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Bar Exam > Trusts - Sheet1 > Flashcards

Trusts - Sheet1 Flashcards

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1
Q

trusts

6 Concepts of Private Express Trust

A

(1) Trust Property
(2) Beneficiaries
(3) Trustee
(4) Intent
(5) Creation
(6) Purpose

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2
Q

trusts

What property can be part of the trust corpus?

A

Any presently existing interest in property that is transferable.

NOT:
Future profits
Debt
Expectancy

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3
Q

trusts

Who can be a B of a private express trust?

A

(1) Any ascertainable person or limited group of people.
(2) Any corporation
(3) Modernly any unincorporated association

NOTE:
Unlimited groups or unascertainable beneficiaries may be the B of a charitable trust.

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4
Q

trusts

Will a trust fail if there is no trustee?

A

NO, the court will appoint one

NOTE:
An honorary trust will fail if the trustee refuses to be the trustee

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5
Q

trusts

Present Manifestation of Trust Intent

A

(1) There are no magic words
(2) Precatory words (wish, hope, or desire) alone will not suffice
(3) Precatory words + parol evidence may suffice

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6
Q

trusts

Private Express Trust: Elements

A

(1) Trust Corpus
(2) Ascertainable Beneficiaries
(3) Trustee (ct may appoint)
(4) Present Manifestation of Intent
(5) Legal Purpose

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7
Q

trusts

Does a trust have to be in writing?

A

ONLY if the trust contains real property.

The SOF does not apply to trust of personal property.

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8
Q

trusts

When can a trust take effect?

A

(1) At settlor’s death
- Via will
- Must comply with will formalities
- If will formalities are not met, trust fails

(2) During settlor’s life
- Either: (i) Transfer or (ii) Declaration, in trust
- Declaration: S is also trustee (living trust)
- Transfer: delivery of assets to trustee required

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9
Q

trusts

Is there ever an issue of delivery for a Declaration in Trust?

A

NO, delivery is NOT required because Settlor is also Trustee.

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10
Q

trusts

Issues that arise regarding ‘Illegal Purpose’ for a private express trust?

A

(1) Fixable illegality at creation
- Court will excise illicit condition

(2) Unfixable Illegality at creation
- Invalidate trust at its inception
- Settlor remains the owner

(3) Illegality after creation
- Resulting trust
- Trustee must return property to S’s estate

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11
Q

trusts

4 Concepts of Charitable Trusts

A

(1) Creation
(2) Beneficiaries
(3) RAP
(4) Cy Pres

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12
Q

trusts

What is a Charitable Trust?

A

Any trusts that confers a SUBSTANTIAL BENEFIT upon society:

REPS

(1) Religion
(2) Education
(3) Poor
(4) Sick

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13
Q

trusts

Beneficiaries of a Charitable Trust

A

Society

  • There may be NO ascertainable
  • Incidental benefit allowed
  • Split jdx whether a small group of B allowed
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14
Q

trusts

Does RAP apply to trusts?

A

Charitable: NO

Private: YES

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15
Q

trusts

What is Cy Pres

A

(1) Court power
(2) Petitioned by Trustee
(3) Used to modify CHARITABLE trust (only)
(4) IF settlor had GENERAL charitable purpose
(5) Try to get ‘as near as possible’ to that purpose

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16
Q

trusts

Why is it important to classify between general and specific charitable purpose?

A

Cy Pres can ONLY be used to modify a trust that has a GENERAL charitable purpose.

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17
Q

trusts

Honorary Trust

A

(1) No ascertainable B
(2) No charitable purpose
(3) CT will not appoint a trustee
(4) If named trustee refuses to act as trustee, trust fails
(5) Almost always a RAP issue

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18
Q

trusts

Totten Trust

A

(1) Bank Account: ‘M a trustee for J’
(2) No true trustee or beneficiaries
(3) No fiduciary duties

NOTE:
Watch for words that create present manifestation of trust intent, if these are present, this may be a private express trust.

