Trusts Law LAST PUSH Flashcards
Trustee’s Fiduciary Responsibility
(1) must deal with the property with reasonable care
(2) must maintain the utmost degree of loyalty
(3) is personally responsible if their conduct falls beneath required standards
Express Trust
express trusts are created by the express intention of the settlor
Categories of Express Trusts
(1) private
(2) charitable
Trusts Created by Operation of Law
(1) resulting trusts
(2) constructive trusts
Five Main Elements of a Trust
(1) intent
(2) identifiable corpus
(3) ascertainable beneficiaries
(4) proper purpose
(5) mechanics and formalities
UTC Express Trusts Required Elements
(1) a settlor with capacity to convey
(2) a present intent to create a trust relationship
(3) a competent trustee with duties
(4) a definite beneficiary and
(5) the same person is not the sole trustee and sole beneficiary
(6) present disposition in trust of specific property then owned by the settlor
(7) valid trust purpose
Precatory Inference Overcome
(1) definite and precise directions
(2) directions addressed to a fiduciary
(3) a resulting unnatural disposition of property if no trust imposed; or
(4) extrinsic evidence showing that the settlor previously supported the intended beneficiary
Qualified Beneficiaries
a beneficiary who, on the date the beneficiaries qualification is determined, is:
(1) a current beneficiary or
(2) a first-line remainderman
Trust Purpose Invalid
(a) illegal
(b) contrary to public policy
(c) impossible to achieve
(d) intended to defraud the settlor’s creditors or based on illegal consideration
Acts Contrary to Public Policy
(a) induce others to engage in criminal or tortious acts
(b) encourage immorality
(c) induce a person to neglect parental, famillal, or civic duties
Condition Attached to Interest is Against Public Policy
(a) the settlor’s alternative desire controls if expressed
(b) if the illegal condition is a condition subsequent, the condition is invalidated but the trust is valid
(c) if the illegal condition is a condition precedent, the preferred view is to hold the interest valid unless there is evidence that the settlor’s wish would be to void the beneficiaries interest altogether if the condition is unenforceable
Acceptance of Trusteeship
person accepts by:
(1) signing the trust or a sperate written acceptance
(2) substantially complying with the acceptance terms of the instrument
(3) accepting delivery of trust property, exercising powers, or performing duties as trust, or indicating acceptance.
Removal of Trustee
a court can remove a trustee on its own motion or upon request by the settlor, a beneficiary, or trustee
Removal of Trustee Grounds
(1) a serious breach of trust
(2) serious lack of cooperation among co-trustees
(3) unfitness, unwillingness, or persistent failure to administer
(4) a substantial change in circumstances
Trust Creation (mechanics)
(1) inter vivos transfer
(2) inter vivos declaration of trust
(3) by will
Pour Over Funding
trust may remain unfunded during the settlors lifetime - pour over property can be initial trust funding if:
(a) the trust is identified in the will and
(b) the trust is executed before the testator’s death
Spendthrift Provisions Ineffective Against Certain Creditors
a spendthrift clause cannot be used to shield the beneficiary from:
(1) judgments or court orders for support or maintenance of the beneficiary’s child, spouse, or former spouse
(2) claims by the government
Trust Termination
terminated automatically upon the expiration of the term specified in the instrument or when all of the purposes of the trust have been accomplished or have become unlawful, contrary to public policy, or impossible to achieve
Termination or Modification - by Beneficiary - With Settlor’s Consent
a trust may be terminated or modified upon the consent of the settlor and all beneficiaries, even if the mod or termination conflicts with a material purpose of the trust
Termination or Modification - by Beneficiary - Without Settlor’s Consent
a trust may also be terminated or modified on the consent of only all beneficiaries but only if no material purpose of the trust would thereby be frustrated
UTC Court Modification
a court may modify a trust even without the consent of all of the beneficiaries if
(1) the trust could have been terminated had all the beneficiaries consented
(2) the interest of a beneficiary who does not consent will be adequately protected
Termination or Modification by Operation of Law - By the Court
a court may terminate or modify a trust if:
(1) the trust could have been modified if all beneficiaries had consented
(2) the interest of any noncosenting beneficiaries will be adequately protected
Termination or Modification by Operation of Law - By Court Additional Ways
(1) unanticipated circumstances threaten the purposes of the trust
(2) continuation of the trust on its existing terms is impracticable or wasteful or
(3) value of the trust is insufficient to justify the cost of administration or to achieve the settlors tax objectives
Powers of the Trustee
(1) powers expressly conferred upon them by the terms of the trust
(2) powers granted by state law; and
(3) implied powers that are appropriate to achieve the proper investment, management, and distribution of the trust property
Trustee’s Powers under UTC
(1) powers conferred by the terms of the trust
(2) powers that an unmarried competent owner has over individually owned property
