Trusts

Question 1

Execution (and Requirements)

Answer 1

Settlor (grantor; 18+ with capacity to convey title) delivers (not mere intent or gratuitous promise) title to trust property to a trustee for the benefit of the beneficiaries with intent to create a trust (property must be identifiable and certain).

Must be for lawful purpose: (1) commission of crime; (2) destruction of property; (3) against public policy

No consideration required but Trust duties auto attach if supported by consideration

Purpose and Beneficiaries must be stated; otherwise pass through will or intestate(trustee can’t be beneficiary)—except if minor children with someone over 18 (minors treated as beneficiaries and over 18 as trustee)
• PER—oral testimony inadmissible to ID beneficiaries

Question 2

Associations as Trustees

Answer 2

An unincorporated association cannot be a trustee—only banks and trust companies given trust powers in their charters and charities for charitable trusts only (must have definite and ascertainable beneficiaries and interests must vest no later than lives in being plus 21 years)

Question 3

Trustee / Bond Requirement

Answer 3

Must post a fiduciary surety bond to secure faithful performance of her duties unless settlor waived bond requirement; corporate trustee does not have to give a bond.

No trust ever fails for lack of trustee; court will appoint

No one can be compelled to accept fiduciary responsibilities and duties

Acceptance when (1) trustee’s signature, signifying acceptance of the trust or via conduct

Question 4

Trustee Compensation

Answer 4

Entitled to reasonable compensation (5% in/out)

Question 5

Precatory Words

Answer 5

Do NOT create a trust. Words must be binding/create an enforceable obligation.

Question 6

Revocable Trusts

Answer 6

Default in TX (must clearly be irrevocable)

All inter vivos trusts revocable and amendable by the settlor

Question 7

Revocation

Answer 7

Any revocation must be in writing.

Only a court can revoke a trust if beneficiary becomes incapacitated (not a guardian)

Question 8

Pourover Will

Answer 8

Provides a means for adding testamentary assets to a trust created by the testator during life. Valid (i) even if trust is subject to revocation and amendment and is later amended; (ii) even if trust is unfunded—trust need not be in existence before or executed concurrently with will

Question 9

Trustee Named in my Will

Answer 9

“Trustee named in my Will” is sufficient for designating for life insurance trust

Question 10

Joint Tenancy with Right of Survivorship

Answer 10

Must be clearly stated

Question 11

Durable Power of Attorney (when does it terminate)

Answer 11

must be signed and acknowledged before a notary public, authorizes another to act on behalf of P. A’s power unaffected by P’s incapacity if states “POA unaffected by subsequent disability or incapacity”
• Given to spouse terminates on divorce NOT on P’s bankruptcy
• Appointment of guardian of estate terminates durable power
• Standing to Challenge A’s acts: Action to review an A’s conduct may be brought by a person named as beneficiary to receive property on P’s death or any other person who persuades the court they have sufficient interest in P’s welfare or to justify the action
• Person or Institution presented w/durable PoA: MUST either (i) accept the power; (ii) request cert of facts showing the power is valid or (iii) request an attorney’s opinion that the power is valid

Can revoke if knowledge PoA revoked; illegal; or judicial proceeding pending involving PoA

Question 12

Charitable Trusts (AG)

Answer 12

No RAP / Must be charitable purpose / must be in favor of larger public / may be reformed in judicial proceedings under cy press

AG is a proper party (but not necessary) to any suit concerning a charitable trust. AG can join
• BUT if named charitable beneficiary named under trusts ceases to exist or qualify as charity for fed inc purposes—trustee may, without court approval name new beneficiary

Question 13

Resulting and Constructive Trusts

Answer 13

Gift: Evidence is admissible to rebut gift presumption and show by C&C evidence

Constructive Trust: NOT a trust, an equitable remedy whose subject is to disgorge unjust enrichment. (1) wrongful conduct that (2) woud lead to unjust enrichment

Question 14

Spendthrift Trust and Creditors

Answer 14

MUST CLEARLY BE IRREVOCABLE

given full effect in TX. Protects a trust beneficiary’s interest from creditors by prohibiting voluntary assignment or involuntary transfer of the beneficiary’s interest. Beneficiary’s creditor cannot reach beneficiary’s interest in spendthrift by garnishment or attachment or compel a distribution if trustee is given discretion to make distributions to beneficiary.—valid if expressly says “this shall be a spendthrift trust”

• Exceptions: Ks for necessities/child support/any interest retained by settlor (revocable trust–default in TX)/Fed Tax Liens

Once income distributed it is no longer subject to the trust or spendthrift clause—creditors may have at it BUT will have to file suit each time beneficiary received a distribution (takes away creditor’s efficient rights to garnishment and attachment)

Cannot fraudulently transfer—if made with intent to defeat, delay, or defraud creditors (3Ds)

