Types of Trusts Flashcards
What is a charitable trust?
A trust that accomplishes a social benefit to the public at large or to a reasonably large class (e.g., “for the advancement of dolphins” or “for the Catholic Church” is OK; “for my dolphin-loving Catholic friend, Dave” is NOT a charitable trust)
What happens to a charitable trust if the charity closes?
Cy Pres Doctrine - Courts can direct that the trust property be applied to another charitable purpose as close as possible to the original one, rather than permit the trust to fail and become a resulting trust so long as (1) the gift was charitable; and (20 the settlor had a general charitable intent
What is the UTC rule for the Cy Pres Doctrine?
Under the UTC, a general charitable intent is conclusively presumed; therefore, in UTC states, cy pres is mandatory and will be applied in every case of an impossible/impracticable charitable trust interest unless the settlor specifically provides otherwise
What are the characteristics of a charitable trust?
- must benefit the public
- must have indefinite beneficiaries
- may be perpetual - RAP does not apply
- enforceable by settlor, a qualified beneficiary, or attorney general
what is an honorary trust?
a trust not for a charitable purpose, but there are no private beneficiaries who can enforce it (typically for pets, graves, etc.)
who can enforce an honorary trust?
someone named in the trust or appointed by the court
how long does an honorary trust last for?
under the UTC, it’s enforceable for 21 years or for the life of the animal; if property is left over, excess is distributed to settlor or his heirs, unless trust provides otherwise
what is a spendthrift trust?
Trust that prohibits the beneficiary from voluntarily or involuntarily transferring his interest in the trust. Trustee is in control of managing the trust property and makes decisions as to how the funds will be spent for the benefit of the beneficiary.
what is the benefit of a spendthrift trust?
Creditors typically won’t be able to reach those assets (unless they directly come into the beneficiary’s possession). Creditors may still attach their claim to the future interest but they may not compel or pressure the trustee to make a distribution.
Exceptions:
1. alimony/child support
2. criminal offense where Beneficiary injures someone
3. money actually gets distributed
4. necessaries provided to you like food, shelter, clothing
how do you create a spendthrift trust?
Say the words “spendthrift trust” somewhere in the trust instrument
when is a spendthrift trust invalid?
if the settlor makes himself the beneficiary
what is a discretionary trust?
in a discretionary trust, the trustee is given discretion whether to apply or withhold payment of trust property to the beneficiary. the beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses her power.
can a court interfere with how the trustee handles a discretionary trust?
generally, a court will not interfere unless the trustee has acted in bad faith or dishonestly.
what is a support trust?
a support trust is one where the trustee is required to pay or apply so much of the income or principal as is necessary for the beneficiary’s support. the trustee does not have discretion to refuse to pay those bills.
what are the main types of trusts?
- discretionary
- mandatory
- support
- charitable
- honorary
