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Trusts and Guardianship > Trusts Deck > Flashcards

Trusts Deck Flashcards

1
Q

What is a trust?

A

A trust is a fiduciary relationship in which a trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title.

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2
Q

What are the types of trusts?

A
  1. Express trusts
  2. Resulting trusts
  3. Constructive trusts
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3
Q

What is an express trust?

A

A trust that arises from the express intention of the owner of property to create a trust with respect to the property.

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4
Q

What is a resulting trust?

A

A trust that arises from the presumed intention of the owner of property.

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5
Q

What is a constructive trust?

A

Equitable remedy in cases involving wrongful conduct and unjust enrichment.

Does not depend on intention.

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6
Q

The Trust Code only applies to what type of trust?

A

Express trust

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7
Q

What are the two type of express trusts?

A

Non-charitable and Charitable

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8
Q

What is a non-charitable trust?

A

An expressed trust that has one or more ascertainable persons as beneficiaries.

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9
Q

What is a charitable trust?

A

An expressed trust for a purpose classified as charitable.

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10
Q

Does the rule against perpetuities effect a non-charitable trust?

A

Yes

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11
Q

Does the rule against perpetuities effect a charitable trust?

A

No

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12
Q

In a non-charitable trust, when must all interest vest?

A

Within the lives in being plus 21 years.

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13
Q

What are the methods by which one can create a trust?

A
  1. Self-Declaration of Trust
  2. Transfer to Third Party named as Trustee
  3. Testamentary Trust
  4. Exercise Power of Appointment
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14
Q

Is consideration required to create a trust?

A

No

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15
Q

When is consideration required?

A

When there is a promise to create trust.

Same requirements for contract.

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16
Q

To create a valid express trust, what must there be?

A

There must be a

  • settlor
  • who delivers
  • the trust property
  • to a trustee
  • with the intent to create a trust
  • for the benefit of beneficiaries
  • for a lawful purpose
  • may be required to be in writing
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17
Q

Who is the settlor?

A

The settlor is the person who creates the trust or who contributes property to the trust.

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18
Q

What capacity is needed for the settlor?

A

A person has the same capacity to create a trust that he has to transfer property free of trust.

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19
Q

Can corporations, partnerships, etc. be settlors?

A

Yes

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20
Q

What are the mental capacity challenges?

A
  1. Lack of capacity
  2. Undue influence and duress
  3. Fraud
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21
Q

What may the settlor retain?

A
  1. Legal title
  2. Life interest
  3. Power to amend, modify, and revoke
  4. Power to change beneficiary
  5. Control over trust administration
  6. Ability to add property to the trust
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22
Q

Must a trust have property?

A

Yes

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23
Q

New property may come from any source unless what?

A

The trust prohibits it, or it is unacceptable to the trustee.

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24
Q

Does the expression of an intention to create a trust, without delivery of assets to the trustee, have any legal consequences?

A

No

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25
Q

How do you create a trust with securities?

A

Either the securities must be reissued in the name of the trustee, or a trust account must be opened in the name of the trustee after the securities are delivered to him.

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26
Q

What does the delivery requirement not apply to?

A

Self-declaration trust and testamentary trust.

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27
Q

Can a debtor hold his own debt in trust?

A

No. The debt is a general claim against the debtor’s estate, and there is no specific property subject to the trust.

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28
Q

Can a creditor hold the debt of another in trust?

A

Yes. The cause of action is an intangible property interest and can be the subject of a trust.

Valid - A owes B $50,000. In writing, B declares himself trustee of A’s debt for the benefit of C.

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29
Q

Can property that the settlor expects to own in the future but has no present right to transfer by the subject of a present trust?

A

No, settlor must have assignable interest in the property.

Unless given consideration

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30
Q

Must the property be adequately and specifically described?

A

Yes

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31
Q

Who can be a trustee?

A
  1. Individual
  2. Beneficiary
  3. Settlor
  4. Corporation
  5. Charity
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32
Q

What must an individual have to be trustee?

