Wills MEE Flashcards
What is a trust?
A trust is a financial relationship where one person holds property at the request of another. The Trustee holds “legal title” and the beneficiary holds “equitable title” and gets the financial benefits.
UTC
The uniform trust code has been adopted in 35 states.
Express Trust (most common)
Created with the intention and by complying with certain formalities.
Implied Trust
aka a “Constructive Trust”
Courts are creating this because someone did something unfair and are looking at actions over words.
How do you create a trust? (big things)
(“BIT BY BIT”)
B: Beneficiary (can be incompetent)
I: Intent (no magic words are necessary. Rather, looking at present intent to create one. “tenor” of your words and actions
T: Transfer of Property (“res”) anything that can be owned or transferred
How do you create a trust? (little things)
Delivery + Acceptance
Trustee Named - trust won’t fail without one
Settlor needs: mental & legal capacity
A woman goes to a bank, opens a new special account, and said she wanted to “set aside” money for her son. After establishing the trust, she withdrew from it for personal reasons on a few occasions. she Is this enough to establish a trust?
Not enough for a trust. Had she named it “Walters Trust” or something like that, then maybe. Furthermore, because she withdrew out of it, that also cuts against a trust.
Precatory Language
Unclear language that does not clearly evidence the intent to create a trust.
Ex: “I wish X can use this for Y”
“I request X”
Kinds of Beneficiaries
Natural persons, corporations, and other organizations.
CANNOT leave to a pet
Beneficiary CAN be mentally incompetent.
Hypo: I create a trust for “my friends.” Explain.
Here, the beneficiaries are members of an indefinite class. The Trustee has no way to determine who they are.
Key Word: The beneficiary needs to be “ascertainable.”
Valid Trust Purpose
Anything that is legal.
What happens if a trust has real property
Must comply with the SoF
Mandatory Trust
Trustee must give out a certain amount of $ or % of every year or month.
Why would I want a discretionary trust?
To protect the beneficiaries from themselves.
Spendthrift Trusts
Spendthrift trusts disallow voluntary and involuntary transfers and cannot be traded on, cashed in, or used as collateral.
Creditors, liens, etc. cannot be levied against a proper spendthrift trust.
When can creditors still get to your spendthrift?
- Child Support
- Felony criminal offense where the victim is physically injured
- Once $ is distributed. Crediotrs have no more rights than the beneficiary in the money. But, once the money becomes the beneficiaries, the creditors have the rights to take it.
- Necessaries provided to you like food, shelter, clothing.
Can creditors attach their claim to future interests?
Oh ya. But the creditor cannot compel or pressure the Trustee to make a distribution.
How do you create a spendthrift trust?
With the magic word: “spendthrift”
What happens if I create a trust and don’t put any assets in it?
A trust that is invalid for lack of assets can be funded later as long as the settlor is manifesting an intent to actually get the trust rolling again.
Ex: guy deposits check into trust account and memo’d it “for the trust”
Testamentary Trust
Creating a trust through a will. The will must state:
1. essential terms
2. Intent can be found from other documents [incorporation by reference]
Pour Over Trust
Testamentary trust but the trust is already created and the will just allocates assets into the trust.
- If the Settlor changes the terms of the trust after the will is drafted, it is still allowed.
Charitable Trust
One that accomplishes a social benefit to the public at large or to a reasonably large class.
Cy Pres
When the Settlor exhibits a general intent to give to charity and provides no means to revert if the gift fails then the court is going to use Cy Pres to try and save the gift and get as close as possible to what the Settlor wanted.
Revocability of Trusts
Common law: Presumed irrevocable unless you reserve a right, in the trust, to revoke it.
UPC: Presumed revocable unless the trust expressly says otherwise.
Where to find the trustee’s duties?
In the trust itself.
If the duties described in the trust aren’t enough, then we fall back to the UTC baseline duty rules.
Can Trustee’s liability be limited in the words of the trust?
No
Trustees Duty of Good Faith
- No loans, no sales
- Keep records and maintain proper accounting
- Be a prudent administrator (you must invest wisely. Diversify. Presumption that a lack of diversification of assets is not prudent)
- Loyalty (UTC says if you have an interest/stock in its a presumptive breach)
No Further Inquiry Rule
UTC sought to remove all temptation from Trustee’s to breach their duty of loyalty. As such, any transactions poisoned by a conflict of interest and can be liable to the beneficiaries.
Duty of Care
Carrying out the directives of the Trust and protecting the assets.
Duty of Impartiality
UTC requires trustees to distribute trust assets free from animosity or favoritism.
Unanimous Agreement Termination
The Settlor and all the beneficiaries vote to abolish the trust.
Unanimous Agreement Termination (when Settlor is dead)
The Court attempts to make a judgment on behalf of the Settlor. If the Court determines that the material purpose of the trust has been achieved, then the vote will go through.
If no material purpose can be deduced, the Court will just assume it was for the benefit of the beneficiaries and distribute it.
Once a trust is terminated, how does the Trustee distribute?
In a way that is consistent with the purposes and goals of the trust.
Power of Appointment
