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154 Cards in this Set

  • Front
  • Back
EXPRESS PRIVATE TRUSTS:

Characteristics of an express trust
a trust is a fiduciary relationship with respect to specific property (res) wherein the trustee holds legal title to the property subject to enforceable equitable rights of the beneficiary.

the creator of the trust is the settlor, who must have had the intent to create the trust. a trust must have a valid trust purpose. No consideration is required
EXPRESS PRIVATE TRUSTS:

Intent to create a trust
intent is essiential. can be written, spoken, or conduct by the settelor (unelss statute of wills or fraud applies).

an oral trust of personal property is vaild.

communication of intent to the beneficiaries is not necessary; delivery of the deed to the trustee is sufficient unless the settlor is also the trustee, in which case he must segregate trust assets or otherwise show trust intent
EXPRESS PRIVATE TRUSTS:

must be manifested while settlor owns property and prior to conveyance
an intention to create a present trust must have been externally mainfested by the settlor at the time he owned property and prior to its coveyance to another.

however, the conduct of the parties subsequent to the conveyance may be evidence of an earlier intent
EXPRESS PRIVATE TRUSTS:


intention to take effect immediately
the settlors intent must be that the trust take effect immediately and not at some future time - although a future interest can be trust property
EXPRESS PRIVATE TRUSTS:

precatory expression
a settlors expression of a hope, wish, or mere suggestion that the property be used in a certain way is called precatory language. the usual inference is that precatory expressions do not create a trust

this inference can be overcome by:
1. definite and precise directions
2. directions addressed to a fiduciary
3. a resulting unnatrual dispoition of property if no trust imposed; or
4. extrinsic evidence showing that the settlor previously supported the intended beneficiary
EXPRESS PRIVATE TRUSTS:


turstee
once established a trust will not fail becasue the trustee dies, refused to accept appointment or resigns
the court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee served. the absence of a trustee may cause an attempted inter vivos trust to fail for lack of delivery
EXPRESS PRIVATE TRUSTS:

trustee must have duties
a passive trust (where trustee has no duties) is void and the beneficiaries take legal title.

in many jurisdictions, the duty to convey title to the beneficiaries is enough to make the trust active
EXPRESS PRIVATE TRUSTS:

qualifications of trustee
anyone who has capacity to acquire and hold propety for his own benefit and ahs capacity to administer the trust may be a trustee (minors and insane person can not be administer)

some statues limit the right of some persons or corporations to serve as trustee (ie foriegn corporations)
EXPRESS PRIVATE TRUSTS:

removal of trustee
a court can remove a trustee or refuse to confirm an appointment.

grounds include:

1. serious breach of trust, old age, habitual drunkenness conflict of interest

basic factor is whether continuation in office whould be detrimental to he trust.

if the settlor knew of the grounds for removal at the time she created the trust, the court may choose not to remove the trustee
EXPRESS PRIVATE TRUSTS:

benefices must have grounds to remove
absent grounds benefeiciaries cannot remove the trustee unless the power is specifically granted to them by the trust instrument
EXPRESS PRIVATE TRUSTS:

disclaimer or resignation by trustee
before acceptance a trustee can disclaim or refuse appointment for any reason. however, a trustee cannot accept a trust in part and disclaim it in part
EXPRESS PRIVATE TRUSTS:

relation back of acceptance
a testamentary trust is treated as in existence as of the settlors deah and the trustees acceptance relates back ot that date. it is thus possible for a trustee by accepting to become liable (in his fiduciary capacity) on tort claims arising prior to the tiem he accepted
EXPRESS PRIVATE TRUSTS:

resignation
once an appointment has been accpeted the trustee cannot resign without court permission, unless all beneficiaries consent or the trust proides otherwise
EXPRESS PRIVATE TRUSTS:

merger of title
if the sole trustee and sole beneficiary are the same individual and hold precisely the same interests, titles merge and the trust terminates
EXPRESS PRIVATE TRUSTS:

