Trusts & Estates Flashcards
(141 cards)
1
Q
what is a trust?
A
an arrangment under which the trustee holds legal tittle to property for the benefit of the beneficiaries.
trustee has burdens and beneficiaries have benefits of property ownership.
trustee is subject to fiduciary standards; he is not privileged to use trust property as his own.
harsh “self dealing” rules preclude trustee from doing so.
2
Q
what are the requistes for a trust?
A
creator
delivers
legal title of trsut assets
to trustee
for the benefit of beneficiaries
with intent to create trust
for a valid purpose
3
Q
what counts as delivery
A
requirement does not apply to self-declaration of trust (i hereby declare myself trustee) or testimentary trust
but for inter vivos trust with 3rd party as trustee, there must be delivery of subject matter of the trust.
4
Q
testamentary trust
A
stated in the will
5
Q
inter vivos trust
A
delivery requirement
6
Q
EXAMPLE:
father executes a vlaid deed of blackacre naming daughter as the grantee.
subsequently, father hands the ded to brother telling him orally at that time “hold this deed and record it if daughter survives me”
does brother hold blackacre in trust for daughter?
has father made a valid gift of blackare to daughter?
A
- father has escrowed the deed with brother
2. it depends– to make a gift, father must deliver the property to the donee or the donee’s agent.
7
Q
how can delivery be made?
A
actual
constructive (making gift of a car by delivering the keys to the donee)
OR when actual or constructive delivery is not possible– symbolic
(delivering a signed writing, evidencing the gift)
REMEMBER: the creator must have proper intent!
8
Q
requirement of intent and valid purpose:
- Ts will contains a bequest of $100K “to A to be used for the education of pete and repeat”
does A hold the $100K in trust for T’s 2 kids?
_______________________
- COMPARE: To A it is my wish and my desire that he look after X and Y
________________________
- COMPARE: it is my wish and my desire that he use the income for the support of X and Y until both have attained the age of 18 at which time to distribute the principal of this gift to X and Y outright.
A
- A= trustee, P & R= beneficiaries
proper trust– shows intent - suggestive– this is not a trust
- trust bc discloses an intent/duty of a trust
9
Q
T’s will contains a bequest to BANK as trustee for the benefit of daughter Jean, “provided, however, that should Jean ever marry, she shall forfeit her entire interest in this trust.” is this a valid arrangement?
A
the trust is good BUT the forefeiture condition is void because this is an unreasonable restraint on marriage
10
Q
In trust to pay the income to my husband Mark until such time as he remarries, thereafter principal to my daughter Jen.
valid condition?
A
yes because purpose of condition is different
intent to provide for him until he is married
11
Q
trusts with provisions that encourage divorce or the commission of crimes and provisions restraining the right to procreate or the free practice of religion are…..
VOID or OKAY?
A
Void
if they make access to the trust conditional on those provisions.
12
Q
I make no provision for my son peter because i disapprove of his marriage outside of our religious faith
okay or void?
A
not a problem because not a condition
you can decline to provide for any reason
13
Q
the requirement of trust property
Res Requirement
A
the corpus, the principal, the subject matter of the trust.
in order to have a trust, there must be a specific interest in property to which the trustee’s duties relate, such that the beneficiary who is dissatisfied with the trustee’s performance can say “you are no doing your job with respect to these asserts
the subject matter must be certain and identifiable.
14
Q
if we have no certain and identifiable trust property, there is no trust
TRUE OR FALSE
A
TRUE!!!
15
Q
EXAMPLE:
A owes B $10K. in writign A states “I hereby declare myself trustee of the debt which I owe to B”
VALID?
A
this is an attempted trust
- self-declaration of a trust
Has A created a valid trust?
NO bc A has not segregated out any specific property
A’s duty to repay NOT property
16
Q
EXAMPLE:
A owes B $10K. in writign A states “I hereby declare myself trustee of the debt which I owe to B”
what if it was B who stated “i hereby declare myself trsuteeof the debt whihch A owes me, said trust to be for the benefit of C”
Valid trust?
A
yes because B’s side of the relationship = property
17
Q
choses in action and accounts receivable are _______________ in _________
they are ________ to support a trust even though they are ____________.
A
- interests
- property
- sufficient
- intangible
18
Q
grandfather tells uncle that he is leaving whitieacre to uncle in his will.
uncle thereupon records a declaration of trsut “ i declare myself trustee of my interest in whiiteacre, income to nephew for life, remainder to his issue.” valid trust?
A
NO!!!
uncle’s claim is NOT a recognized property interest.
it is an expectancy
when grandfather writes the will, uncle has no claim or property right.
uncle’s expectancy will ripen into a property interest ONLY IF
1. grandfather dies without changing his will
AND
2. the will is admitted top probate
UNTIL THEN the law views uncles actions as:
gratuitous promise to create in future
SAME AS PROSPECTIVE HEIRS
19
Q
grandfather tells uncle that he is leaving whitieacre to uncle in his will.
uncle thereupon records a declaration of trsut “ i declare myself trustee of my interest in whiiteacre, income to nephew for life, remainder to his issue.”
THEN
Grandfather dies and his executor deeds whiteacre to uncle, pursuant to the will’s terms.
does a trust arise at this time?
