Validity of Trusts Flashcards
5 Elements of valid trust
MAPII– Mechanics and formalities, ascertainable beneficiaries, proper purpose intent, identifiable corpus,
- Intent
- Identifiable Corpus
- Ascertainable Beneficiaries
- Proper Purpose
- Mechanics and Formalities (look to when created to determine if inter vivos or testamentary, must designate a TE, must convey personal property, must transfer any deeds to TE, SOF must be in writing)
Validity - Intent
i. Elements
1) splitting of legal and equitable title, imposition of enforceable legal duties on TE, present intent at the time of transfer
- Splitting of legal and equitable title
any split of title as long as sole TE is not sole BE. If they’re the same person, merger occurs and 2 parts of title come back together again, and trust either terminates or never gets created.
i. Can have Teresa and Bruce as TE AND Teresa and Bruce as BE
ii. Can be your own TE and BE in your own life, then have someone else have interest as BE upon your death, even if that BE is revocable. Need even the smallest split of title. - All you need is remainder BE
- Imposition of enforceable legal duties on TE
No formal words are needed, need not call it a trust.
b. Communication to beneficiary is not required because it’s a gift.
i. Telling beneficiary is good evidence of intent.
e. Precatory language—“I hope” “I wish” is not enough to impose legal duties on TE
ii. Saying “I hope you use this for your kids’ college” ≠ creation of trust. Trust must impose legal obligations.
iii. Can be overcome if - the resulting disposition would be unnatural (e.g. close relative otherwise gets nothing) or extrinsic evidence showing the OR previously supported the BE
c. Present intent required at time of transfer.
i. Promise to create a trust in the future is not enforceable (like any oral promise for a gift) unless binding k (supported by consideration).
d. Cannot change character of a completed gift into a trust
i. After transfer is made, that transfer cannot go back and claim the transfer was really one in trust.
ii. Trust intent must exist at time of transfer.
Validity- Identifiable Corpus
a. Because trust is a conveyance, property is required. The property must be ascertainable with certainty.
ii. May be vested or contingent (maybe right to it later)
iii. K right- like life insurance, pension etc.
c. Insufficient trust property
i. Property you cannot transfer or you do not yet own
ii. For ex. property of another person
iii. If community property jdxn, can’t put your spouses ½ without spouse’s consent.
iv. Cant put expectancy to inherit or expected future interest (unless kual right)
iii. If there are no assets when the instrument is executed, the trust arises when funded and intent remanifests
Validity- Ascertainable Beneficiaries. Difference between private and charitable trusts.
a. Private Trusts
i. Capacity – BE must be a person or entity that can take and hold title. Need not be competent.
ii. Class gifts—may be designated with generic names like “children”
1. May be unascertainable at time trust is created. Must be ascertainable when they are to benefit. For ex to my children and when my kids die to their grandkids.
2. Selection of Class members by others
a. TE or 3P may choose the class members, e.g. a discretionary trust
3. Members of class must be ascertainable
a. “friends” – unascertainable
b. “to the individuals who pass the next bar” – yes ascertainable.
4. Effect of no ascertainable beneficiaries—property reverts to settlor. If settlor has died, it goes to OR’s successors in interests (people in will or heirs)
5. must give at least SOME guidance to the TE– cannot be totally up to TE’s discretion
iii. Notice to a beneficiary is essential. Lack of notice may be evidence of lack of intent.
iv. Can disclaim a trust. If disclaimed, trust is read as though disclaimant is deceased.
1. Cannot disclaim after you’ve already taken some benefits.
v. If trust fails for lack of beneficiaries, resulting trust in favor of OR or OR’s successors is presumed.
Honorary (Purpose) trusts
in b/w charitable and private
i. Set up to provide benefits for non-human non-charitable purposes.
1. Care for a pet, maintain a grandfather clock or maintenance of burial places. Lasts until pet’s death.
2. No BE to carry it out, TE must do so onhis honor. Modern rule: enforceable by someone appointed by court.
ii. Modern US rules: 2 categories
1. One is for care of pets. Every state authorizes these.
2. Trusts for purposes not against public policy are authorized in all states?
iii. Can be void on the basis of rule against perpetuities.
he common law Rule Against Perpetuities provides that for a property interest to be valid it must vest or fail not later than 21 years after one or more lives in being at the creation of the interest.
Validity– Proper Purpose
a. ORs may create trust for any purpose
b. Exceptions
i. Can’t be illegal, for ex to encourage commission of crimes, to avoid creditors.
ii. Require trustee to commit crime or tort
iii. Purpose contrary to public policy—for ex a trust that takes away benefits when you get married.
Validity– Mechanics and Formalities– creation and designation of a trustee
a. Creation methods— mechanics depends on type
i. Inter vivos or living trust—created while settlor alive
ii. Testamentary Trust—Created in OR’s valid will. Must evaluate will validity
A TE with real powers or duties. Otherwise the trust is passive and all title will vest in beneficiary. Court will appoint a TE if necessary.
i. TE must have capacity—take hold and administer it
ii. Court will fill vacancy if trust is silent or named TE cannot or will not serve
Validity– Mechanics and Formalities– transfer/ delivery of property
c. Transfer/ Delivery of property (“funding”)
i. Declaration of Trust—
if OR and TE are same. No conveyance of personal property is needed as long as property is identified and segregated
1. For real property: SOF requires writing stating settlor is the TE
ii. Transfer or conveyance in trust—i.e. if OR is not the TE
1. MUST have transfers legal title to TE, Settlor/BE get equitable title.
Personal property by delivery
SOF requires deed be transferred to TE
Validity– Mechanics and Formalities– statute of frauds
must be in writing
i. Sometimes it may be oral (usually only personal property)
ii. serves to protect the OR NOT the BE.
iii. to protect claims that a transfer which was actually a gift should be a trust
invalid oral trust may be enforced by imposing a constructive trust
Extrinsic evidence usually allowed to resolve ambiguities
Pour over wills
provision in a will that leaves property to a trust
i. Governance—property goes into trust as exists on date of OR’s death. thus, amendments made after will execution are effective to govern the poured over property. If the trust is revoked the gift fails/ lapses
ii. Pour over property CAN be the initial trust funding if:
1. Trust identified in the will AND
2. trust executed before the testator’s death
Testamentary secret trusts and inter vivos secret trusts
Testamentary secret trusts – alleged BE msut show by clear and convincing evidence
i. Testamantary gift is silent about the trust nature of transfer
1. OR agrees with BE of will that BE will hold property in trust for someone else, but the will does not state the trust nature of the gift.
3. Courts often permit the alleged BE of the trust to seek a constructive trust remedy against the will BE who should be serving as a TE, otherwise unjust enrichment.
a. must be shown by clear and convincing evidence.
inter vivos secret trusts – alleged BE must show some wrongdoing byBE
grant of property looks outright in its face but oral evidence that grantee promised to use he property for another’s benefit. Grantee is not bound unless the alleged BE can show abuse of relationship, fraud, undue influence, wrongdoing
Testamentary semi-secret trust
i. Testamentary gift says it is “in trust” but no indication BE or the terms
ii. Trust fails, court can’t figure it out. A resulting trust is imposed for the settlor’s heirs or residuary legatees.
