Introduction

Question 1

Settlor -

1. Definition
2. can there be more than one?
3. other names for settlor

Answer 1

1. Settlor – a person who creates a trust or contributes property to a trust.
   
   1. There can be more than one settlor, if multiple people contribute to the trust, for their portion of the trust.
   2. Grantor and trustor are synonymous with settlor.

Question 2

Beneficiary

1. Definition
2. Who can be a beneficiary?
3. What kind of ownership does beneficiary have in trust?

Answer 2

1. Beneficiary - A person for whose benefit property is held in trust, regardless of the nature of the interest.
   
   1. A beneficiary may be:
      
      1. A current beneficiary
      2. Future/remainder beneficiary
      3. Contingent beneficiary
   2. Ownership – Beneficiary owns equitable title.
      
      1. Right to benefits but not responsible for managing the property.
      2. Beneficiary has the right to enforce the trust.

Question 3

Trustee -

1. Definition
2. What does the trustee do?
3. Main Trustee Dueties
4. What kind of ownership in trust?

Answer 3

1. Trustee – See TTC 111.004(18) - “The person holding the property in Trust, including an original, additional, or successor trustee, whether or not the person is appointed or confirmed by a court.”
2. The Trustee follows instructions of the settlor (generally found in the trust instrument), guidance in the TTC, and follows various duties under common law.
   
   1. If trust instrument is silent, default to the Trust Code.
3. TTC creates a fiduciary duty to use reasonable care and utmost loyalty
4. Ownership - Trustee owns “legal title”
   
   1. Trustee has all the legal ownership, but gets none of the benefits (unless they get a fee).

Question 4

Trust Property -

1. funding required?
2. trust property defined.
3. nominal trust funding.
4. trustee receipt of actual legal title.
5. identifiable trust property.
6. Settlor’s power to transfer property to trust.

Answer 4

1. Funding Required - A valid trust cannot be created unless it’s funded with “trust property”. TTC 112.005
2. Trust Property - property placed in trust by one of the methods specified in Section 112.001 [methods of creating trusts] or property otherwise transferred to or acquired or retained by the trustee for the trust.” TTC 111.004(17)
3. Nominal funding is sufficient – i.e., $1
   
   1. Dry Trust – term used for a trust which is not funded.
4. Legal Transfer to Trustee - It’s not enough for the Settlor to simply sign the trust instrument
   
   1. Legal title must reach the hands of the Trustee.
   2. Settlor must consummate this intent by actually transferring or delivering the property.
5. Settlor’s Power to Transfer - Settlor must have the power/legal right to transfer property to trust.
   
   1. If Settlor transfers property he/she doesn’t own, then trust is not funded.
   2. Minors can’t legally transfer their interest in property.
6. Property must be identifiable:
   
   1. Should probably identify the account as “______ Trust Account” to avoid issues.

Question 5

Legal Title vs. Equitable Title

Answer 5

1. Legal Title –
   
   1. Held by the Trustee
   2. Manages property in light of state law and the Settlor’s instructions in the trust instrument.
   3. Owns and manages property for the equitable interest holder
   4. Fiduciary duties owed to Beneficiary/equitable interest holder
2. Equitable Interest –
   
   1. Held by the Beneficiary
   2. Beneficiary has right to enjoyment of trust property per the trust instrument.
   3. Not unrestricted benefit – because doesn’t own property

Question 6

Merger Doctrine

Answer 6

1. Legal title and Equitable interest can’t be united in one person.
   
   1. If so, trust ceases to exist/terminates.
   2. Exception - If legal title and all equitable interest become united in the beneficiary (except for the Settlor) of a spendthrift trust, then the court “shall” appoint a new trustee or co-trustee (see TTC 112.034(c))

Question 7

Methods of Creating a Trust

Answer 7

1. A property owner’s declaration that the owner holds the property as trustee for another person;
2. A property owner’s inter vivos transfer of the property to another person as trustee for the transferor or a third person;
3. A property owner’s testamentary transfer to another person as trustee for a third person;
4. An appointment under a power of appointment to another person as trustee for the donee of the power or for a third person.

Question 8

Types of Trusts

Answer 8

1. Inter Vivos Trust
   
   1. Created by Settlor to take effect during Settlor’s lifetime
2. Testamentary Trust
   
   1. Created by Settlor to take effect at Settlor’s death through Settlor’s will.
   2. The will itself must be valid
3. Revocable Trusts (sometimes called “Living Trusts”)
   
   1. All trusts are presumed revocable unless trust document states otherwise (TTC 112.051)
   2. Can be revoked and/or amended at any time while settlor is alive and competent.
      
      1. Exceptions
         
         1. No Revocable Testamentary Trusts
         2. a contributor to the trust (i.e. a contributing settlor) who did not create the trust, cannot revoke the trust.
   3. May avoid probate, but doesn’t remove property from settlor’s estate for estate taxes
   4. Usually doesn’t file a separate tax return – disregarded by IRS
4. Irrevocable Trusts
   
   1. Cannot be revoked
   2. To be irrevocable, trust document must say so (TTC 112.051)
   3. Generally avoids probate and generally removes property from settlor’s estate for estate taxes.
   4. A Revocable Trust can become irrevocable after an event.
   5. Files a separate tax return (IRS form 1041)