A
no unless sometime after that time uncle reaffirms of his intent by word or conduct
20
Q
Rest Trusts
A
where a promise to create a trust is gratuitous (not supported by consideration) a trust arises when all elements of a valid trust have been met if, but only if, at that subsequent time the settlor manifests an intention then to create the trust
NEED A REAFFIRMATION OF INTENT
21
Q
indicia of trust might include….
A
express
NOT have to but can occur through conduct
22
Q
what if valid trust was created but settlor dies and there is no trustee?
RULE:
No trust _____ for want of a _____
A
no trust fails for want of a trustee
if the intention to create a trust is clearly manifested by no trustee is named or the named trustee dies or resigns with no provision for a successor trustee, the court will appoint a suitable trustee to execute the trust.
23
Q
what is an exception to the rule:
No trust fails for want of a trustee
A
powers personal to the named trustee
if the court finds that the settlor intended for the trust powers to be personal to the trustee, such that the trust should fail if the named person is no longer capable of serving, then the trust would terminate.
24
Q
Ann is the residuary legatee under the valid will of her deceased aunt. Before the taxes and other charges against the estate are known. Ann in writing declares herself trustee of her interest as residuary legatee for the support of her husband and all such children as she should have by him.
thereafter $ 1 million is distributed by the executor to Ann as residuary legatee.
Valid trust?
A
yes
where the testator has died although her estate has not been distributed a legatee has more than a mere expectancy; she has an interest which may be the subject matter of a trust or a gift.
this is true even though the amount which the legatee is to receive has not yet been ascertained, as where she is a legatee of the residuary estate.
25
what happens when the promise to hold property (to be received in the future) in trust is supported by consideration?
under contract principles the trust automatically attaches when the property is received.
Don't need intent!
26
F writes trust instrument naming X as trustee and providing that during F's life, the income, if any from trust property is to be distributed to F and at F's death the income is to go to Wife for life; remainder to F's children.
F does not transfer any assets into the trust, but instead names the trust (i.e. trustee "as trustee") as beneficiary under several of his insurance policies.
has a trust been created?
yes
most sates provide that an otherwise empty trust is valid if it is named the direct beneficiary of a life insurance policy or a pension plan death benefit.
ALSO: the statute applies to a trust that is named the direct beneficiary of the settlor's will.
27
a private trust must have _________ beneficiaries
ascertainable
28
charitable trust
requirements:
being for charitable purpose
must be for a reasonably large
and
unidentifiable segment of the public at large
29
t's will left $100K to my friend lemuel Mosely, in trust for my friends.
valid trust?
no friends are not ascertainable
30
can the following trust be given as a valid power of appointment?
t's will left $100K to my friend lemuel Mosely, in trust for my friends.
No!
A trust invalid for want of definite beneficiaries cannot be given effect as a power of appointment
Why?
a trustee is under an obligation to perform, and a holder of a power is not
BUT the majority rule today is that it can!!
so the power of appointment argument should be made!
31
t's will left $100K to my friend lemuel Mosely, in trust for my friends.
if the power of appointment is recognized, what happens if Lemuel Mosley declines to exercise it?
given a reasonable time to settle if not then will be returned to the settler or the settler's estate.
32
T's will creates a testamentary trust for the benefit of her descendants, with the shares of each left to the discretion of the trustee.
valid trust?
Yes if beneficiaries are described the shares maybe left to the discretion of the trustee.
33
T's will left $250K to Bank as trustee, " to pay over the income and dividends to train spiritualistic mediums."
valid trust?
if charitable purpose then OK
if private then NO
34
when vera rich learned that her nephew tom was to be married, she was so pleased that she transferred $100K to the reliable trust bank to be held in trust for tom's future children.
unfortunately, nephew tom was jilted within the week by his fiancee, and vera died shortly thereafter.
1. there are no living beneficiares, is that an issue?
2. who enforces the trust?
3. what happens if tom never has any kids?
1. no because does not require that they be alive; just described
2. a guardian ad litem
3. returned to her estate3 and then flow through to her successors.
35
father devised $5K "in trust" to daughter "as trustee" to spend the principal and incoem for the care of father's 3 dogs .
the ret of father's estate was devised to son.
daughter spent $1K during the first 3 years for that purpose after which time she discontinued that use saying she believed she'd keep the remainder of the "trust money" for herself.
valid trust?
this is called an honorary trust
36
are honorary trusts valid under common law?
NO!
void bc they violate the rule against perpetuities!
NEED HUMAN BEINGS!
would only be valid by statute for the lifetime of the animals
37
are honorary trusts valid under the UTC?
valid for the lifetime of the pet
38
if an honorary trust is valid:
who has standing to enforce the trust?
what happens to any money left over at the death of the dog?
the attorneys can provide someone
the money would return to the estate by implied reversion
39
T placed her business relaty in revocable trust, naming herself and her son Charles as co-trustees and designating herself as the sole beneficiary of the icnome from the trust for her lifetime. the trust further provided that on T's death the trust property was to be held in further trust or charles' daughter betty.
