Trusts Set #1

Question 1

What is a trust

Answer 1

A trust is a fiduciary relationship in which a trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title

Question 2

What are the three types of trusts (including short explanations of them)

Answer 2

Trusts are classified according to their method of creation: (i) express trusts arise from the expressed intention of the owner of property to create the relationship with respect to the property; (ii) resulting trusts arise from the presumed intention of the owner of property; and (iii) constructive trusts arise in cases involving wrongful conduct and unjust enrichment

Question 3

How are trusts governed in Florida

Answer 3

Express trusts are governed by the Florida Trust Code (“FTC”). The common law of trusts and principles of equity supplement the FTC, except to the extent modified by the Code or another law of Florida

Question 4

What are the five elements required for an express trust (and also two additional things that must be present)

Answer 4

The five elements required for an express trust are: (i) a settlor with capacity to convey; (ii) a present intent to create a trust relationship; (iii) a competent trustee with duties; (iv) a definite beneficiary; and (v) the same person is not the sole trustee and the sole beneficiary. Additionally, there must be a present disposition in trust of specific property then owned by the settlor, and the trust must have a valid trust purpose. Consideration is not required

Question 5

For the element of an express trust that “a settlor with capacity to convey,” what does it mean

Answer 5

The capacity required to create a revocable or testamentary trust is the same as that required to make a will. The settlor’s lack of legal capacity to convey prevents a trust from arising, and undue influence, fraud, or duress renders the trust void. Similarly, to create an irrevocable trust, the settlor must have legal power to convey the trust property

Question 6

For the element of an express trust of “present intent to create a trust relationship,” what does it mean

Answer 6

The settlor’s intention to create a trust is essential to the existence of an express trust. Intent may be manifested by written or spoken words or by the conduct of the settlor–unless the Statute of Wills or the Statute of Frauds applies. An oral trust of personal property is valid in almost all jurisdictions. Communication of intent to the beneficiaries is not necessary; delivery of the deed to the trustee is sufficient

Question 7

For purposes of the rule that there must be a present intent to create a trust relationship, does the property need to actually be owned at the time of conveyance to trust?

Answer 7

Yes, the intent to create a present trust must have been externally manifested by the settlor at the time he owned property and prior to its conveyance to another. (However, the conduct of the parties subsequent to the conveyance may be evidence of an earlier intent) Note: Also, the settlor’s intent must be that the trust take effect immediately, not at some future time–although a future interest can be trust property

Question 8

What is a precatory expression and how does it affect the creation of a trust?

Answer 8

A settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way is called precatory language. The usual inference is that precatory expressions do not create a trust. This inference can be overcome by: 1) definite and precise directions; 2) directions addressed to a fiduciary (e.g., executor under a will); 3) a resulting “unnatural” disposition of property (e.g., close relative will otherwise take nothing) if no trust imposed; or 4) extrinsic evidence showing that the settlor previously supported the intended beneficiary

Question 9

What is the rule of existence of a trust based on the trustee (for example, if the trustee dies or refuses to accept appointment)

Answer 9

Once established, a trust will not fail because the trustee dies, refuses to accept appointment, or resigns. The court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee served. The absence of a trustee may cause an attempted inter vivos trust to fail for lack of delivery.

Question 10

What are the two ways in which a person can accept a trusteeship?

Answer 10

by: (i) substantially complying with the acceptance terms in the trust instrument; or (ii) accepting delivery of trust property, exercising powers or performing duties as trustee, or indicating acceptance

Question 11

May the person designated a trustee still act to preserve the trust property without actually accepting the trusteeship? If so, how so?

Answer 11

The person designated as trustee may still act to preserve the trust property without accepting the trusteeship, provided he sends notice of rejection to a qualified beneficiary.

Question 12

What happens if the trusteeship is not accepted within a reasonable time?

Answer 12

It is presumed to be rejected

Question 13

One rule is that the settlor must intend to impose enforceable duties on the trustee. However, if duties are not spelled out in the trust instrument, what happens?

Answer 13

the court will usually imply duties if there is an intention to create a trust, a res, and an identified beneficiary

Question 14

What are the qualifications for a trustee

Answer 14

Anyone who has capacity to acquire and hold property for his own benefit and has capacity to administer the trust may be a trustee. (Minors and insane persons can hold property but cannot administer).

Question 15

What is the compensation and reimbursement to a trustee

Answer 15

A trustee is entitled to reasonable compensation or to compensation specified in the trust instrument. A trustee is entitled to reimbursement for expenses incurred in the trust’s administration and any other expenses that resulted in a benefit to the trust.

