[TRUSTS] • 6 • Formation • Elements
A valid private express trust requires: (1) an ascertainable beneficiary ; (2) a settlor with capacity; (3) an intent to create a trust; (4) a trustee ; (5) a valid trust purpose ; (6) trust property (the res); AND (7) compliance with formalities . The beneficiary of a private express trust MUST be ascertainable. Beneficiaries can be natural persons, corporations, or other organizations . If there is no beneficiary, a resulting trust occurs and all trust property returns to the settlors estate. Although a trust must have a trustee, the trust will NOT fail solely because one is not named. Instead, the court will appoint a trustee .
[TRUSTS] • 1 • Formation • Inter Vivos Trust and Testamentary Trusts
A settlor may create an inter vivos trust by making a declaration of trust (a document declaring that the owner of the property is holding it in trust for another) OR by affecting a transfer in trust (the owner transfers the property to another as trustee to hold for the beneficiary).
A testamentary trust is created through the provisions of a settlors will , and does not take effect until the settlors death.
[TRUSTS] • 1 • Formation • Irrevocable Trusts
Generally, an irrevocable trust may NOT be modified or revoked. Under the majority view, trusts are presumed irrevocable unless there is an express right to revoke the trust in the trust instrument.
[TRUSTS] • 2 • Charitable Trust •
A charitable trust is one created by a settlor to confer a substantial benefit to society . The beneficiary is indefinite and contains all persons who fall within the class described by the trust. The rule against perpetuities DOES NOT apply to charitable trusts. The rule against perpetuities requires property interests to vest within 21 years of a life in being at the time the interest was created.
[TRUSTS] • 3 • Charitable Trust • Cy Pres Doctrine
If a charitable trust fails for lack of a beneficiary or other impracticality AND the settlor had a general charitable intent , Cy Pres will allow the court to carry out the settlors intent as close as possible by applying the trust funds in a manner that conforms to the trust purpose.
[TRUSTS] • 1 • Other Trusts • Resulting Trust
A resulting trust is one implied by law and is based upon the presumed intent of the parties . It may arise when: (a) a private express trust has no beneficiary or is missing an important provision about handling the trust property; (b) a charitable trust ends because of impossibility or impracticability ; (c) one person pays consideration for real property, but has the seller transfer the property and title to a third person (this is referred to as a purchase money resulting trust ); OR (d) a will makes a gift to a person to hold as trustee, but fails to name the beneficiary (this is referred to as a semi-secret trust ).
[TRUSTS] • 2 • Trustee Powers and Duties • Powers
A trustees powers can be expressly granted in the trust instrument OR implied (all those powers helpful in carrying out the trust purpose).
[TRUSTS] • 5 • Trustee Powers and Duties • Duties Owed to Beneficiaries
A trustee owes all beneficiaries a fiduciary duty , which includes a duty of care and a duty of loyalty . The duty of care requires the trustee to manage the trust as a reasonably prudent person would in his own dealings. The duty of loyalty requires the trustee to (1) refrain from self-dealing ; (2) administer the trust in the interest of the beneficiaries ; AND (3) give the same care and deference , equally, to each beneficiary .
[TRUSTS] • 2 • Trustee Powers and Duties • Duty to Distribute in Accordance with the Trust
A trustee has a duty to distribute in accordance with the directions in the trust instrument.
[TRUSTS] • 2 • Trustee Powers and Duties • Prudent Investor Rule
The prudent investor rule requires that a trustee exercise the degree of care, skill, and prudence of a reasonable investor investing his own property. This includes diversifying trust assets, avoiding risky investments, and keeping trust assets productive .
[TRUSTS] • 1 • Trustee Powers and Duties • Co-Trustees
Where there is more than one trustee, BOTH trustees are responsible for administering the trust and ensuring other co-trustees do not breach duties owed to the trust . A co-trustee is liable for wrongful acts of a co-trustee if she (1) participates in, approves of, or conceals a breach of trust by a co-trustee; (2) negligently enables a co-trustee to commit a breach; (3) fails to take reasonably steps to compel a co-trustee to redress a breach of trust; OR (4) improperly delegates the administration of the trust to a co-trustee.
[TRUSTS] • 1 • Trustee Powers and Duties • Remedies Against a Trustee
If a trustee breaches any of her duties she may be removed as trustee AND be held liable for (a) any loss or depreciation in value of the trust, (b) any profit made by the trustee through the breach, and (c) any profit that would have accrued to the trust but for the breach. A plaintiff must have standing to bring an action for breach of trust, and only the Attorney General may enforce a charitable trust.
[TRUSTS] • 1 • Alienability of Beneficiary's Interest • Spendthrift Clause
A spendthrift provision prevents creditors from attaching to beneficiaries rights AND beneficiaries from voluntarily assigning their rights. Exceptions are made for preferred creditors , including government creditors, spousal or child support, tort judgments, and creditors providing the beneficiary with necessities (i.e. clothing, shelter, food, etc.).
Surplus Exception : In some jurisdictions, creditors may attach to future payments to the beneficiary, despite a spendthrift clause, IF the payment exceeds the amount necessary to maintain the beneficiarys station in life.
[TRUSTS] • 1 • Modification and Termination of Trusts • Modification
A trust may be modified by a settlor who expressly reserved the power to modify the trust OR who has the power to revoke the trust. A court may modify a trust when, due to unforeseen circumstances, modifications are necessary to preserve the trust.
[TRUSTS] • 3 • Termination of a Trust •