T later executed a will devising her residuary estate "to the trust of which I am co-trustee with my son Charles"
what of the fact that T was both trustee and beneficiary?
no problem!
while the sole beneficiary fo a trust cannot be the sole trustee (who would use the trustee for breach of a trust?) this rule doesn't apply if:
there are two trustees even though one o the trustees is the sole beneficiary
if there are two or more beneficiaries, even though the sole trustee is one of the beneficiaries
40
pour-over clause
takes property at our death and adds to pre-existing trust.
ex: T later executed a will devising her residuary estate "to the trust of which i am co-trustee with my son charles"
41
are revocable trusts valid?
yes by statue in some states and by case law in almost every other jursidiction.
valid even though the settlor retians the right to revoke, alter or amend the trust, keesp an income interest or other interests in the turst as beneficairy, retians a pwoer of appointment over the trust corups or retians every day control ove the trsut etiehr by naming herself trsuteeor by retaining veto power over the trustee's decisions.
42
is a gift by will to the revocable, amendable trust valid?
yes.
almost all states have adopted the uniform testamentary additions to trust act or its equivalent.
the only requirements are that the trust must be identified T's will and its terms must be set out in a written instrument.
the instrument may be executed before, concurrently with or after the will.
43
gift by will to the revocable, amended trust
the devised property
how must it be added?
as it exists at T's death, including any amendments after the will was executed, even though the trust amendments were not executed with testamentary formalities.
44
gift by will to the revocable, amended trust
the devised property
how must it be added?
as it exists at T's death, including any amendments after the will was executed, even though the trust amendments were not executed with testamentary formalities.
45
T placed her business relaty in revocable trust, naming herself and her son Charles as co-trustees and designating herself as the sole beneficiary of the icnome from the trust for her lifetime. the trust further provided that on T's death the trust property was to be held in further trust or charles' daughter betty.
T later executed a will devising her residuary estate "to the trust of which I am co-trustee with my son Charles"
what happens if T revokes the trust before she dies?
the gift in the will lapses
46
T places $15K in savings account at the first main bank.
the signature card and pasbook bear the statement "tom testator for seth testator" this is his only account at the bank. over the years he draws out the interest on the account but leaves the principal amount intact.
some years later T dies, elaving a will (exceuted after the account was created) that provides: I give all my property including my bank account at first man bank, to my daughter, dolly"
who takes the 15K?
majority rule:
dolly takes the $15K
UTC: seth wins bc no revocation by will
47
totten trust
it is revocavble during the life by any manigfestations of intent to revoke incluyding withdrawals.
the account is reachavble byt eh depositor's creditors during life, and in many states it may also be reacehd after death to the extent the depositor's probate assets are insuffcient to pay his reditors.
extrinsic evidcen is admissible to show a trust was not intened despite the designation on the signature card.
48
what happens when a beneficiary of a totten trust predeceases the depositor?
automatic revocation
49
what is an oral trust?
oral promise to hold in trust
50
interv vivos trusts
REMEMBER: do not need writing for personal property
rule: an oral trust of personalty is enforecable proviudes its terms can be established by clear and convicing evidence.
however, trusts containing land (whether created by declaration of trust or by inter vivos transfer) must be evidenced by a writing that satisifies the SOF
51
S promises his widowed sister marie that he would provide a home for her and her daughter angie if marie would keep house and serve as hostess in his home.
thereafter, in the presence of witnesses, S handed his brother Frank a deed nameing Frank as grantee (with no mention of a trsut) saying "hold this property in trust until Marie's death, then convey to angie. this is in consideration of services rendered by marie as agreed"
valid trust?
NO b/c real property
may have remedy in equity
52
S promises his widowed sister marie that he would provide a home for her and her daughter angie if marie would keep house and serve as hostess in his home.
thereafter, in the presence of witnesses, S handed his brother Frank a deed nameing Frank as grantee (with no mention of a trsut) saying "hold this property in trust until Marie's death, then convey to angie. this is in consideration of services rendered by marie as agreed"
trust is not valid BUT a constructive trust for Marie's benefit may be imposed where?
fraud in the inducement: LIAR FROM THE START
if at the time land was deeded to Frank, he orally promised to serve as trustee and he had, at that time, no intention to perform his promise
confidential relationship:
grantee- trustee served in confidential relationship to the grantor-settlor (attorney-client; business associates; husband-wife, father-child, brother-sister). Rationale is that equity's concern that one would take advantage of a confidential relationship to enrich himself outweighs the SOF.
BUT grantee- trustee must have agreed to hold property in trust
53
S promises his widowed sister marie that he would provide a home for her and her daughter angie if marie would keep house and serve as hostess in his home.
thereafter, in the presence of witnesses, S handed his brother Frank a deed nameing Frank as grantee (with no mention of a trsut) saying "hold this property in trust until Marie's death, then convey to angie. this is in consideration of services rendered by marie as agreed"
if no constructive trust would Marie have an action against S's estate?
yes for the value of her services rendered but not for the house.
54
ORAL PROMISE (SUPPORTED BY CONSIDERATION) TO MAKE DEVISE IN A WILL:
T orally agreed with her valet Sydney that she would devise her home to him if he would forgo any weekly salary and remain in T's employe as long as she lived. Sydney fufilled his commitment, but T never inserted a provision in her will for his benefit.
is this enforceable?
