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Flashcards in Trust Deck (27):

What is a trust?

Trust is a fiduciary relationship with respect to property in which one person [the trustee] holds legal title to property [the res or corpus] for the benefit of another [the beneficiary]. There is a division of legal and actual title.


What are the basic requirements of an express private trust?

To have an express private trust, there must be a: competent grantor [settlor, trustor] who has the intent to create a trust for a valid purpose and who has identified trust property [corpus, res] to be held by a trustee for the benefit of a beneficiary.


What what capacity must a grantor have to be deemed competent?

Inter vivos trust: settlor must have legal capacity and legal power to convey property.

Testamentary trust: settlor must have testamentary capacity at time of execution of the will.
--Knows nature of her property.
--Knows object of her bounty.
--Knows she is making a will.


What intent must a grantor have?

Settlor must manifest an intent to create a trust. The intention may be written or spoken words or conduct. An oral trust of personal property is valid. An oral trust of real property violates the statute of frauds as it and is invalid.
--The requisite intent is not to transfer property but to create trust with that property.


What are the valid purposes for which a trust can be created?

Trust may be created for any purpose that is: (1) legal, (2) does not require the trustee to commit a tortious act, and (3) is not against public policy.
** however, a condition is void if it unreasonably restrained marriage, encourages divorce, restrains religion or encourages the commission of crimes. The condition does not void the entire document; it only voids the condition itself.


What is or can be trust property?

Identity – there must be specific, existing interest in identifiable trust property or there can be no trust. Property can be of any type. No property = no trust.
--intangibles – are identifiable property and can't be trust property [patents, copyrights, goodwill of the business, unpatented inventions].
--mere expectancies – cannot be trust property unless consideration is given for transfer of the expectancy.


What is New Mexico's rule for a promise to create a trust?

Where promised create a trust is gratuitous, a trust arises when all the elements of a valid trust have been met, if, but only if, at that subsequent time the settlor manifesting intention then to create a trust. However, when the promise to create trust of property to be receiving the future is supported by consideration, the trust automatically attaches to property is received. No reaffirmation is needed when the consideration is given.


Ascertainable beneficiary rule?

Private trust cannot exist without a beneficiary. The beneficiary of a private trust must be: definitely ascertainable at the time the trust is created; or one who is capable of being definitely ascertained within the period all interest must vest under the RAP.
--note: charitable trusts cannot have certain beneficiaries.



A trust will not fail for lack of trustee. If the trustee has died, become disabled, resigned or been removed, a court will enter an order appointing another trustee unless it is clear the trust one was intended to exist only so long as the designated trustee continues to serve.
--A trustee must have duties. A trust in which the trustee is entirely passive will fail and the beneficiaries will take legal title. Duties can be implied.


How is an inter vivos trust created?

Inter vivos trust – present transfer or present declaration of trust required.
--transfer – owner transfers property to another as trustee. Trustee takes legal title upon delivery of the deed or other document of the title. Delivery is required. OR
--declaration of trust – owner can declare himself trustee of specified property for the benefit of another. Where the inter vivos trust is created by declaration, there is no requirement of delivery because she keeps the property herself.


Testamentary trust?

Statue of wills applies. There must be proper execution and all statutory requirements of wills must be met in order for the trust contained within a will to be valid. This may be accomplished:
--within the will itself.
--independently significant facts.
--Power of appointment.


What are the requirements of a charitable trust?

Basic requirements are the same as a private trust: a competent grantor with the intent to create a trust for a valid purpose and who has identified trust property [corpus, res] to be held by trustee for the benefit of the beneficiary. Except: it must be for a charitable purpose and beneficiaries cannot be definite and charitable trust can last forever.


Charitable trust beneficiary requirement?

Must be indefinite and in favor of a broad spectrum of nonspecific beneficiaries. A trust may be denied status as a charitable trust if it designates a class of beneficiaries which is so narrow that only a few individuals benefit.


What is the Cy Pres Doctrine?

When the purpose of a charitable trust becomes "impossible" to accomplish, in order that the trust not fail, the court directs the application of the trust property to a purpose, as nearly as possible approximating the settlers express general charitable purpose.


Honorary trust?

Trust for the maintenance of a specific grave and trust for pets.
--New Mexico recognizes honorary trust, but the trust can exist for a maximum of 21 years under the UTC.
--care of animals ceases at death of last one, excess principal becomes a resulting trust.


What is voluntary alienation?

The assignment or sale.
--The actual interest of a trust beneficiary is freely animal. The transfer he takes interest subject to all conditions and limitations that would have applied but for the assignment.
----Life beneficiary or remaindermen may assign all or part of their interest in the trust whether for consideration or gratuitously. Assignment must be in writing.


Involuntary alienation?

(1) Creditors can have the debtors equitable interest in the trust sold. (2) Creditors cannot force trust property itself to be sold.
(3) Alternatives to sale – court may order the creditor paid out of the trust income if the debt can be paid in a reasonable time.
** note: a family allowance or personal property allowance may be satisfied from a trust before creditors can reach it.


Restraints on alienation and spendthrift provisions?

New Mexico law specifically permits spendthrift provisions which restrict a voluntary and involuntary alienation of a beneficiaries interest in the trust. One cannot restrain involuntary alienation but yet leave the beneficiary free to reach his interest. Creditors can reach any interest the debtor can reach.
--limitation – one cannot create a spendthrift trust for own benefit and if he is creditors.
--spendthrift clause not effective against child support, alimony, or federal and state government claims.


What are the two ways a settler may modify or revoke a trust?

(1) In accordance with a clause reserving power to revoke.
(2)With consent of all beneficiaries [they must all be in existence all of majority age and no contingent interest – "Sui juris"].
--Sui juris= of his own right and means not under any legal disability.


What are the two ways beneficiaries may modify or revoke trust?

If all beneficiaries consent [and be Sui Juris].
If modification or termination will not interfere with the material purpose of trust.


What is the standard that a trustee is held to?

Prudent person rule – standard of conduct is that a prudent person dealing with property of another. If TS special skills, he is under a duty to use those skills.


What are the 10 duties that a trustee owes?

Duty to act.
Duty of loyalty.
Duty not to delegate.
Duty to account and report to beneficiaries.
Preserve trust estate.
Maintain marketability.
Make conservative investments.
Duty to earmark.
Duty of fairness to all beneficiaries.
Duty to invest in a diverse manner.


What is trustees liability?

Breach of trust
--ratify or surcharge [sue for loss].

Tort: trustee not personally liable a
Unless personally at fault. However, beneficiaries may sue if trust estate is sued.

K: if T failed to disclose his fiduciary capacity, T may be sued personally. Furthermore, beneficiaries may have a right it indemnification.


What is an implied trust?

Is a right resulting trust for grantors benefit:
(1) Equitable remedy where express trust fails in whole or part.
(2) Where purpose of express trust are fulfilled without exhausting corpus.
(3) Purchase money resulting trust.


What is a constructive trust?

a trust created by the courts where there is a wrongdoer.


What is the secret trust?

The written document makes a gift, absolute on his face, to a named person. The gift was really intended to be for the benefit of another and was made in reliance on the grantees oral promise to hold the land for the benefit of another.
--A court could enforce the trust, refused to enforce the trust because the statute of frauds, refused to enforce the trust but find an exception to the statute of frauds and impose a constructive trust, or find a resulting trust and return the property to owes the state.


What is a semi secret trust?

The gift is made in trust, but no beneficiaries named.