Trusts Flashcards
(124 cards)
1
Q
trusts
A
legal arrangements for dealing with property
2
Q
settlor
A
conveys property to trust
3
Q
trustee
A
holds legal title to trust property and safeguards, manages, and distributes it
4
Q
beneficiary
A
holds equitable title to property and has beneficial ownership
5
Q
four elements of a trust
A
intent, property (corpus/res), trustee, at least one ascertainable beneficiary
NO WRITING REQUIRED
6
Q
types of trusts
A
inter vivos/testamentary, irrevocable/revocable, mandatory/discretionary, short term/perpetual
7
Q
bifurcation of ownership
A
separate ownership into legal title and equitable title
8
Q
suing a trust
A
Cannot sue trust as it is not a judicial entity, but is a fiduciary relationship. Must sue trustee.
9
Q
fiduciary administration duties include:
A
loyalty, impartiality, prudence, duty not to commingle trusts assets with other assets, and duty to inform and account
10
Q
precatory statements
A
Wishes and hopes. Do not create a trust, but only an unenforceable moral obligation.
11
Q
no named trustee
A
Courts will appoint one. Trusts do not fail for want of a trustee.
12
Q
formalities of trusts
A
If testamentary trust, then must follow testamentary formalities in wills. If inter vivos - no formalities, may be oral
13
Q
imperfect gift due to lack of delivery ____ be turned into a trust ________
A
cannot; without an express manifestation of intent
14
Q
res for trusts
A
any property that can be transferred
15
Q
beneficiaries must be:
A
Ascertainable. Need not be ascertained yet, just ascertainable and subject to RAP.
16
Q
powers of appointment
A
Nonfiduciary duty to distribute trust property that may be exercised arbitrarily as long as the exercise is within scope of powers granted.
17
Q
honorary trust
A
Trust that is binding on the conscience of the trustee since there is no beneficiary. Cannot be compelled to apply property as directed, but also cannot keep it for themselves.
18
Q
oral trusts can exist for:
A
Personal property only. Real property must be conveyed in writing to satisfy Statute of Frauds.
19
Q
If a trust fails, property:
A
Passes as part of the settlor’s estate. Trustee does not keep property.
20
Q
secret trust
A
Leaving a bequest and person promises to use it a certain way. Can be enforceable.
21
Q
semi-secret trust
A
Bequest is to be taken in trust but no beneficiary specified. No extrinsic evidence allowed.
22
Q
think of principal and income:
A
Separately. Protect and grow principal and income can be distributed per trust terms.
23
Q
trusts ___ comply with will’s testamentary formalities
A
do not
24
Q
during period of revocability, trustee has duty to
A
settlor only
25
trusts are presumed to be:
revocable (Ohio, UTC, and other jurisdictions); some jurisdictions are the opposite
26
when amending or revoking a trust, there must be:
clear and convincing evidence of settlor's intent and must follow terms of the trust
27
Creditors can get to assets of revocable trust because:
power to revoke is enough ownership interest to do so even after death.
28
Divorce ______ revoke provisions for ex-spouse in wills and trusts.
does
29
Types of retirement plans
IRAs, defined benefit, defined contribution
30
beneficiaries of life insurance and IRAs, etc. are changed by
Terms of contract and can't be changed by will.
31
State laws regarding revocation on divorce for IRA, etc. beneficiaries
are preempted by ERISA.
32
Pay on death and transfer on death:
similar to joint tenancy but only one person owns and automatically transfers on death.
33
convenience account
One person owns the account but another named on it to pay on their behalf.
34
joint tenancy with right of survivorship
Each person owns the entirety of it and at death, their interest is extinguished.
35
conservatorship
Declared incompetent and someone is appointed to manage property with fiduciary duty of care and loyalty.
36
guardianship
similar to conservatorship, but more court supervision.
37
Revocable trust ____ be used instead of guardianship/conservatorship, but ______.
can; no court supervision of trustee.
38
power of attorney
Agency relationship in which agent is authorized to act on principal's behalf. Ends at incapacity.
39
durable power of attorney
POA that remains effective through incompetency and ends at death.
40
nondelegable acts
marriage, voting, wills, and affidavits of knowledge
41
health care POA
POA for terminating or directing medical care.
42
Share for surviving spouse
Statutory right for elective share of estate and sometimes can reach nonprobate assets. Can be waived by prenup. Must choose it and must waive any gift in will.