Question 15

Discretionary Trusts

Answer 15

Trustee has sole discretion for distributions. Creditor may obtain to the max extent beneficiary debtor could make a distribution

Question 16

Support Trusts

Answer 16

Beneficiary can get to the funds despite the trustee—provided for their support. Any distribution far in excess of beneficiary’s needs is a breach of trust

Creditor who furnishes necessaries CAN reach a support trust. If beneficiary can compel distribution then so can a creditor furnishing necessities

Question 17

Venue for Trust Disputes

Answer 17

Venue: (i) county of trustee’s residence or (ii) county in which situs (principal office) of trust is maintained / 2+ invididuals: (ii) / corporate trustee: (ii) / if settlor now deceased and admin pending, action involving inter vivos or testamentary trust created by will may be brought by above rules or in county in which estate admin is pending.

Question 18

Trustee Powers

Answer 18

May: (1) sell the prop at publc or private sale; (2) lease the prop for any term trustee deems appropriate; (3) give a mortgage; (4) make improvements; (5) make repairs; (6) give mineral leases; (7) partition and subdivide the property

Question 19

Accounting

Answer 19

Beneficiaries entitled to an accounting on demand no sooner than 12 months after trust created and to successive accounting on demand at the same intervals
• Compare Ind Will Executors—accounting on demand no sooner than 15 months after appointment and successive on demand at 12 month intervals

Question 20

Trustee’s Decanting Powers

Answer 20

Limited power to transfer trust assets to a new trust with different provisions. CANNOT be exercised so as to impair beneficiaries’ interests or name new beneficiaries.
• Only trustee’s admin powers can be changed. Court approval not required.

Question 21

Trustee Prohibited From:

Answer 21

Cannot self-deal (cannot borrow trust funds; buy or sell trust assets to itself; loaned funds to the trust; profit from serving as trustee except for 5% compensation; corp trustee cannot buyt its own stock as trust asset but can retain if a prudent invesment) or be an imprudent investor

Self-dealing also applies to loans or sales to relatives and to a business entity of which trustee is an officer, director, partner, employee, or principal SH [indirect self-dealing]

Question 22

SoL

Answer 22

4 year SoL: does not begin to un on an action aganst a fiduciary unless and until he (i) repudiates the trust by denyng existence of the trust wrt the property; (ii) dies or resigns; or (iii) gives an accounting that makes full disclosure of the facts upon which the action is based

Question 23

UPIA

Answer 23

Prudence measured by conduct when investment decision is made (NOT outcome or performance)

Trustee must establish a custom-tailored investment strategy that will effectuate settlor’s intent as to purposes of the particular trust—prudence not measured by hindsight; look at conduct in making the investment decision.

Trustee can exercise Adjustment Power and allocate capital gain and principal to income

Question 24

Expenses

Answer 24

Trustee’s commissions, accounting, judicial proceedings charged ½ against income and ½ against principal

Ordinary: expenses recurring every year (taxes, premiums, ordinary repairs, interest)

CAPEX: Charged against principal (cap improvements, environ expenses, estate taxes, principal payments)

Question 25

Texas Trusts Code gives Default Rules

Answer 25

and apply absent contrary provision by settlor; like personal liability on Ks; torts (personally liable but trust can elect to reimburse); exculpatory clause (but strictly construed and NOT for bad faith, gross negligence, or fraud)—but cannot waive:
• No illegal purpose/breach of trust committed in bad faith/limit SoL/duty to respond to demand for accounting/cannot limit court’s power to exercise its jurisdiction

Question 26

Trustee decides to sue (has legal title)

Answer 26

unless (1) trustee unwilling to bring the action; (2) 3rd party participated w/trustee in committing breach

Question 27

Modification and Early Termination of Trust (Uneconomic Trust)

Answer 27

Upon petition of trustee or beneficiary, court may order trustee be changed, terms be modified if: (a) trust purposes fulfilled or become impossible/illegal; (b) changed circumstances mod or termination thus further the purposes of the trust or; (c) achievement of tax purposes

Termination of uneconomic trust: value less than $50K may terminate without court approval except division or merger of trusts can be accomplished without judicial proceeding. Can be done for any reason but usually for tax purpose

Question 28

Federal Estate & Gift Taxes

Answer 28

o For estates of decedents dying in 2018, if decedent’s “gross estate” is less than $11M, decedent executor doesn’t have to file estate tax return
o Unlimited marital deduction under both gift and estate tax
o Also an $11M exemption under the federal gift tax—thus, no gift tax must be paid by a donor unless cumulative lifetime taxable gists exceed $11M
o $15K/done annual exclusion under the gift tax
o Unlimited exclusion for tuition and med payments if (but only if) payment is made directly to the service provider
o Revocable trusts = “incomplete” gifts because of revocable power