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Trusts > Trusts > Flashcards

Trusts Flashcards

1
Q

The creation of a trust requires:

A
  1. Intent by the settlor to create a trust
  2. Ascertainable beneficiaries who can enforce the trust
  3. Property to be held in trust (the res)
    (4. A writing may be required (if the trust is testamentary or to hold land))
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2
Q

A trust must have these people

A
  • Settlor
  • Beneficiaries
  • Trustee

However, a trust will not fail for want of a trustee. The court will appoint one.

ONE person may fill all 3 roles, however there must be another beneficiary that is not the sole trustee

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3
Q

When is Delivery required?

A
  • Delivery or writing is required when another besides the settlor is the trustee
  • An inter vivos gift will be valid despite lack of manual delivery where manual delivery was impracticable and the donor took steps to transfer title. Constructive delivery.
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4
Q

Trust Formalities

A

A testamentary trust is created by will, and must satisfy the Wills Act (with a writing)

An inter vivos trust of land must satisfy the statute of frauds (with a writing)

**An inter vivos trust of personal property does not require formalities

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5
Q

What is a trust?

A

Where one person manages property for the benefit of another

  • Trustee owns legal title
  • Beneficiary owns equitable title
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6
Q

How is the intent to create a trust manifested?

A

By written or spoken words or by conduct, and it need not be manifested in any particular form of language.

An oral trust of personal property is valid in almost all jurisdictions.

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7
Q

When the settlor is also the trustee, when may the trust fail?

A

Where the settlor is also the trustee and does not notify anyone of the trust, the trust may fail for lack of intent to create a trust.

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8
Q

Trust Intent

miscellaneous

A
  • Delivery of Deed May Manifest Intent
  • Intent Must Be Manifested While Settlor Owns Property
  • Must Intend Trust to Take Effect Immediately
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9
Q

Precatory Language

(intent)

A

difficulties arise when the transferor merely expresses a hope, wish, or suggestion that the property be used for a certain purpose. A direction such as “to B with the hope that B will use the property to provide for the support of C” is precatory language. Most courts today infer from such language that no trust was intended

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10
Q

Trust Beneficiaries

Notice

A

Notice to the beneficiary that a trust is being created for his benefit is not essential to the validity of the trust.

However, the beneficiary must accept his rights under the trust. A trust cannot be forced on the beneficiary without his acceptance.

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11
Q

Private trusts

purpose

beneficiaries

IMPORTANT

A
  • A private trust must have one or more ascertainable beneficiaries to whom the trustee owes fiduciary duties and who can call the trustee to account
  • A private trust must be for the benefit of the beneficiaries
  • A beneficiary must be capable of coming into court and claiming the benefit of the bequest
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12
Q

When are the beneficiaries ascertained?

A

Beneficiaries need not be ascertained when the trust is created

(but must be within the period of the rule of perpetuities)

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13
Q

Honorary Trusts

For animals

A

As long as the person receiving the gift for the benefit of a specific animal accepts the gift and agrees to carry out the intent of the testator, a bequest for the benefit of a specific animal is not unlawful.

Can also have trusts for care of grave and saying of masses.

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14
Q

Trust Res

Part 1

A
  • No Res—No Trust. Where there is no trust property, the trust fails because the trustee has no property to manage.
  • Property May Be of Any Type
  • Trust Property Must Be an Existing Interest in Existing Property
  • Future earnings from an existing contract or employment can be the res of a trust
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15
Q

Trust Res

Part 2

A
  • Trust Res Must Be Segregated from Other Property
  • Res May Include Fractional or Undivided Interests
  • A person cannot be a trustee of his own debt to another
  • Unenforceable Gratuitous Promise Cannot Be Trust Res
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16
Q

Removal of a trustee

court’s power

A

A court has the power to remove a trustee or to refuse judicial confirmation of the appointment of a trustee in a will.

