Trusts Flashcards
Private Express Trust
A fiduciary Relationship with respect to property whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a manifestation of intent to create it for legal purpose. (memorize that)
Manifestation of intent: precatory words of hope are insufficent to crate a manifestation of intent; otherwise, no speical words are needed.
Legal purpose: any legal purpose
- but distinguish
- illegality at creation: try to excise theillegal parts
- if not posible court may invalidate the trust or allow trustee to keep the property
- illegality after creation: a resulting trust is decreed to transfer property back to settlor or his estate
Creation of private express Trust
- Testamentary (at death)
- must comply with will formalities - Intervivos (during life)
- transfer in trust (third person trustee)
- delivery of property required
- Declaration in trust (settlor is trustee)
- look for present manifestation of trust purpose; but if it involves real property it must satisfy SoF
Charitable Trusts
Like a private express trust but with a chariable purpose
- society is beneficary
- RAP does not apply to charitable trusts
- Cy pres- if settlor has a general charitable intent but the mechanism fails, the court will exercise cy pres and try to effecuate the settlor intent as nearly as possible
- does not apply if chariatable intent was specific
Honorary Trust
Trust without a beneficary but that is not charitable; like a trustto care for a pet or further a private purpose
- basically the trustee can carry out trust if they want, but if they don’t trust fails
spendthrift Trust (or clause)
Beneficiary cannot transfer his right to future payments of income or principal and creditors cannot attach the beneficiary’s right to same
Result:
- beneficary cannot voluntarily transfer his rights
- creditors cannot generally attach (involuntary alinetation) but preferred creditors (gov’t, necessities, tort judgments) or any creditor can attac to surplus as measured above beneficiary’s station in life
Support Trust
the trustee is required to use only so much of the income or principal as is necessary for the beneficiary’s health, support, maintenance, and education
- no voluntary alientation
- no involuntary alientation, expet for preferred creditors or to surplus
Discretionary Trust
The trustee is given sole and absolute discretion in determinging how much to pay the beneficary if anything, and when to pay the beneficary, if at all
- alienable? courts are split, argue both ways
1. there is nothing to transfer
2. but if there is a tranfer, transferee gets distributions, if any
Resulting Trust
An implied in fact trust based on the presumed intent of the parties, or can be decred by the court, generally to transfer trust property back to the settlor
- generally used results when a trust fails in some way
Constructive Trusts
A Constructive trust is a remedy toprevent fraud or unjust enrichment; the wrongdoer must transfer the property to the inteded beneficiary
Ex.
Where trustee makes profit through self dealing
- secret trust: where the will on its face makes a gift outright but the gift is given on the basis of an oral promise that it be used to benefit someone else; parol evidence is allowed to show existence
- compare semi-secret trust: gift to A as trustee but no beneficiary (this creates a resulting trust and prop goes back to settlor_
Trustee Duties (owed to beneficiaries)
- Duty of Loyalty: admisiter for benefit of beneficiaries- no self dealing
- Duty to Invest- split authority (discuss all 3)
- state lists (approved investments only)
- Common law prudent person test
- uniform prudent investor act
- all have duty to diversity - duty to Earmark; Mark trust property as trusty property
- CL; trustee held personally liable for all loses on unmarked trust propety
- MOD; trustee held personally liable if loss stemmed from failure to mark - Duty to segregate- if breached trustee can be removed
- Duty to not delegate: generally trustee cannot delegate decision making power, but can rely on professional advisors; and modernly can delegate the duty to invest to a professional
- cl: trustee’s must act unanimously; MOD’ can act by majority - Duty to Account: provide statements of income/expense regularly
- Duty of Due Care; act as an RPP (always discuss)
Remedies for breach of Trustee’s Duties
- damages
- constructive trust
- equitable lien
- ratify the transaction if it was good
- remove the trustee
Trustee Liability to 3rd persons (contract and tort)
- Liability in Contract
- CL’ trustee sued in personal capacity,b ut can get indeminfied from trust if he acted within his powers and was not personally at fault
- mod: if person knows trustee was acting as trustee, then trutee is sued in his rep capacity - Liability in Tort
- CL; trrustee sued in personal capacity,b ut if trustee was without personal fault can be indemnified for negligence of an agent or strict liability
MOD;; trustee sued in personal capacity only if personally at fault
Modification of Trusts
By Settlor
- can modify if he expresly reserves right to modify
By Court
- cy pres
- deviation power: when unforseen circumstances and necessary, court may modify trust
Termination of Trusts
- revocable trusts: MAj; settlor must expressly reserver right to revoke MIN; settlor can reovke unless trust expressly made irrevocable
- irrevocable trusts can terminate early if;
1. settlor and beneficiaries agree
2. all beneficiareies agree and all material purposes have been accomplished
income and Principal (trusts)
Income and expenses allocated to Life tenant
- income: cash dividends, interest icome, net business income
- expenses; interest on loan indebtedness, taxes, minor repairs
Income and expense allocated to remaindermen;
- income: stock dividends; stock splits; net proceeds on sale of trust account
- expenses: principal part of loan indebtednes; major reparis and improvements
Trustee can adjust the above rules if necessary to administer the trust fairly
