TX Trusts and Fed Estate Gift Tax Flashcards
type of title held by beneficiaries
equitable
type of title held by trustee
legal title
- has burden of ownership (duty to manage, invest, insure, safeguard, etc.)
delivery
must be delivery of the subject matter of the trust, with intent to convey legal title to the trustee
trust property
- to have a trust, legal title to specific interest in property must be conveyed to the trustee
- subject matter of trust must be certain and IDed
- if no trust property, there is no trust
surety bonds for individuals v. corporate trustees
individual - must post fiduciary surety bond to secure faithful performance of duties unless settlor waived the requirement corporate trustee (bank or trust company) - does not have to give bond because security is given by bank's general corporate assets
compensation a trustee is entitled to
reasonable compensation
what happens if no trustee is named in a trust
- no trust ever fails for lack of trustee
- court will appoint if no one named or if trustee dies or resigns
- also, no one can be compelled to be a trustee
what constitutes acceptance of the trust office by the trustee named in the trust
- trustee’s signature, signifying acceptance of trust OR
- acceptance by conduct (i.e. exercise of trust power)
what if irreconcilable differences arise between trustee and bens and trustee resigns
- court approval upon showing that trustee can no longer appropriately serve as trustee
- must give accounting (1. property initially received 2. receipts and disbursements 3. property now on hand + liabilities)
if named trustee has no powers or active duties to perform…
no trust arises… trustee must owe duty to someone
trustee by estoppel is not recognized in TX… what is it
person acting as trustee without formal and proper appointment has no authority to deal with trust property and bens are not estopped from suing to recover for resulting losses
resulting trust
NOT a trust… used when a trust fails for some reason
precatory words
- hope
- request
- I would like
- non-binding to create enforceable trust obligation
words needed to create a valid trust
no particular words are needed… question of intent
trust purposes that are prohibited by law
- trust calls for commission of crime
- trust calls for destruction of property
- unlawful condition against public policy (encouraging divorce OR total restraint on marriage)
all trusts must be in writing except
transfer of personal property to a trustee other than the settlor or ben coupled with declaration of intent to create trust simultaneously with or prior to the transfer
revocable trusts
- all intervivos trusts are revocable and amendable to the settlor unless expressly stated otherwise
- any revocation or amendment must be made in writing
- guardian does not have authority to revoke trust
- divorce revokes all revocable provisions in favor of former spouse and relatives who are not relatives of settlor
pourover will
- settlor can name herself trustee
- provides means for adding testamentary assets to a trust created by T during lifetime
- need not be in existence before or executed concurrently with will
right of survivorship valid in joint bank account if…
signature card was signed by the party who has died, even if the survivor didn’t sign
- UNLESS HandW CP then both signatures required
rules for charitable trusts
- not subject to RAP
- must be for charitable purpose
- must be in favor of reasonably large segment of public
- when specific charitable purpose no longer accomplished it may be reformed in judicial proceedings under cy pres
RAP
- no interest is good unless it must vest, if at all, no later than 21 years after some life in being at the interest’s creation
- purpose is to limit the duration of private trusts
cy pres perpetuities reform statute
if will or trust violates RAP the instrument shall be reformed or construed so as to carry out the settlor’s general intent as far as possible within the period of the rule
who can enforce a charitable trust
attorney general
if named charitable ben under a trust ceases to exist, or ceases to qualify as a charity for tax purposes the trustee may…
- name a new charity as ben without court approval
- trustee must give notice of the selection to the AG
- replacement charity must have similar or same charitable purpose as the failed charity
if charitable trust purpose has changed or is no longer possible…
cy pres (as near as possible)
- judicial proceeding required
- look to general charitable intent and specific direction
purchase money resulting trust example
A pays purchase price for land and puts the title in B’s name. A and B are not related. Later A brings suit to impose a resulting trust in his favor contending he did not intent to make a gift to B but had some other reason for taking title in B’s name
purchase money resulting trust
- evidence admissible to show gift or loan of purchase price
- does not apply if family because presumption is gift but can be rebutted by CandC evidence
constructive trust
- not a trust
- equitable remedy whose object is to disgorge unjust enrichment
- requires wrongful conduct AND unjust enrichment
spendthrift clause
- protects trust bens interests from creditors by prohibiting voluntary assignment OR involuntary transfer of the bens interest
- given full effect in TX
exceptions to spendthrift clauses
- Ks for necessaries
- child support obligations