A

The trustee must have the legal capacity to take, hold, and transfer the trust property.

Thus, the individual must be of legal age, competent, and have the capacity to enter into contracts.

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33
Q

The fact that the person named as trustee is also a beneficiary disqualify the person from acting as trustee?

A

No. However, if the sole trustee of a trust is also the sole beneficiary, there is no trust.

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34
Q

What happens when the sole trustee is the sole beneficiary?

A

The legal and equitable titles merge and the person holds the title free of any trust.

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35
Q

Can the settlor also be the trustee?

A

Yes

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36
Q

When can a corporation act as a trustee?

A

If the corporation’s charter authorizes the corporation to exercise trust power. A corporation formed under the Texas Business Organizations Code cannot be a trustee.

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37
Q

Does a trustee have to accept the responsibility of being a trustee?

A

No. Trustee must accept property

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38
Q

What are the methods a trustee can accept being a trustee?

A
  1. Signing

2. Exercise power or perform duty - presumption of acceptance unless preservation and inspection

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39
Q

Must an individual give bond to secure the faithful performance of his duties?

A

Yes unless the settlor waives the requirement

Corporate trustee does not have to give bond.

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40
Q

What if there are multiple trustees?

A

The majority can act.

Jointly and severally liable for breaches of fiduciary duties

Have a duty to prevent breaches of trust by a co-trustee

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41
Q

Is the word “trust” needed to make a trust?

A

No

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42
Q

Does the beneficiary have to accept the property?

A

No, but it is rare to have a beneficiary not accept the benefits of a trust.

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43
Q

Beneficiaries must be what?

A

Readily ascertainable, except for in charitable trusts.

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44
Q

Can a settlor be the sole beneficiary of a trust?

A

Yes, just can’t be sole trustee.

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45
Q

What does the beneficiary take is there is a condition against public policy?

A

Beneficiary takes the interest free of the condition.

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46
Q

Are partial restraints on marriage valid?

A

Yes. Must give beneficiary a reasonable latitude of choice.

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47
Q

Are provisions calling for the destruction of property valid?

A

No, the will be considered void as against public policy because it would result in destruction of an asset for no discernible purpose.

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48
Q

Are provisions for forfeiture of interest due to actions of third parties void?

A

Yes

Ex: A trust for the testator’s grandchildren provides that if certain named persons are appointed guardian of any of the grandchildren, that grandchild’s trust interest is forfeited. The provision is void as against public policy, because the estate of a minor child would be forfeited based on the action taken by the probate court in the child’s best interest.

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49
Q

Must a trust be evidenced by writing signed by settlor?

A

Yes. To satisfy the statute of frauds, a trust of either real or personal property is enforceable only if there is a written evidence of the trust’s terms bearing the signature of the settlor or the settlor’s authorized agent.

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50
Q

When is an oral trust valid?

A

An oral trust of personal property is valid if it names someone other than the settlor or a beneficiary as trustee, if the transferor expresses simultaneously with or prior to the transfer the intention to create a trust.

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51
Q

Trusts are revocable unless what?

A

Expressly made irrevocable.

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52
Q

If a revocable trust is silent as to whether the settlor can modify or amend, can the settlor do so?

A

Yes. All amendments must be writing. If the trust agreement provides a specific procedure for amending the trust, that procedure must be followed.

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53
Q

When there is no procedure for revocation, how can a trust be revoked?

A

By any reasonable means as long as it involves a writing.

54
Q

If a settlor establishes a revocable trust and is later adjudicated incapacitated, does the court-appointed guardian have the inherent power to revoke the trust.

A

No, only a court can approve of revoke if best interest of ward.

55
Q

May a self-declaration trust be revocable?

A

Yes

56
Q

Is a formal transfer of title necessary for a revocable self-declaration of trust?

A

No

57
Q

What effect does a divorce have on a trust?

A

A divorce revokes all revocable trust provisions in favor of the settlor’s former spouse and relatives of the former spouse who are not relatives of the settlor, unless the trust instrument is re-executed or a contract or court order provides otherwise.