No
majority rule: subject to SOF which will fail
UTC: does not meet any o the requirements will have a suit in quantum meruit
55
quantum meruit
a reasonable sum of money to be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract
56
what is the majority rule for oral promise (supported by consideration) to make devise in a will?
with respect to personal property, oral contracts to make a will are enforceable provided there terms can be established by clear and convincing evidenc.
contracts to devise land must be evidenced by a writing that satisfies SOF
57
what is the UPC rule for oral promise (supported by consideration) to make devise in a will?
any contract to make a will, not to revoke a will, or to die intestate, can only be shown if (1) the terms are in the will itself (2) the terms are in a written contract or (3) the will refers to the contract and extrinsic evidence proves the terms
the mere existence of joint or mutual wills does not imply a contract not to revoke
58
T orally agreed with her valet Sydney that she would devise her home to him if he would forgo any weekly salary and remain in T's employe as long as she lived. Sydney fufilled his commitment, but T never inserted a provision in her will for his benefit.
what if the agreement had been written and signed?
can get the home and remedy!
constructive trust
Not a real trust but courts will tell owner at time to give to sydney
59
testamentary trusts
what are the 2 types?
secret trust
semi-secret
60
secret trust
absolute devise by will with oral promise to hold on trust
61
semi-secret trust
devise "in trust" with oral agreement as to the beneficiaries
to be a trust but not sure the terms of the trust
62
T dies leaving a will that devises Greenacre to Jones; the will makes no mention of any trust. T's secretary now aleges that T orally told Jones that Jones was to hold the land as trustee for the secretary's benefit, and that Jones agreed to serve as trustee.
can the secretary enforce the promise?
Yes
her testimony is admissible to show the existence of the promise.
if she is able to establish Jone's promise by clear satisfactory and convincing evidence (more than a mere preponderance) a constructive trust will be implied for her benefit.
since a will and not a deed is involved, the SOF is inapplicable.
equity's concern that one should not be allowed to be unjustly enriched in violation of his promise outweighs the Statute of wills concern that the will beneficiaries should be ID'd by language in the will.
a constructive trust is imposed to prevent unjust enrichment.
63
T dies leaving a will that devises Greenacre to Jones; the will makes no mention of any trust. T's secretary now alleges that T never told Jones that Jones was to hold the land as trustee for the secretary's benefit.
accompanying T's will is an envelope marked "personal" addressed to Jones. Inside is a typewritten note, signed by T, instructing Jones to hold the land in trust for Ts secretary.
Who wins?
Joens wins; the will says jones so unless he is a wrong doer he will win.
64
T's will devises land "to my good friend sam smith, as trustee, for purposes I have already communiticated to him" smith is willing to identify T's purposes and intended beneficiaries and is willing to serve as trustee. T's heirs object, saying no valiud trust was creatd.
what result?
smith holds a resulting trust for T's heirs (implied reverson)
smith may not even voluntarily comply
65
a semi-trust involves____ element of _____ so to impress the trust for benefit of intended beneficiaries would_______
the semi-secret trust situation involves no element of wrongdoing so to impress the trust for benefit of intended beneficiaries would violate the requirement of the statute of wills that the beneficiaries be identifiable from language in the will.
66
Charitable trusts
what are the 4 rules that apply?
1. not subject to either RAP or Rule against accumulations
- can last and accumulate income perpetually
2. must be for charitable purpose
- religion
- medicine
- science
- government
- research
- education
3. must be in favor of a reasonably large number of unidentified beneficiaries
4. when specific charitable purpose can no longer be accomplished, may be reformed under the doctrine of cy pres
67
man lived across the street from Shenandoah Grammar school died leaving will that devised his estate in trustee:
trustee to accumulate income for 25 years.
thereafter, on monday before easter and again on Monday before Christmas each year, trustee to distribute the income to grammar school students in first and second grades, "the said income to be used by them for educational purposes." his nearest kin, a second cousin, challenges the trust
valid charitable trust?
no bc look at how enforced
how does it operate in fact?
no way to ensure used for education
68
man lived across the street from Shenandoah Grammar school died leaving will that devised his estate in trustee:
trustee to accumulate income for 25 years.
the trustee shall expend the income for the educational needs of the grammar school students in the first and second grades
valid charitable trust?
Yes!
69
trust providing scholarships at the florida state university for all residents of southwest Tallahassee, florida, whose last name is Powell.
valid charitable trust?
No because no benefit enough people
70
trust created by Iris Smith to provide scholarships at the University of Chicago for all residents of Cook County whose last name is smith, with preference to be given to those persons named Smith who are related to her
valid charitable trust?
does not have to benefit everyone just enough people!!
71
assuming a trust is charitable, who has standing to enforce it?
state attorney general
UTC= the settlor or any qualified living beneficiary
72
residuary estate devised to testamentary trustee, "to distribute the income to agencies and organizations, as selected by the trustee, actively engaged in research for the prevention of poliomyelitis" twenty years later, the cure for polio is found and all organized research pertaining to the disease is terminated. the trustee petitions the court: what should it do with trust income and principal?