43
Elective share can be claimed by:
Legally married spouse, regardless of length of marriage or source of wealth. Not for cohabitating spouses, domestic/civil unions, except for common law if state allows it.
44
Subsequently deceased spouse's estate ______ claim elective share.
Cannot. Only claim while alive.
45
augmented estate
probate and nonprobate assets listed in statute
46
waiver of elective share by agreement
States enforce prenup waiver and most enforce postnup waiver. Focus on voluntariness, financial disclosure, and access to independent counsel.
47
other protections for surviving spouses
pensions, social security, homestead, personal property allowance, family allowance
48
Can disinherit
children, even minor, except in Louisiana
49
pretermitted spouse
can get pretermitted spouse share, unless proof testator did not want anything to go to spouse; premarital will no longer revoked. Look at will and if there is a trust for the spouse.
50
pretermitted child
share available to child if they were born after will executed
51
duties of trustees
dispose of assets and the fiduciary duties
52
functions of trustee
custodial, administrative, investment, distribution
53
trustee's powers are:
enumerated in the trust or statutory default
54
duty of loyalty
administer trust solely in the interests of the beneficiaries.
55
trustee ___ purchase trust property for themselves
Cannot. Cannot be overcome by good faith and honesty, but can be overridden by terms of trust.
56
no further inquiry rule
no good faith or fairness for self-dealing by trustee.
57
defenses for self-dealing trustee
authorized in terms of trust, consent of all beneficiaries, and judicial approval
58
remedies for breach
compensatory damages, disgorgement of profits
59
duty of prudence
objective duty to behave as reasonably prudent trustee. Applies to all functions.
60
mandatory distributions
trustee must make specified distributions. No or very little discretion.
61
discretionary distributions
trustee given discretion over when, to whom, and in what amounts to make a distribution
62
sprinkle trusts
purely discretionary and can accumulate income
63
spray trusts
must distribute according to terms, but may have some discretion
64
support trusts
sprinkle trusts that provide support and maintenance
65
trustees of discretionary trusts _____ a duty to inquire about the beneficiary's needs
have
66
sole, absolute, or uncontrolled discretion ____ remove the duty of prudence
does not
67
exculpatory clause
effective to a degree and does not absolve all duties even if explicit in terms
68
prudent investor rule
trustee can invest in any kind of property subject to risk management rules. Must consider overall risk and return objectives in modern portfolio theory.
69
trustee must ____ assess the investments
constantly
70
duty to diversify
Even if trust allows to retain certain assets, still must be prudent and diversify in reasonable time.
71
damages for failure to act as prudent investor
money lost and also income that lost money would have produced
72
custodial and administrative duties
duty to collect, protect, earmark assets; not to commingle; keep adequate records; bring and defend claims
73
delegation of trustee duties
can delegate even discretionary duties according to trustee's skills
74
trustee's obligation to disclose
must disclose all material facts in nonroutine transactions
75
duty of impartiality
must act impartially in investment, management, and distribution if more than one current/future beneficiary
76
if trustee fairly discloses a transaction and court or beneficiaries approve, then trustee ____ be held accountable
cannot. Can get formal approval from court or obtain approval from all beneficiaries
77
voluntary alienation of beneficial interest in trust
to try to sell or extract assets of the trust or cash out. Beneficiaries do not have this power.
78
involuntary alienation of beneficial interest in trust
Creditors want to try to reach assets. Usually cannot.
79
alienation of support trusts
no voluntary or involuntary except for necessities and child/spousal support
80
alienation and discretionary trusts
no voluntary alienation. UTC allows creditors to attach present and future distributions unless there is a spendthrift provision.
81
spendthrift trusts
beneficiary cannot sell or give away their interests or rights to future income and their creditors cannot reach these rights.
82
self-settled asset protection trusts
minority including Ohio allow these types of trusts to shield assets. In majority, creditors can reach the maximum amount that the trustee could pay to the settlor.
83
fraudulent transfers in APTs
settlor attempts to put assets in an APT after a judgment against them
84
trusts for state-supported people
self-settled trusts: resources are considered for eligibility
created by third-parties: not considered for eligibility
85
modification or termination of trust: Claflin doctrine
by consent of all beneficiaries if not contrary to material purpose of the settlor
86
modification or termination of trust: equitable deviation doctrine
changed circumstances not anticipated by the settlor that defeat or substantially impair accomplishment of the trust's purpose. Applies to both private and charitable trusts.