58
Q

What is cy pres?

A

Method of saving a failed charitable trust.

When a settlor’s intended charitable trust purpose is accomplished or becomes impracticable. It is an equitable doctrine. Court can direct trust property to be applied to another charitable purpose as close as possible to the original one.

59
Q

What does the beneficiary hold?

A

Equitable title

60
Q

What capacity must a beneficiary have?

A

Ability to take and hold property.

61
Q

What is a honorary trust?

A

A trust lacking a human beneficiary or charitable purpose. Modern trend is to allow this for pets.

62
Q

Who is an incidental beneficiary?

A

Some one who does not hold equitable title but benefits from the trust nonetheless. Typically unable to enforce trust. Maybe “interested person”.

63
Q

Do animals have to be alive during the settlor’s lifetime to be beneficiaries?

A

Yes. Terminates on death.

64
Q

May a beneficiary transfer his/her interest?

A

Yes, unless it is subject to a spendthrift provision.

65
Q

What is the priority of assignments in Texas?

A

First assignee prevails

66
Q

What is a spendthrift provision?

A

Typically prohibits beneficiary from transferring right to future payments of income or principle AND beneficiary’s creditors from subjecting the beneficiary’s interest to the payment of the claims

67
Q

What is the purpose of a spendthrift trust?

A

To protect beneficiary

Allow settlor to have trust property used as settlor intended

68
Q

How is a spendthrift trust created?

A

No particular language needed as long as settlor’s intent is clear

  • Money not liable to beneficiary’s creditors
69
Q

Rationale for upholding spendthrift clauses?

A

A testator has a right to devote her own property to promote and secure the welfare and comfort of the beneficiary and to protect her against the vicissitudes of fortune. Testator has the right to prescribe the terms upon which such bounty should be enjoyed.

70
Q

In a spendthrift trust, can a settlor also be a beneficiary?

A

No, settlor cannot protect his own property from creditors

71
Q

Besides when the settlor is a beneficiary, what are other exceptions to enforceability of a spendthrift trust?

A

For child support - court can break it

Necessaries

Federal Tax claims

72
Q

What is a discretionary trust?

A

A trust in which the trustee has discretion regarding which beneficiaries to pay and/or how much to pay.

73
Q

Does a trustee have to exercise good faith in a discretionary trust?

A

Yes in accordance with the terms and purposes of the trust.

74
Q

In a pure discretionary trust, can the beneficiaries creditors get to the principal?

A

No because beneficiary cannot compel payment so creditor is in same position.

Beneficiary has no interest in income or principal until the trustee exercises discretion.

75
Q

What is a support trust?

A

A trust which limits funds to be used for beneficiary’s support - health, education, maintenance.

Distributions may be mandorty or discretionary

Insulates the trust property from some but not all of the beneficiary’s creditors (child and suppliers of necessities)

76
Q

What is support? Does it mean just enough to stay alive or something more?

A

Default is the level of support to which the beneficiary is accustomed to before becoming a beneficiary.

77
Q

Does support of beneficiary include support of beneficiary’s spouse and minor children?

A

Default - support includes beneficiary’s dependents

78
Q

What is a resulting trust?

A

A trust (that’s not really a trust) implied by conduct.

79
Q

What are the situations in which a resulting trust arises?

A
  1. Express trust makes an incomplete disposition of the trust property.
  2. Failure of express trust
  3. Purchase-money
80
Q

May a trust provision limit the statute of limitations for commencing a judicial proceeding?

A

No

81
Q

Does a trustee have the duty to obtain possession of the trust assets without unnecessary delay?

A

Yes

82
Q

Once obtaining possession of the trust property, the trustee has the duty to act as a prudent person would to preserve (protect) the trust property?

A

Yes

83
Q

Does a trustee have the duty to earmark the trust property?

A

Yes, but only liable if failure to earmark causes loss

84
Q

Does a trustee have a duty not to commingle?

