trusts

Question 1

what is the definition of a trust

Answer 1

A trust is a fiduciary relationship in which one party (trustee) holds legal title to property for the benefit of designated beneficiaries

Question 2

what is an express trust

Answer 2

Created with property owner’s express intent

Private trust — created for the benefit of certain defined and/or ascertainable persons
- May be created inter vivos (during settlor’s life) or as a testamentary trust (created by will)
- beneficiary –> equitable title,
- trustee –> legal title

Question 3

what is a resulting trust and when does it happen

Answer 3

trust implied or imposed by law, most often when an express trust fails for some reason (e.g., beneficiary is dead, trust is unenforceable or void, been revoked)

Settlor usually becomes beneficiary and trustee conveys title back to settlor or, if settlor has died, settlor’s estate is beneficiary

Question 4

what is a constructive trust

Answer 4

not a trust, but rather an equitable remedy used in cases to rectify unjust enrichment or wrongful conduct

Court imposes constructive trust on property in wrongdoer’s possession

Question 5

what are the elements needed to create a valid express trust

Answer 5

TIPCAP
1) comepetent trustee w/ duties
2) clear present intent by the settlor to create a trust
3) property (e.g., corpus/res) sufficiently described
4) capacity to convey
5) ascertained beneficiary
6) valid trust purpose

Question 6

what is the level of capacity settlor needs to create a trust

Answer 6

same capacity as to make a will (suitable age, knows what they’re giving away, who they’re giving it to, etc.)

Question 7

what constitutes a “clear/present intent” such that a trust was validly created

Answer 7

Intent must be absolutely clear and settlor must understand the nature of their act (i.e., what a trust is)
- must intend for trust to take effect immediately

• but precatory expressions like “i hope/wish/etc.” aren’t good enough (could be explained by clear/convincing extrinsic evidence)

Writing not required unless as required by the Statute of Wills or Statute of Frauds (e.g., real property)

Question 8

what constitutes a “competent trustee” such that a trust was validly created

Answer 8

• Settlor must name a trustee, but once established, a trust will not fail solely b/c trustee does not exist
• In such cases, a trustee will be appointed
• Trustee capacity — in most states anyone who can hold title to property can act as a trustee

Question 9

what constitutes a “ascertainable beneficiary” such that a trust was validly created

Answer 9

Definite beneficiary — at time of trust creation, settlor must either:
- Specifically identify the beneficiaries by name, or
- Sufficiently describe how beneficiaries will be ascertained
- can be a class gift but the class must be reasonably definite

Does not apply to charitable trusts
Sole trustee cannot be a sole beneficiary of a trust

Question 10

what constitutes a “corpus” such that a trust was validly created

Answer 10

• I.e., owner has specific property they want to place in trust
• Trust property (corpus, res, etc.) must be specifically described or ascertainable with certainty from its description; if there’s no identifiable property the trust fails
• the corpus must be existing property (tangible or intangible) that the settlor has the power to convey

Question 11

what is a “valid trust purpose” such that a trust was validly created

Answer 11

can be for any purpose that is not illegal, impossible, or contrary to public policy

Question 12

what are the ways a person can create an inter vivos trust

Answer 12

Two ways:
1) Declaration of trust - settlor is trustee

2) Conveyance in Trust — settlor creates the trust by transferring legal title of property to a trustee

Question 13

what is involved with creating a “declaration of trust”

Answer 13

A trust can be created by a person declaring themself trustee of specific property (must be in existence at time of creation) for a beneficiary (themselves or others). The settlor keeps legal title.

Type of inter vivos trust
- Must have a clear/present intent to create
- Does not have to be in writing

If a trust was created by a declaration of trust, no conveyance of personal property is needed as long as the property is identified and segregated. Real property should be conveyed from the settlor as an individual to the settlor as a trustee.