87
modern trend for termination and modification
still Claflin and equitable deviation, but now includes decanting
88
trust decanting
trustee of a discretionary trust can distribute assets to new trust with new terms
89
modification and termination of irrevocable trust
settlor and all beneficiaries can consent
90
material purpose for Claflin doctrine if no settlor consent
cannot terminate or modify if: spendthrift, enjoyment postponed until certain age, discretionary, or support
91
extrinsic evidence ____ be used to determine settlor's material purpose of trust
can
92
for Claflin doctrine, beneficiaries may be:
minors or unbord. Need to appoint guardian ad litem for them. UTC allows court to let fewer than all beneficiaries consent if all beneficiaries are adequately protected
93
trustee removal
can remove for breach of trust or breach of fiduciary duty or over a modification. UTC allows removal with consent of all beneficiaries if in best interest and not contrary to material purpose
94
virtual representation
one or more beneficiary can represent multiple beneficiaries if not conflict of interest. Cannot overrule a competent adult beneficiary who does not consent.
95
charitable trusts: 3 differences
for charitable purpose, not subject to RAP because of cy pres, and enforced by state attorneys general
96
charitable purposes include:
relief of property, advancement of education or religion, promotion of health, government or municipal purposes, other purposes beneficial to community
97
charitable ___ benevolent
does not equal
98
cy pres
if charitable trust's specific purpose becomes illegal, impossible, or impracticable, court may direct application of the property to another purpose that is within settlor's general charitable intent.
99
cy pres, under UTC:
infers/presumes general charitable intent, so gift can go somewhere else if can't be done
100
discriminatory trusts
racial restrictions get removed, gender may get removed, and religion who knows
101
charitable trusts are usually enforced by
state attorneys general. Some states: allow beneficiaries and settlors to sue.
102
in powers of appointment, the donor is
creator of the appointment, usually trust settlor
103
in powers of appointment, the donee is
the holder of the power of appointment
104
in powers of appointment, the permissible appointees are
the people in whose favor the donee can exercise their power upon. Also called objects.
105
in powers of appointment, the appointees are
the objects that have been appointed property
106
in powers of appointment, the takers in default are
those that receive property if a donee fails to exercise a power of appointment
107
in powers of appointment, the appointive property
the property subject to a power of appointment
108
Why use powers of appointment?
builds flexibility, tax advantages, asset protection
109
general powers of appointment
can appoint to donee, donee's estate, creditors of donee, or creditors of donee's estate. Donee's creditors are likely to reach appointive assets, but may be ascertainable standard and 5 and 5 exception
110
special or nongeneral powers of appointment
any powers that are not in general powers. Donee's creditors cannot reach appointive assets.
111
time and manner of exercise of power of appointment
inter vivos - by deed, during life of donee (presently exercisable)
testamentary - by will, at death of donee (postponed)
112
to exercise powers of appointment:
donee must manifest intent to exercise the power, comply with any formal requirements, and appointment must be permissible
113
formal requirements for exercising power of appointment
nature of instrument (will or deed) required and whether donee must make specific reference to the power. UTC: substantial compliance or harmless error
114
permissible exercise of the power of appointment
cannot appoint to impermissible appointee. If general, donee can appoint it to their own trust. If special, possible to do this if trust is in permissible appointee's name and it is revocable
115
exclusive power of appointment
allows donee to exclude one or more permissible appointees
116
nonexclusive power of appointment
requires donee to give something to each permissible appointee
117
contract to exercise power of appointment
not common, generally enforceable as long as presently exercisable and permissible appointee
118
failure to exercise general power
taker in default gets it. If none, then traditionally goes to donor's estate. UPAA and modern - goes to donee unless donee released or expressly declined to exercise power, then to donor's estate
119
failure to exercise special power
goes to taker in default. If none, goes to permissible appointees, so long as they are defined and limited class, or to donor's estate. Donee cannot get it.
120
trust and future interests
usually trusts have contingent interests and beneficiary must survive at time of enjoyment. If get it dead or alive, then vested.
121
failed trusts usually
revert back to settlor's estate
122
vested future interest
taker will take when prior interest expires. To A for life, then to B.
123
contingent future interest
taker will take when the prior interest expires only if contingency occurs (usually survival). To A for life, then to B if B survives A.
124
charity as contingent
make sure it passes cy pres or trustee has power to choose