Beneficiaries Cannot Compel Removal Without Grounds

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17
Q

Grounds for removal of trustee

A
  1. Breach of trust
  2. Ineffective administration
  3. Change in circumstances
  4. By consent of all of the beneficiaries if removal is in the best interests of the beneficiaries and not contrary to a material purpose of the settlor
  5. Contentious relationship
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18
Q

Qualifications of a trustee

A

Anyone who has capacity to acquire or hold title to property for his own benefit has capacity to take property as a trustee.

  • However, minors or insane persons may take title to property, but because their contracts or acts are usually voidable, they are generally held to lack capacity to administer the trust.
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19
Q

A trustee must have duties

A

An “active trust” exists when the trustee has duties. A “passive trust,” one where the trustee has no duties at all, will fail and the beneficiaries will take legal title immediately.

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20
Q

Must there be a trustee?

A

Although a trustee is essential to the operation of a trust, once a trust is established it will not fail merely because of the trustee’s death, incapacity, resignation, or removal.

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21
Q

Trustee Resignation

A

Once a trustee has accepted appointment, he cannot resign without permission of the appropriate court, unless

(i) authorized to do so by the terms of the trust, or
(ii) consent is given by all of the beneficiaries, all of whom have capacity to give this consent. The acceptance of a trustee’s resignation is within the discretion of the court.

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22
Q

When the sole trustee is also the sole beneficiary

A

There is Merger of Title Where Sole Trustee Is Also Sole Beneficiary

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23
Q

hypo

“I give my dollar to me in trust for my benefit.”

Valid?

A

Not valid because there needs to be at least one beneficiary besides the sole trustee.

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24
Q

hypo

“I give my dollar to me for my benefit for life; at death to my sister Susan”

Valid?

A

This is valid

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25
Q

?hypo:

“I orally declare “I give my dollar to Ms. Miller for my benefit for life: at my death to my sister Susan”

Valid?

A

Not valid because it is an oral trust and there was not delivery

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26
Q

Hypo

By will (a testamentary trust): “One dollar to Ms. Miller, as trustee, for the benefit of my sister for life.” Ms. Miller refuses.

A

Valid.

A trust will not fail for want of a trustee.

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27
Q

Hypo

Inter vivos: “One dollar to Ms. Miller, as trustee, for the benefit of my sister for life.” Ms. Miller refuses.

A

Valid. The settlor becomes trustee.

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28
Q

Hypo

Inter vivos: “I declare this dollar is in trust for the benefit of my sister for life.”

A

This fails because the settlor didn’t mention a trustee.

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29
Q

Charitable trust Purposes

A
  • Relief of poverty
  • Advancement of education
  • Advancement of religion
  • Promotion of health
  • Govt or municipal purposes
  • Other purposes the accomplishment of which is beneficial to the community
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30
Q

Significant exceptions that differentiate a charitable trust from a private trust

A
  • Charitable trust must be for a charitable purpose (rather than for beneficiaries)
  • Must have indefinite beneficiaries
  • Exempt from rule against perpetuities
  • Subject to a different scheme of enforcement
    • State attorneys general, donors, and federal tax authorities hold it responsible (rather than beneficiaries)
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31
Q

When the charitable purpose becomes illegal, impossible, or impracticable

A

Cy Pres: Where the specific purpose of a charitable trust is impossible or impracticable to carry out, the doctrine of cy pres allows the charitable trust to be used for a purpose that closely aligns with the original purpose.