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19
Q

trusts

3 Concerns of Restraints on Alienation

A

(1) Spend Thrift Trust
(2) Support Trust
(3) Discretionary Trust

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20
Q

trusts

Alienation: General Rule

A

(1) B can freely sell or transfer any property interest
(2) Creditors can freely attach to any property interest of B

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21
Q

trusts

Effects on Alienation: Spendthrift Trust

A

(1) Voluntary
- B cannot sell
- Court may allow assignment of payments

(2) Creditors
- Creditors cannot attach
- Exception:
(i) Preferred creditors (gov, necessaries, child/spousal support, tort judgment)
(ii) Any creditor to surplus over ‘station of live’

(3) Settlor as Beneficiary
- NO, Violates PP
- Few jdx allow

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22
Q

trusts

Effects on Alienation: Support Trust

Study These Flashcards
A

(1) Voluntary
- B cannot sell EVER

(2) Creditors
- Creditors cannot attach
- Exception:
(i) Preferred creditors (gov, necessaries, child/spousal support, tort judgment)

(3) Settlor as Beneficiary
- NO, Violates PP
- Few jdx allow

23
Q

trusts

Effects on Alienation: Discretionary Trust

Study These Flashcards
A

(1) Voluntary
- Not really, what can B assign?
- However, if trustee has notice of assignment then yes

(2) Creditors
- Not really, what are they attaching to?
- However, if the trustee has notice of debt then yes.

(3) Settlor as Beneficiary
- NO, Violates PP
- Few jdx allow

24
Q

trusts

What is the difference between:

(1) Spendthrift Trust
(2) Support Trust
(3) Discretionary Trust

Study These Flashcards
A

(1) Spendthrift Trust
- The beneficiary cannot transfer his right to future payments of income or principal, and creditors cannot attach to the beneficiary’s right to future payments of income or principal.

(2) Support Trust
- Trustee is required to use only so much of the income or principal as is necessary for the beneficiary’s health, support, maintenance, or education.

(3) Discretionary Trust
- Trustee is given sole and absolute discretion in determining how much to pay B, if anything, and when to pay B, if ever.

