Flashcards in Trusts Deck (104)
Describe a trust and its parties.
A fiduciary relationship in which one person (trustee) holds legal title to certain property (the trust res) for the benefit of another person (beneficiary)
Beneficiary (one or more) holds Equitable Title.
Trustee (one or more) holds Legal Title and owes fiduciary duties.
Settlor declares what property is to be held in trust.
What are the elements of a trust?
1) INTENT to create a trust by a settlor with the CAPACITY to do so;
2) Trust PROPERTY;
3) Trust BENEFICIARIES who are ASCERTAINABLE;
4) A WRITTEN instrument in most, but not all, cases; AND
5) A DELIVERY of PROPERTY to someone, except in the case of a declaration trust.
What if a trustee is not named by the settlor?
The trust does NOT fail.
THE COURT WILL APPOINT ONE.
What methods of creating a trust are recognized in Texas under the Texas Trust Code?
1) The property owner's DECLARATION that the owner holds the property as trustee for another person. No transfer of property to a third person occurs here. It is GOOD PRACTICE TO CHANGE LEGAL TITLE to those assets to reflect that the settlor now holds the property as trustee. THIS IS A TRUST MADE DURING THE SETTLOR'S LIFETIME.
2) A property owner's INTER VIVOS TRANSFER of the property to another person as trustee for the transferor or a third person.
3) A property owner's TESTAMENTARY transfer to another person as trustee for a third person. ESTABLISHED BY THE SETTLOR'S WILL. These trusts are subject to the law of wills. Cannot become effective UNTIL THE DEATH OF THE SETTLOR.
4) An appointment under a POWER OF APPOINTMENT to another person as trustee for the donee of the power or for a third person.
5) A PROMISE to another person whose rights under the promise are to be held in trust for a third person.
What is a resulting trust?
NOT A TRUST SUBJECT TO THE TRUST CODE.
1) Failure of Express Trust - If the settlor attempts by fails to create an express trust OR if an express trust is created but later fails. Person in possession of the intended trust property holds it for, and must re-transfer it to, the grantor, his estate, his devisees, or his heirs.
2) Purchase Money Resulting Trust - If buyer purchases property but has it titled in the name of another, that other person is presumed to hold it in a purchase money resulting trust. EXCEPTION applies if the grantee is a natural object of the buyer's bounty (these situations lead to the purchase being a GIFT).
The presumption of a PMRT is REBUTTABLE - can be rebutted by evidence showing Buyer's true intent. Must be shown by CLEAR AND CONVINCING EVIDENCE.
What is a Constructive Trust?
NOT A TRUST SUBJECT TO THE TRUST CODE.
This is an EQUITABLE REMEDY that precludes someone who receives legal title to an asset from keeping it. Used to AVOID UNJUST ENRICHMENT.
Law requires the "constructive trustee" to relinquish the property to another.
What are two other types of "trusts" that don't fall under the trust code.
Deed of Trust
Explain the revocability of trusts. What is the Texas presumption?
REVOCABLE TRUST - A trust over which the settlor has the power to revest outright title to trust property in himself by terminating the trust.
IRREVOCABLE TRUST - Not subject to this power by the settlor.
TEXAS TRUSTS ARE PRESUMED REVOCABLE . . .
UNLESS expressly made irrevocable by trust terms.
How must revocation of a trust be done?
If the trust is created by a written instrument, revocation MUST BE IN WRITING. The instrument must MANIFEST INTENT TO REVOKE but need not use the word "revocation."
What do the terms of the trust generally determine?
1) Duties and powers of the trustee;
2) Relations among trustees; and
3) Rights and interests of a beneficiary.
T/F - Most rules in the Texas Trust Code are default rules and can be modified.
Are any rules in the Texas Trust Code mandatory?
Yes, the terms of a trust MAY NOT LIMIT:
1) Requirement that a trust not have an ILLEGAL PURPOSE, or require a trustee to commit a criminal or tortious act.
2) Provisions that restrict the ability of a settlor to exculpate a trustee from liability for certain egregious breaches of trust.
3) Periods of limitation for bringing a judicial proceeding regarding the trust.
4) A trustee's duty (in an irrevocable trust) to respond to a demand for accounting by a beneficiary who is entitled or permitted to receive distributions or would receive a distribution if the trust terminated at the time of the demand.
5) A trustee's duty to act in GOOD FAITH and IN ACCORDANCE WITH PURPOSES OF THE TRUST.
6) The power of a court to take action or exercise jurisdiction with respect to a trust matter.
7) The applicability of TTC 112.038 which renders unenforceable a trust forfeiture clause (analogous to a no-contest clause in a will) where a beneficiary brings an action in good faith AND just cause existed for the action.
8) Common law duty of a trustee to keep a beneficiary of an irrevocable trust who is at least 25 YEARS OF AGE or older informed at any time during which the beneficiary is entitled or permitted to receive distributions or would receive distributions upon the trust's termination.
When is writing required in a trust?