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32
Q

Honorary Trusts

A
  • Examples are trusts for maintenance of a cemetery plot and trusts for pets.
  • no beneficiary who can enforce the trust by bringing an action against the trustee;
  • the trustee is on her honor to carry out the trust.
  • If, however, she fails or refuses to do so, a resulting trust will be imposed for the settlor or the testator’s estate
  • Void If It May Continue Beyond Perpetuities Period
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33
Q

Distributions

Limits on Trustee Discretion

A
  • Trustee must exercise good faith
    • Best interest of beneficiaries only
  • Trustee must exercise discretion
    • Must actually do something
    • the trustee must inquire into the needs of the beneficiary in order to exercise his discretion
  • Actions must be reasonable
    • Reasonableness standard
    • Language of trust is taken into account when deciding reasonableness
    • Considered in the context of the trust
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34
Q

mandatory distribution

A

If trustee does not have discretion over what, who, or when

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35
Q

Discretionary distributions

A
  • Trustee has discretion over what to pay, who to pay, and when to pay
  • Absolute discretion never means absolute discretion. The court must have some control.
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36
Q

Trustee Discretion

Exculpation clauses

A

Cannot exculpate:

  • bad faith,
  • reckless indifference, or
  • intentional or willful neglect
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37
Q

Discretionary trust: Beneficiary’s rights

A

The beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses his power. What constitutes abuse depends upon the extent of discretion conferred upon the trustee. If the trust is a “support trust,” there is more room for a court’s interference because the trust has a specific purpose; but even if the trustee’s discretion is uncontrolled, the court will interfere if the trustee acts in bad faith or dishonestly.

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38
Q

Some states have statutes that allow SSAPT’s

Conditions?

A
  • Must move money to the jx
  • Trust must be irrevocable
  • Beneficiary must be discretionary
  • Must use the institution in that jx
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39
Q

Creditors rights

Pure Discretionary Trust

A
  • A creditor of a beneficiary has no recourse against the beneficiary’s interest in the trust
  • The beneficiary cannot voluntarily alienate her interest
  • A creditor cannot by judicial order compel the trustee to make a distribution
  • The creditor may be entitled to an order requiring that if the trustee chooses to make a distribution, he must pay it to the creditor before paying the beneficiary or anyone else
  • UTC: spouse or child support can be disbursed by court order
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40
Q

Creditors Rights

Support Trust

A
  • A beneficiary of a support trust cannot alienate her interest in the trust
  • An ordinary creditor of the beneficiary cannot compel a distribution
    • However a child or spouse enforcing a claim for support or alimony can reach the trust
    • A supplier of necessities, such as a physician or grocer has recourse against the trust property through the beneficiary’s right to support
  • UTC: spouse or child support can be disbursed by court order
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41
Q

Creditors Rights

Spendthrift Trusts

A

Creditors cannot attach a beneficiary’s interest

  • This is true even if the beneficiary is entitled to mandatory distributions from the trust
  • Creditors cannot obtain an order attaching a future distribution
  • No exception for Tort victims
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42
Q

What is a spendthrift trust?

A
  • Has a provision that a creditor cannot attach the beneficiary’s interest.
  • A beneficiary cannot voluntarily alienate or assign her interest
  • Recognized throughout the united states
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43
Q

Spendthrift Trusts

Creditors rights

Exceptions

A
  • Judgments for child or spousal support can be enforced in a majority of states under the UTC
  • Obtaining legal services for the beneficiary
  • Claimant who provides beneficiary with necessities, such as medical care or food
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44
Q

Self-Settled Asset Protection Trusts (APT)

in general

A
  • Creditors can get at the same amount that the settlor can
  • If it’s revocable- creditors can get at everything
  • If it is established in a foreign country, a court in the US will lack personal jx
  • A “protector” is established (in a non-fiduciary role) to make decisions
  • Many include a “duress clause”, where the trustee ignores any direction received from a settlor or trust protector who is under duress
  • Many include a “flight clause” under which the trustee is authorized to change the situs of the trust if a claim against the trust threatens to be successful
  • Exception creditors (varies across states)
    • Spouse or child
    • Tort victim
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45
Q

Modification and Termination

The Claflin Doctrine

A

Beneficiaries of a trust cannot compel the trust’s premature termination or modification unless

  • All beneficiaries consent (and are competent to do so) AND
  • Premature termination or modification will not defeat a “material purpose” of the trust
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46
Q

Material purpose of trust

A

Postponement-of-enjoyment trusts, spendthrift trusts, support trusts, and discretionary trusts are deemed to include a material purpose

Only successive-beneficiary trusts (To X for life, then to Y) without spendthrift provisions are deemed to have no material purpose. This is the only type of trust that is destructible without the settlor’s consent. Rare.

