Trusts: Characteristics and Creation Flashcards
Trustee Duties
○ Loyalty
○ Prudence
○ Impartiality
○ Inform & Account
Function of Trusteeship
○ Custodial
○ Administrative
○ Investment
○ Distribution
Creation of a Trust
○ Intent
- Settlor must have capacity to create
- Must indicate intention to create
○ Ascertainable beneficiaries
○ Specific property
○ Trustee has duties to perform
○ Same person is not the sole trustee
and sole beneficiary
○ Note: If trust is testamentary or is to
hold land, must be in writing to satisfy
Wills act or SOF
Methods of Creating
○ Transfer of property during a
settlor’s lifetime or by
will/other disposition taking
effect upon settlor’s death
○ Declaration by the owner of
property that the owner holds
identifiable property as
trustee; or
○ Exercise of a power of
appointment in favor of a
trustee
Settlor with Capacity and Present Intent to Create a Trust
○ Must intend trust to take effect immediately
○ Must express intent by words
or conduct while settlor owns
the property
○ Precatory expressions (hope,
wish, suggestion) result in
inference that no trust was
intended, but inference may
be overcome by other
evidence
Trustee
○ Failure to name trustee (or
failure of trustee to accept or
qualify) does not defeat a
testamentary trust; court will
appoint trustee
○ Inter vivos trust will fail
without trustee because there
can be no valid delivery and
transfer of trust property (see
below)
○ Trustee must have duties
○ Settlor may declare himself
trustee
Trust Property (Res)
○ Property may be of any type,
including future interests
○ Must be property that settlor
has the power to convey
○ Must be described with
certainty
Beneficiaries
○ Must be capable of taking
and holding title to property
○ Must be definite (susceptible
of identification when their
interests come into
enjoyment); e.g., “friends” is
insufficient
○ Notice not required but
beneficiary must accept;
acceptance is presumed
Beneficiary Principle
A private trust must be for definite and ascertainable beneficiaries. The beneficiaries need not, however, be ascertained when the trust is created - they need only be ascertainable within the period of the applicable Rule Against Perpetuities
Valid Trust Purpose
○ Trust or provision must not be:
- Illegal;
- Impossible to achieve;
- Contrary to public policy
(e.g., induce crimes, torts,
divorce, child neglect,
etc.); or
- Intended to defraud
settlor’s creditors based on
illegal consideration
○ Effect of invalid condition
subsequent - condition
stricken, but trust is valid
○ Effect of invalid condition
precedent - condition
stricken, but court decides
whether interest is valid or
fails
Formalities: Inter Vivos Trust
Created During Settlor’s Life
- Declaration of trust by
property owner that he
holds in trust, or
- Transfer of property by the settlor to
the trustee
- Nonprobate (Will Substitute)
- Revocable or irrevocable
- No writing required unless trust of
land
Formalities: Testamentary Trust
Created by Settlor’s Will
- Essential terms must be
ascertained from will,
incorporated document,
facts of independent
significance, or exercise of
power of appointment
- Probate
- Irrevocable
- Secret trust (absolute gift
but trust intended) -
constructive trust imposed
- Semi-secret trust (gift in
trust without beneficiary) -
resulting trust for testator’s
heirs
Charitable Trusts
○ Purpose must benefit the
public (e.g., poverty relief,
education, health)
○ Must have indefinite
beneficiaries
○ May be perpetual - Rule
Against Perpetuities (“RAP”)
does not apply
- RAP does not apply to
limitations that shift
beneficial interest from one
charity to another (charity-
to-charity exception)
- RAP does apply to a
limitation shifting the
interest from private use to
charitable or from a
charitable use to a private
use
○ Enforceable by attorney
general, not settlor or
beneficiaries
○ Cy pres - if settlor’s intended
purpose is impracticable,
unlawful, or wasteful, court
substitutes new charitable
purpose
- Must find settlor had
general charitable intent,
not just interested in the
named charity
- Court will select another
purpose as near as
possible
- UTC - settlor’s general
charitable intent is
presumed and application
of cy pres is mandatory
Honorary Trusts
○ Not for charitable purpose,
but no private beneficiaries
who can enforce trust (e.g.,
trusts for pets, graves)
○ Not enforceable, but trustee
may choose to carry it out
- Under UTC, enforceable
for 21 years
○ If trustee does not carry it
out, a resulting trust imposed
for settlor’s estate.