A

Yes. A trustee has a duty to segregate the trust property from other property that the trustee owns or manages, including the trustee’s personal assets and assets of other trusts for which the trustee serves as trustee.

Except “Common trust funds” for corporate trustees

85
Q

Does a trustee have the duty to defend the trust?

A

Yes. A trustee is required to defend the trust from all attacks on the validity or integrity of the trust.

Attorney fees and court costs of reasonable defense will be paid by trust even if trustee loses.

Trustee also has duty to appeal, unless no reasonable ground.

86
Q

Can an exculpatory clause be used to relieve trustee of liability when investing?

A

Yes but only effective to exculpate negligent conduct

87
Q

Are professional trustee’s held to a higher standard?

A

Yes. A trustee who claims to have higher or special skills is bound by those claims.

88
Q

Does a trustee have a duty to pay (distribute) to the beneficiary?

A

Yes, a Trustee has an absolute and unqualified duty to pay the correct beneficiary. If it’s a minor or legally incapacitated, can distribute reasonably like to guardian or whatever.

89
Q

Is a trustee personally liable for a mistake of fact regarding a distribution which is made before the trustee has actual knowledge or written notice?

A

No. In such case, trustee must seek return of improperly distributed property.

90
Q

Does a co-trustee have a duty to participate?

A

Yes unless he is unavailable or has properly delegated

91
Q

Does a trustee have a duty to prevent cotrustees from committing a serious breach?

A

Yes

92
Q

Does a trustee have to compel a breaching cotrustee to redress a serious breach?

A

Yes

93
Q

If a trustee delegates powers and duties to others, will he still be held personally liable?

A

Probably not

94
Q

Can a trustee delegate discretionary duties?

A

No

95
Q

What is the standard for delegating duties?

A

use reasonable care, skill, and caution

96
Q

Does the trustee have to notify the beneficiaries of delegation?

A

No

97
Q

What duty of loyalty does a trustee owe?

A

An undivided loyalty. Avoid self dealing and conflicts of interest.

98
Q

What is the standard of liability for a trustee for breach of duty?

A

Strictly liable.

Personally liable regardless of

  • good faith
  • fairness of transaction
  • did not personally benefit
99
Q

Can a trustee buy or sell assets to the trust?

A

No - that is self-dealing

100
Q

Can a trustee’s affiliates, employees, relatives, or employers buy or sell assets to the trust?

A

No - still self-dealing

101
Q

When can a trustee lend trust funds to trustee or other prohibited persons?

A

When the trust expressly authorizes the loan or corporate trustee deposits under certain circumstances.

102
Q

What are some examples of conflicts of interest?

A
  1. Purchase of trustee’s securities
  2. Sale from one trust to another
  3. Other transactions with the beneficiary
  4. Trustee employing self
103
Q

Can a settlor waive the self-dealing and conflict of interest restrictions?

A

Yes, but are strictly construed against the trustee.

104
Q

What is an exculpatory clause?

A

A provision which purports to relive the trustee from all liability for damages caused by the trustee’s actions in his capacity as trustee.

105
Q

Does a trustee owe a duty of fairness?

A

Yes when dealing with the beneficiaries in non-trust related business

106
Q

Can a person sue a trust?

A

No, a trust is not a legal entity. You must sue the trustee in the trustee’s representative capacity.

107
Q

If a trustee is found personally liable, may a trustee seek reimbursement from the trust?

A

Yes

108
Q

May a beneficiary be liable for loss to the trust?

A

Yes if

  • misappropriated or otherwise wrongfully dealt with the trust property
  • expressly consented to the trustee to be liable for a breach of trust committed by the trustee
  • breached a contract to pay money or deliver property to the trustee to be held by the trustee as part of the trust
109
Q

May a tort creditor seek damages directly from the trust property if the trustee is sued in a representative capacity?