no res
where there is no trust property, the trust fails because the trustee has no property to manage
EXPRESS PRIVATE TRUSTS:

trust property must be existing interest in existing property
a future interest may be held in trust, but an interst not yet in legal existence cannot be held in trust. future profits from an existing contract can be a trust res
EXPRESS PRIVATE TRUSTS:

property that settlor has power to convey can be subject of trust
the trust res must me exisitng property that the settlor has the poer to convey, including intangibles in wich the settlor has an assignable interest
EXPRESS PRIVATE TRUSTS:

trust res must be segregated from other property
the res must be identifiable and segregated, but the res may be a fractional undivided interest in sepcific property
EXPRESS PRIVATE TRUSTS:

debtor cannot hold own debt in trust
a debtor cannot haold his own devt in trust, but the debtor can delcare himself trustee of particular property from which the debt is to be apid and the debt can be held in trust by another person
EXPRESS PRIVATE TRUSTS:

unenforceable gratuitous promise cannot be trust res
an unenforceable gratuitous promise cannot be the subject of a trust
EXPRESS PRIVATE TRUSTS:

beneficiaries
a trust cannot exist without someone to enforce it. thus a beneficiary is necessary to the validity of every trust except charitable and honorary trust
EXPRESS PRIVATE TRUSTS:

Capacity of beneficiaries
any person natural or artifical capable fo taking and holding title to property can be a beneficiary of a private trust
EXPRESS PRIVATE TRUSTS:

incidental and indirect beneficiaries
not everyone who benefits from a trust is considered to be a beneficiary the trust must operate directly to benefit the person
EXPRESS PRIVATE TRUSTS:

notice to an acceptance by beneficiary
notice to a beneficiary is not essential to the validity of a trust. lack of such ntoice may indicate, however, that no trust was intended.

acceptance by the benefificary is required, but can take place after a valid trust is created.

acceptance may be express or implied and is gerally presumed. however, the trust will not be forced on a beneficiary, and he may within a reasonable time renounce his rights thereunder
EXPRESS PRIVATE TRUSTS:

definiteness of beneficiaries
there must be definite beneficiaries in order to have a private trust (not required in charitable trusts)
EXPRESS PRIVATE TRUSTS:

unacertained beneficiaries
beneficiaries may be definite even though not yet ascertained (unborn). beneficiaries must be assertainable by the time their interst are to come into enjoyment. acts of independent legal significance and incorporation by reference may be relied upon to asertain beneficiaries
EXPRESS PRIVATE TRUSTS:

class gifts
if a private trust exists for the benefit of a class, the class must be reasonably definites. as long as the class is reasonable definite, the trust may authorize the trustee to exercise his discretion in selecting members to be benefited, or may provide that only those who meet certain requirements will benefit. broad power to choose beneficiaries however may constitute a figt or a powe of a[[ointment rather than a trust
EXPRESS PRIVATE TRUSTS:

resulting trust remedy
if a trust fails for lack of a beneficiary a resulting trust in favor of the settlor or his sucessors is presumed
EXPRESS PRIVATE TRUSTS:

trust pruposes
a trust prupose is invalid if
1. it is illegal
2. is performance requires a criminal or tortious act; or
3 it is otherwise against public policy

if a condition attached to an interst is against public policy
a. the settlors alternative desire controls if expressed
b. if the illegal condition is a condition subsequent the condition is invalidated but the trust is valid
c. if the illegal condition is a condition precedent the preferred view is to hold the interst vaild unless there is evidence that the settlors wish would be to void teh beneficiarys interest altogether if the condition is unenforceable
EXPRESS PRIVATE TRUSTS:

elements
1. intent
2. trustee
3. trust property
4. definite beneficiaries
5. valid trust purpose
CREATION OF EXPRESS TRUSTS:

ways to create
1. inter vivos transfer
2. inter vivos declaration of trust
3. will (testamentary trust)
CREATION OF EXPRESS TRUSTS:

inter vivos trust: present declaration or transfer of trust
a trut can be created either by a person declaring himself trustee for antoher or by the trnasfer of property to another as trustee.

