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MEE subjects > Trusts and Future Interests > Flashcards

Trusts and Future Interests Flashcards

1
Q

what is a trust?

A

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

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2
Q

what is a trustee?

A
  • this person holds the legal interest and has the responsibility of ownership
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3
Q

does trustee recieve any benefit from the legal title?

A

no, except maybe a fee for acting as trustee

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4
Q

the trustee is a ____ and so he must _____

A

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

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5
Q

what is the beneficiary?

A

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

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6
Q

what is a settlor?

A

person who creates the trust but supplying initial trust property (trustor, grantor, donor)

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7
Q

how does a settlor create a trust?

A

transfers legal title to trustee and equitable title to a beneficiary

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8
Q

what does a trustee do

A
  • 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
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9
Q

flexibility of asset distribution in a trust

A

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

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10
Q

Does a trust pass through probate?

A

Property in an inter vivios trust passes outside of the probate process (not under settlor’s will or to his heirs)

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11
Q

what are the tax benefits of trusts?

A

income, gift, estate tax savings

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12
Q

what are express trusts?

A

created by the express intention of the settlor

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13
Q

two types of express trusts

A
  • private - private beneficiaries (certain ascertainable persons)
  • charitable - charitable beneficiaries (indefinite class of persons or public in general)
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14
Q

two types of trusts created by the operation of law

A
  • resulting trusts
  • constructive trusts
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15
Q

what is a resulting trust

A

arises from the presumed intention of the owner of the property

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16
Q

what is a constructive trust

A

equitable rmedy to prevent unjust enrichment

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17
Q

what are the five main elements of a valid trust?

A
  1. intent
  2. identifiable corpus
  3. ascertainable beneficiaries
  4. proper purpose
  5. mechanics and formalities
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18
Q

what law governs express trusts?

A

the UTC (uniform trust code) - adopted by almost all states

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19
Q

what are the 5 requirements for an express trust?

A
  1. settlor with a capacity to convey
  2. a present intent to create a relationship
  3. competent trustee with duties
  4. a definite beneficiary AND
  5. 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

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20
Q

capacity requirement for settlor?

A
  • 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
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21
Q

what is the present intention to create a trust?

A

settlor must intend to split the legal and equitable title and to impose enforceable duties on the holder of legal title

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22
Q

are formal words required to intend to create a trust?

A

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)

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23
Q

is an oral trust of personal property valid?

A

in some states if certain conditions are met

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24
Q

does intent to create a trust have to be communicated to beneficiaries?

A

no - delivery of property to trustee is sufficient

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25
Q

when does an intention to create a trust have to be manifested?

A

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)

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26
Q

what is the rule for settlor’s intent and timing of trust to take effect

A

settlor must intend that the trust take effect immediately - not at some future time (although future interest can be trust property)

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27
Q

can you promise to make a trust in the future?

A

yes, but needs consideration to be a binding contract

28
Q

can you change the character of a completed gift?

A

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

29
Q

what is a precatory expression?

A

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

30
Q

how do you overcome the infernence of a precatory expression?

A
  • 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
31
Q

can the sole trustee be the sole beneficiary?

A

NO - this causes the equitable and legal title to merge

32
Q

what is the requirement of identifiable corpus?

A

trust property is required - must be ascertainable with certainty

33
Q

What if there is no property?

A

the trust fails because the trustee has no property to manage

34
Q

what is sufficient trust property?

A

trust property must be an existing interest in existing property

35
Q

can a future interest be held in trust?

A

yes, but an interest not yet in legal existence cannot be held in trust

36
Q

can future profits from an existing contract be trust property?

A

yes

37
Q

trust res must be ______

A

existing property that the settlor has the power to convey

38
Q

what is insufficent trust property?

A

property settlor cannot transfer or does not yet own

unenforceable gratuitious promise cannot be subject of trust

39
Q

can the res be fractional or undivided interest in specific property?

A

yes, but must be identifiable and segregated

40
Q

can a debtor hold his own debt in a trust?

A

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

41
Q

what is an ascertainable beneficiary?

A

the person who enforces the trust (necessary to the validity of every trust except charitable and honorary trusts)

42
Q

what is a qualified beneficiary?

A

a beneficiary who, on the date the beneficiary’s qualfication is determined is: 1) a currenet beneficiary OR 2) a first-line remandermen

43
Q

what was required of a private trust for the benefit of a class at common law?

A

class must be reasonably definite

44
Q

under the UTC, what can the settlor empower the trustee to do?

A

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

45
Q

what happens if a trustee does not have a beneficiary?

A

it fails and a resulting trust in favor of settlor or their successors is presumed

46
Q

when is a trust invalid?

A
  1. if it is illegal
  2. contrary to public policy
  3. intended to defraud the settlor’s creditors or based on illegal consideration
47
Q

what are acts contrary to public policy?

A

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

48
Q

what happens to a trust if the condition attached to an interest is against public policy?

A
  • 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
49
Q

what is the CL RAP?

A

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)

50
Q

once established, what happens if trustee dies, refuses to accept appt, or resigns?

A

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

51
Q

the absence of a trustee may cause what?

A

may cause an attempted inter vivos trust to fail for lack of delivery

52
Q

How does a person accept trustship?

A
  1. signing the trust or a separate written acceptance
  2. substantially complying with the acceptance terms in a trust instrument OR
  3. accepting delivery of trust property, exercising powers, or performing duties as a trustee
53
Q

What must the trustee have?

A

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

54
Q

who is qualified as a trustee?

A

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

55
Q

what is a trustee entitled to payment wise?

A

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

56
Q

how can a court remove a trustee?

A

on its own motion or on request by settlor, beneficiary, or co-trustee

57
Q

what are the grounds for trustee removal?

A

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

58
Q

what is a disclaimer or resignation by trustee?

A

before acceptance, a trustee can disclaim or refuse appt for any reason, but must be ALL or nothing

59
Q

can a trustee become liable on tort claims arising prior to the time the trustee accepted?

A

Yes, a testamentary trust is treated as in existence as of settlor’s death and trustee’s acceptiance relates back to that date

60
Q

when can the trustee resign under the UTC?

A

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

61
Q

What is a successor trustee?

A

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

62
Q

what are the three ways a trust can be created?

A
  1. by inter vivos transfer
  2. by inter vivos declaration of trust
  3. by will (testamentary)
63
Q

what are inter vivos trusts?

A

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

64
Q

what happens when the settlor declares himself trustee?

A

settlor keeps legal title

65
Q

what is a transfer or conveyance in trust?

A

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

66
Q
A

MEE subjects (6 decks)

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