Question 16

How does a trustee get removed, what are the four grounds for removal, and what is the basic factor considered

Answer 16

A court can remove a trustee on its own motion or upon request by the settlor, a beneficiary, or a co-trustee. Grounds for removal include: (i) a serious breach of trust; (ii) lack of cooperation among co-trustees; (iii) unfitness, unwillingness, or persistent failure to administer; or (iv) a substantial change in circumstances. The basic factor considered is whether continuation in office would be detrimental to the trust.

Question 17

Does a trustee need a reason to either disclaim trustee status or refuse appointment as a trustee?

Answer 17

No

Question 18

May a trustee accept a trust in part and disclaim it in part?

Answer 18

No

Question 19

A rule is that a testamentary trust is treated as in existence as of the settlor’s death, and the trustee’s acceptance “relates back” to that date. What is the primary issue with that?

Answer 19

It is thus possible for a trustee, by accepting, to become liable (in his fiduciary capacity) on tort claims arising prior to the time he accepted

Question 20

What are the two ways in which a trustee can resign

Answer 20

by either: (i) giving 30 days’ notice to the qualified beneficiaries, settlor (if living), and co-trustees; or (ii) obtaining court approval

Question 21

What happens if the sole trustee and sole beneficiary are the same individual

Answer 21

If they are the sole trustee and sole beneficiary and hold precisely the same interests, titles merge and the trust terminates.

Question 22

A trust cannot exist without someone to enforce it. Thus a beneficiary is necessary to the validity of every trust except what two kinds of trusts?

Answer 22

charitable and honorary trusts

Question 23

Who is a qualified beneficiary (they must be one of what two things)

Answer 23

A qualified beneficiary is a living beneficiary who, on the date the beneficiary’s qualification is determined, is: (i) a current beneficiary, or (ii) a first-line remainderman (i.e., one who would become eligible to receive distributions were the event triggering the termination of a beneficiary’s interest or of the trust itself to occur on the qualification date.)

Question 24

What is the capacity necessary to be a beneficiary

Answer 24

Any person, natural or artificial, capable of taking and holding title to property can be a beneficiary of a private trust

Question 25

What is an incidental or indirect beneficiary

Answer 25

Not everyone who benefits from a trust is considered to be a beneficiary. The trust must operate directly to benefit the person (e.g., attorney designated by trust instrument is not beneficiary).

Question 26

Is notice to a beneficiary essential to the validity of a trust? If not, does lack or notice indicate anything?

Answer 26

Notice to a beneficiary is not essential to the validity of a trust. Lack of such notice may indicate, however, that no trust was intended. Acceptance by the beneficiary is required but can take place after a valid trust is created. Acceptance may be express or implied and is generally presumed. However, a trust will not be forced on a beneficiary, and he may disclaim his rights by filing a written disclaimer. To avoid gift taxes, it must be filed within nine months

Question 27

What is an anti-lapse statute as it relates to a trustt and when does it apply

Answer 27

Absent a contrary intent expressed in the trust instrument, Florida applies its anti-lapse statute to future interests created in trusts

Question 28

How does divorce affect a trust

Answer 28

A final decree of divorce or annulment revokes all beneficial gifts and fiduciary appointments in favor of a former spouse, including revocable trusts. The trust instrument is read as though the former spouse is deceased

Question 29

What is the rule on definiteness of beneficiaries as it pertains to a private trust? What is the effect of an unascertained beneficiary and a class gift?

Answer 29

There must be definite beneficiaries in order to have a private trust (not required in charitable trusts). Unascertained beneficiaries - Beneficiaries may be “definite” even though not yet ascertained (e.g., unborn beneficiaries). Beneficiaries must be ascertainable by the time their interests are to come into enjoyment. Class Gifts - At common law, a private trust exists for the benefit of a class, and the class must be reasonably definite. As long as the class is reasonably definite, the trust may authorize the trustee to exercise his discretion in selecting members to be benefited, or may provide that only those who meet certain requirements will benefit. Broad power to choose beneficiaries, however, constitutes a power of appointment rather than a trust. Under the FTC, however, a settlor may empower the trustee to select the beneficiaries from an indefinite class. Failure to exercise the power gives rise to a resulting trust in favor of the settlor or his successors

Question 30

What happens if a trust fails for lack of beneficiary

Answer 30

A resulting trust in favor of the settlor or his successors is presumed

Question 31

What happens if there is no res (no property) in the trust

Answer 31

Where there is no trust property, the trust fails because the trustee has no property to manage

Question 32

Which of these three interests may be held in trust? 1) a future interest, 2) an interest not yet in legal existence, and 3) future profits from an existing contract

Answer 32

1 and 3 can be held in trust (a future interest and future profits from an existing contract)

Question 33

Must the settlor have the power to convey property in order for it to be trust res?

