Trusts/Decedents' Estates Flashcards
(a) Was the AD Trust validly created, and if so, when was it created? Explain.
The AD Trust was validly created when Arlene purchased the bonds and listed them as the trust assets in Schedule A.
A trust is created by, among other things, the “declaration by the owner of property that the owner holds identifiable property as trustee,” Unif. Trust Code § 401(2), but only if “(1) the settlor [had] capacity to create a trust, (2) the settlor indicate[d] an intention to create a trust, (3) the trust has a definite beneficiary, (4) the trustee has duties to perform, and (5) the same person is not the sole trustee and sole beneficiary.” Unif. Trust Code § 402(a).
Application
Here, there are no facts to suggest that Arlene lacked capacity to create the trust. And, even though Arlene was the sole trustee, by naming herself and others as the beneficiaries, the Declaration met the requirements of § 402(a)(5). The Declaration further met the requirements of § 402(a)(2) by clearly declaring Arlene’s intention to create the trust. It also satisfied § 402(a)(4) by expressly imposing the duties of payment and distribution on the trustee. However, no trust was created at the time Arlene signed the Declaration because no assets were then transferred to the trust. Rather, a trust is created when the trust receives the property. Id. at § 401(1) & 401 comment. See also State ex rel. Teague v. Home Indemnity Co., 442 S.W.2d 276 (Tenn. Ct. App. 1967). The expressed intention to transfer property to a trust in the future thus does not create a valid trust. But property need not be transferred to the trust contemporaneously with the creation of the trust; “[a] trust created by means of an instrument signed during the settlor’s lifetime is not rendered invalid simply because the trust was not created until property was transferred to the trustee at a much later date, including by contract after the settlor’s death.” Unif. Trust Code § 401 comment. Thus, under the UTC, the AD Trust was created when Arlene bought the bonds and amended Schedule A to indicate that the bonds were an asset of the trust. See id.
(b) Assuming that the AD Trust was validly created, was it effectively revoked? Explain.
Because the trust instrument did not expressly state that it was irrevocable, Arlene effectively revoked the AD Trust by writing across the face of the Declaration of Trust, “This AD Trust is revoked.”
Under the UTC, an inter vivos trust is revocable unless the trust instrument states that the trust is irrevocable. See Unif. Trust Code § 602. Here, the AD Trust did not provide that it was irrevocable. Thus, Arlene could revoke the trust at any time.
Section 602 of the Uniform Trust Code further provides that the settlor may revoke a trust by “any . . . method manifesting clear and convincing evidence of the settlor’s intent.” Here Arlene wrote across the trust: “This AD Trust is revoked.” This is sufficient to revoke the trust. Upon revocation of the trust, the trust assets reverted to Arlene. See id. § 602(d) (“Upon revocation of a revocable trust, the trustee shall deliver the trust property as the settlor directs.”).
(2) Was the trust for the benefit of Donna valid?
Under the UTC, a trust can be orally created by a transfer of property from the settlor to another person to act as trustee if the oral statement expresses the intention to create a trust and designates one or more beneficiaries of the trust. This occurred here when Arlene gave the package to her friend, designating Donna as the beneficiary. Therefore, the trust was valid.
Trust
A trust is established when (1) the settlor has capacity and indicates an intention to create a trust; (2) the same person is not the sole trustee and sole beneficiary; and (3) unless the trust is a charitable trust, the trust has a definite beneficiary. Unif. Trust Code § 402(a). Under § 407, a trust need not be evidenced by a writing but if created orally, “its terms may be established only by clear and convincing evidence.
Application
Here, Arlene transferred the package with the necklace and bonds to her friend designating her as the trustee of the property. Arlene clearly stated her intention to create a trust and named a beneficiary of the trust. The trustee, Arlene’s friend, accepted her role as trustee by accepting the package knowing it contained the necklace and bonds and knowing that Arlene gave them to her to act as a trustee for Donna. Unless the friend contradicts the facts as stated (and there is no indication in the problem that she would do so), there should be no evidentiary problem in establishing Arlene’s intent under a clear and convincing evidentiary standard.
