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Flashcards in KS: Trusts Deck (36):
1

Trust

An arrangement under which the trustee holds legal title to property for the benefit of the beneficiaries; trustee had burdens and beneficiaries have benefits of property ownership

2

Requirements for valid trust

Settlor delivers legal title of the trust assets to the trustee for the benefit of the beneficiaries with intent to create a trust for a valid purpose.
A settlor's general testamentary disposition is ineffective to exercise a general power to revoke or modify an inter vivid trust -- revocation of an inter vivos trust must be by express statement.

3

Settlor delivers

- does not apply to self-declaration of trust or testamentary trust
- signing the trust instrument is not enough to create a trust, must give legal title to the trustee
- delivery can be actual or constructive

4

Legal title of the trust assets

- Res: corpus/principal of the trust; must be a specific interest in property in which the trustee's duties can relate, such that the beneficiary who is dissatisfied with the trustee's performance can hold them accountable for those assets; if there is no certain and identifiable trust property, there is no trust

5

To the trustee

But, no trust fails for want of trustee--if the intention to create a trust is clearly manifested but no trustee is named or the named trustee dies or resigns with no provision for successor trustee, the court will appoint a suitable trustee to execute the trust

6

for the benefit of the beneficiaries

Private trust must have ascertainable beneficiaries: a trust that is invalid for lack of ascertainable beneficiaries cannot be given effect as a power of appt (because trustee is under an obligation to perform, the holder of a power is not-- but in KS, a special power of appointment argument should be made--> settlor cannot appt the trust to himself, just to others, so trust "to my friends" may be okay)
--- but, trust to "my descendants" is okay because class if defined
-- sole beneficiary cannot be the sole trustee

7

Honorary trusts

can have trusts with a nomads as the beneficiaries, trust is valid for lifetime of animals, settlor or successors get any money left over unless instrument says otherwise as a resulting trust

8

with intent to create trust

trust intended when legal title is in one person's name with duty to manage for others
- if forfeiture clauses on beneficiaries, trust is still valid but forfeiture clause may be invalid if it contravenes public polic

9

Resulting trust

when a promise to create a trust is gratuitous, a trust arises when all elements of a valid trust have been met if, but only if, at that subsequent time the settlor manifests an intention to create the trust

10

Revocable trusts

Revocable trusts are valid even though the settlor retains the right to revoke, alter or amend the trust, keeps an income interest or other interests in the trust as beneficiary, retains a power of appointment over the trust corpus or retains every day control over the trust either by naming himself trustee or by retaining veto power over the trustee's decisions;
trust must just be in existence before executed concurrently with the will;
The devised property is added to the trust as it exists settlor's death, including any amendments after the will was executed, even though the trust amendments were not executed with testamentary formalities.

11

Totten trusts

revocable during life by any manifestations of intent to revoke, including withdrawals; the account is reachable by the depositor's probate assets are insufficient to pay his creditors; extrinsic evidence is admissible to show a trust was not intended despite the designation on the signature card; can be revoked by the depositor's will; if beneficiary predeceases the depositor, the trust is automatically revoked

12

Oral Trusts

Oral trusts of personal property are enforceable; oral trusts for land must be evidenced by a writing that satisfies the SoF
But constructive trust may be imposed when:
- fraud in inducement
- duress or undue influence
- confidential relationship

13

Oral promise to make devise in will, if supported by consideration

Personal property promises are enforceable, but land promises MUST be in writing: but part performance exception may allow promise to be enforced if detrimental reliance that would make other remedies inadequate.
**In KS: Will Ks must always be express-- the mere existence of joint or mutual wills is not enough to imply that they were executed pursuant to a K.

14

Testamentary Trusts

Secret trust
Semi-secret trust

15

Secret Trust

Absolute devise by will with oral promise to hold in trust; constructive trust will be imposed to prevent unjust enrichment

16

Semi-secret trust:

Devise "in trust" with oral agreement as to beneficiaries; no trust agreement will be enforced because there is no element of unjust enrichment because the trustee didn't know beforehand

17

Charitable Trust

Enforced by the Attorney General of the state
- not subject to RAP or rule against accumulations
- must be for charitable purpose
- must have control mechanism to ensure that purpose is carried out
- must be in favor of a reasonably large number of unidentified beneficiaries
- when specific charitable purpose can no longer be accomplished, may be reformed under doctrine of cy pres

18

Charitable purpose

Religion, medicine, science, government, research, education

19

Spendthrift Clauses

Are enforceable and are a material purpose in KS
- Creditors cannot reach the trust, except for claim for child support, spousal support or by federal/state government
- Clause to preclude involuntary alienation only is okay in KS

20

Discretionary support trusts

Allowed

21

Trusts for the benefit of the settlor

-Spendthrift clauses are unenforceable, creditor can reach any right to distribution
-settlor's creditors may reach actual trust property if settlor has power to revoke the trust, or if the trustee has discretionary authority to make distributions to the settlor.

