Wills & Trusts Flashcards
Private Express Trust Defined
A fiduciary relationship with respect to property whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a manifestation of intent to create it for a legal purpose.
Elements of a trust
- settlor with capacity
- presenet intent
- trustee
- definate benficiary
- res
- valid trust purpose
- the same person may not be the sole trustee and sole beneficiary
Manifestation of Trust Intent
[A] There must be present manifestation of trust intent made by the settlor. You cannot manifest an intent for a trust to arise in the future.
[B] No magic words, however, are needed to create a trust. Settlor does not have to use the words “trust,” “trustee,” or “beneficiary.”
[C] Although no magic words are needed to create a trust, precatory words, by themselves are not sufficient to create a trust.
Precatory words defined:
Words of wish, hope, or desire
Precatory words are not mandatory words, which is
required for a trust.
Trusts of personal property & RAP
Trusts of personal property do not have to be in writing. The Statute of Frauds applies only to real property.
Implied Trustee Powers
- Power to sell trust property
- The power to incur expenses
- Power to lease
- Power to borrow
Trustee Duties Owed to Beneficiaries
- Duty of Loyalty
- Duty to Invest
- Duty to Earmark
Consequences of finding breach of the duty of loyalty or selfdealing:
[a] If there is a loss, the trustee is “surcharged,” meaning that the trustee has to make good the loss.
[b] If the trustee makes a personal profit, then with respect to those ill-gotten profits, the trustee is a constructive
trustee: must turn over those profits to the intended
beneficiary.
Duty to Invest: Split of authority: There are three alternative rules of
the duty to invest. Discuss all three on the bar exam.
- State lists:
- Common law prudent person test:
- Uniform Prudent Investor Act:
What if trustee breaches the duty to invest?
In any jurisdiction, trustee must make good the loss. If there is a profit, the beneficiaries affirm the transaction. If the trustee makes two investments that breach the duty to
invest, one makes money and the other loses money, the
trustee is surcharged for the loss while the beneficiaries
affirm the transaction that made money. No netting
allowed by the trustee.
Duty to Earmark
[1] Defined:
This requires the trustee label trust property as property
Duty to Segregate
The trustee cannot commingle his own personal funds with trust funds
Moreover, the duty to segregate also requires that the trustee not comingle the funds of Trust A with the funds of Trust B.
If trustee breaches the duty to segregate, the trustee can be removed and be held liable for any loss.
Duty Not to Delegate
The trustee can rely on professional advisors in
reaching a decision, but the trustee cannot delegate decisionmaking authority to these advisors.
Under the common law, a trustee could not delegate the duty to invest to a professional money manager.
Modernly, a trustee can delegate this duty (e.g. to a
manager of a mutual fund).
Moreover, while a trustee cannot delegate to a third person, the trustee also cannot delegate to another trustee.
Under the common law, in the absence of a contrary provision in the trust instrument, trustees must act unanimously.
Modernly, trustees can act by majority decision.
Duty to Account
This requires the trustee on a regular basis to give the beneficiaries a statement of income and expenses of the trust
If the trustee fails to render an accounting to the
beneficiaries, the beneficiaries would file an action for an
accounting.
Duty of Due Care
The trustee must act as a reasonably prudent person dealing with his own affairs
Always discuss in relation to breachof fiduciary duty