Question 14

what needs to happen for creating an inter vivos trust with person other than settlor as the trustee

Answer 14

Must have clear/present intent to create

Transfer of property — property owner transfers property to another as trustee
- Delivery — property must be delivered to trustee/ placed out of settlor’s control
- if real property, must transfer deed
- if personal property must be physically delivered or written assignment

Question 15

what happens if a settlor promises to create a trust in the future/trust assets don’t exist at the time they’re intending to make the trust

Answer 15

it won’t be valid unless:
1) it’s supported by consideration OR
2) when the assets come into existence later on, they remanifest intent to creat the trust

Question 16

what is the split of title required to create a valid trust

Answer 16

any split of title is ok so long as the sole trustee is not the sole beneficiary
- ex. Trustees are A and B, Beneficiary is A, that’s ok
- Trustees are A and B, beneficiaries are A and B, that’s ok
- Trustee is A and beneficiary is A, that’s not ok

Question 17

what are the formalities for the creation of an inter vivos trust

Answer 17

Inter vivos trusts are created while the settlor is alive either by the settlor declaring themself trustee for another or by the transfer of property to another as trustee.

The present intent required must be manifested by conduct (delivery) or words (declaring oneself trustee). If a present trust is not established because there is no trust res, the trust arises when the settlor subsequently acquires the res and remanifests trust intent.

note: most states do not require a writing for trust of personal property, BUT if land is the corpus, writing required under Statute of Frauds

Question 18

what are testementary trusts and what’s required for them

Answer 18

Trust created by the settlor’s valid will

Trust intent, essential terms, and identification of beneficiaries must be ascertainable by either:
- Terms of the will itself,
- Incorporation by reference — an existing writing properly incorporated by reference into the will, or
- Power of appointment

Question 19

what’s a secret trust

Answer 19

absolute gift in a will made in reliance on will beneficiary’s promise to hold the property in trust for trust beneficiary, but the will doesn’t expicitly call it a trust
- trust beneficiary can show extrinsic evidence to prove be clear/convincing evid that it’s theirs

Question 20

What is a pour-over provision

Answer 20

A provision in a will that devises property to a previously existing trust

The trust must either be in existence at the time the will is executed or executed at the same time the will is executed
- note: the corpus of the pour-over provision can be the initial funding for the trust

Question 21

what powers does the trustee have

Answer 21

DIM (distribute, invest, manage)

Trustee has powers necessary and appropriate to properly:

• distribute trust property
• invest, and
• manage

Trustee can only exercise powers expressly or impliedly conferred (most often conferred by trust terms)

Question 22

what are the duties of the trustee

Answer 22

PEARLS
1) preserve/keep productive
2) enforce/defend against claims
3) administer
4) report
5) loyalty
6) separate trust property/keep records

Question 23

what’s involved in the trustee’s duty to administer

Answer 23

trustee must administer trust in good faith, in a prudent manner, and impartially (if there are multiple beneficiaries) in accordance with trust terms and beneficiary’s interest

Question 24

what’s involved in the trustee’s duty of loyalty

Answer 24

no self-dealing
- Trustee cannot enter into a transaction in which he is dealing with the trust in his individual capacity, absent court approval or a contrary trust provision
- if they do, the beneficiaries can affirm the transaction if they like it or set aside

Question 25

what's involved in the trustee's duty to report

Answer 25

trustee must keep beneficiaries reasonably informed of the trust and its administration and should furnish an annual accounting of the trust

Question 26

what's involved in the trustee's duty to separate trust property/keep records

Answer 26

trustee must not commingle trust property with his own or another trust’s

Question 27

what's involved in the trustee's duty to enforce claims/defend trust

Answer 27

trustee must enforce claims the trust has and defend the trust against claims

Question 28

what's involved in the trustee's duty to make property productive

Answer 28

trustee must preserve trust property, including the duty to make property productive (e.g., invest funds, lease or manage land, collect claims) - need to follow **prudent investor rule** and view the trust as a **portfolio** when making investments, not each thing in a silo

Question 29

what are the contours of a trustee delegating functions to agents

Answer 29

A trustee can reasonably delegate functions to people who are have superior skill than the trustee (like an investment expert) and if the trustee delegates reasonably, the trustee won't be personally liable to beneficiaries if the agent messes up

Question 30

what is a discretionary trust

Answer 30

**trustee has absolute power and discretion** to make decisions regarding distribution of trust property to beneficiaries Beneficiaries have no right to income/alienation until trustee exercises discretion to distribute property or income - Beneficiary’s creditors — cannot reach the trust b/c beneficiary cannot compel payment from the trust - But if creditors serve trustee with process, trustee must first satisfy creditor’s claims when distributing funds to beneficiary - Only way for beneficiary can interefere with trustee's discretion is to show abuse of power Note: court can compel payment for things like child support/alimony

