Trusst Flashcards
(21 cards)
Trusts: Principal v Income
Principal is the original trust property, and any increase in value. Income is money invested by the trust.
Are trusts revocable?
A revocable trust can be revoked at any time during the settlor’s life.
Irrevocable trust (under Uniform Trust code) is revocable unless the trust documents say otherwise.
Mandatory v Discretionary Trust
Mandatory: Trustee must make distributions from the trust.
Discretionary: Trustee may make distributions in their discretion.
Express trust
Owner expressly indicates intent to create a trust. Can be private or charitable
Private express trusts
- Need intent - oral trusts are still valid, unless statute of frauds or trust created by a will. Language that expresses hope or wish that property is used in certain way does not create a trust.
- Trust Res - no trust unless there is some piece of property in it, with exception of pourover trust .
- Trust purpose - valid if not illegal or contrary to public policy.
- Beneficiary - must be identifiable beneficiary - either specific person or some criteria to determine who the person is.
Charitable trust
Must have charitable purpose, and RAP does not apply.
Cry pres: courts can modify a trust if the trust’s charitable purpose is no longer possible
AG’s office has standing to enforce terms of a charitable trust, and under UTC settlor also has standing.
Creation of express trusts
- Inter vivos transfer - created during settlor’s life by declaration of trust or deed of trust.
- Testamentary transfer - created through terms of a will
Resulting Trusts
Used when a trust fails. trustee must return property to settlor or settlor’s estate. Can be avoided by creating a gift-over clause
Purchase money resulting trust
Person 1 buys property, but title taken in person 2’s name. If person 2 is not natural object of person 1’s bounty (not close friend or relative), court will create a purchase money resulting trust
Constructive Trust
Remedy used to prevent unjust enrichment if a third party takes advantage of settlor. Requires wrongful conduct (fraud, undue influence, detrimental reliance by third party)
Is beneficiary’s equitable interest in trust property freely alienable?
Yes, unless trust instrument or statute limits this right
Asset Protection Trusts: Aim and types
Goal is to shield beneficiaries from claims of creditors.
- Support trust - Creditors cannot reach trust property, because beneficiary cannot demand payment. Creditors can reach when trustee makes support payment.
- Discretionary Trust - Creditors cannot reach trust property, because beneficiary cannot demand payment. Creditors can reach when trustee makes payment.
- Spendthrift trust - Trust expressly restricts beneficiary’s power to alienate their interests - creditors cannot reach until trustee makes payment.
Exceptions:
- Spousal or child support;
- Those providing basic necessities to beneficiary;
- Holders of federal or state tax liens.
Trusts - Unfilled Material purpose doctrine
Where beneficiary wants to terminate trust prematurely and trustee opposes termination. Rule - trustee can block premature termination if the trust is still serving some material purpose.
Modification of trust where the settlor is alive
Settlor can unilaterally modify, unless trust is irrevocable. If trust is irrevocable, settlor can still terminate if all beneficiaries consent.
Modification of trust where settlor is dead
If settlor is dead, can generally modify in one of two situations:
-All beneficiaries agree to a modification consistent with material purpose of the trust; or
- an unforeseen event has frustrated the purpose of the trust.
Trustee cannot terminate or modify trust through unilateral action .
Removal of a trustee
Generally, a remedy when the trustee has breached a fiduciary duty or grossly mismanaged the property. Removal likely to be granted on the following grounds:
- Trustee became incapable of performing duties;
- Material breach of duty;
- Trustee develops a conflict of interest interest;
- a serious conflict between a trustee and a beneficiary;
- the trust persistently performs poorly as a result of the trustee action or inaction.
Managing trust administration : Principal vs income
Old rule = life beneficiary was entitled to income, holder of remainder interest was entitled to the trust principle.
Modern approach, governed by Uniform Principal and Income Act: trustee is to focus on the total return of the trust portfolio. Trustee can re-characterize and re-allocate items as necessary to fulfill the trust purposes. Allocations must be reasonable, taking into account intent of settlor, nature, duration, and purpose of trust, circumstances of beneficiaries, anticipated tax consequences.
Scope of trustee’s power
Always look to trust document first.
Modern trend is the grant trustee all powers necessary to act as a reasonably prudent person, including power to sell or transfer, lease trust property, pay taxes, or consolidate trust property .
Trustee’s duties.
Duty of loyalty and duty of care. Trustee with a special skill is held to a higher standard.
Delegation of trustee duties
Under common law, trustee never allowed to delegate authority. Modern law permits, delegation, if it would be unreasonable for settlor to expect trustee to undertake such functions. Trustee still has a duty to oversee
Trustee Duties - Investments
Old rule: Trustees limited to specific list of acceptable investments.
Modern rule: Prudent investor - Trustee has discretion to invest and manage property as would a prudent investor. Measure success of the portfolio as a whole.