T's heirs interview: since the purposes of the trust no longer can be accomplished, the trust should be terminated and the corpus distributed to them.
Result?
ASK:
primary intent?
specific direction?
PRIMARY INTENT: put in the settlor's mind-- if to cure polio THEN heirs win!!
IF primary intent is broader question then the court reforms it!
SPECIFIC DIRECTION: get from instrument itself!
Court is unlikely to terminate the trust
MORE likely to reform
73
when will a court deviate from the trust administrative terms?
if changed circumstances
this is applied to private as well as charitable trusts
74
will created trust for family; trust provided that P's stock in NY world newspaper should not be sold so long as the trust was in existence.
many years later things went bad for "world"; its losses were so heavy that trustees had to use income from other assets to cover the losses.
court authorized deviation under primary intent-specific direction reason being.
WHY?
primary purpose of the trust was to provide for P's family; in connection therewith he gave specific direction that stock should never be sold. But continue to adhere to specific direction would frustrate the primary purpose of the trust.
75
w's trust provided that her house should never be sold and that her widower H be allowed to occupy the house rent free during his lifetime; upon H's death the trustee was to sell the home and distribute all trust property to W's living heirs at law.
some years later, the house becomes the center of a manufacturing district and is no longer suitable as a residence.
H contends that the house should be sold and that the proceeds of sale used to buy housing in a desirable residential district.
what result?
H wins!
primary intent: place for H to live
Specific direction- do not sell until H dies
change of circumstances changes the primary purpose
76
what do spendthrift and support trusts deal with?
creditor's rights
77
T creates a trust with income required to be distributed to Sma for life; remainder to Sma's son
sam and trustee have a falling out and the trustee stops distributing the income to Sam.
what are sam's rights?
right to distribution
will go to court to get an order.
if persists will remove trustee
78
T creates a trust with income required to be distributed to Sma for life; remainder to Sam's son
sam and trustee have a falling out and the trustee stops distributing the income to Sam.
sam wants to sell his income interest can he?
yes but too risky bc is only for sam's life!
this can be done bc is a normal property interest
- can buy, sell and pledge interest for a loan
79
T creates a trust with income required to be distributed to Sam for life; remainder to Sam's son
sam and trustee have a falling out and the trustee stops distributing the income to Sam.
sam runs up a large bill at sears. what are sear's rights to satisfy their claim out of the trust?
Sears does not have a right to actual trust property bc sam does not own
sears just has a garnishment right
80
spendthrift clause
a provision in a trust that prevents a trust beneficiary from using a future distribution to secure a credit
prohibits payment to a creditor if it extends credit to a beneficiary base don future distributions
81
S transfers one million dollars to trustee to pay the income to S's son Aaron for life.
on death of Aaron, principal is to be distributed to Aaron's child (C). Trust provides that "no interest of any beneficiary herein shall be assignable to such beneficiary nor shall it be subject to the claims of the beneficiary's creditors."
Aaron builds an expensive home for $500K signing note for purchase price.
in performance of the obligation, Aaron assigns to the payee $50K yearly for 8 years out of trust income. three years later, Aaron instructs the trustee to make no more payments to the creditor. the creditor sues Aaron and seeks to enforce the assignment or to reach Aaron's interest in the trust.
what result?
SPENDTHRIFT CLAUSE
spendthrift is valid and enforceable!
creditors are out of luck and cannot enforce!
BUT once in the bank account then that is fair game!
82
what are exceptions to the spendthrift clause?
claims for necessities
alimony and child support obligations
claims by US or a state for taxes
83
M's will devised Blackacre to trustee, "to distribute or apply the income for the support of my husband, Mr. M during his lifetime to the extent necessary in the sole discretion of my trustee; remainder ot my son"
trustee now holds blackacre and has accumulated income of $5K
what kind of trust?
discretionary support trust
84
M's will devised Blackacre to trustee, "to distribute or apply the income for the support of my husband, Mr. M during his lifetime to the extent necessary in the sole discretion of my trustee; remainder ot my son"
trustee now holds blackacre and has accumulated income of $5K
Mr. M gainfully employed, demands distribution of the $5K income should the trustee distribute?
this is a question of interpretation of the instrument as a whole, but presumptively yes can take into account the beneficaries other forms of support
85
the trustee of a discretionary support trust has a duty to____________________.
support the beneficiary from the income of the trust if he can't support himself
86
M's will devised Blackacre to trustee, "to distribute or apply the income for the support of my husband, Mr. M during his lifetime to the extent necessary in the sole discretion of my trustee; remainder ot my son"
trustee now holds blackacre and has accumulated income of $5K
if the trustee decides not to distribute, can M get a court to overrule the trustee's decision?
probably not
courts are reluctant to question a trustees decision when the trustee has been given extended discretion.
a trustee has extended discretion if the instrument includes words like:
sole discretion
absolute discretion
uncontrolled discretion
sole, absolute, uncontrolled discretion
87
M's will devised Blackacre to trustee, "to accumulate or distribute income to my husband, Mr. M, in the sole discretion of my trustee"
trustee now holds blackacre and has accumulated income of $5K
what kind of trust?