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47
Q

The only type of destructible trust w/out the settlor’s consent

A

Only successive-beneficiary trusts (To X for life, then to Y) without spendthrift provisions

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48
Q

If a settlor consents to a modification or termination…

A

….then there is no material purpose. The trust can be destroyed (even if the trust appears to have a material purpose)

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49
Q

Hypo

Destructible?

“Income to A for life, remainder in principle at A’s death to B.”

A

Destructible, because it’s a successive-beneficiary trust, therefore it does not have a material purpose. Rare.

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50
Q

Hypo

Destructible?

“Income to A for life, remainder in principat at A’s death to B. A’s interest may not be assigned or attached.”

A

Not destructible because of the spendthrift provision

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51
Q

Hypo

Destructible?

“Income to A for life, remainder in principal at A’s death to B. A’s interest may not be assigned or attached.” Settlor wants to terminate the trust but expressly made the trust irrevocable.

A

Destructible. Irrevocable status protects settlor, but settlor wants to terminate. Deemed no material purpose.

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52
Q

Hypo

Destructible?

“income to H for life, and upon H’s death, income to son until he reaches the age of 35, at which time son is to receive the principal in fee.”

A

Not destructible because this is a postponement-of-enjoyment trust.

53
Q

Hypo

Destructible?

“Income to A for life to be used for A’s support, remainder in principal at A’s death to B.”

A

Destructible. Worded as trick question! This is actually a mandatory successive-beneficiary trust (income to A for life, then to B)

54
Q

Hypo

Destructible?

“Such income to A for life as is needed for A’s support, remainder in principal at A’s death to B.”

A

Not destructible as this is a support trust and is discretionary.

55
Q

Trust decanting

A
  • Must be able to invade the corpus
  • Only a beneficiary of the first trust may be a beneficiary of the second trust
  • Must give notice to the beneficiaries
56
Q

Traditional administrative deviation (Common Law- DEAD)

A
  • Applies only to administrative terms
  • Needs unforeseen circumstances
  • Deviation is needed to preserve the trust
57
Q

UTC deviation

  • -Equitable deviation
A
  • Applies to administrative or dispositive terms
    • “Who gets the property” is a dispositive term
  • Needs unforeseen circumstances
  • Deviation will further the trust’s purposes
58
Q

UTC Deviation

Mutant administrative deviation

A
  • Applies only to administrative terms
    • “How to invest” is an administrative term
  • Does not need unforeseen circumstances
  • Deviation is needed to avoid impracticable or wasteful trust or impaired trust administration
59
Q

Trust Decanting

2

A
  • Putting the assets of one trust into a new one
  • 25 states have decanting statutes
  • Does not require court involvement
  • May even permit the creation of a second trust that varies from a material purpose of the first trust
  • Only subject to judicial review if an interested party petitions the court and only for the trustee’s compliance with the trustee’s fiduciary duties under the first trust
60
Q

What is a support trust?

A

Where the trustee is required to pay or apply only so much of the income or principal (or both) as is necessary for the support of the beneficiary.

(A trust to “pay all of the income to A for his support” is not a support trust. When the whole of the income is to be paid to A for his support, the words “for his support” merely state the motive for the transfer. The beneficiary is not limited to amounts necessary for his support.)

61
Q

Where are the trustee’s duties owed?

A

Under a revocable trust, a trustee’s duties are owed exclusively to the settlor.

For an irrevocable trust, a trustee owes duties to all of the trust beneficiaries.

62
Q

Who holds ownership and title of the trust property?

