Trusts & Estates (Future Interests) Flashcards
MED
*TRUST CREATION AND TITLE DIVISION
A trust is a fiduciary relationship between the trustee(s) and the trust beneficiaries. When a trust is created, title to property is divided between legal and equitable title:
- The trustee holds legal title to the property and becomes the owner of record for the property.
- The beneficiary holds equitable title to the property and is entitled to the financial benefits of the property.
MED
*THE SETTLOR
The settlor is the person who creates the trust (usually the person who places the original assets into the trust).
MED
*THE TRUSTEE
The trustee is the person who holds the assets of the trust for the benefit of the beneficiaries. The trustee manages the trust and its assets under the terms of the trust.
MED
*THE BENEFICIARY
The beneficiary is the person who is entitled to the assets or profits of the trust.
HIGH
**EXPRESS TRUST ELEMENTS (5)
A valid express trust is created if the following five elements are met:
- The settlor has intent to create the trust;
- There is trust property (i.e., the res);
- An ascertainable beneficiary exists;
- The trust has a trustee; AND
- All parties comply with the requisite formalities.
MED
*REVOCABLE vs. IRREVOCABLE TRUSTS
Under the common law (majority view), a trust is irrevocable UNLESS the settlor expressly retains the right to revoke or amend the trust.
Under the Uniform Trust Code (minority view), a trust is revocable UNLESS the trust expressly provides otherwise.
MED
*TESTAMENTARY TRUSTS
A testamentary trust is created through provisions of the settlor’s will and does not come into existence until the settlor dies (must meet the same formalities as the will).
LOW
DISCRETIONARY TRUSTS
A discretionary trust grants the trustee absolute power and discretion to make good faith determinations regarding when and how much of the trust property should be distributed to the beneficiaries of the trust. Courts may interfere if the trustee is making such determinations in bad faith.
LOW
SUPPORT TRUSTS
A support trust is a trust that contains a provision directing the trustee to pay to the beneficiary as much of the income or principal as is necessary for the beneficiary’s education and support.
Support trusts can be pure or discretionary.
Pure support trusts limit the trustee’s discretion. The trustee is obligated to spend only so much of the available trust property as is necessary for the education and maintenance of the beneficiary.
LOW
RIGHTS OF CREDITORS IN TRUST PROPERTY
The creditors of the beneficiary of a trust have NO greater rights in the trust property than the rights of the beneficiary.
However, absent a spendthrift provision, the beneficiary’s creditors are able to reach the beneficiary’s interest by attachment of the interest income to the beneficiary. Whether or not the trust contains a spendthrift provision, creditors can reach the beneficiary’s interest once it is distributed to the beneficiary.
HIGH
**DEVIATION FROM THE TRUST (3)
Trustees and beneficiaries can request that the court permit a deviation from administrative provisions in the trust instrument. Generally, a court will permit a deviation if the purposes of the trust:
- Have been satisfied;
- Have become unlawful; OR
- Are impossible to carry out.
HIGH
**CY PRES DOCTRINE
If it becomes unlawful, impossible, or impracticable to carry out the purpose of a charitable trust, the Cy Pres doctrine allows the court to modify the terms of the charitable trust “as near as possible” to the original intention of the settlor in order to prevent the trust from failing.
LOW
TERMINATION OF TRUSTS
Generally, a trust may be terminated if:
- The trust is revoked or expires pursuant to its terms;
- The material purpose of the trust has been satisfied or becomes unlawful, contrary to public policy, or impossible to carry out;
- The settlor and all of the beneficiaries unanimously agree to terminate;
- All of the beneficiaries agree and no material purposes for the trust remain;
- Termination will further the purpose of the trust due to circumstances that were not foreseen by the settlor; OR
- The court or trustee determines that the value of the trust property is too low to justify the cost of administration.
LOW
FIDUCIARY REQUIREMENTS OF THE TRUSTEE
A trustee is a fiduciary holding legal title to the trust property. As a fiduciary, the trustee MUST:
- Manage the trust property exclusively for the benefit of ALL the trust’s beneficiaries; AND
- Administer the trust in good faith pursuant to the terms and purposes of the trust.
HIGH
**THE TRUSTEE’S DUTY OF CARE
The trustee possesses a duty to exercise the degree of care and skill as a person of ordinary prudence would exercise in dealing with his own property. In making this determination, the focus is on the trustee’s conduct, not the results of such conduct.
The Uniform Prudent Investor Act requires the trustee to exercise the degree of care and skill as an investor of ordinary prudence would exercise in investing his own property.