pure discretionary trust
88
M's will devised Blackacre to trustee, "to accumulate or distribute income to my husband, Mr. M, in the sole discretion of my trustee"
trustee now holds blackacre and has accumulated income of $5K
Mr. M demands distribution of the $5K income. what result?
sucks to suck!!!!
no ability to force money out of the trust
89
M's will devised Blackacre to trustee, "to accumulate or distribute income to my husband, Mr. M, in the sole discretion of my trustee"
trustee now holds blackacre and has accumulated income of $5K
grocery demands payment of $180 food bill of Mr. M. what result?
creditors cannot force the trustee to pay a distribution if no spendthrift clause-- T must make straight to creditor
IF THERE IS A SPENDTHRIFT CLAUSE then must make to M
90
what is the UTC exception to the pure discretionary trust?
claims to:
child support
spouse for alimony
THEN CAN COMPEL TRUSTEE
91
D transfers stock to a revocable inter vivos trust, the terms of which provide that the income is to be distributed back to D for his life, remainder at his death to his children.
the trustee, BANK, has authority "to pay out of trust corpus such sums as BANK determines to be in D's best interest"
the trust instrument also contains a spendthrift clause.
D runs up some bills that he is unable to pay.
what are the creditor's rights?
the creditor can reach any right to distributions D has in the trust
D's creditors may reach the actual trust property if D has the power to revoke the trust OR (even if he doesn't) if the trustee has discretionary authority to make distributions to settlor.
92
if a trust is to benefit a settlor then:
spendthrift clauses are_______
settlors creditors may_________
spendthrift clauses are unenforceable so the creditor can reach any right to distributions they have in the trust
their creditors may reach the actual trust property if they have the power to revoke the trust
OR
EVEN IF THEY DO NOT-- the trustee has discretionary authority to make distributions to settlor
EXCEPTION: fraudulent transfers doctrine
93
what is the fraudulent transfers doctrine?
if trust created with intent of defeating known creditors can be set aside
94
trust administration
what are the trustee's duties?
duty of loyalty
duty to invest prudently
duty to preserve and protect trust property
duty of impartiality
duty to account and inform
95
trust administration
duty of loyalty
no self dealing by fiduciary
trustee cannot buy or sell trust assets to itself
trustee cannot borrow trust funds
trustee cannot sell assets from one trust to another trust
corporate trustee cannot purchase its own stock as a trust investment CAN retain their own stock if a part of the original trust property
- must be a permissible investment
- must meet the prudent investor investment standard
96
trust administration
duty to invest prudently
trustee must manage property as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the turst and by pursuing an overall investment strategy reasonably suited to the trust.
MUST adhere to the standard of reasonable care, skill and caution in making investment decisions
97
trust administration
elements of: duty to invest prudently
duty to not commingle "ear mark"
duty to balance return with potential risk
duty to diversify investments
- spread the risk
- ------- MOST TESTED ON!!!
duty to keep trust productive
98
trust administration
duty to invest prudently
portfolio view
trustee's compliance with the prudent investor rule is measured using a portfolio view.
the fact that one or more assets held by the trust are underperforming is not a problem as long as the total return (income + capital appreciation) of the overall portfolio is reasonable.
99
trust administration
duty to preserve and protect trust property
invest prudently +
| the trustee must insure trust property against casualty losses
100
trust administration
duty of impartiality
absent a trust provision permitting trustee to prefer one beneficiary over another, a trustee must be fair and impartial to all beneficaries.
101
trust administration
duty to account and inform
a trustee has a duty to account periodically (annually) to the beneficiaries and to keep them reasonably informed about the administration of the trust.
102
powers of trustee and successor trustee
a corporate trustee may take title to stock in name of nominee?
YES!
statute eliminates concern that this is breach for failure to take title to trust property
HOWEVER: trustee is liable for acts of nominee
THINK OF: TRANSFER OF STOCK
103
powers of trustee and successor trustee
trustee may invest in common trust funds?
YES!
accounts created by corporate trust companies where several smaller trusts are combined for purposes of investment-- allows greater economy and diversification
since statute allows not breach for commingling
104
green, grey, and gary are co-trustees appointed under the will of Jackson. A clause in the will provides that "my trustees shall have the power to lease, mortgage and sell any real property held by them in trust"
green enters into negotiations for a lease of trust property.
may green enter into the lease alone or does he need grey and gary's signatures?
traditional view: except in emergencies need everyone-- must act together
modern view: need 1 but not both
can act by majority rule
105
green, grey, and gary are co-trustees appointed under the will of Jackson. A clause in the will provides that "my trustees shall have the power to lease, mortgage and sell any real property held by them in trust"
green enters into negotiations for a lease of trust property.
during these lease negotiations, grey dies. must green and gary secure the appointment of a new co-trustee to replace Gary
only if in the instrument
106
liability for breach of trust, torts and contracts
breach of trust-- what are the beneficiary's choice of options on how to proceed?
1. ratify the transaction and waive the breach
2. surcharge- sue for the resulting loss.
- ONLY QUESTION: measure of damages
3. in self-dealing cases: trace and recover the property for the trust
107
true or false: breach of a fiduciary duty is an automatic wrong?
true
108
true or false: good faith, reasonableness are defenses or jurisdictions for the breach?