A

Trustee holds LEGAL title;

beneficiaries have EQUITABLE ownership

63
Q

trustee powers

A
  • Has the same default powers in dealing with trust property as would an outright owner
    • subject to the trustee’s fiduciary duties
  • Whatever the trustee does, he must do it PRUDENTLY. Just because he is authorized to do something, it does not mean it is ok to do it if it is not prudent.
64
Q

A trustee must administer the trust solely in the interests of….

A

the beneficiary.

Otherwise has violated the duty of loyalty!

65
Q

What is self-dealing?

A

Absent court approval or contrary trust provision, a trustee cannot enter into any transaction in which she is dealing with the trust in her individual capacity.

True for trustee’s spouse as well

66
Q

Is good faith a defense to self-dealing?

A

A trustee who engages in self-dealing breaches his fiduciary duty regardless of whether he was acting in good faith and the trust suffered no injury as a result.

67
Q

No Further Inquiry Rule

(to determine self-dealing)

A
  • If there has been self dealing, no further inquiry is made. Even good faith and fairness are irrelevant
  • The only defenses are
    • The settlor authorized the particular conflict (and it was fair)
    • The beneficiary consented after a full disclosure
    • The trustee obtained judicial approval in advance
  • HOWEVER, if the trustee is a bank, trust funds can be invested or deposited in the bank. It is still self-dealing, but is ok.
68
Q

Remedies for breach

self dealing / conflict of interest

A
  • Compensatory damages to restore the trust to what it would have been but for the breach
  • Disgorgement of profits
69
Q

Fiduciary duties

Conflict of interest

A
  • When there is a reason to favor someone over the beneficiaries
  • If a will’s executor sells estate property for inadequate value due to a conflict of interest, the sale is void, and the executor is liable for the property’s appreciated value at the time of trial.
70
Q

Must trust property be kept seperate?

A

Trustee has Duty to Separate and Earmark Trust Property—No Commingling

71
Q

How are trust investments regulated?

A
  • The majority of states have enacted a version of the UPIA, which regulates the investment responsibilities of the trustee.
  • A few states continue to use a statutory “legal list” approach, which establishes approved types of investments for a trust.
72
Q

Are the investment regulations (UPIA or Legal List) absolute?

A

No matter which approach to investments a state uses, the trust terms can expand or limit a trustee’s powers, including investment powers. Thus, the UPIA or legal list provisions apply only if there is no contrary provision in the trust instrument.

73
Q

The Prudent Man Standard

A
  • Must avoid speculation
  • Stopped being the law in the mid 1990’s
74
Q

The Prudent Investor Standard

A

Increased sensitivity to risk/return

  1. Abandons prohibition on speculative investments
  2. Look at portfolio as a whole
  3. Anything is a potential investment
75
Q

Uniform Prudent Investor Act

Standard of Care

A

Reasonable care, skill, and caution.

Fiduciaries with Special Skills Held to Higher Standard

76
Q

Diversification

types of risk

A
  • Market (as a whole, cannot be diversified away)
  • Industry (single industry such as oil or banking)
  • Firm (particularized to one company or firm, like Apple)
77
Q

Failure to diversify investments

A

Failure to diversify an investment is a breach of trust if in light of all the circumstances a prudent person would have diversified.

  • But the duty to diversify is not absolute. A trustee need not diversify if “because of special circumstances, the purposes of the trust are better served without diversifying.”
  • For example, a trust that holds a family vacation home
78
Q

Is the duty to diversify trust assets always mandatory?

A

Absent special circumstances, the duty to diversify trust assets is mandatory unless the trust contains specific language authorizing the trustee to retain more stock than would otherwise be prudent. (this is the law, but professor doesn’t like it)

79
Q

Trustee duties

Non-delegation doctrine…

A

… has been repealed!

  • Can delegate any function… prudently
  • If the trustee has no skill in the area- must delegate to be prudent
80
Q

What are the two types of marital property systems?

