Trusts and Future Interests Flashcards
what is a trust?
a trust is a fiduiciary relationship in which the trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for benefit of designate beneficiaries, who hold equitable title
what is a trustee?
- this person holds the legal interest and has the responsibility of ownership
does trustee recieve any benefit from the legal title?
no, except maybe a fee for acting as trustee
the trustee is a ____ and so he must _____
the trustee is a fiduciary and so he must 1) deal with property with reasonable care, 2) maintain the utmost degree of loyalty, and 3) is personally responsible if their concuct falls below standards
what is the beneficiary?
this is who holds the equitable or beneficial interest who recieves the benefits of the trust
not much control over the trust or trust property, but the trustee owes the beneficiary duties
what is a settlor?
person who creates the trust but supplying initial trust property (trustor, grantor, donor)
how does a settlor create a trust?
transfers legal title to trustee and equitable title to a beneficiary
what does a trustee do
- manages and invests property in accordanc with legal duties and the settlor’s instructions from the trust instrument
- makes payments to or for the benefit of the beneficiary following the settlor’s instructions in the trust instrument
- when duties are completed, trust terminates and trustee distibutes any remaining property to the remainder beneficiaries
flexibility of asset distribution in a trust
if the assets are in a trust, settlor can provide for any type of distribution plan they desire, within legal bounds, such as spreading benefits over time, giving trustee discretion, setting certain standards for distribution
Does a trust pass through probate?
Property in an inter vivios trust passes outside of the probate process (not under settlor’s will or to his heirs)
what are the tax benefits of trusts?
income, gift, estate tax savings
what are express trusts?
created by the express intention of the settlor
two types of express trusts
- private - private beneficiaries (certain ascertainable persons)
- charitable - charitable beneficiaries (indefinite class of persons or public in general)
two types of trusts created by the operation of law
- resulting trusts
- constructive trusts
what is a resulting trust
arises from the presumed intention of the owner of the property
what is a constructive trust
equitable rmedy to prevent unjust enrichment
what are the five main elements of a valid trust?
- intent
- identifiable corpus
- ascertainable beneficiaries
- proper purpose
- mechanics and formalities
what law governs express trusts?
the UTC (uniform trust code) - adopted by almost all states
what are the 5 requirements for an express trust?
- settlor with a capacity to convey
- a present intent to create a relationship
- competent trustee with duties
- a definite beneficiary AND
- same person is not the sole trustee and sole beneficiary
must be a preset disposition in the trust of specific property then owned by settlor and trust must have valid purpose
consideration not required
capacity requirement for settlor?
- inter vivos trust - same capacity as inter vivos gift
- capacity to make testamentary trust - same capacity to make a will
- lack of legal capacity prevents a trust from arising, undue influence, fraud or duress makes a trust unenforceable
what is the present intention to create a trust?
settlor must intend to split the legal and equitable title and to impose enforceable duties on the holder of legal title
are formal words required to intend to create a trust?
intent may be manifested by written or spoken words or by the conduct of settlor
no formal words are required (do not even have to call it a trust)
is an oral trust of personal property valid?
in some states if certain conditions are met
does intent to create a trust have to be communicated to beneficiaries?
no - delivery of property to trustee is sufficient
when does an intention to create a trust have to be manifested?
must have been externally manifested by the settlor at the time they owned property and prior to its conveyance to another conduct of parties after the conveyance can show an earlier intent)
what is the rule for settlor’s intent and timing of trust to take effect
settlor must intend that the trust take effect immediately - not at some future time (although future interest can be trust property)
can you promise to make a trust in the future?
yes, but needs consideration to be a binding contract
can you change the character of a completed gift?
no, once an outright transfer of property occurs, it is too late for the alleged settlor to go back and claim the transfer was really one in trust
what is a precatory expression?
a settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way
usually do not create trust because settlor must impose a legal obligation on transferee, not merely a moral one
how do you overcome the infernence of a precatory expression?
- definite and precise directions
- directions addressed to a fiduciary
- resulting unnatural disposition of property (close relative will take nothing if no trust imposed)
- extrinsic evidence showing settlor previously supported the intended beneficiary
can the sole trustee be the sole beneficiary?
NO - this causes the equitable and legal title to merge
what is the requirement of identifiable corpus?
trust property is required - must be ascertainable with certainty
What if there is no property?
the trust fails because the trustee has no property to manage
what is sufficient trust property?
trust property must be an existing interest in existing property
can a future interest be held in trust?
yes, but an interest not yet in legal existence cannot be held in trust
can future profits from an existing contract be trust property?
yes
trust res must be ______
existing property that the settlor has the power to convey
what is insufficent trust property?
property settlor cannot transfer or does not yet own
unenforceable gratuitious promise cannot be subject of trust
can the res be fractional or undivided interest in specific property?
yes, but must be identifiable and segregated
can a debtor hold his own debt in a trust?
