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Flashcards in Florida Trusts Deck (57)
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1

What is a Trust?

It is a fiduciary relationship in which a trustee holds LEGAL TITLE to specific property under a fiduciary duty to manage, invest, safeguard and administer the trust assets and income for the benefit of designated beneficiaries, who hold EQUITABLE TITLE.

2

What is legal title?

The actual ownership of the property. Has the duties.

3

What is equitable title?

A person's right to obtain ownership of a property or property interest. Gets the benefit.

4

What is the Florida Trust Code?

The FTC governs express trusts. Common law of trusts and principles of equity supplement the FTC unless modified by the FTC itself or another law of Florida.

5

Trust?

 

fiduciary relationship where

a trustee holds a legal title to property

for benefit of trust's beneficiary (who holds equitable title)

 

  • Creation: (1) someone (grantor/settlor/donor/testator) transfers legal title to property to trustee, who administers trust in accordance w/ settlor’s wishes for benefit of beneficiaries
  • Not a bailment [deliver goods to a bailee, w/o transfer of ownership]

6

Types of Trusts:

Express vs. Implied?

Express trusts: from property owner's intention; 2 types:

  1. Private express trusts
  2. Charitable trust

Implied trusts: created by operation of law (trusts are equitable remedies.); 2 types:

  1. Resulting trusts: places prop in hands of rightful owner when circumstances require it, even though there has not been any wrongdoing on anyone’s part
  2. Constructive trusts: deprives wrongdoer from retaining improperly obtained prop. (Result of fraud or unjust enrichment)

7

Parties to a Trust?

Settlor

Trustee (legal interest in trust property)

Beneficiary (equitable interest in trust property)

8

Settlor?

 

creates trust by transferring assets to a trustee AND

manifest intent to create a trust relationship

9

Self-settled trust?

Person who created the trust, Settlor, is also a beneficiary of the trust; aka "settlor's 'declaration of a trust'"

 

  • A spendthrift or discretionary provision will not bar any of the settlor’s creditors; When there’s a self-settled trust, the settlor’s creditors can reach the maximum amount that can be distributed to or for the settlor’s benefit.
  • Declaration can be oral, unless trusts assets include real prop [SoF requires writing], but need proof prop being held in capacity as trustee

 

10

Trustee?

legal owner of trust property, who holds it for benefit of beneficiaries

  • Legal title to, responsibility for, and the management of the trust property resides in the trustee
  • Must always be a beneficiary that can enforce the trust against the trustee
  1. Settlor can be the trustee, if there is a beneficiary in existence who can enforce the trust against the trustee.
  2. Settlor may also be the beneficiary of the trust.
    • However, settlor cannot be the only trustee & beneficiary, because there is no one to enforce the trust against the trustee. [b/c can’t enforce obligation against yourself]
    • If a sole trustee is the sole beneficiary, the trust will collapse because the interests will merge.
  • Failure to designate a qualified trustee won't necessarily destroy the trust.

11

Trustee Duties?

 

  1. fiduciary of trust
  2. must be given some active duties to direct him with respect to trust property in order for trust to be valid; w/o active duties: it is a “passive” or “dry” trust, and title to the trust assets will pass directly to the beneficiaries
  3. Duties do not have to be spelled out, but need a direction that a court could reasonably interpret his duties

No trustee designated/incompetent/dies: court will generally appoint a trustee …only time courts won’t step in is if settlor stated otherwise …"don’t replace"

12

Co-Trustees?

2+ persons have been named as trustees,

deemed joint tenant

  • will may override this & name a successor trustee

  • Co-trustees who are unable to reach a unanimous decision may act by majority decision

    • Losing trustee may formally dissent, and avoid liability [filing notice of dissent]

13

Beneficiary?

the equitable owners of the trust property

14

General Rights of the Parties in a Trust?

  1. Rights of Settlor: no longer owns assets; therefore, no rights exist
  2. Rights of Trustee: adhere to the terms of the trust with respect to the trust assets for the benefit of the beneficiaries; legal title to trust property
  3. Rights of Beneficiaries: use and enjoyment of the property as distributed; equitable title to trust property

           

15

What are the required elements of an Express Trust?

  1. A settlor with capacity to convey
    1. same as for a will.  need legal capacity.  undue influence, fraud, or duress renders the trust void.
  2. a present intent to create a trust relationship
  3. a competent trustee with duties
  4. a definite beneficiary AND
  5. the same person is not the sole trustee and sole beneficiary.

There also must be a present disposition in trust of specific property then owned by the settlor AND the trust must have a valid trust purpose.

No consideration required.

16

Precatory Language regarding Trust Creation?

language insufficient to create a trust; precatory is defined as a request and trusts are demands/direction (e.g., these assets are given to Shayla in hopes[I would like] that she distributes them toward Asia’s college education)

  • Exception: Even though the language is precatory, there is so much specificity, the courts will interpret it as mandatory. (Ex: $5000 to Asia.  Joe would like Shayla to invest the money in an annuity that will pay $200/month to Asia.)