A

Community

Separate

81
Q

Community Property

A
  • Spouses retain separate ownership of property brought to the marriage, but they own all earnings and acquisitions from earnings during the marriage in equal, undivided shares
  • The deceased spouse has testamentary power over her half of the community
  • Even if a title has one spouse’s name, it belongs to both
  • A spouse cannot make a gift of community property without the consent of the other
82
Q

Separate Property

A
  • Spouses own separately all earnings and acquisitions from earnings during the marriage
  • To protect against disinheritance, the surviving spouse may take an elective share (also called forced or statutory share)
    • The typical elective share is one-third of the decedent’s probate property plus certain nonprobate transfers
    • Spouses may waive their elective share by premarital agreement
83
Q

Can a trust be reached by the elective share?

A
  • If a revocable trust is created w/in a marriage, then it is included w/the elected share
  • If an irrevocable trust is created before marriage, then it is not reached by the elective share
84
Q

Migrating couples and multistate community property

3 rules for choice of law

A
  1. Situs of the land controls (trumps the other 2)
  2. Law of marital domicile at time personal property acquired signifies marital or separate
  3. Law of marital domicile at death controls the survivor’s rights
85
Q

Migrating to a community property state

A

Some community property states (half = 5)

  • Quasi-community property
    • owned by the H or W acquired while domiciled elsewhere, which would have been characterized as community property if the couple had been domiciled in a community property state when the property was acquired
86
Q

Quasi-community property (when migrating from a separate property state to a community property state)

continued

A
  • Real property situated outside the state is not treated as quasi-community property because the spouse retains in it any elective share given by the law of the situs
  • Survivor is entitled to half of the quasi-community property at spouse’s death
    • But not w/respect to land (situs trumps)
87
Q

Migrating to a separate property state

A

If the couple and the property move to a separate property state, it is continued to be characterized as community property (and can have testamentary disposition)

  • It is not subject to the elective share
88
Q

Intentional Omission of a Child

American Approach

A

In all states except louisiana, a child or descendant has no statutory protection against intentional disinheritance.

Unlike that for a spouse, there is no requirement that a testator leave any property to a child

89
Q

Intentional Omission of a Child

English Commonwealth approach

A

England, Australia, New Zealand, and Canada: the court can override a decedent’s will in accordance with the court’s view of the dispositions that the testator ought to have made under the circumstances

90
Q

Protection against unintentional omission

doctrine

A
  • revokes will as to spouse or child if marriage or birth happens after will is executed
    • Requires a strong showing to opt out of it
    • Minority: applies to living children at execution of will/trust
91
Q

Protection against unintentional omission

Spouse

A
  • Statutes give a surviving spouse who is omitted from a premarital will an intestate share
  • The statutes contain default rules that can be overcome by evidence that the testator deliberately omitted the surviving spouse and did not mistakenly fail to update the premarital will
92
Q

Omitted spouse doctrine

California

A
  • Does the estate plan provide for the spouse?
    • If yes, then omission is ok
  • If will/trust is executed, then marriage happens, spouse is entitled to intestate share
    • Community property- Half deceased spouse’s share + half already owned (¾)
    • Quasi-community property- Half deceased spouse’s share + half already owned (¾)
    • Separate property- intestate share, but cap is half
93
Q

Protection against unintentional omission

Child

A

A child born after execution of the decedent’s will is not entitled to an intestate share under the omitted child statute if the decedent parent omitted all children living at the time of executing the will and left the entire estate to the omitted child’s other parent.

94
Q

Pretermitted heir statutes. When don’t they apply?

A

Courts have held that these statutes cannot be applied to a revocable trust used as a will substitute

95
Q

If an after-born child is not mentioned in the will….

A

…they are presumptively entitled to an intestate share

Exceptions

  • Will states that it won’t provide for an after-born child
  • Child is provided for by will substitutes in lieu of a gift by will
  • D left bulk of estate to parent of child
96
Q

If D has 3 kids and leaves them $1m, then has another kid….

