TRUSTS RULES! Flashcards
Trust Elements
A trust is a device where a trustee holds property for the benefit of another. To create, (1) settlor delivers (2) legal title of res, (3) to trustee, (4) for ascertainable beneficiaries, (5) with intent, & (6) valid trust purpose.
Res – Trust Property
Any transferable property so long as it is identifiable. Can be empty if trust names direct beneficiary for life ins.
Ascertainable Beneficiaries
Be named or at least identifiable – language sufficient to allow court to identify.
Intent
No magic words, intention can be manifested by words orally or in writing, or by conduct (not “I desire, hope”).
Valid Purpose
Any purpose that is not impossible or not contrary to public policy.
Honorary Trust
No charitable purpose & no human beneficiary. Valid for animals for its life, or grave maintenance for 21 years.
Revocable Trust
All trust presumed revocable unless terms provide otherwise. Settlor can also be trustee in revocable trust.
Beneficiary as Trustee
Yes, as long as there is either an additional beneficiary or trustee.
Totten Trust
Settlor deposits $ in an account in his own name as trustee for another. Revocable by any manifestation of intent (withdrawal). Reachable by creditors even after death. Can be revoked by will. EE admissible to show no trust.
Oral Trust
Valid to both real & personal property so long as terms can be established by C & C evidence. Can’t self settle.
Oral Promise to Make Devise in Will
A promise to devise real property must be in writing & supported by consideration. Becomes constructive.
Secret Trust
One declares a devise in will was supposed to be trust, nothing admissible; cannot disrupt plain meaning of will.
Semi-Secret Trust
Valid, even if beneficiary not identifiable (X to Y as trustee for purposes I already told him). T can do anything.
Rights of Creditors
Creditor can attach to trustee by court order AND intercept his money from trustee until paid off.
Spendthrift Clauses
Clause that precludes beneficiary from voluntarily & involuntarily transferring his trust interest. Cannot restrict only involuntary action or self-settle – clause is invalid. Creditor reaches mandatory dist. if not distributed.
Trustee Duties
Duties of (1) loyalty, (2) invest prudently, (3) preserve/protect res, (4) impartiality, & (5) account & inform.
Trustee Duty of Loyalty
T cannot buy/sell trust res to himself, borrow trust funds, sell assets from one trust to another, or self-deal.
Trustee Duty to Preserve Property
T may not commingle trust funds.
Trustee Duty to Invest Prudently
Must keep trust productive & diversify investment. Portfolio view: look into total return on portfolio. However, a trustee may delegate investment decisions if he uses reasonable care/skill/caution in (1) selecting agent, (2) defining scope & terms of delegation, & (3) periodically reviewing agent’s actions & decisions.
Trustee with Revocable Trust
A trustee of a revocable trust who acts with settlor’s consent, cannot be liable to beneficiary.
Multiple Trustees – Majority
Trustee must act with majority consent of trustees unless trust provides otherwise
Resigning Trustee
Trustee must give written notice settlor – if alive, co-trustees, & all living beneficiaries. He must appoint new trustee if trust requires, but with unanimous consent of beneficiaries.
Trustee Liability
Beneficiary can (1) ratify transaction (waive), (2) sue for loss, or (3) trace – recover property & its appreciation.
Termination of Trust
By unanimous consent of beneficiaries, & no further trust purpose is served. EXCEPTIONS:
o Guardian can consent on behalf of minors or unborn
o Court can terminate or modify if non-consenting beneficiaries are adequately protected
o Court can terminate or modify if the material purpose is outweighed by modification
o Court can terminate or modify if the trust is insufficient to justify the costs of administration
o Trustee can terminate a trust with property worth less than $50,000 and can’t pay administration