FALSE!
109
liability for breach of trust, torts and contracts
what is a exculpation clause
clause relieving a trustee of liability for breach of trust is unenforceable to the extent it relieves the trustee of liability fore reckless or bad faith actions or the clause was drafted by or at the direction of the trustee and the settlor was not represented by independent counsel.
110
liability for breach of trust, torts and contracts
tort
a trustee is personally liable on all torts of self and agents.
can be reimbursed from trust estate if the trustee was not personally at fault.
UTC: trustee may be sued personally only if the trustee was personally at fault. otherwise the claimant must sue the trustee in his representative capacity.
111
liability for breach of trust, torts and contracts
contract
trustee is personally liable on contracts unless stipulation in the contract relieves her of personal liability.
UTC change:
claimant must sue the trustee in her representative capacity
trustee may not be sued personally unless he failed to reveal her representative capacity when she entered into the contract
112
sam and bill were co-trustees of a trust which specifically limited trust investments to certificates of deposit.
without consulting Bill, Sam invested half of the trust corpus in X stock and the other half in Y stock. In short order, the value of X stock tripled while the value of tY stock declined. Overall, Sam shoed a much greater return than a bank C.D. could have earned.
any problem for sam?
yes!!! each breach will be judged seperately.
113
sam and bill were co-trustees of a trust which specifically limited trust investments to certificates of deposit.
without consulting Bill, Sam invested half of the trust corpus in X stock and the other half in Y stock. In short order, the value of X stock tripled while the value of tY stock declined. Overall, Sam shoed a much greater return than a bank C.D. could have earned.
any problem for bill?
no unless we find some element of fault on his part
he participated
failed to use reasonable care to prevent it
negligent to take proper steps to compel the co-trustee to redress the breach
114
sam and bill were co-trustees of a trust which specifically limited trust investments to certificates of deposit.
without consulting Bill, Sam invested half of the trust corpus in X stock and the other half in Y stock. In short order, the value of X stock tripled while the value of tY stock declined. Overall, Sam shoed a much greater return than a bank C.D. could have earned.
ASSUME: sam resigns vbefore the facts above are discovered, Deidra is now appointed successor co-trustee. is there any issue for deidra?
No unless there is an element of fault
she continues the breach or she fails to take proper steps to compel sam to redress it
115
F creates irrevocable trust naming close friend T as trustee.
because T was not in trust business and because he was busy in the operation of his own business, T asked his nephew "N" (who knew little about trading securities over the internet) to make the investment decisions for the trust.
N invested the trust funds in such a manner that they declined in value by $25K. Is T liable for the acts of his agent?
No UNLESS T improperly delegated responsibility to his agent, N.
116
under the prudent investor act:
may a trustee delegate the investment decision?
YES provided the trustee exercises reasonable care, skill and causation in (1) selecting the agent (2) defining the scope and terms of the delegation and (3) periodically reviewing the actions and decisions of the agent.
117
F creates irrevocable trust naming close friend T as trustee.
because T was not in trust business and because he was busy in the operation of his own business, T asked his nephew "N" (who knew little about trading securities over the internet) to make the investment decisions for the trust.
N invested the trust funds in such a manner that they declined in value by $25K.
what if T had notified the trust beneficiaries that he was goin to ask N to make the investment decisions?
No!!
although a beneficiary who consents to or participates in a breach of trust waives his right to sue, mere knowledge of a breach is NOT enough!
118
TRUE OR FALSE:
as long as a trust is revocable, a trustee who acts with the consent of the settlor CAN be sued for breach by the beneficiaries
FALSE
they CANNOT
119
trust accounting:
what income do the beneficiaries get?
what income do the remaindermen get?
beneficiaries- the net income
remaindermen- trust corpus at the termination of the trusts
items of receipts and expenditures must be allocated to the correct account-- income or corpus (principal)
120
trust accounting:
what kind of revenue is income?
what kind of revenue is principal?
```
income=
rents
interest
dividends on stock paid in cash
10% of any amounts received as an annuity or mineral royalty
```
principal (corups)=
sale fo trust assets
stock splits
dividends paid in stock
121
trust accounting- expenditures
what expenses are charged to the income account?
what expenses are charged to the principal?
ordinary expenses incurred in the production of income (repairs, interest, taxes, etc) are charged to the income account.
Extraordinary items, capital improvements and income taxes incurred on the sale of trust property are charged to principal.
the trustee's fee is charged half to income and half to principal
122
when can beneficiaries terminate the trust?
beneficiaries= sui juris = competent and can act on their own
if:
all beneficiaries consent
AND
there is no further trust purpose to be served
By all beneficiaries we mean ALL BENEFICIARIES!!!
interest in minors or unborn beneficiaries precludes termination.
123
can a spendthrift clause be terminated?
a spendthrift clause in a trust makes the trust indestructible (beneficiaries cannot terminate)
idea is that there is a further trust purpose of the settlor to be served.
settlor intended to provide beneficiary with income interest that could not be anticipated or assigned by him, and tha could not be reached by his creditors.
to terminate: need consent of ALL beneficiaries and settlor!
124
TRUE OR FALSE:
uniform trust code-- all trusts are irrevocable unless a stipulation in the instrument states they are revocable?