A

….the new kid gets a share of that $1m (not an intestate share)

97
Q

Accidental omitted child

California

A
  • D believed child to be dead
  • D did not know about the child

Gets intestate share

98
Q

Pretermitted heir statutes

California

A
  • Must be born after wills/trusts/codicils
    • Entitled to: all property from will & trust gets put into pot. Then child gets intestate share
  • Exceptions!
    • will/trust says that it’s disinheriting child
    • D left substantially everything to other parent
      • (and there were already 1 or more children)
    • D provided for omitted child by will substitute in lieu of a gift by will/trust
99
Q

Fiduciary Obligation

Duty of Impartiality

A
  • The trustee is under a duty to administer the trust impartially “based on what is fair and reasonable to all of the beneficiaries,” except to the extent that the trust or the will manifests an intent that one or more of the beneficiaries is to be favored over the others.
  • Consider settlor’s intent
  • Give due regard to each beneficiary’s interests
  • (Called the Prinicpal and Income Problem)
100
Q

Fiduciary Obligation

Impartiality

The principal and income problem

A

If the trust is “income to A for life, the remainder to B”, the trustee must balance the investment to provide income and appreciation.

There are 2 approaches to solve this issue, and almost every state has adopted them

  • Equitable Adjustment
  • Unitrust
101
Q

Fiduciary obligation

Doctrine of Equitable Adjustment

A
  • Must have a state statute authorizing this
  • The existing rules regarding principal and income are kept
  • Trustee has right and power of E.A.
    • If too much income, transfer part to principal
    • If not enough income, invade the corpus
102
Q

Fiduciary Obligation

Impartiality

Unitrust

A
  • Balance of income vs principal does not matter.
    • Invest in anything prudent
  • Life tenants are entitled to a percentage of the value of trust each year
    • Typically 3-4%, not more than 5%
  • The beauty of this is its simplicity
  • If a trustee is also a beneficiary, then can still change to a unitrust, as the initial conflict of interest goes away after the conversion to a unitrust
103
Q

The duty to inform and account

There are two purposes of accounting

A
  1. Beneficiaries of a trust have a right to info necessary to protect their interest
  2. A trustee who accounts is protected from liability if the beneficiaries do not object to the substance of the accounting within a reasonable timeframe
104
Q

UTC requires that the trustee informs and reports to beneficiaries

What are the default/mandatory rules?

A
  • UTC law in most states provide that the rules are default rules, and settlors can opt out
  • However, mandatory provisions do exist
    • Duty of good faith
    • Trust is for the benefit of the beneficiaries
    • Trustee must notify beneficiaries who reach age of 25 if the trust is irrevocable
    • Duty to account
105
Q

Trustee accounting to beneficiaries

Is the accounting binding on the beneficiaries?

A
  • An accounting is not binding on beneficiaries unless it makes full disclosure of facts upon which objection might be based.
    • Trustee has the duty to investigate into situations that will affect the administration of the trust
106
Q

Trust accounting

Affirmative Disclosure

A
  • Allard Rule
    • If the transaction is non-routine, must inform the beneficiaries
  • When selling a major asset, trustee must
    • Get an appraisal
    • Put it on the open market
107
Q

In the united states, the usual remedy with respect to a semi-secret trust is…

A

… a resulting trust in favor of the testator’s heirs or resuduary takers.

108
Q

What is a semi-secret trust?

A

A provision in a will that purports to devise property to a devisee who shall hold the property as trustee, but which fails to specify the beneficiary or important terms of the trust is a semi-secret trust.

109
Q

A spendthrift provision is only valid if it…

A

… restrains both voluntary and involuntary transfer of a beneficiary’s interest.

His creditors may not attach his interest prior to the beneficiary receiving the distribution from the trust.

110
Q

Can this be terminated?

“Income to A for life, remainder in principal at A’s death to B. A’s interest may not be assigned or attached.” Settlor wants to terminate the trust but failed to retain a power to revoke.

