Trusts (Main Deck)* Flashcards
WHAT MUST YOU CONSIDER
WHEN APPROACHING A
TRUSTS QUESTION?
STEP 1: IDENTIFY THE TYPE OF TRUST
STEP 2: DETERMINE IF THE TRUST WAS PROPERLY CREATED
STEP 3: DETERMINE IF THE TRUST CAN BE ALIENATED, MODIFIED OR TERMINATED
STEP 4: IDENTIFY THE TRUSTEE’S AUTHORITY AND DUTIES
STEP 5: DETERMINE IF THE ADMINISTRATION OF THE ESTATE IS PROPER
PRELIMINARY MATTERS:
LIST THE 3 PARTIES TO A
TRUST
1) Settlor
2) Trustee
3) Beneficiary
PRELIMINARY MATTERS:
SETTLOR
(Define)
Definition: The Settlor is the owner of property who creates the trust, generally by transferring legal title to a Trustee to hold for another’s benefit.
Note: The Settlor is also known as the Grantor or the Trustor.
PRELIMINARY MATTERS:
BENEFICIARY
(Define)
Definition: The Beneficiary is the person or entity for whose benefit the trust was created. The Beneficiary has an equitable interest in the property of the trust.
PRELIMINARY MATTERS:
TRUSTEE
(Define)
Definition: The Trustee is the person who holds legal title to the property of the trust and who manages the trust for the benefit of the Beneficiaries. The Trustee owes fiduciary duties to all Beneficiaries.
STEP 1 -
IDENTIFY THE
TYPE OF TRUST:
LIST 2 WAYS TRUSTS CAN
BE CREATED
1) Express Act of Settlor
2) Operation of Law
EXPRESS TRUST
(Define)
Definition: An express trust is created based on the expressed intent of the Settlor.
LIST 2 TYPES OF EXPRESS
TRUSTS
1) Private Express Trust
2) Charitable Trust
PRIVATE EXPRESS TRUST
(Define & State the Rule)
Definition: A private express trust is a fiduciary relationship with respect to property in which the Trustee holds legal title for the benefit of the Beneficiary.
Rule: Private express trusts are created by a Settlor’s manifestation of intent to create a private express trust for a legal purpose.
CHARITABLE EXPRESS
TRUST
(Define & State the Rule)
Definition: A charitable trust is a trust created for a charitable purpose that benefits a large number of unidentifiable people, or society as a whole.
**Common Law (Statute of Elizabeth): **Charitable trusts can be created only for the purposes of education, alleviation of poverty, alleviation of sickness, or assisting orphans.
Modern Law: Charitable trusts may be created for any purpose that benefits society as a whole.
Note: Charitable trusts are created by a Settlor’s manifestation of intent to create a charitable trust for a legal purpose.
WHY IS THE DISTINCTION
BETWEEN A PRIVATE
EXPRESS TRUST & A
CHARITABLE TRUST
IMPORTANT?
The distinction between a private express and a charitable trust is important because of the Rule Against Perpetuities and Cy Pres.
Rule Against Perpetuities
Rule: The Rule Against Perpetuities applies to private express trusts, but does not apply to charitable trusts.
Cy Pres
Rule: Under the doctrine of CyPres, if the charitable purpose selected by the Settlor is impracticable or becomes illegal, a court may modify the trust to effectuate the Settlor’s charitable intent.
Note:
1) Cy Pres cannot be applied to save an invalid private express trust.
2) Cy Pres will be applied only if the court finds that the Settlor’s intent was for a general charitable purpose.
3) The Court may introduce extrinsic evidence to determine the Settlor’s intent.
LIST 2 TYPES OF TRUSTS
CREATED BY OPERATION OF
LAW
1) Resulting Trust
2) Constructive Trust
RESULTING TRUST
(Define)
Definition: A resulting trust is an implied trust that is based on the presumed intent of the parties.
Rule: If a resulting trust is decreed by the court, the resulting Trustee must transfer the corpus of the trust back to the Settlor, if the Settlor is alive. If the Settlor is not alive, the property will be transferred to the Settlor’s estate.
Note:
1) A resulting trust is a type of passive trust.
2) Resulting trusts are created by court decree, often upon failure of an express trust.