22

Trust Administration: Duty of Loyalty

No self-dealing by fiduciary
- trustee cannot buy or sell trust assets to itself: beneficiaries can trace and recover profits for benefit of trust
- trustee cannot borrow trust funds
- trustee cannot sell assets from one trust to another trust
- corporate trustee cannot purchase its own stock as a trust investment-- but can retain its own stock as part of the original trust assets, subject to the prudent investor standard

23

Trust Administration: Duty to invest prudently

- Duty to keep trust productive
- Duty to diversify investments
- Duty to balance return with potential risks
- Duty not to commingle
- BUT, this is judged by the prudent investor rule: the fact that one or more assets held by the trust are underperforming is not a problem as long as total return of overall portfolio is reasonable

24

Trust Administration: Other duties

Duty to preserve and protect trust property
Duty of impartiality
Duty to account and inform: periodically and to keep them reasonable informed about the admin of trust

25

Powers of Trustee and Successor trustee

In KS: trustee can do virtually anything a fee simple owner can do, except self-dealing or making improper investments
Corporate trustee may take title to stock in name of nominee--trustee is still liable for acts of nominee
May invest in common trust funds--not a breach for commingling

26

Liability for Breach of Trust

Beneficiaries can:
- ratify the transaction and waive the breach
- sue for resulting loss (surcharge): good faith or reasonableness are not defenses to breach of trust
- trace and recover the property for the trust
- but as long as trust is revocable, a trustee who acts with the consent of the settlor cannot be sued for breach by the beneficiaries.

27

Trust Accounting

Income beneficiaries get the net income while the remainder men are entitled to trust corpus at the termination of trust

28

Trust Accounting: Receipts

Interest and rent accrue ratably over time, but dividends accrue as of the record date
Income: interest, rents, dividends paid in cash, 10% of annuities or mineral royalties (if option to take dividends as cash or stock, the dividend is income)
Principal: sale of trust assets, stock splits, dividends paid in stock

29

Trust Accounting: Expenditures

Income: ordinary expense incurred in the production of income-- repairs, interest, taxes, half of trustee fee
(trustee can set aside a reasonable amount of income as a reserve for depreciation)
Principal: extraordinary items, capital improvements, income taxes incurred in the sale of trust property, half of trustee fee

30

Trust Accounting: Power to adjust

Under the RUPIA, a trustee has power to adjust the normal classification if it is necessary to comply with the trustee's duty of impartiality

31

Modification, Termination, and Reformation
*Termination

If all beneficiaries consent and there is no further trust purpose to be served--interest in minors or unborn beneficiaries precludes termination
- spendthrift clause makes trust indestructible--can't be terminated unless all beneficiaries and settlor consents

32

Modification, termination, and reformation

Settlor acting alone, can revoke, terminate, or modify a trust provided it is not explicitly irrevocable and the settlor complies with all provisions in the instrument to the form that the proposed action must take
* court can reform a trust if it is shown by clear and convincing evidence that the terms of the trust were affected by a mistake.

33

Trust imposed by operation of law
Resulting trust:

Arise upon failure of express trust or when express trust purposes accomplished and corpus not exhausted, or may be purchase money resulting trust when consideration for purchase of property is paid by person other than the person taking title.

34

A sale or exchange by a trustee of a resulting or constructive trust to a BFP for value

Cuts off beneficiary's rights to the transferred asset, but trustee holds any consideration received on the transfer in trust for the beneficiary and if the sale is not to a BFP, the beneficiary has a choice of remedies: impose trust on consideration received by trustee or impose trust on original asset in non-BFP's hands

35

Constructive trusts:

Implied where a person acquires title to property wrongfully

36

Powers of appointment

written expression of authority