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Flashcards in Trusts Deck (33)
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What Are the Requirements of a Trust

1) Settlor; 2) Trust Property; 3) Directions for Distribution; and 4) a Beneficiary

1

What is a Constructive Trust?

An equitable remedy to prevent fraud or unjust enrichment. A wrongdoer will be deemed a trustee and must transfer the trust property to the intended beneficiary. A constructive trust will specifically be created if 1) a trustee of a private or charitable trust engages in self-dealing; 2) there is fraud or undue influence regarding a will; 3) there is an oral real estate trust (?) or 4) there is a secret trust.

2

What is an Oral Real Estate Trust?

The settlor transfers title to property to A on an oral condition that it be used for the benefit of B. Normally, A could invoke the SOF, but cannot and a constructive trust is imposed if 1) settlor and A are in a fiduciary relationship; 2) A committed fraud in the inducement; 3) there is detrimental reliance by B.

3

What is a Secret Trust?

A will makes a gift to A, but on the condition of an oral promise by A to use property for the benefit of B. Parol evidence is admissible to show that B is the intended beneficiary.

4

What Are a Trustee Powers?

Has powers listed in the trust document, those provided state law or court decree, and an implied power to do what is necessary and appropriate to carry out the trust's purpose.

5

What Are a Trustee's Duties?

Loyalty; Care; Invest (as reasonable person investing own property; as prudent investor; or according to list of proper investments provided by the State); Accounting; Segregate; Earmark; Non-delegation.

6

What Is a Trustee's Liability?

A trustee may be named in her personal capacity and will receive indemnification if not at fault under common law. Under the modern approach, the trustee must be named as a representative of the trust unless the Plaintiff has reason to seek liability based on fault.

7

What is Required for a Settlor to Modify Its Trust?

The settlor can modify the trust if the settlor expressly reserves the power to do so.

8

What Are the Circumstances in which a Court May Modify a Will?

A court may modify a trust under 1) Cy Pres; 2) Deviation Power (for the purpose of changing administrative or management provisions in r event of both unforeseen circumstances by the settlor and deviation is necessary to preserve the trust. The court cannot change beneficiaries.

9

How May a Revocable Trust Be Terminated?

The majority view is that to retain the power to terminate, the settlor must expressly reserve that power in the trust document.

The minority view is that the settlor has the power to terminate unless the trust is expressly made irrevocable.

10

How May an Irrevocable Trust Be Terminated?

1) Settlor and beneficiaries all agree and all contingent remainders are accounted for;
2) All beneficiaries agree and the material purpose of the trust is accomplished;
3) Operation of law: the trustee has only a passive duty and the property passes directly to the beneficiary. This transfer may not always apply to personal property;
4) Merger where the trustee becomes the sole beneficiary.

11

What Are the Incomes and Expenses of Life Tenant?

Persons receiving current income from a trust will receive cash, dividends, interest income and net business income of the trust property.

That person will pay for interest on loans, taxes and minor repairs.

12

What Are the Incomes and Expenses of Remainderman?

During the term of a trust that names a remainderman beneficiary, the trust property (and therefore the person who is ultimately entitled to trust property) will receive stock dividends and stock splits from the trust property, and net proceeds on sale of trust assets.

The corpus of the trust (or remaindeman beneficiary) is responsible for paying for principal part of loan indebtedness, major repairs and improvements.

13

What is the Adjustment Power of a Trustee?

Trustee can disregard rules regarding allocation if a different allocation is necessary to administer the trust fairly. An improper adjustment may be a breach of loyalty.

14

What is a Semi-secret Trust?

Occurs when a will makes a gift to a person to hold as a trustee but does not name the beneficiary.

Result is an invalid trust. If settlor is alive trust will fail and property will revert. If settlor is a decedent, the property will go to the residuary of the estate.

15

What is a Purchase Money Resulting Trust?

A form of resulting trust:?A pays B to transfer A's title to C, C is presumed to be a trustee for A unless C is closely related to A, in which case a gift will be presumed.

16

What Is a Resulting Trust?

When Will a Resulting Trust Be Created?

Implied in fact trust based on the presumed intent of the parties. If decreed, the trustee will transfer the trust property to the settlor or to the estate. This will occur if:

A private express trust ends or fails;

There is excess property in a private express trust;

A charitable trust fails;

A purchase money resulting trust;

A semi-secret trust.

17

What is a Discretionary Provision in a Trust?

A provision that gives the trustee sole power and absolute discretion to determine when and what, if ever and anything, to give to the beneficiary.

If a provision could be interpreted as either support or as discretionary, discuss both.

18

What is a Support Provision in a Trust?

A provision that allows the trustee to pay the beneficiary only as necessary for her health, support, maintenance or education.

19

What is a Spendthrift Provision?

Provision that prevents the beneficiary from transferring, and creditors from attaching, beneficiaries right to future payments.

20

What is an Honorary Trust?

A trust with no ascertainable beneficiary and confers no substantial benefit to society. (A trust to care for settlor's pet).

Trustee is not required to carry out the intent of the trust, and if he refuses to do so the trust fails.

The Rule Against Perpetuities is applicable to honorary trusts.

21

What is a Totten Trust?

The beneficiary takes whatever is left in the settlor's bank account at death. Not a true trust, because the depositor-trustee owns the account during her lifetime and has no fiduciary duties to the beneficiary. May be converted to a private express trust if the settlor manifests the requisite intent.

22

What is a Charitable Trust?

Any trust that confers a substantial benefit on society. If the trust will also benefit a specific group of people, analyze the document as both a charitable and a private express trust, because courts are SPLIT in that situation.

The Rule Against Perpetuities is inapplicable to charitable trusts, but charitable trusts are susceptible to cy pres modification if the settlor expresses a general intent without an effective mechanism to carry it out.

23

What is an Illegal Trust?

A trust with a purpose contrary to law or public policy. Courts will try to excise the offending portion. If it cannot, the court will invalidate the trust or permit the trustee to retain the property. If the trust is found to be illegal after its creation, the property is returned to the settlor or to the settlor's estate.

24

What Are the Requirements to Create a Trust?

Must 1) have a trustee; 2) have a beneficiary; 3) have trust property; 4) include instructions for distribution of the trust property; and 5) demonstrate the intent to create a trust.

Trusts including real estate must satisfy the SOF. Courts may appoint a trustee if no trustee is named.

25

What is the Intent to Create a Trust?

A present manifestation of intent to create a trust, using mandatory as opposed to precatory words. Precatory words combined with parol evidence is sufficient to find requisite intent.

26

What Are the Limitations on Trust Property?

Any property interest that can be transferred may become trust property except 1) future profits of a business; 2) a debt owed to the beneficiary; 3) expectations of a gift.

27

What are the Characteristics of A Trust ?
(Private Express Trust)

A fiduciary relationship governing property whereby a trustee holds legal title for the benefit of a beneficiary, and which arises out of an intent to create the trust for a legal purpose.

28

What Is the Clafin Doctrine?

A trust cannot be modified or terminated if it would be contrary to the intent of the expressed purpose of the settlor, even if all beneficiaries agree.

29

What is the Doctrine of Changed Circumstances Of a Trust?

In California a court may modify or terminate a trust upon petition by trustee or beneficiary if administration of the trust under changed circumstances would produce a result contrary to the settlor's intent.