Trusts Creation

Question 1

Elements of every trust

Answer 1

Settlor
Trustee
Beneficiary
Trust property (“the res”)

Question 2

What does bifurcation mean?

Answer 2

Legal title
i. Legal title belongs to the trustee

Equitable title
i. Belongs to the beneficiary

Question 3

When is there no bifurcation of title

Answer 3

When settlor is both settlor AND beneficiary, WITHOUT another beneficiary, there is no bifurcation of title

When settlor is both settlor AND trustee, WITHOUT another trustee because that would lead to the lack of bifurcation of title

Question 4

Settlor

Answer 4

Creates the trust — must indicate that he’s giving property to A for the benefit of B

Question 5

Trustee’s fiduciary duties

Answer 5

i. Duty of loyalty — Must distribute property for the benefit of the beneficiaries
ii. Duty of prudence
iii. Duty Not To Co-Mingle — No trust funds may be co-mingled with the trustees own funds
iv. Duty of Impartiality Between the Beneficiaries — If the trustee has total discretion in terms of who gets money, how much — shouldn’t play favors

v. Duty to Account for any distribution he makes
(a) Trustees should keep good records of how much goes out, and to how, etc.

Question 6

Beneficiary

Answer 6

Receives the benefit of the trust

Settlor CAN be the beneficiary, but if so, there must be at least one other beneficiary

Question 6

Trust property (“the res”)

Answer 6

A trust cannot exist without trust property

If you have no property to fund the trust, it’s called a dry trust and the trust is invalid

Question 7

Private trusts

Answer 7

created by a private individual

Question 8

4 main trust types

Answer 8

1. Private
2. Express or implied
3. Testamentary or inter vivos
4. Mandatory trusts or discretionary or mixed

Question 9

Express trust

Answer 9

Made by the settlor for the benefit of a named beneficiary – created by a private individual for the benefit of others

Question 10

Implied trust (implied by law) (2 types)

Answer 10

An implied trust is created by law, there is no settlor

1. Constructive Trust
2. Resulting Trust

Question 11

Resulting Trust

Answer 11

Any private, express trust that fails for any reason the property is returned to the original creator in the form of a resulting trust. If the settlor is still alive, he can reassign the gift. If the settlor is dead, it’s going to be passed to the residuary beneficiaries (if there’s a will) or intestate heirs (if there’s no will)
a. Settlor gets it back in fee simple

Who’s the trustee?
a. Either the executor or the administrator of the estate

Question 12

Testamentary trust

Answer 12

Is created by will

Does not take effect until the death of testator

Question 13

Why give property away in a trust via a will?

Answer 13

If the keep the property in a trust, the beneficiary has no power to give away the asset

Maintain control over how the property is used

(1) Because the testator believes the beneficial cannot manage money
(2) Example: Trustee distributes X amount of money monthly

Question 14

Inter vivos trust

Answer 14

Created during the life of settlor

Takes effect the day it’s created

Created outside of a will; used as a will-substittue

Question 15

Three methods of delivery for inter vivos trust

Answer 15

(a) Actual
(b) Constructive – give the donee the means by which you take control over the property
(c) Symbolic

Question 16

Revocable trust

Answer 16

Can be revoked AND modified after it’s created, BUT

Settlor MUST specify that the document is subject to modification & revocation and how the trust may be modified or revoked — Failure to do so = trust is presumed irrevocable

Settlor is still responsible for the tax liability

Question 17

Revocable trusts are created either by:

Answer 17

1. Declaration of trust

OR

2. Deed of trust

Question 18

Declaration of trust

Answer 18

Under a declaration of trust, the settlor simply declares himself to be trustee of certain property

Settlor takes property and places it in trust, names himself as trustee, and names someone else as the beneficiary

If the settlor appoints himself as trustee, the trustee is created by declaration of trust NOT by deed

So you have:
Settlor & trustee (same person)
Beneficiary

Question 20

Deed of trust

Answer 20

Created during settlor’s life but names a 3rd party trustee

Question 21

Mandatory trust

Answer 21

i. Contains the words “shall” or “and my trustee shall distribute…”
ii. If the trustee must distribute all of the income on a regular basis, the trust is a mandatory trust

Question 22

Discretionary trust

Answer 22

i. Trustee has discretion over when to distribute the income and/or principal, or how much to distribute

Question 23

Mixed trust

Answer 23

i. The trust will be mandatory in that certain things have to be done
ii. Discretionary in that the trustee can decide who

Question 24

Requirements of a trusts

Answer 24

Intent
Ascertainable trust beneficiaries
Specific property to be held in trust
A writing

Question 25

Intent

Answer 25

Settlor has to have intent to create a trust

Trustee need only manifest an intent to create the fiduciary relationship

Question 26

Ascertainable trust beneficiaries

Answer 26

A) Ascertainable means that you must be able to identify the beneficiaries by name. If their names are not expressly set forth in the trust, the trust mud contain a formula or description of the beneficiaries that permits the court to determine by objective means who they are

Question 27

Honorary trust

Answer 27

An honorary trust lacks ascertainable beneficiaries, but may be upheld if the trust was created for a specific purpose that is honorable and legal

Question 28

Precatory Trust

Answer 28

Arises where there is an outright gift from a donor to donee, but the donor includes some language that expresses the “hope” or the “wish” – but not legal obligation – that the property be used for the benefit of another.

Precatory trust IS NOT a trust – it’s a gift with a wish
Precatory trusts are unenforceable at law

Question 29

Pets

Answer 29

Trusts cannot be created for the benefit of animals

Make arrangements with the parties that will care for your pet should your pet outlive you – simply give the money to the party as a general bequest