A

Yes if

  • the trustee was properly engaged in a business activity for the trust and the tort is a common incident of that kind of activity
  • the trustee was properly engaged in a business activity for the trust and the tort is a strict liability tort

OR

  • the tort increased the value of the trust property (but recoverable damages limited to the increase in value)
110
Q

Does a plaintiff have to give notice to the beneficiaries?

A

Yes

  • within 30 days of filing suit and at least 31 days before judgment
111
Q

If plaintiff submits a request, does a trustee have to provide the names and addresses of the beneficiaries?

A

Yes, within 10 days

112
Q

If a trustee exercises his adjustment power, may a court reverse the trustee’s decision?

A

Yes but only if it finds the trustee abused is discretion

A trustee may seek court approval of an adjustment if the trustee reasonably believes a beneficiary will object to it.

113
Q

Does a trustee have a duty to inform the beneficiary?

A

Yes, cannot even be altered by settlor unless expressly provided in statute

114
Q

When may settlor limit common law duty to inform beneficiary?

A
  1. Trust is revocable
  2. Beneficiary is under age 25
  3. Beneficiary is not eligible for (1) current distribution or (2) distribution if trust were to terminate now
115
Q

What is the purpose of accounting?

A

To allow beneficiary to obtain information to see if trustee is breaching duties.

116
Q

In Texas, when is accounting required?

A

Only upon demand or once per 12 months

117
Q

Upon demand, when must a trustee provide accounting?

A

Within 90 days

118
Q

Who may request an accounting?

A
  1. Beneficiary

2. Interested person if court finds interested person’s interest warrants an accounting

119
Q

What must be contained in the contents of accounting?

A
  1. All new trust property not previously accounted for
  2. Account of all
    - receipts
    - disbursements
    - other transactions
    - source and nature of each
    - show income and principal separately
  3. List and description of all trust property
  4. Cash balance on hand and where kept
  5. All known liabilities
120
Q

Can a settlor waive the trustee’s duty to provide accounting?

A

No but may require accountings at a stated time, interval, or event.

121
Q

May a trustee receive compensation?

A

Yes

  1. Court determination
  2. Trustee determination - reasonable
  3. Schedule or scale
122
Q

Can a court deny compensation if the trustee breaches the trust?

A

Yes

123
Q

Some factors to determine reasonableness of trustee compensation?

A

Gross income of trust

Success or failure of trust administration

Trustee’s skill and experience

Trustee’s fidelity or disloyalty

Time spent

character or work

124
Q

What are some charitable purposes?

A
  1. Relief of poverty
  2. Advancement of knowledge or education
  3. Advancement of religion
  4. Promotion of health
  5. Governmental or municipal purposes
  6. Purposes beneficial to the community
125
Q

When does a trust terminate?

A
  1. Express terms of trust
  2. Settlor revokes
  3. Property exhausted
  4. Uneconomical
  5. Court order
  6. Merger
  7. All beneficiaries die
126
Q

When will a trust becomes uneconomical and what happens then?

A

If value drops below $50,000.

Trustee determines purpose not justify cost of continuing trust

No adverse estate tax result

trust not contain a conservation easement

Notice must be given to the proper beneficiaries

127
Q

What happens to a trustee’s duties upon termination of a trust? What are his duties?

A

Trustee retains trust powers for a reasonable period.

Trustee must distribute trust property to remainder beneficiaries.

128
Q

Who has jurisdiction over trust?

A

The district court

But if county has a statutory probate court, district and statutory probate court have concurrent jurisdiction.

129
Q

What is the proper venue for a single non-corporate trustee?

A

County of trustee’s residence

County of trustee’s residence in past four years

County of situs of trust administration

County of situs of trust administration in past four years

130
Q

what is the proper venue for multiple individual trustees with principal office in Texas?

A

County of situs of trust administration

County of situs of trust administration in past four years

County in which trustees maintain principal office

131
Q

What is the proper venue for one or more trustees is a corporation?

A

County of situs of trust administration

County of situs of trust administration in past four years

County in which trustee maintains its principal office in Texas

Trusts and Guardianship (2 decks)

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