1) DECLARATION OF TRUST - Trust of PERSONAL PROPERTY requires a declaration IN WRITING by the settlor that she holds the property as trustee for another person or for herself and another person as a beneficiary. WRITING NEED NOT BE SIGNED BY THE SETTLOR.
IF REAL PROPERTY, must be WRITTEN evidence of the trust's terms bearing the SIGNATURE of the settlor or the settlor's authorized agent.
2) TRANSFER OF TRUST TO ANOTHER - Transfer of personal property to a trustee who is neither settlor nor beneficiary is effective to create a trust IF: settlor expresses SIMULTANEOUSLY WITH OR PRIOR TO the transfer the intention to create a trust. WRITING IS NOT REQUIRED.
IF REAL PROPERTY, WRITTEN EVIDENCE of the trust's terms bearing the SIGNATURE OF THE SETTLOR or the settlor's authorized agent IS REQUIRED.
What must be true about the purpose of a trust?
Can be created for any purpose that is NOT ILLEGAL.
What "intent" is required for a trust?
Settlor must MANIFEST intent to create a trust. No magic words, like "trust" or "trustee," are necessary.
Has to be clear.
Words like "I wish that," "My desire is that," or "I ask that" a named transferee hold property in a certain manner does NOT necessarily create a trust. This is PRECATORY LANGUAGE (not binding).
What capacity must a settlor have?
CREATING A TRUST BY WILL - Must have TESTAMENTARY CAPACITY.
CREATING AN INTER VIVOS TRUST - Must have the capacity required to MAKE A GIFT.
What is required of beneficiaries to have a valid trust?
Requires the existence of ASCERTAINABLE beneficiaries. DO NOT NEED A NAME OR EVEN HAVE TO BE BORN (guardian will carry out an unborn beneficiary's rights). Class designation is sufficient if the members of the class can be PRECISELY DETERMINED.
Beneficiaries have the RIGHT TO ENFORCE the trust and SUE THE TRUSTEE for breach of fiduciary duties.
What interest does a beneficiary have?
EQUITABLE INTEREST IN:
1) Trust Income; AND/OR
2) Trust Principle
Who can beneficiaries be?
Generally, they must be humans. However, Texas allows for ANIMAL TRUSTS.
What are the requirements for an Animal Trust?
1) Animals must be ALIVE during the settlor's life time, AND
2) Trust must terminate on the death of the animals,
The terms of the trust may appoint a human to enforce the trust.
What qualifies as trust property?
Basically any property from any source. Does NOT need to be very much. The trust property is called the "res."
AN UNENFORCEABLE PROMISE TO MAKE A GIFT IN THE FUTURE IS NOT PROPERTY.
Explain the trustee of a trust.
Holder of LEGAL title to the trust property. Charged with FIDUCIARY DUTIES in the management and distribution of the trust property. CAN HAVE MORE THAN ONE TRUSTEE.
A beneficiary CAN be a trustee, as long as the beneficiary is NOT the sole trustee and the sole beneficiary.
Settlor CAN be a trustee, or even the sole trustee, as long as the settlor is NOT the sole beneficiary of the trust too.
Trustee CAN BE A CORPORATION.
What if the beneficiary of the trust is the sole beneficiary and the sole trustee?
Equitable and Legal Title MERGE and the TRUST TERMINATES.
Does a trustee have to accept being a trustee?
YES, the trustee must accept the office of trustee in order to assume liabilities and duties.
A SIGNATURE OF THE TRUSTEE ON THE WRITING OR ON A SEPARATE WRITTEN ACCEPTANCE IS CONCLUSIVE EVIDENCE THAT THE PERSON ACCEPTED THE TRUSTEE POSITION.
T/F - A person named as trustee who does not accept the trust may still incur liability with respect to the trust.
No, did not accept.
Can a trustee's acceptance be presumed?
A person named as trustee who exercises power or performs duties under the trust is PRESUMED to have accepted the trust.
The following conduct will NOT presume acceptance:
1) Preserving trust property if, within a reasonable time after acting, the person gives notice of the rejection of the trust to the settlor; OR
2) Inspecting or investigating trust property for any purpose.
What if the trustee rejects the trust or is dead?
Then the person named as an alternate trustee in the trust terms may accept the trust.
If no alternates, then the COURT WILL APPOINT A TRUSTEE.
Explain the delivery requirement in creating a trust.
Trust property must be delivered to the other person (trustee). Delivery can be actual, constructive or symbolic.
ACTUAL - The property is physically transferred to another person.
CONSTRUCTIVE - The access to the property to be held in trust (key to a safe) is transferred to another person.
SYMBOLIC - A writing (trust instrument) is transferred to another person.
NOTE: FOR TITLED PROPERTY, A CERTIFICATE OF OWNERSHIP (e.g., stock certificate) GENERALLY MUST BE PLACED IN THE CONTROL OR NAME OF THE INTENDED TRUSTEE.
What if trust property is delivered to the trustee and the trustee rejects office?
The legal title would revert BACK TO THE SETTLOR.