Trusts fiduciary duties, problems in admin, Flashcards
What are the three main types of trusts?
- Express
• Resulting
• Constructive
Define an express trust
an express trust created when an owner of property (settlor) transfers legal title to property to a person (trustee) with express intent to impose duties on the trustee (creating a fiduciary relationship) for benefit of one or more other persons (beneficiaries)
Key Concept of Trust Creation
Creation of a fiduciary relationship that separates ownership of property into two parts: What are these two required parts? hint (2 keys to safe deposit box)
legal and equitable title
What is required of a legal title?
What is required of an equitable title?
Legal title requires a trustee with management duties;
Equitable title requires a beneficiary who can enforce those duties
what is required to create a trust?
INTENTION TO CREATE FIDUCIARY RELATIONSHIP • Property and delivery • A beneficiary • A trustee • A valid trust purpose • Compliance with formalities ** its really all about intent****
T or F, Settlor can be sole trustee and a beneficiary as long as there are other beneficiaries who can be ascertained w/in period that satisfies rule against perpetuities
True
Need separation of title to have a trust is an ________ requirement
• Need to have identified someone who could
enforce trust duties____________requirement
independent
identifiable
A trust will not fail for a lack of a trustee, but when can it fail?
Will fail if settlor intended for trust to operate only w/ particular trustee, and that trustee can’t do it
For what purposes can trusts be created for?
For any legal purpose
What formality is required for a testamentary trust?
Must comply with the statute of wills
what formalities are required for a lifetime trust if for land? Personal property? Burden of proof required?
if land Statute of Frauds requires writing for land
No writing required for personal property
Standard of proof Must be clear and convincing evidence of oral trust
What are four ways that a trust can be terminated/modified?
Automatically
By the settlor
By the trust beneficiaries
Judicial modification or termination
Under what circumstances does an income beneficiary’s trust terminate automatically?
1 Death of all beneficiaries
2 at the End of prescribed term
3 When purposes of the trust have been accomplished
Under what circumstances can the settlor terminate or modify the trust? hint: power
If the settlor has retained the power to revoke the trust, he can terminate it prematurely or modify it
Trust can also be terminated if the settlor gave someone else the power to revoke the trust
Revoking a trust requires?
Trust provides methods for amending and revoking – Settlor must follow those methods to revoke or amend
Can a trust be terminated/modified prematurely with the consent of all the beneficiaries? If so, under what circumstances? hint clafin doctrine
Trust can be prematurely terminated or modified with the consent of all the beneficiaries if no material purpose of settlor exists for trust continuation. (clafin doctrine)
BUT Beneficiaries may not force termination of trusts whose “material purposes” have not yet been accomplished
When does the doctrine of equitable deviation (judicial intervention) apply?
- when there are Circumstances unforeseen and unforeseeable by settlor AND
- Failure to intervene would frustrate trust purposes
explain the Independent/identifiable beneficiary requirement.
Can a settler be a trustee and beneficiaryif?
Need separation of title to have a trust
• Need to have identified someone who could
enforce trust duties
• Settlor can be sole trustee and a beneficiary as long as there are other beneficiaries who can be ascertained w/in period that satisfies rule against perpetuities
under what circumstances can a settlor be the sole trustee and a beneficiary?
As long as there are other beneficiaries who can be ascertained within the period that satisfies the rule against perpetuities
Trusts can be created for almost any purpose, but what are the limitations?
A trust may be created only to the extent its purposes are lawful, not contrary to public policy, and possible to achieve.
What are the two main instruments used when planning for incapacity of the settlor or testator?
Trust
Durable Power of Attorney
What is a power of attorney?
Principal gives another person (agent) power to act on his/her behalf
under traditional agency law, when does the agent’s power in the POA end? BUT why can a POA still remain in effect?
when the principal becomes incompetent
because POA is statutory creation that overrides agency law
What is are advance directives or “living wills”? What do most living wills require to be valid?
“living will” speaks directly for the patient to potential care-givers
Try to anticipate medical situations and identify type of care patient would want
Most living wills require writing signed before witnesses
A healthcare directive is also a type of advance directive. Describe a healthcare directive
Health Care Directive speaks for the patient AND names proxy
Analogy to DPOA (durable power of attorney)
• DPOA = property management decisions • HCD = health care decisions
What are the two main concerns of POAs?
balancing principal’s needs/desires AGAINST Protection from abuse
Who may be involved in administering an estate?
Fiduciary • Attorney for fiduciary • Attorney for beneficiary - Guardian • Drafter of document designed to avoid problems • Statutes/codes
What are four fiduciary duties that arise in administering an estate?