FALSE-- all trusts are revocable UNLESS instrument says otherwise
125
what are 2 trusts are imposed by operation of law?
resulting and constructive
126
what is a resulting trusts
may arise upon failure of express trust or when express trust purposes accomplished and corpus not exhausted:
semi-secret trust under majority rule
express trust
127
what are the kinds of resulting trusts?
semi-secret trust under majority rule
express trust fails for any reason and trust instrument silent as to what happens in this event
purchase money resulting trust
128
what is a purchase money resulting trust
presumed to arise when consideration for purchase of property is paid by person other than the person taking title.
129
what are the defenses to a purchase money resulting trust?
gift
OR
loan
130
when is a gift presumed and not a trust when dealing with a purchase money resulting trust?
when person providing consideration ears close family relationship to title holder
parent-child
husband-wife
grandparent-grandchild
131
a loan $10K to B. Just after obligation becomes due, A says to B "instead of paying me the money, i want you to acquire the title to Blackacre and hold if for me."
B orally agrees. B acquires Blackacre taking title in her own name. Later, while A is overseas, B trades Blackacre to C for whiteacre.
when A returns from overseas, blackacre is worth $25K and whiteacre is worth $12K. B is insolvent.
Can A impose a trust on whiteacre?
Can A impose a trust on blackacre?
Yes !
maybe not because of the BFP rule if C is a BFP then no
132
what happens when there is a sale or exchange by a trustee of a resulting or constructive trust to a BFP for value?
value cuts of beneficiary's rights to the transferred asset
BUT
trustee holds any consideration received on the transfer in trust for beneficiary
AND
if the sale is not to BFP, the beneficiary has choice of law remedies:
impose trust on consideration received by trustee
OR
impose trust on original asset in NON-BFP's hands
133
a loan $10K to B. Just after obligation becomes due, A says to B to purchase Blackacre for A but she was to have title issued in A's name B fraudulently had title to property issued in her own name and hold it for me.
B orally agrees. B acquires Blackacre taking title in her own name. Later, while A is overseas, B trades Blackacre to C for whiteacre.
when A returns from overseas, blackacre is worth $25K and whiteacre is worth $12K. B is insolvent.
Can A impose a trust on whiteacre?
Can A impose a trust on blackacre?
Yes!
maybe not because of the BFP rule if C is a BFP then no
difference is this would create a constructive trust!!
134
what is a constructive trust
implied in a variety of circumstances where a person acquired title to property wrongfully.
trust implied to remedy unjust enrichment
EXAMPLES:
title to property acquired by fraud, misrepresentation, duress, or mistake
oral trust of land under limited circumstances
secret trust case
135
what is this an example of:
trust of 10 million dollars to build hospital wing. The wing is built for 8 million dollars. trust installment as to this contingency.
excess 2 million dollars may be returned to settlor by_________________
resulting trust
136
power of appointment:
tom died in 2001, leaving a will that bequeathed in property in trust " to pay the income to my daughter Dana for life, and on her death to distribute the trust principal to such persons, including dana's estate, as she appoints by her last will. if dana does not exercise this power of appointment, on Dana's death the trustee shall distribute the trust principal to Dana's descendants
in this scenario:
who is the donor
who is the donee
what are dana's descendants?
tom is the donor of the power of appointment; his will created the power
dana is the donee of a general testamentary power of appointment
takers in default
137
what is general testamentary power?
general= not limited in the class of beneficiaries to whom they can appoint
can appoint to themselves their estate or the creditors of either
__________________
testamentary= limited to appointments by will.
cannot exercise or contract to exercise during life
138
dana dies in 2010 leaving a will that bequeaths her residuary estate "one-half to my husband and one-half to my son"
did the residuary clause in dana's will operate to exercise her testamentary power of appointment, even though her will made no reference to the power?
no must in some way mention the power of appointment
139
trust to pay the income "to my daughter beulah for life, and on beulah's death to distribute the trust principal to such of beulah's descendants as she shall appoint by will that specifically refers to this power of appointment. in default of appointment, to beulah's children in equal shares.
what does beulah have?
a life estate and a special testamentary power of appointment.
she is restricted to appointing her descendents
140
beulah dies several years later, leaving a will that bequeath's "all my property, including any property over which i have a power of appointment, half to my son Stan and half in continuing trust to pay the income to my daughter diane for life, principal at her death to charity"
did beulah's will exercise her special testamentary power?
generically refer to any power she has
141
trust to pay the income "to my daughter beulah for life, and on beulah's death to distribute the trust principal to such of beulah's descendants as she shall appoint by will that specifically refers to this power of appointment. in default of appointment, to beulah's children in equal shares.
beulah dies several years later, leaving a will that bequeath's "all my property, including any property over which i have a power of appointment, half to my son Stan and half in continuing trust to pay the income to my daughter diane for life, principal at her death to charity"
assume beulah did attempt to exercise her power by making a specific reference to the power in her will.
is the appointment of the income interest to Diane valid?
how about the principal interest in charity?
yes because she is a decedent and she can create any kind of interest
_____________
bad bc restricted to leave her decedents = fraud on the power will pass to children.