No, but can declare themself trustee of particular property from which the debt is to be paid, and debt can be held in trust by another person
what is an ascertainable beneficiary?
the person who enforces the trust (necessary to the validity of every trust except charitable and honorary trusts)
what is a qualified beneficiary?
a beneficiary who, on the date the beneficiary’s qualfication is determined is: 1) a currenet beneficiary OR 2) a first-line remandermen
what was required of a private trust for the benefit of a class at common law?
class must be reasonably definite
under the UTC, what can the settlor empower the trustee to do?
to select the beneficiaries from an indefinite class
failure to exercise the trust in favor of the power gives rise to a resulting trust in favor of the settlor or their successors
what happens if a trustee does not have a beneficiary?
it fails and a resulting trust in favor of settlor or their successors is presumed
when is a trust invalid?
- if it is illegal
- contrary to public policy
- intended to defraud the settlor’s creditors or based on illegal consideration
what are acts contrary to public policy?
public policy is violated if purpose of a trust is to: induce others to enage in criminal or tortious acts, encourage immorality, or induce a person to neglect parental, familial, or civic duties
what happens to a trust if the condition attached to an interest is against public policy?
- settlor’s alternative desire controls if expressed
- if illegal condition is condition subsequent = condition is invaldiated but trust is valid
- if illegal condition is condition precedent = major view is to hold the interest valid unless there is evidence that the settlor’s wish would be to void the beneficiary’s interest altogether if the condition is unenforcable
what is the CL RAP?
a nonvested property interest is invalid unless it is certain to vest or fail no later than 21 years after the death of a person who is alive when it is created
man states have adopted a wait and see approach or a 90 year waiting period that would save the interest
some states have abolished it all together for trusts (allowing dynasty trusts)
once established, what happens if trustee dies, refuses to accept appt, or resigns?
will not fail - court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee survived
the absence of a trustee may cause what?
may cause an attempted inter vivos trust to fail for lack of delivery
How does a person accept trustship?
- signing the trust or a separate written acceptance
- substantially complying with the acceptance terms in a trust instrument OR
- accepting delivery of trust property, exercising powers, or performing duties as a trustee
What must the trustee have?
trustee must have duties - settlor must intend to impose enforceable duties on the trustee
if duties not spelled out in trust instrument, court will usually imply duties if there is an intention to create a trust, res, and identified beneficiary
who is qualified as a trustee?
anyone who has capacity to acquire and hold property for their own benefit and has capacity to administer that property
minors and insane persons can hold property, but cannot administer it
some state statutes limit right of some persons or corps to serve as trustee
what is a trustee entitled to payment wise?
entitled to reasonable compensation or to whatever compensation is specified in the trust instrument
entitled to reimbursment for expenses incurred in the trust’s administration and any other expenses that resulted in benefit to trust
how can a court remove a trustee?
on its own motion or on request by settlor, beneficiary, or co-trustee
what are the grounds for trustee removal?
1) a serious breach of trust
2) serious lack of cooperation among co-trustees
3) unfitness, unwillingness, or persistent failure to administer
4) a substantial change in circumstances
whether continuation in the office would be detrimental to the trust
what is a disclaimer or resignation by trustee?
before acceptance, a trustee can disclaim or refuse appt for any reason, but must be ALL or nothing
can a trustee become liable on tort claims arising prior to the time the trustee accepted?
Yes, a testamentary trust is treated as in existence as of settlor’s death and trustee’s acceptiance relates back to that date
when can the trustee resign under the UTC?
under the utc, once an appt has been accepted, the trustee can resign by either 1) giving 30 days notice to the qualified beneficiaries, settlor if alive, and co-trustees or 2) obtaining court approval
What is a successor trustee?
a successor trustee succeeds to all of the rights, powers, and privileges of the original trustee and subject to all of og duties, liabilites, and responsibilites
what are the three ways a trust can be created?
- by inter vivos transfer
- by inter vivos declaration of trust
- by will (testamentary)
what are inter vivos trusts?
created while the settlor is still alive either by settlor declaring themself trustee for another or by transfer of property to another as trustee
present intent must be manifested by conduct (delivery) or words (declaring onself trustee)
If a present trust is not established because there is no trust res, the trust arises when settlor subsequently acquires the rees and remanifests the trust intent
what happens when the settlor declares himself trustee?
settlor keeps legal title
what is a transfer or conveyance in trust?
settlor creates the trust by transferring legal title of property to a trustee
settlor may retain or transfer the equitable title, but settlor conveys LEGAL TITLE
