Trusts bestrusts - stuff i should know

Question 1

Types of trusts

Answer 1

Express - Private, charitable

Resulting trust

Constructive trust

Question 1

Trust basics

Answer 1

A trust is a fiduciary relationship in which one party (trustee) holds legal title to property for the benefit of designated beneficiaries

Settlor = person who created the trust, giving trustee legal title to hold, manage, and administer trust property for beneficiaries
Revocability — trusts are generally revocable under modern statutes, unless the terms expressly state the trust is irrevocable

Question 2

Express trusts

Answer 2

Express trusts — created with property owner’s express intent

Private trust — created for the benefit of certain defined and/or ascertainable persons (note — most common trust tested on essays)
May be created inter vivos (during settlor’s life) or as a testamentary trust (created by will)

Charitable trust — created for the benefit of an indefinite class of people or the public generally

Question 3

Resulting trust

Answer 3

Resulting trust — trust implied or imposed by law, most often when an express trust fails for some reason (e.g., beneficiary is dead, trust is unenforceable or void, etc.)

Settlor usually becomes beneficiary and trustee conveys title back to settlor or, if settlor has died, settlor’s estate

Question 4

Constructive trust

Answer 4

Constructive trust — not a trust, but rather an equitable remedy used in cases to rectify unjust enrichment or wrongful conduct

Court imposes constructive trust on property in wrongdoer’s possession

Question 5

Express trust requires:

Answer 5

A valid express trust requires the following elements:

• Settlor with capacity to convey
  Same capacity as required to create a will
• Settlor has a clear present intent to create a trust relationship
  Intent must be absolutely clear and settlor must understand the nature of their act (i.e., what a trust is)
  Writing not required unless as required by the Statute of Wills or Statute of Frauds (e.g., real property)
• Competent trustee with duties — must name a trustee, but once established, a trust will not fail solely b/c trustee does not exist
  In such cases, a trustee will be appointed
• Trustee capacity — in most states anyone who can hold title to property can act as a trustee
• Definite beneficiary — at time of trust creation, settlor must either:
  Specifically identify the beneficiaries by name, or
  Sufficiently describe how beneficiaries will be ascertained
  Does not apply to charitable trusts (see card 33)

Sole trustee cannot be a sole beneficiary of a trust

• Present and clear disposition of settlor’s specific property in trust
  I.e., owner has specific property they want to place in trust
• Trust property (“res”) must be specifically described or ascertainable with certainty from its description.
• Valid trust purpose — can be for any purpose that is not illegal, impossible, or contrary to public policy

Question 6

Capacity

Answer 6

Settlor with capacity to convey
Same capacity as required to create a will (see card 7)

Question 7

Settlor intent

Answer 7

Settlor has a clear present intent to create a trust relationship
Intent must be absolutely clear and settlor must understand the nature of their act (i.e., what a trust is)
Writing not required unless as required by the Statute of Wills or Statute of Frauds (e.g., real property)

Question 8

Competent trustee with duties

Answer 8

Competent trustee with duties — must name a trustee, but once established, a trust will not fail solely b/c trustee does not exist
In such cases, a trustee will be appointed
Trustee capacity — in most states anyone who can hold title to property can act as a trustee

Question 9

Definite benificiary

Answer 9

Definite beneficiary — at time of trust creation, settlor must either:
* Specifically identify the beneficiaries by name, or
* Sufficiently describe how beneficiaries will be ascertained.

EXCEPT: Does not apply to charitable trusts
Sole trustee cannot be a sole beneficiary of a trust

Question 10

Trust Property

Answer 10

Present and clear disposition of settlor’s specific property in trust
I.e., owner has specific property they want to place in trust
Trust property (“res”) must be specifically described or ascertainable with certainty from its description

Question 11

Valid Trust purpose

Answer 11

Valid trust purpose — can be for any purpose that is not illegal, impossible, or contrary to public policy

Question 12

Trust creation: inter-vivos vs testamentary

Answer 12

Trusts are generally created inter vivos (during settlor’s life) or via testamentary trusts (trust created by will)

Question 13

Inter vivos (a.k.a. “living trust”) creation:

Answer 13

Inter vivos (a.k.a. “living trust”) — creation requires either:

**1. Transfer of property **— property owner transfers property to another as trustee, or
**2. Declaration of trust **— property owner declares himself trustee for another
Delivery — if property owner declares another as trustee (i.e., settlor is not trustee), property must be delivered to trustee

Formalities — writing not required, but an oral trust and its terms can only be established by clear and convincing evidence
Land as property — writing required under Statute of Frauds

Question 14

Testamentary trust

Answer 14

Testamentary trusts — trust created by will

Trust intent, essential terms, and identification of beneficiaries must be ascertainable by either:
* Terms of the will itself,
* Incorporation by reference — an existing writing properly incorporated by reference into the will, or
* Power of appointment

Question 15

Pour-over provision

Answer 15

Pour-over provisions — provision in a will that devises property to a previously existing trust

Does not create a trust; transfers property to an existing trust.

