Trusts - Introduction Flashcards
Trust Law Basics
CA bar doesn’t test CA specific rules. More like common law.
What is the key thing about a trust that makes it different from all other legal relationships? It’s the way in which title to property is divided. Trustee has legal ownership/legal title. They have the responsibilities of ownership. Trustee may only get fee for services. Trustees are FIDUCIARIES who must exercise REASONABLE CARE and LOYALTY and if there’s any mistake, even without intent, becomes personally responsible if that conduct falls below the standard of care. It’s a hassle/burden to be a trustee.
The beneficiary has the beneficial equitable interest. Beneficiary has power to enforce the trust to make sure the trustee performs.
Settlor = the person who creates the trust. Often synonymous with “Trustor” which is an older term. Or the “Grantor” which is true because it’s a grant of property, but overbroad. “Donor” is also overbroad.
Trust Property
A trust is just a method of holding title to property. Can’t have a trust without property. A trust is not a legal entity. Can’t sue or be sued.
Trust property = contents of trust. Also called the “principal” or “corpus” or “trust estate” or “trust res”.
Reasons to Use a Trust
Provide for and protect beneficiaries. Great for minors, spendthrifts (frivolous spenders) and those who can’t manage the money/assets competently.
Very flexible for asset distribution. You could spread benefits over time, give trustee discretion for some things but not others, set standards, etc.
Protect against own incompetence: can put property in trust, be the trustee while competent, and while incompetent, the successor trustee takes over so there is a smooth management of property. Less burdensome and embarassing than a guardianship.
Professional management of property.
Probate avoidance is another good reason to have a trust.
Trusts are NONPROBATE assets.
Tax benefits - tax planning can have income tax, gift, generation-skipping transfer tax benefits, etc.
Express Trusts
Created by express intention of the settlor. Could be private trusts for private beneficiaries or charitable trusts.
2 other types of trusts:
1) Resulting Trusts = attempt to carry out implied intent
2) Constructive Trusts = not really trusts at all but rather an equitable remedy to prevent unjust enrichment