- interest retained by settlor (revocable trust)
- federal tax liens
can creditors reach income after it has been distributed from a spendthrift trust
YES - once income is distributed it is no longer subject to the trust or its spendthrift clause
BUT creditors would have to file suit each time ben received a distribution
trust bens are entitled to accounting on demand no sooner than…
12 months after trust was created and to successive accountings on demand at same intervals
trustee has decanting power… what does that mean
- cannot be exercised so as to impair bens interests or name new bens
- trust must have same bens and same distribution powers
- only trustee’s admin powers can be changed
TX trustee powers act (paraphrased)
if fee simple owner can do it, so can TX trustee EXCEPT
- self dealing or
- imprudent investment
things a trustee CANNOT do
- cannot borrow trust funds
- cannot buy or sell trust assets to itself
- cannot loan funds to trust
- cannot profit from serving as trustee
- corporate trustee cannot buy its own stock as trust asset
can trustee loan trust funds to ben
YES - subject to general test of prudence
modern portfolio theory of investing that looks to total return
trustee must establish and maintain custom-tailored investment strategy that will effectuate settlor’s intent as to the purposes of the particular trust looking to
- role that each investment plays within overall portfolio
- expected total return from income and capital gain
receipts allocated to trust income
interest, rental income, cash dividends on stock, delay rental
receipts allocated to trust principal
eminent domain condemnation award, insurance proceeds
receipts from liquidating assets (patents, copyrights) that will decline in value over time allocate…
10% to income and 90% to principal
rule for trustee liability on Ks
trustee is not personally liable on a K unless she fails to disclose her representative capacity (opposite from the executor rule)
can ben bring direct action against 3rd party who causes injury to trust property
no, trustee holds legal title so he is the one who should sue
when does a trust terminate
- automatically according to terms
- upon petition of trustee or ben if i) purpose of trust has been fulfilled ii) changed circumstances iii) achievement of tax purposes
termination of uneconomic trust
after giving notice to bens, the trustee of a trust having value less than $50k may terminate the trust without court approval if trustee determines the cost of admin does not justify its continuation
after trust terminates, trustee may continue to exercise trust powers for the reasonable time needed to
- wind up trust affairs
- make distribution to bens
current estate tax exemption
$5.45 million
an individual named as trustee of a trust may…
be a ben, as long as the individual is not the sole trustee and sole ben
groups that represent a definite class of bens
- my descendants
- the employees of my company
- my daughter’s family
why are trusts made revocable unless expressly made irrevocable
if revocable, the settlor can modify or amend the trust even though the trust instrument is silent as to the power to alter or amend
how can a purchase money resulting trust be rebutted
by evidence that the person providing consideration intended to make a gift to the title holder
constructive trust characteristics
- equitable remedy
- prevents parties from profiting by their wrongful conduct
- differs from expressive trust
A is in breach of fiduciary duty to B. As a remedy, the court may impose a constructive trust as long as…
A wrongfully acquires or retains property
spendthrift clause
prohibits a ben from voluntarily or involuntarily transferring his intent in a trust
the trust principal is subject to spendthrift protection as long as…
the settlor does not retain an interest in it
UPIA
- default rule and may be expanded, restricted or eliminated by the provisions of a trust
- to deviate from it, the trust language must be specific
proceeds from a life insurance policy or other K in which the trust or trustee is named ben are allocated to…
principal
a trustee may not represent both her personal interests and the interests of the trust in the same transaction because…
a trustee owes a duty of undivided loyalty to the trust
T breaches his duty by using trust assets to secure a personal loan and the lender does not obtain a valid security interest if…
he knew or had reason to know that the assets belonged to a trust
to remedy a breach of trust that has occurred or may occur the court may…
- compel trustee to perform trustee’s duties
- enjoin trustee from committing a breach of trust
- compel trustee to redress breach of trust, including compelling to repay money
- order trustee to account
- void an act of the trustee
when a prohibited transaction occurs, a trust’s bens may
either ratify the transaction or hold the trustee personally liable
who has standing to bring an action concerning a charitable trust
- attorney general (charged with statutory duty to represent the public and all potential beneficiaries of a charitable trust)
- settlor also has special interest in trust
trustee may name a new charitable ben upon giving notice to the AG but only when…
the replacement charitable ben has the same or similar charitable purpose as the failed ben
- where the funds are to be diverted to a different charitable purpose a judicial cy pres proceeding must be brought