25
# trusts Resulting Trust
- Failed Trust - Trustee’s duties are to return property to the settlor’s estate - Estate will dispose of the property accordingly (i.e., residue or intestate succession)
26
# trusts 7 Ways a Resulting Trust Arises
(1) Express trust naturally ends (2) Private express trust has no beneficiary (3) Charitable trust ends due to impossibility of impracticability (4) Private express trust becomes illegal (5) Private express trust has excess funds to accomplish its purpose (6) ‘Purchase Money Resulting Trust’ - A pays B to transfer to title to C, and A and C are NOT related - Presumption that C is holding title for A - If Related, presumption that it is a gift to C (7) Semi-Secret Trust - NOT a secret trust
27
# trusts Secret v. Semi-Secret Trust
(1) Secret - A WILL that makes an outright gift - BUT, oral promise to hold as trustee for B - NO beneficiaries are named or Trust Intent - PAROL Evidence establishes Trust Intent and B - REMEDY: Constructive trust; disgorge ill-gotten gain (property given to B) (2) Semi-Secret - A WILL that makes a gift to a person to hold as trustee (trust intent) - BUT NO beneficiaries are named - REMEDY: Resulting trust (property back to S’s estate)
28
# trusts Constructive Trust v. Resulting Trust
(1) Constructive Trust - Trust implied in LAW - Remedy to prevent fraud or UJE - Constructive trustee must transfer property to intended B (determined by the court) (2) Resulting Trust - Trust implied in FACT - Remedy to effectuate the intent of the parties - Resulting trustee must transfer property to S’s estate
29
# trusts Constructive Trust
- Trust implied in LAW - Remedy to prevent Fraud or Unjust Enrichment - Disgorgement of ill-gotten gains - Constructive trustee must transfer property to intended B - Intended B are determined by the court
30
# trusts 4 Ways a Constructive Trust Arises
(1) Profits of Trustee’s Self Dealing (2) Fraud in the Inducement (Wills) (3) Secret Trust (4) Oral Real Estate Trust
31
# trusts 3 Concepts of Trustees
(1) Trustee Powers (2) Trustee Duties to B (3) Trustee Duties to 3rd
32
# trusts Trustee Powers
ALL: (1) Express (enumerated in the trust) AND (2) Implied (necessary to carry out trust purpose) - Sell - Incur Expenses - Lease - Borrow (modernly)
33
# trusts Trustee Duties to B ‘I C DEALS’
’I C DEALS’ (1) Invest (2) Care (3) Don’t Delegate (4) Earmark (5) Account (6) Loyalty (7) Segregate
34
# trusts Duty of Loyalty
(1) No Self-Dealing (2) Remedy for Losses: - Surcharge (3) Remedy for Gains: - Constructive Trust
35
# trusts Duty to Invest
Three Alternative Rules (1) State Approved Investment Lists - Scrutinize EACH investment - Never new businesses/IPO - Never 2nd deeds of trust in real estate (2) CL Prudent Person Test - Scrutinize EACH investment - Never new businesses/IPO (3) Uniform Prudent Investor Act - Scrutinize ENTIRE PORTFOLIO as a whole \*Trustee MUST ALWAYS DIVERSIFY REMEDY: Surcharge for losses
36
# trusts Duty to Earmark
Trustee must LABEL trust property as trust property CL REMEDY: - Surcharge - w/ or w/o casual connection Modern REMEDY: - Surcharge - ONLY IF casual connection - e.g., trustee’s creditors attached to trust asset bc trustee failed to properly label it as trust property and not his
37
# trusts Duty to Segregate
No Commingling - Personal and Trust assets - Trust A and Trust B assets REMEDY - Surcharge for Loss - Removal as trustee
38
# trusts Duty Not to Delegate
Trustee may bot delegate decision making duties Exception: (1) Professional opinion (2) Modernly only- Money Manager Allowed
39
# trusts Duty to Account
Statements of Income and Expenses to B Remedy: Action for Accounting
40
# trusts Duty of Care
Must Act as a Reasonably Prudent Person Dealing with Personal Affairs NOTE: ALWAYS discuss this duty
41
# trusts Remedies for Breach of Trustee Duty/Duties
(1) Damages (surcharge) (2) Constructive Trust (3) Equitable Lien (w/ tracing) (4) Ratify (if good for B) (5) Removal of Trustee
42
# trusts CONTRACT Liability of Trustee to 3rd Parties
Trustee enters into K with 3rd party for benefit of trust CL: - Sued in personal capacity - BUT may seek indemnification - However, sued in representative capacity IF K so stipulates Modern: - 3rd party’s knowledge controls - If 3rd knows that trustee is entering into K in his representative capacity then ONLY trust assets are at stake
43
# trusts Trustee’s Personal Capacity v. Representative Capacity
Trustee can be sued EITHER in his: (1) personal capacity - personal assets at stake OR (2) Representative capacity - trust assets at stake
44
# trusts TORT Liability of Trustee to 3rd Parties
CL: - Sued in personal capacity - BUT may seek indemnification if trustee is w/o personal fault (e.g., an agent committed the tort, or strict liability) Modern: -Sued in personal capacity ONLY if trustee is w/o personal fault (e.g., an agent committed the tort, or strict liability)
45
# trusts 4 Concepts of Trust Modification and Termination
(1) Modification by Settlor (2) Modification by the court (3) Termination of revocable trust (4) Termination of irrevocable trust
46
# trusts Modification by Settlor
S ONLY has the power to modify a trust if he: (1) Expressly reserved the power to modify OR (2) Has the power to revoke - power to modify is implied - E.g., revocable trust
47
# trusts Modification by the Court
(1) Cy Pres - Charitable Trust ONLY - General Charitable Intent ONLY (2) Deviation Power: Doctrine of Changed Circumstances - Charitable or Private Trust - Court is ONLY modifying management provisions (e.g., T may invest in stock) - 2 Elements: (i) Unforeseen circumstances on S’s part (ii) Necessity
48
# trusts What is the Doctrine of Changed Circumstances?
It allows a court to modify the management provisions of a trust to allow a trustee more leniency IF: (i) Unforeseen circumstances on S’s part; AND (ii) Necessity Ex: T must not invest in stock; T created this provision after the stock market crash (unforeseen that market would rebound); trust will not create enough income without investing in stock (necessity).
49
# trusts When can S terminate a Revocable Trust?
(1) Majority: - S must expressly reserve the power in the trust instrument (2) Minority: - S has the power unless the trust instrument expressly states otherwise
50
# trusts 3 ways an irrevocable trust can be prematurely terminated
(1) S and ALL Bs agree (2) ALL Bs agree and NO material purpose exist (3) By operation of law - Statue of uses: trust real property is idle NOTE: Guardian Ad Litem must be appointed to to represent B’s who are incapable of representing themselves.
51
# trusts 3 Concepts of Uniform Principal and Income Act
(1) Income and Expenses allocated to life tenant (2) Income and Expenses allocated to the remainderman (3) Adjustment power of trustee
52
# trusts Income and Expenses allocated to Life Tenant
INCOME: (1) Cash Dividends (2) Interest Income (3) Net Business Income EXPENSES: (1) Interest on loan indebtedness (2) Taxes (3) Minor repairs (painting) NOTE: These are default rules
53
# trusts Income and Expenses allocated to the Remainderman
INCOME: (1) Stock Dividends (2) Stock Splits (3) Net Proceeds on Sale of Trust Assets EXPENSES: (1) Principal of loan indebtedness (2) Major Repairs/Improvements (new wing on building) NOTE: These are default rules
54
# trusts Adjustment Power of Trustee
Trustee may allocate INCOME in whatever manner necessary to administer the trust fairly.

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