TRUSTS

Question 1

Types of Trust

Answer 1

Express Trust

Implied Trust

Question 2

Types of Express Trust

Answer 2

Private Express Trust

Charitable Express Trust

Question 3

Types of Implied Trusts

Answer 3

Resulting Trust

Constructive Trust

Question 4

Parties to a Trust

Answer 4

Settlor, Grantor, Testator - Person who creates trust

Trustee - Legal owner of trust property who holds it for the benefit of the beneficiaries

Beneficiary - Individual who has a present or future interest in a trust

Question 5

Trustee responsibilities

Answer 5

Trustees powers arise from either:

1. The trust instriment
2. Granted by statute or implied in law

Could be the settlor or a beneficiary as well. Cannot be sole beneficiary. Must have some active duty. Duties include:

1. Preserve property
2. Make trust property productive
3. Invest Prudently
4. Administer the trust pursuant to the settlor’s directions
5. To keep accurate accounts
6. Segregate trust assets
7. To exercise fairness with respect to all beneficiaries, regardless of the nature of their interests

Court will designate trustee if none are provided or:

1. Incompetent
2. Fails to survive settlor
3. Otherwise fails to qualify

May be removed according to terms of trust or cause by court.

Trustee transfers his interest to beneficiaries and ceases to have legal authority to exert control over the property (but what is necessary to wind up business)

Question 6

Co-Trustees

Answer 6

Considered joint tenants with regard of legal title

May act by majority decision. If a vacancy appears than the remaining trustees act for the trust

Co-trustee can dissent to protect from liability later on

Question 7

Beneficiary

Answer 7

Individual who has either a present or future interest in a trust

Any natural person or artificial person can be beneficiary. Must wait for property to be distributed in accordance with trust before being able to take full control over the property.

Must be

1. Presently ascertainable (friends, familty too vague)
2. Ascertainable within reasonable future time (within RAP)

Types of beneficiaries:

1. Income Beneficiary - Present interest in the fund
2. Remainder Beneficiary - Remainder interest in the fund

Question 8

Trust Creation Requirements

Answer 8

1. Settler with requisite capacity, expresses a present intent to create a trust
2. delivery of specific trust property
3. Ascertainable beneficiary
4. Active duties imposed on the trustee
5. A proper trust purpose and;
6. A trustee

Trust can be inter vivios (lifetime), or testamentary (will)

Question 9

Principal

Answer 9

Property that is the subject of the trust

Question 10

Intent to Create Trust (How is this shown)

Answer 10

Intention is determined from the language used, his relationship with the parties, and other circumstances;

Where the settlor uses precatory language or suggest something happens, intent may not be found.

Transfer “in trust” with no other details is not sufficient to create trust

Question 11

Delivery

Answer 11

Placing the property of the trust with the trustee. This includes:

1. Settlor can make inter vivos transfer of title to the trustee called a deed of trust
2. Settlor can orally or in writing declare himself the trustee over particular property standing in his name
3. Settlor can, in valid, will, direct the executor to distribute property to a trustee
4. Settlor can enter into an enforeable contract with another person who thereby becomes obligated to transfer property to a trustee for the purpose of establishing a trust.

Question 12

What is property that can be placed in trust

Answer 12

Vested possessory interests,
Contingent, non-possessory, future interests,
Contract rights, and
Equitable interests in another trust

Question 13

Rule Against Perpetuities

Answer 13

Prevents individuals from using legal instruments to create future interests (generally contingent remainders and executive interests) in property that would vest 21 after creation of the trust.

Does not apply to charitable trusts

Most states apply the RAP to what actually happened

Question 14

Purpose of the Trust (Requirements)

Answer 14

Trust purpose can be anything unless:

1. Illegal
2. Violates RAP
3. Contrary to public policy

Purpose relating to encouragement to refrain from marriage or divorce is invalid. Courts will try to delete an objectionable position if it doesn’t frustrate the settlor’s purpose

Question 15

Transfer of Property (Inter Vivos)

Answer 15

Real Property Transfer is effected by:

1. Execution of a deed conveying title to the trustee
2. Delivery of document to the trustee (or his agent)

Personal Property transfer effected by:

1. Physical delivery
2. Symbolic delivery
3. Constructive delivery

Question 16

Trust

Answer 16

Fiduciary relationship where a trustee holds ;legal title to property subject to an equitable obligation

Question 17

Settlor

Answer 17

Property owner who establishes the trust by transferring assets to a trustee with intent to create a trust

The settlor no longer owns asset once they are transferred into trust (unless he is beneficiary or trustee)

Question 18

Trustee

Answer 18

Legal owner of trust property, who owns it for the benefit of the beneficiary.

Legal title rest with trustee.

Trustee may resign or be removed for cause if there are no beneficiaries in existence

Question 19

Beneficiaries

Answer 19

Equitable owners of the trust property who have the right to enforce the terms of the trust and can hold trustees personally liable for breach of their duties

Question 20

Express Inter Vivos Trust

Answer 20

Trust created by testator’s express intention which takes place during his life

Question 21

Testamentary Trust

Answer 21

Trust created by a vaid will or other document where the settlor’s death is a condition precedent to any interest under the trust

Question 22

Discretionary Trust

Answer 22

Trustee has ability to make payments to beneficiary at their discretion

Question 23

Support Provision

Answer 23

Trustee is directed to provide only so much income/principal of the trust assets as neccessary for the beneficiary’s support

Question 24

Spendthrift Provision

Answer 24

Provision that precludes a beneficiary from voluntarily transferring his interest in the trust and creditors from reaching that interest

Question 25

Prudent Investor Rule

Answer 25

Trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, an other circumstances of the trust, while exercising reasonable care When a trustee possesses superior business expertise his standard is higher to represent such skill

Question 26

Constructive Trust

Answer 26

Imposed to deprive wrongdoer from retaining improperly obtained property

Question 27

Resulting Trust

Answer 27

Imposed irrespective of wrongdoing when circumstances require, most often when a settler transfers full legal title but fails to transfer equitable title

Question 28

Declaration of Trust

Answer 28

Settlor makes himself trustee over his own trust Some states require that the trustee retitle the assets noting the settlor's status as trustee Declaration can be oral unless: 1. Trust includes real property (since SOF applies) 2. Trust is testamentary and must be written

Question 29

Mandatory v. Precatory Language

Answer 29

Mandatory Language: "Shall, must" Precatory Language: "with the hope" (not sufficient to create a trust unless other circumstances reflect a duty)

Question 30

Totten Trusts

Answer 30

An arrangement with a bank that allows the depositor to open a bank account in his own name, as trustee for other parties The beneficiary has the right to take whatever is left in the account when the depositor dies if they are still living