusts and Future Interest Flashcards
Trust Formation
A valid express trust requires:
- a definitive beneficiary
- a settlor
- intent to create trust
- trustee named
- a valid trust purpose
- trust property; AND
- compliance with state formalities
** can be natural person, corp or organization = beneficiary
*** trustee cant be sole trustee and sole beneficiary.
Revocable and Irrevocable Trusts
- Majority/UTC view: revocable by default unless the trust states otherwise.
- minority view: irrevocable by default unless the trust states otherwise
- cannot be modified or revoked.
Pour Over Provision
When a will gifts property to a previously established trust.
- does not create a trust it must be connected with a previously vreated inter vivos trust (a trust created during testator’s lifetime)
- Revocation or termination of the trust before testator’s death causes the gift to lapse.
Discretionary Trust
when the trustee has absolute discretion and power to determine when and how much of the trust property is distributed to the beneficiaries.
trustee must esercise discretion in good faith.
Cypres Doctrine
a court may modify a charitable devise “as near as possible” with the settlor’s intent if the purpose of the trust/ bequest is frustrated.
(only applies if testator has a general charitable intent)
Spendthrift Trust
a spendthrift procision prev ents the transfer of a beneficiary’s interest in a trust.
valid only if it restrains both voluntary and involuntary transfers; cannot be sold or assigned by the income beneficiary
what kind of creditors can reach spendthrift trust
a creditor cannot reach a beneficiary’s spendthrift trust interest except
- a judgment creditor who provided services for the protection of a beneficiary’s interest in the trust.
- creditor who furnished necessities (in some stateS)
- order for child support or alimony
- claim by a state or federal govt (federal tax lien)
- self- settled trust
Rights of creditors: spendthrift provision
Creditor can only collect from the beneficiary AFTER a payment is made unless an excess applies. if there’s no provision; credit may attach present or future distributions.
rights of creditor: discretionary trust
a creditor cannot compel a distribution, subject to the trustee’s discretion, even if:
- discretion is expressed in the form of a standard of distribution
- the trustee abused their direction.
** if a judgment or order exists for unpaid child /spousal support the court can order the distribution to pay and direct the trustee to pay child or spouse.
Termination of a Trust
Under the UTC a trust may be terminated if:
- its revoked or expired
- its material purpose is achieved
- it becomes unlawful, contrary to public policy or impossible to achieve
- the settlor and all beneficiaries consent
- all beneficiaries consent + court decies that continuance is not necessary
- termination will further the purpose of the trust because of unexpected circumstances
- the cy pres doctrine applies; OR
- value of the trust is insufficient to justify the cost of the administration.
Duty to Administrator of the Trust
Trustee must continue to administer the trust until it terminates.
- Common Law: trusee owes duty to act with care, skill and pridence.
- UTC: trustee must administer the trust
- in good faith
- in acoordance with the trust purpose and terms
- and in the interst of trust beneficiaries.
must act this way even if have discretion.
Duty of Loyalty
Trustee must administer the trust solely in the interest of the beneficiaries. (cannot engage in self- dealing)
if engage in self-dealing: transaction is voidable by the beneficiary affected or beneficiary can seek damages.
Five Exceptions where self- dealing is allowed
- authorized by the trust terms
- approved by the court
- beneficiary did not commence a judicial proceeding within the required time.
- beneficiary consented, ratified, or released the trustee of liability.
- transaction occurred before the person became trustee
Principal and Income Allocation
Trust receipts and disbursemnts are allowed to either principal or income. ( a state law normally controls how each is allocated).
- allocated to income:
- receipt of rental payments from real/personal prop
- money received from an entity (cash dividends)
- ordinary expenses and repair
- allocated to principal:
- proceeds from sale of principal asset
- all other property received- other than money received from an entity.
- extraordinary expenses and repair.
Future Interest: Remaindermen
not entitled to receive trust property until termination of trust.