CONSTRUCTIVE TRUST
(Define & State the Rule)
Definition: A constructive trust is an equitable remedy decreed by a court to prevent fraud or unjust enrichment.
Rule: When a constructive trust is decreed by a court, the wrongdoer is named as a constructive Trustee whose only obligation is to transfer the property to the intended
Beneficiary.
Note:
1) A constructive trust is a passive trust.
2) Constructive trusts are created through court decree.
STEP 2 -
PROPER CREATION
OF A TRUST:
WHAT IS REQUIRED TO
CREATE A VALID EXPRESS
TRUST?
Rule: The creation of a valid express trust requires:
1) Intent,
2) Property,
3) Legitimate purpose,
4) Beneficiary,
5) Trust writing, AND
a) Note: Required for trusts containing real property only.
6) Delivery.
a) Note: Delivery is not required for self-
settled trusts.
CREATION OF AN EXPRESS
TRUST:
INTENT
(State the Rule)
Rule: A trust is valid only if the Settlor properly manifests her intention to create a trust.
Note:
1) The Settlor need not specifically state she is creating a trust, but her language must evince an affirmative intention to create a legal obligation for a Trustee to hold property for the benefit of a Beneficiary.
2) If precatory language is used, the court may admit parol evidence to determine the Settlor’s intent.
3) As with a Testator creating a will, the Settlor must have legal capacity to create a trust.
CREATION OF AN EXPRESS
TRUST:
PROPERTY
(State the Rule)
Rule: A trust can be created only if there is trust property (corpus).
Note: Any presently existing interest in real or personal
property capable of being transferred by the Settlor may be the corpus of the trust.
CREATION OF AN EXPRESS
TRUST:
LEGITIMATE PURPOSE
(State the Rule)
Rule: A trust may be created for any purpose that is not
illegal or against public policy.
CREATION OF AN EXPRESS
TRUST:
INDEFINITE OR GENERAL
PURPOSE
(State the Rule)
Rule: A trust created for an indefinite or general purpose is not invalid if it can be determined with reasonable certainty that a particular use of the trust property comes within the purpose intended by the Settlor.
PASSIVE TRUST
(Define & State the Rule)
Definition: A passive trust is a private express trust with a corpus of property, in which the Trustee has no active duties and holds bare legal title.
Rule: A passive trust terminates automatically by operation of law (Statute of Uses).
STATUTE OF USES
(State the Rule)
Rule: The Statute of Uses operates to transfer legal title to real property held as the trust corpus from the Trustee to the Beneficiaries when a Trustee merely holds legal title and lacks any active duties. The unity of legal and equitable title in the Beneficiaries results in the termination of the trust.
CREATION OF AN EXPRESS
TRUST:
BENEFICIARY
(State the Rule)
Rule: A trust, other than a charitable trust, is created only if there is a foreseeably identifiable Beneficiary. This requirement will be satisfied if the trust instrument:
1) Clearly identifies a Beneficiary or class of Beneficiaries,
2) Describes a Beneficiary or class of Beneficiaries sufficiently to determine whether a person meets the description or falls within the class,
3) Grants power to a Trustee to select the Beneficiaries based on a standard provided by the Settlor, OR
4) Grants power to a Trustee to select the Beneficiaries at the Trustee’s discretion.
Note: Under modern law, both corporations and unincorporated associations can be named as Beneficiaries.
HONORARY TRUST
(Define & State the Rule)
Definition: An honorary trust is a trust that has no ascertainable human Beneficiary and confers no substantial benefit upon society.
Rule: The Trustee is not required to carry out the Settlor’s wishes, but may do so if the Trustee desires. If the Trustee refuses to do so, the court will not appoint a Trustee, and the trust fails.
Note:
1) A trust for the care of a domestic animal is valid for the life of the animal.
2) Honorary trusts are created through the Settlor’s manifestation of intent in an express trust for the stated purpose.
CREATION OF AN EXPRESS
TRUST:
TRUST WRITING - REAL
PROPERTY
(State the Rule)
Rule: A trust of real property is not valid unless:
1) It is evidenced by a written instrument signed by the Trustee (or the Trustee’s agent).
2) It is evidenced by a written instrument conveying the trust property that is signed by the Settlor (or the Settlor’s agent). OR
3) The trust arose by operation of law.