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Flashcards in Trusts Deck (52)
1

Express trust definition

Allows owners of property to make transfers of property, and have those assets managed by someone else.

NEEDS:
(1) Settlor
(2) Present intent to create
(3) trustee with duties
(4) beneficiary
(5) same person is not sole trustee and sole beneficiary
(6) specific property
(7) valid trust purpose

2

How can you remove a trustee?

Go to court and show
(1) breach of trust
(2) unfitness, persistent failure
(3) substantial change in circumstances

3

How does divorce affect trust

Final decree of divorce revokes all gifts and fiduciary appts in favor of a former spouse.

4

Private trust vs. charitable trust definiteness issue

Private trust: Must have definite beneficiaries
Charitable trust: not required to have definite beneficiaries

If it's a private trust for a class - the class only needs to be reasonably definite

5

Unascertained beneficiaries

These are unborn beneficiaries. As long as they are ascertainable by the time their interests are to come into enjoyments its OK to list them

6

What if trust fails for lack of beneficiary?

Presumed it's a trust for settlor and his successors

7

What are the invalid trust purposes?

(1) illegal
(2) contrary to PP
(3) impossible to achieve
(4) defrauds
(5) destruction of property
(6) Condition attaches against PP, then
-settlor's alternative desire controls
-if condition is condition subsequent, only condition invalidated
-if condition is condition precednet, then trust void

8

Inter Vivos Trust

Transfer's property during settlor's lifetime, or

declaration of trust by property owner, where he is settlor and trustee

9

Is writing required for an express trust?

NO - unless it's a trust for personal property (SOF)

10

Testamentary Trust

Trust created from a will.

Must have
(1) Intent
(2) Beneficiaries
(3) Trust purpose
(4) created in the will

11

What are the elements of a charitable trust?

(1) Must have indefinite beneficaries (reasonably large group)
(2) charitable purpose
(3) must be perpetual - not subject to rules against perpatuities (RAP)
(4) Cy Pres
(5) AG has duty of representing beneficiaries in the state

12

What is Rules against Perpetuities

must not be longer than a life in being plus 21 years - this rule doesn't apply to charitable trusts but does to private trusts

Begins to run on date of settlor's death for revocable trusts

13

Cy Pres meaning

if charitable purpose is impractiable - court will try to get it "as near as possible" to settlor's intention by ascertaining the primary purpose

14

Honorary trust

CAN create one for your pet - terminates on death of pet and distributed to settlor's heirs

15

Can beneficiary transfer his trust?

YES - as long as no statute or language limiting transfer

16

Creditor rights when beneficiary transfers interest in regular trust

creditors CAN levly on beneficial interest. Court CAN order trustee to pay beneficiary's income to creditors.

17

Creditor rights under a Spendthrift Trust

Beneficiary CANNOT transfer rights and creditors CANNOT reach beneficiary's interest to satisfy debts

18

Spendthrift Trust limitations

(1) settlor cannot be beneficiary
(2) claims for alimony, support, necessities
(3) claims by government
(4) creditor can reach a mandatory distribution once it is iincome to beneficiary
(5) court will not suspend spendthrift trust because the purpose is for someone who likely couldn't manage the property on their own

19

Discretionary Trusts

Trustee has discretion when to pay - beneficiary creditor cannot compel trustee to pay

20

When does a trust terminate?

(1) All purposes have been accomplished or now has become unlawful/impossible to achieve;
(2) Settlr can revoke UNLESS it is irrevocable
(3) Consent of settlor and ALL beneficiaries
(4) Consent of All beneficiaries AND modification does not interfere with a material purpose of the trust

21

How can you terminate if not all beneficiaries consent?

Go to court and show
(1) trust could have been modified if all consented
(2) nonconsenting beneficiaries will be adequately protected
(3) unanticipated circumstances threaten purpose of trust
(4) continuation would be wasteful/impracticable
(5) value is insufficient

22

Can a court reform a trust to reflect settlor's intent?

YES - must show mistake by clear and convincing evidence

23

Can trustee terminate trust?

YES - as long as
(1) uneconomic trust - property less than $50k and notice provided

Can also combine trusts to make it more economical - doesn't need permission from beneficiaries, just needs to provide notice

24

Power of Trustee

(1) only exercise powers conferred upon her by trust, statute or court decree

25

What can trustee do under UTC?