Answer 33

Yes, trust res must be existing property that the settlor has the power to convey, including intangibles (e.g., promissory notes) in which the settlor has an assignable interest

Question 34

Must the trust res be segregated from other property?

Answer 34

Yes, the res must be identifiable and segregated, but the res may be a fractional or undivided interest in specific property

Question 35

May a debtor hold his own debt in trust?

Answer 35

No, a debtor cannot hold his own debt in trust, but the debtor can declare himself trustee of particular property from which the debt is to be paid, and the debt can be held in trust by another person.

Question 36

A trust purpose is invalid if it is one of what four things?

Answer 36

(i) illegal, (ii) contrary to public policy (e.g., encourages immorality), (iii) impossible to achieve, or (iv) intended to defraud the settlor’s creditors or based on illegal consideration

Question 37

What three things may happen if a condition attached to an interest is against public policy?

Answer 37

(i) the settlor’s alternative desire controls if expressd. (ii) if the illegal condition is a condition subsequent, the condition is invalidated but the trust is valid. (iii) 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 beneficiary’s interest altogether if the condition is unenforceable

Question 38

What is Florida’s Uniform Statutory Rule Against Perpetuities?

Answer 38

Under the Uniform Rule, enacted in FL, a nonvested property interest in a trust is invalid unless: (i) when the interest is created it is certain to vest or terminate within the common law period (21 years after the death of a life in being), or (ii) it actually vests or terminates within 360 years after its creation

Question 39

How is an inter vivos trust created

Answer 39

A trust can be created either by a person declaring himself trustee for another or by the transfer of property to another as trustee. The present intent required must be manifested by conduct (delivery) or words (declaring oneself trustee). Delivery means placing the trust property out of the settlor’s control (unless the settlor serves as trustee). Remember that the trust arises when the settlor subsequently acquires the res and remanifests trust intent

Question 40

When is a writing required for trust creation

Answer 40

Florida does not require a writing for a trust of personal property. Oral trusts may be established only by clear and convincing evidence. For a trust of land, however, a written instrument signed by the person entitled to impress the trust upon the property is required under the Statute of Frauds. Note that an otherwise invalid oral trust of land may be enforced by imposing a constructive trust.

Question 41

What rule must revocable trusts containing testamentary aspects comply with

Answer 41

Provisions in a revocable inter vivos trust created on or after July 1, 2007, that control the disposition of trust property on the settlor death are ineffective unless the trust instrument and any amendments are executed in accordance with the Statute of Wills

Question 42

How does the parol evidence rule apply to inter vivos trusts

Answer 42

Florida allows extrinsic evidence even if the writing is unambiguous, and the court may consider evidence that contradicts an apparent plain meaning of the trust instrument.

Question 43

What formalities are required for testamentary trusts

Answer 43

Trust intent and the essential terms of the trust (trust res, beneficiaries, and trust purpose) must be ascertained from the will itself, from a writing incorporated by reference into the will, or from the exercise of a power of appointment created by the will.

Question 44

What is a secret testamentary trust and what is the effect

Answer 44

Where a will makes a gift that is absolute on its face, but was in fact made in reliance on the beneficiary’s promise to hold the property in trust for another, the intended trust beneficiary may present extrinsic evidence of the promise. If the promise can be proven by clear and convincing evidence, a constructive trust will be imposed on the property in favor of the intended trust beneficiary. Note: a constructive trust will be imposed in the above case even if the will beneficiary did not make the promise until after the will was executed. Furthermore, it does not matter whether the will beneficiary intended to perform the promise when he made it; all that matters is that the testator relied on the promise.

Question 45

What is a semi-secret testamentary trust and what is the effect

Answer 45

In a semi-secret trust, the will makes a gift in trust but fails to name the beneficiary. The gift fails, and the named trustee holds the property on a resulting trust for the testator’s heirs

Question 46

What happens if a trust is procured by fraud, duress, mistake or undue influence?

Answer 46

The trust or any part so procured is void

Question 47

At what point may a trust be contested

Answer 47

An action to contest all or part of a revocable trust, or the revocation of part of a trust, may not be brought until the trust becomes irrevocable, by its terms or by the settlor’s death. An action to contest the revocation of the entire trust may not be commenced until after the settlor’s death.

Question 48

How are trust provisions that penalize an individual for contesting the trust treated?

Answer 48

Provisions of those kind are unenforceable.