Trusts Flashcards
(29 cards)
Administrative Duties of a Trustee
- Duty to Inform Beneficiaries - about the nature of the trust property
- Duty to Account: for actions taken on behalf of the trust and report on the health of the trust portfolio
Duty of Impartiality of a Trustee
Trustee has a duty to balance the competing interests of present and future beneficiaries:
Modern Rule: The allocation between income and principal must be balanced to treat life tenants and remainder holders fairly
Trustee Duty Towards Investments
Modern Rule: Prudent Investor Rule, A trustee has discretion to invest and manage property as would a prudent investor. Trustee is expected to diversify assets to spread the risk of loss. Measure the success of a portfolio as a whole.
Trustee Duties - In General
A trustee has two duties: a duty of loyalty and a duty of care. The trustee must act in the best interest of the beneficiaries. Any beneficiary has standing to enforce these fiduciary duties.
Duty of Loyalty of a Trustee
Objective standard: Did the trustee act reasonably?
Self-dealing is a breach of the duty governed by the no-further inquiry rule. If you have established self-dealing, the court does NOT inquire into the reasonableness or good faith. It’s a per se breach of the duty of loyalty.
IF the trust document allows self-dealing, the transaction must still be reasonable and fair for the trustee to avoid liability.
Conflict of Interest: Non-self-dealing transaction, assessed under reasonable and good faith test.
Duty of Care
The care that a person of ordinary prudence would practice in the care of his own estate. A trustee should treat the trust property as his own. Special skill: trustee must use those special skills, trustee is held to a heightened standard.
Delegation
Modern law - permits delegation. if it would be unreasonable for settlor to undertook such functions as investments decisions, but trustee has a duty to oversee the delegation.
What determine’s a trustee’s powers?
The trust documents first. IF the trust documents are silent, then refer to statutory and common-law principles. Modern trend is to grant the trustee all those powers necessary to act as reasonably prudent person.
Since trustee owns legal title to the trust, they act as power.
Is a trust revocable?
Presumed irrevocable, unless the trust document states otherwise
Mandatory trust
Trustee must make distributions from the trust
Discretionary trust
trustee may make distributions in her discretion
Remedial Trust
AN equitable remedy created by operation of law, can be a resulting trust or a constructive trust
Private Express Trust
-Settlor expressly states the intent to create a trust.
You need:
- Intent - watch out for prefatory language
- No writing needed unless subject to SOF (property is real property) or Created by will (trust me in existence at the time the will was made or created simultaneously)
- Property - Trust res
- Trust purpose - valid if not illegal or contrary to public policy
- Beneficiaries - must be an ascertained beneficiary - by name or by class membership
Exceptions for unborn children and class gifts (must be definite - have t be able to close the class) and charitable trusts - Trustee - but won’t fail without one
Charitable Trust
- Must have a charitable purpose (relief of poverty, advancement of religion or education, promotion of good health, government or municipal purposes, other purposes benefiting the community at large or a particular segment of the community) Modern trend is to validate a charitable trust.
- NOT SUBJECT TO RAP
Cy Pres Doctrine - court can modify a trust if the trust’s charitable purpose is no longer possible. You need to establish a general charitable purpose, goal is to make the new purpose as close as possible to the original purpose.
If no charitable purpose, goes to a resulting trust.
AG’s office has standing to enforce the terms of the charitable trust and under the UTC, so does the settlor.
Creation fo Express Trusts
Intervivos transfer: created during the settlor’s life. Settlor declares herself holder of the property in trust for beneficiaries, settlor also serves as trustee.
Deed of Trust: settlor conveys property to a trustee, settlor is not the trustee.
Testamentary transfer: created according to the terms of a will
Remedial Trust
It is an equitable remedy created by operation of law. It is passive in nature and the trustee’s sole duty is to convey the property back to the beneficiary or to the beneficiary’s estate. Two types of remedial trusts: resulting and constructive.
Resulting Trust
Used when. trust fails
Trustee must return the priority to the settlor or the settlor’s estate. Goal is to avoid unjust enrichment.
Purchase-Money Resulting Trust
Person one pays for property, but title is taken in Person Two’s name. If Person Two is not the natural object of Person One’s bounty (not a close friend or relative), a court will create a PM resulting trust.
How to avoid a resulting trust?
Use a gift-over clause. Ex: Oliver’s will provides that if Archer dies without children, the remaining trust property is to go to Henry or Henry’s heirs.
Constructive Trust
A remedy used to prevent unjust enrichment if a third party takes advantage of the settlor. Key characteristic: WRONGFUL conduct (fraud, undue influence, duress) directed toward the settlor.
Support Trust
Trustee makes distributions to support (discretionary trust) the beneficiary
Alienability of Trust Property and Creditors’ Ability to Reach
A beneficiary’s interest in trust property is freely alienable, unless the trust instrument or a statute limits the right.
A creditor cannot reach trust principal or income until such amounts become payable to the beneficiary or are subject to the beneficiary’s demand.
What kinds of trusts shield beneficiaries from creditor’s claims?
- Pour-over trust - testator’s creditors cannot reach the testator’s assets
- Support trust - creditors can’t reach trust property because beneficiary cannot demand payment, can only reach when payment is made
- Discretionary rust - same
- Spendthrift Trust: Trust expressly restricts beneficiary’s power to alienate her interest (voluntarily and involuntarily).
Creditors cannot reach trust property until trustee makes payment. Except for: Spousal or child support, those providing basic necessities to the beneficiary, holders of federal or state tax liens.
How can a trust terminate?
- Expires at the end of a stated term
- Unfulfilled Material pUrpose: Claflin Doctrine - Beneficiary wants to terminate a trust prematurely and trustee opposes termination, and the settlor is no longer alive.
Rule: A trustee can block premature termination if the trust is still serving some material purpose.
- Settlor is alive: can unilaterally terminate, if settlor expressly reserved the right to terminate in the trust documents, if the sector did not expressly provide for termination, can still terminate with the permission of all beneficiaries.
