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Flashcards in Trusts Deck (41):
1

Private express trust

clearly states the intention of the settlor to transfer property to a trustee for the benefit of one or more ascertainable beneficiaries; intent; trust property; valid trust purpose; ascertainable beneficiaries

2

Private express trust (intent)

settlor may manifest intent to make gift orally (SOF), in writing or by conduct; manifestation of intent must occur prior to or simultaneously with the transfer of property

3

Precatory trust

expresses a hope/wish that property transferred be used for benefit of another rather than creating a legal obligation

4

Trust property

must be funded with identifiable trust property (res) at time of creation; described with reasonable certainty; exception: pour-over trust

5

private express trust (valid trust purpose)

can be created for any purpose as long as it is not illegal or contrary to public policy

6

Ascertainable beneficiaries

beneficiaries must be identifiable by name so equitable interest can be transferred automatically by operation of law and directly benefit the person; may refer to acts of independent significance to identify beneficiaries

Exceptions: unborn children; reasonably definite class; charitable trust

7

Inter vivos trust

delivery must accompany declaration of trust if third-party trustee is named, whereby settlor parts with dominion and control over turst

8

Pour-over trust

provision in a will that directs distribution of property to a trust upon happening of an event, even if trust instrument was not executed in accordance with Statute of Wills, as long as trust is identified in the will and its terms set forth in written instrument

9

testamentary trust

terms of trust are contained in writing in a will/document incorporated by reference into a will; must comply with statute of wills

10

Charitable trust purpose

relief of poverty, advancement of education/religion, good health, governmental purposes and other purposes benefitting community at large

11

Charitable trust

must have a stated charitable purpose and exist for benefit of community at large or class of persons the membership in which varies

12

Indefinite beneficiaries

must be community at large, directly or indirectly

13

Cy pres

a court may modify a charitable trust to seek an alternative charitable purpose if original one becomes illegal, impracticable or impossible to perform; only if original one was a general charitable intent

14

Resulting trust

Not subject to trust creation requirements; when a trust fails, a court will create a resulting trust requiring the holder of property to return it to the settlor or his estate to prevent unjust enrichment

15

Constructive trust

used to prevent unjust enrichment if settlor causes fraud, duress, undue influence, breach of duty or detrimental reliance by third party on a false representation

16

Alienation

beneficiary's equitable interest in trust property is freely alienable unless a statute or trust instrument limits this right

17

Support trust

directs trustee to pay income/principal as necessary to support the trust beneficiary; creditors cannot reach assets unless providing a necessity to beneficiary (trustee can pay directly)

18

Creditors

may reach trust principal/income only when such amounts become payable to the beneficiary or subject to her demand

19

Discretionary trust

the trustee is given complete discretion regarding whether or not to apply payments of income/principal to the beneficiary; creditors have same rights as beneficiary if trustee exercises discretion to pay

20

Mandatory trust

trustee has no discretion; trust document explains in detail how and when trust property is to be distributed; alienable

21

Spendthrift trust

expressly restricts beneficiary's power to voluntarily or involuntarily transfer his equitable interest (void if only restricts involuntary transfer); creditors cannot reach trust interest

Exceptions: child/spousal support; basic necessities providers; tax lien holders

22

Trust termination

a trust terminates automatically when trust purpose has been accomplished; a trust may terminate by consent if settlor is dead/has no remaining interest, and all beneficiaries and trustee consent; or by court if purpose has been achieved/becomes illegal, impracticable or impossible

23

Unfulfilled material purpose

a trustee can block premature trust termination if the trust is shown to have an unfulfilled material purpose

24

Trust modification by settlor

settlor must expressly reserve right to modify or terminate a trust; otherwise modification/termination can only occur with consent of all beneficiaries and if proposed change will not interfere with a primary purpose of trust

25

Trustee's power to terminate

none, unless trust contains express termination provisions

26

removal of trustee

court can remove if purpose of trust would be frustrated by trustee's continuance in office; but neither settlor nor beneficiaries can seek removal absent express provision in trust

breach of duties; C/I; serious conflict between trustee and beneficiary; trust consistently performing poorly because of actions/inactions

27

Allocating principal/income

Traditional approach: life beneficiary (income); remainder beneficiary (principal)

Modern approach: focuses on total return in trust portfolio, such that the trustee is empowered to re-characterize items and reallocate investment returns as he deems reasonably necessary to fulfill trust purpose

28

Turstee's powers

powers necessary to act as a reasonably prudent person in managing the trust including implied power to contract, sell, lease or transfer trust property

29

Duty of loyalty and good faith

duty to administer trust in good faith (subjective) and to act reasonably (objective) when investing property and otherwise managing the trust solely in the best interest of the beneficiaries

30

Self-dealing

when trustee personally engages in a transaction involving trust property, a C/I arises b/w trustee's duties to beneficiaries and her personal interest; irrebuttable presumption that trustee breached duty of loyalty; no further inquiry into reasonableness or good faith

Exception: when self-dealing authorized by trust -> reasonable and fair

31

Conflicts of interest

assessed under reasonable and good faith standard if not self-dealing

32

Duty of prudence

trustee may delegate responsibilities if it would be unreasonable for settlor to require trustee perform such tasks; critical function is not delegable

33

Duty to oversee decisions

trustee can delegate determination of management and investment strategies but must oversee decision-making process

34

Prudent investor rule

act as prudent investor would act when investing his own property; reasonable care, caution, and skill

35

Duty to diversify

must adequately diversity investments in order to spread the risk of loss under a total performance portfolio approach, but not if administrative costs would outweigh benefits

36

Duty to make property productive

by pursuing all possible claims, deriving the maximum amount of income from investments, selling assets when appropriate, acting within reasonable period of time in all matters

37

Duty to be impartial

trustee must balance the interests of present and future beneficiaries by investing property so that it produces a reasonable income while preserving principal for remaindermen

38

Duty to disclose

complete and accurate info about nature and extent of trust property

39

Duty to account

must periodically account for actions taken on behalf of the trust so that the trustee's performance can be assessed against terms of trust

40

Commingling of funds

CL: keep funds separate from trustee's funds

Modern: some commingling of trust funds and mutual funds okay

If funds commingled and assets lost, assume that the lost assets were from trustee's funds

41

Remedies

Losses resulting from breach of duties are the responsibility of trustee, and beneficiaries may sue trustee and seek damages or removal of trustee for breach