(3) any other powers appropriate to achieve the proper investment, management, and distribution of trust property
(4) any other powers conferred by the UTC
Trustee’s Duty of Loyalty
(1) trustee cannot buy or sell trust assets eve if the price is a fair one
(2) a trustee may not sell property of one of the trust to another trust of which they are also trustee
(3) a trustee may not borrow trust funds nor loan their personal funds to the trust and any interest pain on such a long must be returned to the trust
(4) a trustee cannot use trust assets to secure a personal loan
(5) a trustee cannot personally gain through their position
(6) a corporate trustee cannot invest in its own stock as a an investment
(7) self employment can constitute a form of prohibited dealing
Beneficiaries Rights in Prohibited Transaction
voidable by the beneficiary affected by the transaction unless:
(1) a court or the terms of the trust approved it
(2) the beneficiary failed to bring suit within the prescribed time period
(3) the beneficiary gave their consent, ratification, or release
(4) it involves a contract or claim arising before the trustee became trustee
Duty to Report
a trustee must:
(1) provide the qualified beneficiaries with the trustee’s name, address, and telephone number
(2) respond to beneficiary requests for information about the trusts administration and provide a copy of the trust instrument if requested
(3) furnish an annual accounting of the trust
Trustee Delegation of Investment and Management Functions Permitted
trustee must act prudently in:
(1) selecting an agent
(2) establishing the scope and terms of the delegation
(3) periodically reviewing the agents action
Remedies for Breach of Trust
if the trustee commits, or is about to commit, a breach of trust duties the court may:
(1) enforce specific performance of the trustee’s duties
(2) enjoin the trustee from committing a breach of trust
(3) compel the trustee to pay money or restore property or
(4) suspend or remove the trustee
Damages to Beneficiary for Breach
if a trustee commits a breach of trust, the trustee is liable to the beneficiaries for the greater of:
(1) the amount necessary to restore the trust property and distributions to what they would have been absent the breach or
(2) the trustees profit from the breach
Remedies for Self Dealing
in the case of self dealing, the beneficiary may have a choice of the following:
(1) affirm the transaction if the trust profited
(2) set aside the transaction if the trust lost money
(3) trace profits from the trustee if the trustee profited
When Trustee is Not Liable For Breach
a trustee is not liable to a beneficiary for a breach of trust if:
(1) the trustee acted in reasonable reliance on the terms of the trust
(2) the beneficiary consent to the conduct, released the trustee from liability, or ratified the transaction, so long as the beneficiary was not improperly induced
Effect of Exculpatory Clauses
VOID if they:
(1) relieve the trustee of liability for breach of trust committed in bad faith or with reckless indifference or
(2) appear in the trust instrument because of the trustee’s abuse of a confidential relationship with the settlor
Trustee Removal
(a) incapacity
(b) unfitness
(c) commission of a serious breach of trust
(d) serious conflict of interest
(e) insolvency
(f) extreme hostility between the trustee and beneficiaries but only if it would interfere with proper trust administration
(g) refusal to post any required bond
(h) refusal to account
(i) lack of cooperation among co-trustees that substantially impairs administration
(j) unwillingness or persistent failure to administrate
(k) substantial change of circumstances so that removal is in the best interest of all beneficiaries
Direct Action by Beneficiary EXCEPTIONS to General Prohibition
trustee:
(1) participated in the breach
(2) has left the jurisdiction and no successor trustee is appointed OR
(3) fails to sue a third person liable in tort or contract
Factors to be Considered in an Adjustment
p 42
Charitable Purposes
(1) relief of poverty
(2) advancement of education or religion
(3) the promotion of health
(4) accomplishment of government purposes
Resulting Trust Types
(1) purchase money resulting trusts
(2) resulting trusts arising on failure of an express trust
(3) resulting trusts arising from an incomplete disposition of trust assets
Circumstances Giving Rise to Resulting Trust (Based on Failing Express Trust)
settlor has conveyed property to a trustee under an express trust and (1) the trust is void or unenforceable or (2) the beneficiary is dead or cannot be located
Resulting Trust Not Implied Where
(1) the trust instrument specifically or implicitly provides for disposition of trust property when the trust has failed or been completed
(2) the settlor was given consideration for their original transfer in trust
(3) the settlor created a trust for an illegal purpose
(4) cy pres is inapplicable
Constructive Trusts Imposed When
(1) fraudulent promise
(2) breach of a promise by one in a confidential relationship
(3) breach of a promise by the deciedent’s devisee or heir to hold property for the benefit of a third person
(4) breach of a promise by the decedent to a devise property to one rendering service in reliance thereupon
(5) breach of a promise to the debtor by the buyer at the foreclosure sale to hold the property for the debtor, causing the debtor to forgo bidding at the sale