17

To create a trust, a settlor must have _________ intent.

present intent

 

  • Ex: “I will put $5000 in trust for Terry next week” does not create a trust.  [It is a mere promise not supported by consideration.]?

18

If a trust states that it will name

the beneficiaries later, it is a _________.

resulting trust

 

  • Resulting trusts: places prop in hands of rightful owner when circumstances require it, even though there has not been any wrongdoing on anyone’s part
  • In Florida, if a trust fails for a lack of a beneficiary, then a resulting trust will be presumed in favor of the settlor or her successors.

19

If the settlor does not own the trust property and then subsequently buys the property, is a trust created?

No

 

cannot have a present intent for unknown property

20

What cannot be trust property?

  1. mere expectations
  2. unearned profits
  3. debt owed by the trustee [can’t sue yourself]

 

There must be some certainty over what is the trust property.

21

Must a trust must have ascertainable beneficiaries?

YES

  1. “To my friends” is too vague.
  2. “To my family” is also vague, but the courts will interpret it to mean heirs.
  3. If Settlor provides objective standard by which to identify beneficiaries, then those beneficiaries are ascertainable.
    • a) Must provide a reasonable basis [Ex:  Hold property in trust for “person who provided best health care for me before my death.”]

    • b) Court will defer to trustee’s discretion unless: its arbitrary, capricious or acted in bad faith

      • Trust may give trustee right to invade trust corpus for benefit of beneficiary subject to his discretion.

      • Trust may give partial or total discretion.

22

Discuss Active Duties with respect to a trust?

  • Must have active duties, if not it becomes "passive" or "dry" and that person must transfer legal title to beneficiary and end trust
  • Duties do not have to be spelled out, but need a direction that a court could reasonably interpret his duties

23

Trust Purpose?

 

CAN'T BE: illegal, violate R.A.P. or against public policy

  • Against public policy: ex. (1) encourage divorce [can end trust based on a subsequent divorce]; OR (b) prevent marriage [unless it’s a SS]

  • When trust purpose violates public policy: 

    1. delete obnoxious language

    2. what would Settlor have wanted had he known provision was in violation of public policy

24

Testamentary trust?

 

created by Testator’s valid will

 

  • Even if a will is valid, there may be problems with trust.
  • Wills frequently contain “pour over” provisions that direct the transfer of the decedent’s property into a trust established either by the testator during his lifetime or by another person.

25

Totten Trusts?

Arrangement with a bank that allows the depositor to open a bank account in his own name, as trustee for other parties.

  • Only right beneficiary has: take what is left in the account when the trustee dies, if the beneficiary is alive [allows the property to bypass probate]
  • The account holder can use the account as she wishes during her lifetime (adding to, withdrawing from, or even closing the account).

26

Limits on Trust Duration (Florida)?

  • All trusts must comply w/ Rule Against Perpetuities--No interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest; OR
  • The interest either vests or terminates within 360 years after its creation.

27

Trustee owes a duty of _________________ to the beneficiaries in carrying out her obligations under the trust.

utmost loyalty and good faith

 

28

Trustee is prohibited from?

  1. Self-dealing [NO borrowing or lending/buying or selling assets to trust]
    • Any profits earned from self-dealing w/ trust belong to the trust.
  2. Obtaining a personal benefit other than agreed upon or statutory fees as a consequence of his position

    • Bonus, fee, or other benefit for trust business is strictly prohibited. All free gifts recieved, e.g. free TV, must be deposited into trust

  3. Conflict of interest with respect to trust & 3rd parties

  4. Entering into transaction w/ beneficiaries of trust she is administering

    • Only be allowed if:

      • A) if all pertinent/mat’ facts known to trustee are disclosed

      • B) all transactions must be fair when viewed objectively (Even when dealing w/ non-trust assets)

29

Affirmative Duties re: Trust Assets?

  1. Trustee has affirmative duty to preserve and enhance trust property

    • Prudent Business Person Rule: trustee must use a degree of skill and care & prudence that would be used by a business person in his own personal affairs (Trustee w/ superior business expertise/professional fiduciary: held to their profession’s standard)

    • Trustee is obliged to attempt to utilize trust property in a productive manner; subject, at all times, to the obligation to be prudent.

    • Trustee should diversify the trust’s portfolio.

      • Acceptable items include: gov’t or highly rated bonds, mutual bonds

      • Investments that will be questioned include: penny stocks, commodities, derivatives

  2. Trustee generally may not delegate his duties      

  • Trustee MUST: be diligent in selecting his advisor for investment decisions & inform beneficiaries of the delegation.

30

Trustee’s Liability?

totally accountable for

any loss that arises from his breach,

AND any benefit gained is to be given to the trust.

He may also be subject to punitive damages