Question 16

Trustee powers

Answer 16

Powers — trustee can only exercise powers expressly or impliedly conferred (most often conferred by trust terms)

Trustee has powers necessary and appropriate to properly invest, manage, and distribute trust property if not contrary to trust terms

Question 17

Trustee duties

Answer 17

Duties — trustee has a number of duties designed to ensure trust property is secure and fairly administered, most notably:

Duty to administer — trustee must administer trust in good faith and in a prudent manner in accordance with trust terms and beneficiary’s interest

Duty of loyalty — no self-dealing
Trustee cannot enter into a transaction in which he is dealing with the trust in his individual capacity, absent court approval or a contrary trust provision

Duty to report — trustee must keep beneficiaries reasonably informed of the trust and its administration

Duty to separate trust property and keep records — trustee must not commingle trust property with his own or another trust’s

Duty to enforce claims and defend trust — trustee must enforce claims the trust has and defend the trust against claims

Duty to preserve property and make it productive — trustee must preserve trust property, including the duty to make property productive (e.g., invest funds, lease or manage land, collect claims)

Question 18

Discretionary and support trusts

Answer 18

Discretionary and support trusts (sometimes called “protective trusts”) restrict beneficiary’s access to trust property by terms of the trust

Creditor issues — b/c beneficiaries have limited access to trust property, their creditors are limited in accessing beneficiary’s trust interest

Question 19

Discretionary trust

Answer 19

Discretionary trust — trustee has absolute power and discretion to make decisions regarding distribution of trust property to beneficiaries

Beneficiaries have no right to income until trustee exercises discretion to distribute property or income
Beneficiary’s creditors — cannot reach the trust b/c beneficiary cannot compel payment from the trust
But if creditors serve trustee with process, trustee must first satisfy creditor’s claims before distributing funds to beneficiary

Question 20

Support Trust

Answer 20

Support trust — directs trustee to pay beneficiaries from trust as much as is necessary for beneficiary’s support

Beneficiary’s creditors — have same rights as for discretionary trust

Question 21

Spendthrift trust

Answer 21

Spendthrift trust — prohibits beneficiaries from transferring their interests in the trust, either voluntarily or involuntarily

Usually included to protect beneficiary from his own carelessness
Beneficiary’s creditors — cannot reach beneficiary’s interest in the trust, but distributions to beneficiary are reachable

Question 22

Charitable trust

Answer 22

Trust that has the purpose of benefitting an unascertained group of people or the public at large.

Distinguishing characteristics:
* Indefinite beneficiaries required — must be created in favor of a reasonably large class of indefinite beneficiaries
* Cannot be for the benefit of identifiable individuals, although a trust benefitting a single charitable organization whose activities meet these requirements is acceptable

Test — beneficiaries are indefinite and unascertainable if they are unnamed and changing over time.

Charitable purpose — must be considered to benefit the public.
* Effect of gift, not motive of settlor, controls — e.g., trust to build a public swimming pool on land next to settlor’s house is acceptable even if settlor’s motive was to use the pool
* Trust for supporting political initiatives can be charitable, including a present change in law (although cannot be a trust in favor of a political party)

Can be perpetual — the Rule Against Perpetuities (“RAP”) does not apply to charitable trusts, as compared to private trusts, where all interests must vest within the RAP period

Question 23

Modificiaiton of charitable trust: Cy Pres

Answer 23

Modification — trust’s property can be applied to different charitable purposes through the Cy Pres doctrine.

Cy Pres Doctrine for charitable trusts — allows courts to modify terms of a charitable trust to as near as possible as settlor’s original intention

Can arise where the trust’s original purpose is accomplished or becomes impractical, unlawful, or wasteful

Question 24

Termination of trust

Answer 24

Trusts terminate automatically at the expiration of a specified trust term or when its purposes have become accomplished, unlawful, impossible, or contrary to public policy.

Question 25

Termination, revokation, or modification of a PRIVATE TRUST.

By settlor?
By Beneficiaries?

Answer 25

Private trusts — can be revoked (and thus terminated) or modified by settlor and/or beneficiaries in most states.
* By settlor — settlor can modify or revoke unless the terms expressly prohibit modification or revocation

By beneficiaries —
* beneficiaries can modify or revoke upon consent of settlor and all beneficiaries.
* Without settlor consent — all beneficiaries can consent to modify or revoke if doing so would not frustrate a material purpose of the trust.
* “All beneficiaries” includes unborn or unascertained beneficiaries, which can preclude obtaining required unanimous consent.
* Some states allow appointment of a representative for minor, unborn, or unascertained beneficiaries