- Loyalty
• Impartiality
•Conflicts of Interest
•Self dealing
T or F, a decedent cannot impose or waive fiduciary duties on a fiduciary
False, They can waive or impose fiduciary duties on a fiduciary
What is the fundamental obligation to the decedent that cannot be waived for a fiduciary?
Fiduciary has fundamental obligation to act in good faith, follow terms and purposes of will or trust and serve interests of the beneficiaries
what is a mixed express trust?
A trust that has both private beneficiaries and charitable purposes. (normally created for tax purposes)
What is a resulting trust and when does it arise?
An unintentional trust made by operation of law as a consequence of another action.
Arises when a person:
(1) intends to create an express trust AND
(2) validly transfers property to a person as a trustee
BUT
(3) for some reason the trust fails in whole or in part.
if a resulting trust occurs (a failed express trust) what does the law infer as a remedy? (legally inferred intent)
The law infers that because the transferor did not intend that the trustee have the beneficial enjoyment of the property, that the owner would want the property returned.
how is legally inferred intent carried out?
A resulting trust is imposed whereby the transferee becomes a trustee with the duty to return the property to the transferor or transferor’s successors in interest.
What is a constructive trust?
An imposed trust created by the court as an equitable remedy which obligates the return of the property
What is the purpose of a constructive trust?
To avoid unjust enrichment of the legal title holder
How are trusts distinguishable?
by reference of time when they are created
by identity of the trustee
by reference to the setting in which they arise
What are the three types of trusts that vary the rights of trust beneficiaries? hint trustee’s discretion
- Mandatory trusts- trustee has no discretion
- Discretionary trusts- authorises trustee to pay beneficiaries according to the trustee’s discretion; in line with fiduciary duties
- Support trusts- limits distributions to what the beneficiary needs
What are three types of mandatory trusts? Describe each
Right to income trusts- trustee must give beneficiary income from the trust
annuity trusts- gives the beneficiary a right to a fixed amount annually.
Unitrusts- trustee must pay the % of the trust the trust principal the intended income beneficiary will receive as decided by the settlor.
What is the purpose of spendthrift provisions?
to restrict alienability of their beneficiaries’ interests to protect the beneficiary from themselves and creditors.
Why are there restraints on voluntary transfers?
settlor can limit or eliminate beneficiaries’ temptations to make bad deals. intended to protect beneficiaries from temptations to sell their trust for money.
even though a beneficiary can assign his or her rights to receive discretionary trust distributions without a spendthrift provision, the assignee has no recourse against the trustee except what?
an abuse of discretion standard
What is standard of proof is required to reform and modify a trust based on ambiguity or mistake?
clear and convincing evidence. but for testamentary trusts, reformation for mistakes are not normally allowed.
True of false, a settlor who has not reserved the power to revoke will need the beneficiaries’ consent before making any changes.
True
T or F, creditors cannot usually reach what beneficiaries can transfer
False, They can
T or F beneficiaries can transfer their interests to another person
True
What are some examples of methods of restraint on the beneficiary’s ability to transfer their interests
spendthrift clause
discretionary and support trusts
property owners have a right to restrain alienation but in some cases public policy weighs heavily on the side of the _______ and the court or statute will allow income or principal to be used to pay creditor. Shelley case
creditors
For public policy reasons, when is piercing a spendthrift clause for trust income allowed? is it allowed for trust corpus?
for trust income allowed for child support and alimony
for trust corpus- not allowed to be pierced for alimony but kids could force trustee to invade corpus for support
T or F ability to refuse medical treatment is a constitutional right
True
What is a springing POA?
a POA that springs into action when a particular event occurs.
What is a durable POA?
one where the POA continues even after the principal becomes incapacitated.
When is a person generally considered to be incapacitated for purposes of a poa?
when they are no longer able to handle their own affairs
Incapacity should be described and defined if it is not, ______ are used to determine.
statutes
May a trustee with absolute and uncontrolled discretion be held liable for abuse of discretion?
yes, Even when a trustee has absolute and uncontrolled discretion, they may be held liable for actions representing an abuse of discretion. Failure to distribute trust income based on a personal motive constitutes an abuse of discretion.
Does a creditor of a beneficiary of a discretionary trust have the right to compel the trustee to make payments to the creditor?
A creditor of the beneficiary of a discretionary trust may not compel the trustee to make payments to the creditor when the beneficiary cannot compel the trustee to make payments.
When, a trustee’s discretion is uncontrolled, there is no abuse of discretion if the trustee acts “honestly and in a state of mind contemplated by” the trust creator. RESTATEMENT (THIRD) OF TRUSTS § 50, cmt. c (2003). As a result, Ron would be able to compel payments only if Ron could demonstrate that Trustee had acted dishonestly or in a state of mind not contemplated by the trust’s creator.