Question 31

what is the difference between "mandatory" and "discretionary" powers vested in a trustee

Answer 31

**Mandatory** - trustee is required to exercise **Discretionary** - trustee may or may not perform the duty, it's in their good faith discretion

Question 32

what is a support trust

Answer 32

A support trust directs the trustee to pay only so much of the income or principal (or both) as is necessary for the beneficiary’s support. **NOTE** - a trust to pay "all the income to A for his support" *is not* a support trust because it is not limtied to amounts *necessary* for support A support trust may be mandatory or discretionary. If discretionary, the creditors’ rights are the same as they are for other discretionary trusts - Even without a spendthrift clause, the beneficiary’s interest in a support trust is such that no one but the beneficiary can enjoy it; the beneficiary’s interest is not assignable by definition. Support trusts are, therefore, impliedly spendthrift - standard of support is beneficiary's accustomed standard of living (unless trust instrument says otherwise)

Question 33

what is a spendthrift trust

Answer 33

prohibits beneficiaries from transferring their interests in the trust, either voluntarily or involuntarily Usually included to protect beneficiary from his own carelessness - Beneficiary’s creditors — cannot reach beneficiary’s interest in the trust, but distributions to beneficiary are reachable if the settlor is also the beneficiary, they can't use a spendthrift provision to keep thier own creditors from reaching their assets, so it would be invalid

Question 34

when will a spendthrift trust be invalid

Answer 34

if the settlor is the beneficiary; can't create just to protect your own property from creditors - growing number of states allow for this though bc so many people were using offshore accounts to make this

Question 35

what is a charitable trust and what are it's distinguishing characteristics

Answer 35

Trust that has the purpose of benefitting an unascertained group of people or the public at large Characteristics: - unascertainable (e.g., indefinite) beneficiaires are required - charitable purpose - can be perpetual (not subject to RAP)

Question 36

What does it mean to have "unascertainable beneficiaries" with regard to a charitable trust?

Answer 36

**Test** — beneficiaries are unascertainable if they are unnamed and changing over time - Must be created in favor of a reasonably large class of indefinite beneficiaries - **Cannot be for the benefit of identifiable individuals**, although a trust benefitting a single charitable organization whose activities meet these requirements is acceptable

Question 37

what is a charitable purpose suitable for a charitable trust

Answer 37

Must be considered to **benefit the public**; effect of gift, not motive of settlor, controls - e.g., trust to build a public swimming pool on land next to settlor’s house is acceptable even if settlor’s motive was to use the pool Trust for supporting political initiatives can be charitable, including a present change in law (although cannot be a trust in favor of a political party)

Question 38

what's the cy pres doctrine for charitable trusts

Answer 38

Allows courts to modify terms of a charitable trust to as near as possible as settlor’s original intention Can arise where the trust’s original purpose is accomplished or becomes impractical, unlawful, or wasteful

Question 39

when will a trust terminate

Answer 39

Trusts will terminate: - automatically at the **expiration of a specified trust term** or - purposes have become **accomplished** or - purposes **unlawful, impossible, or contrary to public policy**

Question 40

when can the settlor revoke/modify a trust

Answer 40

settlor can modify or revoke unless the terms expressly prohibit modification or revocation - note: the power to revoke also includes the power to amend the trust property

Question 41

when can the beneficiary(s) modify/revoke a trust

Answer 41

beneficiaries can modify or revoke upon **consent of settlor** and **all beneficiaries** - Without settlor consent — all beneficiaries can consent to modify or revoke if doing so would **not frustrate a material purpose of the trust** - “All beneficiaries” includes unborn or unascertained beneficiaries, which can preclude obtaining required unanimous consent (Note: Some states allow appointment of a representative for minor, unborn, or unascertained beneficiaries)

Question 42

what are grounds for removal of a trustee

Answer 42

- serious breach of trust - serious lack of cooperation among co-trustees - unwillingness/persistent failure - substantial change in circumstances