The trust assets include the necklace and the bonds. Although the bonds were once assets of the AD Trust, when Arlene revoked that trust (see Point One(b)), ownership of the bonds reverted to Arlene. She later transferred the bonds to the oral trust she created on Donna’s behalf.
(3) Was the testamentary trust for the benefit of the Political Party valid?
The testamentary trust in favor of the Political Party is not a valid charitable trust because it was not created for a recognized charitable purpose and is therefore void under the common law Rule Against Perpetuities.
Charitable Trust
A charitable trust may be created for the relief of poverty, the advancement of education or religion, the promotion of health, . . . or other purpose the achievement of which is beneficial to the community. Unif. Trust Code § 405. A charitable trust may last in perpetuity; it is not subject to the Rule Against Perpetuities. Charity thus must be distinguished from acts of liberality or benevolence. “To constitute a charity, the use must be public in nature.” Shenandoah Valley Nat’l Bank v. Taylor, 63 S.E.2d 786 (Va. 1951) quoting Zollman on Charities § 398. It is against public policy to perpetually benefit a political party. Courts have consistently held that a trust to benefit a particular political party is not for a valid charitable purpose. See Note, Charitable Trusts for Political Purposes, 37 Va. L. Rev. 988 (1951).
Application
Trusts that are not charitable are subject to the Rule Against Perpetuities in jurisdictions that follow the common law rule. See Restatement (Second) of Property (Donative Transfers), Pt. 1, Introductory Note (1981). Here, the trust for the Political Party does not satisfy the requirements for a charitable trust; its sole purpose is to benefit a particular political party. It is thus subject to the Rule Against Perpetuities as a noncharitable trust. As a perpetual noncharitable trust, it clearly violates the Rule because it does not have any termination date, income is payable in perpetuity to the Political Party, and there is no vesting within the meaning of the Rule within the permissible period of lives in being plus 21 years. It is thus void.
[NOTE: The cy pres doctrine allows a court to modify a charitable trust when its particular charitable purpose becomes impracticable, unlawful, or impossible to fulfill. Uniform Trust Code § 413. But the cy pres doctrine applies only to charitable trusts, and the trust for the Political Party does not meet the criteria for a charitable trust. Thus, cy pres is inapplicable here.
Unlike a charitable trust, which can last in perpetuity, a noncharitable trust with an ascertainable beneficiary, as here, cannot be created to last in perpetuity in a jurisdiction with the common law Rule against Perpetuities. While § 409 of the Uniform Trust Code provides that “[a] trust may be created [and enforced] for a noncharitable purpose without a definite or definitely ascertainable beneficiary” for no more that 21 years, the statute is inapplicable here because the Political Party is an ascertainable beneficiary. [Emphasis added].]
(4) Assuming that the testamentary trust to Political Party is invalid, how should the bank account be distributed?
Assuming that the testamentary trust to Political Party is invalid, the bank account should be distributed through the probate estate to the issue of Arlene’s parents taking per stirpes. Thus, Arlene’s brother Bob takes one-third of the bank account, her nephew Fred takes one-third, and Donna, Carla, and Edna would take equal shares of the remaining third (i.e., one-ninth each) of the bank account.
The testamentary trust under Arlene’s will purportedly disposed of all of Arlene’s worldly goods not otherwise validly disposed of during her life. Because this trust is assumed to be invalid, the asset that would have passed to the trust (the $300,000 bank account in Arlene’s probate estate) under her will passes to her heirs as undisposed-of property. Arlene’s heirs are the issue of her parents under a per stirpes distribution. See Jesse Dukeminier & Stanley Johansen, Wills, Trusts, and Estates 87 (6th ed. 2000). Thus, Arlene’s brother Bob takes one-third of the $300,000 bank account, her nephew Fred takes one-third, and Donna, Carla, and Edna would take equal shares of the remaining third (one-ninth of the probate estate each).
