Trusts Basics Flashcards
Summary of Testable Issues
- Parties to Trust
- Express Trusts
- Challenging the Validity of Trusts
- Charitable Trusts
- Rights of Beneficiaries and Creditors to Distribution
- Trust Termination
- Trustee’s Duties
Parties to Trust
Grantor/Settlor: Creator of the trust
Trustee: Holds legal interest/title to trust property
Grantee/Settlor: Beneficiary of the trust
Express trusts - Inter vivos trust
An inter vivos trust is created while the trustor is living that transfers some or all of trustor’s property to a trust.
Trustor can designate themself as trustee if so desired
Express trusts - Testamentary trust
A testamentary trust is created in writing a will or document incorporated by reference into a will. Wills containing trusts must meet the attested or holographic will requirements
Express trusts - Intent
Settlors may manifest intent to make gifts orally, in writing, or by conduct. Intent must come before or simultaneously to transfer of property.
Express trusts - Trustee
Courts appoint a trustee if a settlor fails to designate one.
Express trusts - Trust property
Trusts must be funded with identifiable trust property (or res) - must be described with reasonable certainty
Express trusts - Valid trust purpose
A trust can be created for any purpose as long as it is not illegal or contrary to public policy. Crossing terms will be subject to alternatives or stricken.
Express trusts - Ascertainable beneficiaries
Beneficiaries must be identifiable so that the equitable interest can be transferred automatically by operation of law and directly benefit the person
- Settlor may refer to outside writings or acts to ID beneficiaries
- Exceptions
(i) trusts for a reasonably definite class will be upheld, and
(ii) Charitable trusts don’t need individual ascertainable beneficiaries
Express Trusts - Omitted Children
A child omitted from the trust can force intestate share if:
(i) The child is born or adopted after the trust is created OR the settlor mistakenly believed they were dead/didn’t exist, and
(ii) The child is unintentionally omitted from the trust
Except: intestate share will not be forced if the omitted child is otherwise provided for either by instrument outside the trust or substantially all the estate is left to the omitted child’s parent
Challenging the Validity of the Trust - Approaches
- Undue Influence
- Fraud
Challenging the Validity of the Trust - General Undue Influence
Undue influence occurs when
(i) mental or physical coercion is exerted by a third party on a testator
(ii) with the intent to influence the testator
(iii) such that he loses control of his own judgment.
*Following the general rule, both traditional approach and confidential relationship analyses should follow
Challenging the Validity of the Trust - Traditional Approach
A trust’s contestant must show four elements (SMOC):
- Susceptibility - the testator was susceptible to influence
- Motive - influencer has reason to benefit
- Opportunity - influencer had opportunity to influence
- Causation - influencer followed ‘unnatural’ result
Challenging the Validity of the Trust - Confidential Relationship
Presumption of undue influence arises when
(i) The principal beneficiary of the will has a confidential relationship with the testator,
(ii) The principal beneficiary participated in executing the will, and
(iii) The gift to the beneficiary is ‘unnatural’
Following a presumption, the beneficiary must show through clear and convincing evidence that there was no exercise of undue influence.
If there is undue influence, the influencer will only receive what would be their theoretical intestate share
*Add’l CA presumption: gift to the drafter is invalid
Challenging the Validity of the Trust - Fraud
Fraud can invalidate trusts. Fraud requires
(i) a misrepresentation by a beneficiary
(ii) with intent to deceive the settlor, and
(iii) with the purpose of influencing the testamentary disposition
Challenging the Validity of the Trust - Fraud in the Inducement
A misrepresentation that causes the trustor to make a different trust that they otherwise would have made.
Must be shown that the trustor would not have made the gift if they knew the truth.