(1) collect and hold trust assets
(2) operate a business
(3) acquire interest in a trust asset
(4) invest trust assets
(5) buy, sell or encumber trust assets
(6) enter into a lease
(7) vote securities
(8) pay taxes
(9) insure assets

26

How do you challenge trustee power?

Look at whether action was imperative or discretionary. If discretionary is subject to judicial review for abuse of discretion.

27

Duties of trustee

Revocable: To settlor
Irrevocable: To beneficaries

(1) Administer the trust
(2) Loyalty
(3) Report
(4) Preserve and make trust property productive
(5) No commingling

28

Duty of trustee: Administer the trust

Act in good faith and impartially

29

Duty of trustee: Loyalty

Cannot enter into any transaction which she is dealing with the trust in her individual capacity - NO SELF DEALING (therefore, good faith and actual benefit to the trust is irrelevant)

30

Duty of trustee: Report

(1) provide info to beneficiaries
(2) rspond to beneficiary requests about trust
(3) Provide annual accounting

31

Investment approaches by trustee

Prudent Investor
Legal Lists

32

Prudent Investor

UPIA

(1) Reasonable care, skill, caution
(2) Loyalty
(3) Evalue investments in context of entire portfolio and overall investment strategy
(4) Any type of investment permitted
(5) Can consider any investment cautionary knowledge (economic climent, tax implications, etc.)
(6) MUST diversify unless reasonably believes diversify not in best interests

33

Legal Lists

List will be permissive (trustee can invest in securities outside the list) or mandatory (trustee must invest in those securities listed)

34

Remedies for breach of trust by trustee

(1) enforce specific performance
(2) enjoin trustee from committing a breach
(3) compel trustee to pay money or restore property
(4) suspend trustee

35

When is trustee not liable for breach of trust duties?

(1) acted in reasonable reliance on terms of trust
(2) beneficiary consented
(3) released trustee from liability
(4) ratified the transaction

36

Trustee can be sued by third party?

YES - in contract or tort in representative capacity OR personally if he didn't reveal his identity as trustee

37

Can beneficiaries sue third party?

NO - only trustee can on behalf of trust. Beneficiaries can bring suit in equity to compel trustee to sue

38

Uniform Principal and Income Act

Treat all the beneficiaries equally with income unless trust says otherwise

39

10% Rule

Allocate liquidated assets and mineral assets to 10% income and 90% principal

40

50% Rule

Expenses for accounting, paying trustee, judicial proceedings charged 1/2 to income and 1/2 to principal

41

Revocable Inter Vivos Trust

A transfer without will formalities of a present gift. Ex. Settlor retains great rights in his estate and power over trust property that transfers to beneficiary on settlor's death

42

Pour Over Gifts

Testamentary gifts in a will made to an existing revocable trust.

Prevailing view: will can devise property to trustee of trust established OR TO BE ESTABLISHED during the testator's lifetime.

Pour over gifts from will are valid if trust unfunded during settlor's lifetime.

43

Totten Trust

Bank account in depositor's name "in trustee for" a named beneficiary.

Depositor maintains control throughout his life and then B gets account when A dies

44

Gifts to Minors

Made to a CUSTODIAN, not trustee
Avoids trust - child has legal title
Custodian holds manages invests
Gives it all to kid at age 21

45

Resulting Trust

(1) Purchase money resulting trusts
(2) Resulting Trusts on Failure of Express Trust
(3) Resulting trust from failure to dispose of all trust assets

46

Constructive Trusts

Not really a trust but a court ordered equitable remedy to prevent unjust enrichment from wrongful conduct. Once conveyed trustee's sole job is to convey legal title to beneficiary

47

When does a class close?

Apply rule of convenience - if there is a certain age applied, the class closes when
(1) preceding estate terminates
(2) first class member reached specified age.

48

Support trust

Trustee required to pay income or principal as necessary for the beneeficiary's support. Discretionary trust would leave it all to trustee's discretion.

49

Power of Appointment

specific language in trust that allows donee to specifcy a class or individuals to take property that is not for benefit of donee, estate, creditor or creditors of the estate.

50

Anti-Lapse statute

save a gift to predeceased beneficiary if beneficiary was in a special degree of relationship to the testator and left descendants.

51

What can creditors get at in a trust when no spendthrift clause present?

Can get the interest, but cannot get the trust property.

52

What happens to trust property when trust fails?

resulting trust in favor of the settlor or the settlor's successors in interest is presumed. Look for settlor's will and where the residue of the estate goes.