A

Spendthrift trust, which has a material purpose. However, the material purpose is to protect the settlor’s wishes, and here, the settlor wishes to revoke.

Can be terminated.

111
Q

What is a resulting trust?

A

In resulting trusts, the person who is declared by equity to be the beneficiary of the resulting trust is the one responsible for supplying the trust property (corpus). He has either directly conveyed the property to the person held to be the trustee, or he has supplied the consideration for a transaction through which the other person, the “trustee,” acquired title to the property. Thus, the person who holds title did not give consideration. From this fact, equity presumes that he was not intended to have the benefits of ownership and that he should be a trustee for the person who did furnish the consideration or conveyed title to him.

112
Q

Is a tort judgment creditor a valid exception creditor for a spendthrift trust?

A

Not under the UTC

Only child, spouse, or former spouse who have a judgment or court order

113
Q

What is a secret trust?

A

When a will purports to make an absolute gift, but there is an undisclosed agreement between T and the legatee that the latter will hold the property in trust for another.

114
Q

With respect to an irrevocable trust, a creditor or assignee of the settlor may reach….

A

… the maximum amount that can be distributed to or for the settlor’s benefit.

This rule applies regarless of whether the trust contains a spendthrift provision.

115
Q

Does an inter vivos trust of personal property need to be in writing?

A

no.

But an oral trust must be established only by clear and convincing evidence.

116
Q

The usual remedy with respect to a secret trust is

A

a constructive trust in favor of the intended beneficiaries

117
Q

Will a spendthrift provision be enforced if the settlor/grantor is a beneficiary?

A

No. It can be enforced against the creditors of 3rd parties though

118
Q

Powers of Appointment

terminology

A
  • Donor: the person who creates a power of appointment
  • Donee (or powerholder): the person who holds the power of appointment
  • Objects of the power (or permissible appointees): the persons in whose favor a power may be exercised
  • Takers in default: the persons who will receive the property if a donee fails to exercise a power of appointment
119
Q

Creating the power of appointment

A

The donor must manifest an intent to do so, either expressly or by implication.

  • It is not necessary to use the words “power of appointment”

The power of the donee is presumptively unlimited. Only limited if the donor says so

120
Q

POA

General vs. Special/Nongeneral

A
  • General:
    • donee can appoint to herself, her estate, her creditors, or the creditors of her estate
  • Special/Nongeneral:
    • donee can appoint to anyone except herself, her estate, etc.
121
Q

POA

Time and manner of exercise

A
  • Inter Vivos- By deed during life
  • Testamentary- by will at death
  • or by deed or by will.
122
Q

POA

Failure to specify Takers in Default

A

general power-

  • The appointive property passes back to the donor or the donor’s estate

nongeneral power-

  • Divided equally by the defined limited class
  • If there is not a defined limited class, the property passes back to the donor or the donor’s estate
123
Q

POA

To whom does the property belong prior to appointment?

A
  • special/nongeneral power- donee does not own property
    • Creditors of donee cannot get at property
  • General power
    • Creditors of inter vivos powerholder can get at the property at any time
    • Creditors of testamentary powerholder- creditors may not get at property
124
Q

POA

Exercising Power

A
  • Presumption is that residuary clause does not exercise the power
  • Cannot exercise a power in favor of a non-object
125
Q

POA

Fraud on a power

A
  • Voids the entire gift
  • Given to the takers in default (or the heirs of the donor if none)
126
Q

POA

Contracting to exercise a power

A
  • Testamentary- not enforceable
  • Inter vivos
    • General- yes can contract to exercise in favor of an object
    • Special- cannot contract, it is a fraud on the power
127
Q

Self dealing

defenses

A
  • that a transaction was fair and reasonable is not alone a defense
  • defenses
    • the settlor authorized it
      • (and it was fair & reasonable)
    • the beneficiaries consented after full disclosure
      • (and it was fair & reasonable)
    • the court approved it
128
Q
A

Trusts (4 decks)

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