Trust Flashcards
What is a trust
A trust is a legal arrangement in which a settlor conveys property to a trustee to hold as a fiduciary for one or more beneficiaries or for a charitable purpose.
Creation of a private expressing trust requires
Intent to create a trust, specific trust property, one or more ascertainable beneficiaries, and in certain circumstances a writing
The requirements to create a charitable trust are the same as for a private trust except
Instead of an ascertainable beneficiary, a charitable trust must be for the benefit of one or more charitable purposes.
A trust with neither a charitable purpose nor an ascertainable beneficiary can be upheld under the common law as a
Honorary trust for which the trustee is on her honor to fulfill the settlor’s intent. Typical honorary trust or for the care of a pet or a grave.
What is a Totten trust
Named beneficiary receive the remainder of a bank account at the time of the trustee’s death
Trustee’s duties
- duty of undivided loyalty (no self dealing)
- Duty of prudence (use skill and caution of prudent person in managing own property, diversification of investments)
- Duty of impartiality (treat beneficiaries w due regard)
- Duty to disclose (keep and render accounts, tell when something big happens)
Constructive trust
Constructive trust is an equitable remedy to provide restitution to prevent unjust enrichment. A constructive trust is a passive, temporary arrangement in which the trustee’s sole duty is to transfer the title in possession to the beneficiary.
Resulting trust
A resulting trust is an equitable reversionary interest that arises for example when a trust fails.
Alienability of the beneficiary interest in a trust
A beneficial interest in a trust is a property right that may be voluntarily and involuntarily alienable depending on the circumstances
Alienation of an interest in a discretionary trust
Voluntary: Assignee will only receive distribution if the trustee exercises her discretion to make a distribution. Unlike a beneficiary, an assignee cannot compel a distribution even if the beneficiary could’ve done so. If the trustee has notice of the assignment, the trustee must pay the assignee rather than the beneficiary or the trustee will be held personally liable.
Involuntary: A creditor may attach the beneficiary interest but will only receive distribution if the trustee exercises her discretion to make a distribution. Unlike a beneficiary, a creditor cannot compel a distribution even if the beneficiary could’ve done so. If trustee has notice of a creditor’s attachment and decides to make a payment, the trustee must satisfy the creditor before paying the beneficiary or the trustee will be held personally liable. Note: creditors may compel payments if the setlor is the beneficiary to extrnt of settlor’s interest.
Spendthrift clause?
A spendthrift clause protects the beneficiary’s interest by prohibiting both voluntary and involuntary alienation of that interest. Spend thrift clauses do not prevent predators from reaching distributed principal or income once it has already been distributed to the beneficiary. But they do generally prevent a creditor from attaching the beneficiary’s interest and intercepting a distribution.
The court will disregard a spendthrift clause and allow a preferred creditor to attach to the beneficiary’s future income or principal payments from the trust. A beneficiary preferred creditor has only as much of a right and trust assets as a beneficiary. Preferred creditors include:
- Government, taxes
- Dependants, child support or alimony payments
- Person supplying necessities
- Tort creditors in some states
A spendthrift provision and a trust where the settlor is also the beneficiary is
Invalid in the majority of jurisdictions invalid in a minority