the present itent required must be manifested by conduct (delviery) or words (declaring oneself trustee). delivery means placing the trust property out of the settlors control (unless settlor serves as trustee)
CREATION OF EXPRESS TRUSTS:

inter vivos trust: must manifest intent when trust res exist
if a present trust is not established becaue there is no trust res, the trust arises when the settlor subsequently acquires the res and remanifest trust intent
CREATION OF EXPRESS TRUSTS:

inter vivos trust: requriments
writing requiredd for trust of land

writing not required of personal property

note that an otherwise invalid oral trust of land may be enforced by imposing a constructive trust

parol evidence rule - most states allow extrinsic evidence where an ambiguity appears on the face of the wirting
CREATION OF EXPRESS TRUSTS:

testamentary trust: formalities
trust intetn and the essential terms of the trust must be ascertained from the will itesel, form a writing incorporated by reference into the will, from facts having independent legal significance or form the exercise of a power of appointment created by the will
CREATION OF EXPRESS TRUSTS:

testamentary trust: secret trust (constructive trust imposed)
where a will makes a gift that is absolute on its face, but was infact made in reliance on the beneficiarys promise to hold the property in trust for antoher, the intended trust beneficiary may present extrinsic evidence of the promise.

if the promise can be proven by clea rand convincing evidence a constructive trust willl be imposed on the property in favor of the inteded trust beneficiary
CREATION OF EXPRESS TRUSTS:

testamentary trust: semi-secret trust
in a semi secret trust the will makes a figt in trust but fails to name the beneficiary. the gift fails and the named trustee holds the porperty on a resutly trust for the testaors heir

extrinsic evidence not allowed
CHARITABLE AND HONORARY TRUSTS:

Distinctive rules apply to charitable trusts
the rules governing charitable trusts differ from those applicable to private trusts in three important was: a charitable trust must have
1. indefinite beneficiaries
2. it may be perpetual
3. the cy pres doctirne apples
CHARITABLE AND HONORARY TRUSTS:

purpose
trust must have a charitable purpose, ie a purpose considered to benefit the prublic

the class to be benefited may be limited but may not be so narrow as to only benefit a few individuals whom the settlor wishes to aid personall
CHARITABLE AND HONORARY TRUSTS:

beneficiaries
must be indefinite
CHARITABLE AND HONORARY TRUSTS:

enforcing a charitable trust
in may states the settlor and potential beneficiaries have no standing to enforce the terms of a chritable trust. the duty of enforcement is placed upon the state attorney general. under the UTC however, the settlor and qualified benficiaris have standing to enforce the trust
CHARITABLE AND HONORARY TRUSTS:

rule against perpetuities
a charitable turst may be perpetual. also the RAP does not apply to the shifitng of the beneficial interst in a trust from one charity to another on the happening of a condition

rule does apply however to shifts between private and charitables use
CHARITABLE AND HONORARY TRUSTS:

cy pres
when a chritable prupose selected by the settlor is impractiable the court will select an alternative under the doctiren of cy pres, which means as near as possible. the court must find a gernal charitable intent on the part of the settlor and asertain her primiary prupose
CHARITABLE AND HONORARY TRUSTS:

honorary trust
trust commonly established for the benefit of pets or for the maintenance of burial places. becasue ther eis n human beneficiary to enforce an honory trust, the trustee is on honor to carry out its terms. coourts uphold honoary trusts as long as the named trustee is illing to perfor her duties; faiing this, a resutling trust is imposed.

absents special statutes may states will void on the basis of RAP if the duration may be more than a life in being plus 21 years

under UTC, honory trusts are enforceable up to 21 years by someone named in the trust instrument or appointed by the curt. The UTC also recognizes trusts for the care of an animal alive during the settlors lifetime, which terminate when the animal dies
CHARITABLE AND HONORARY TRUSTS:

honorary trust: constructional outs
to avoid the perpetuites problem some courts sue constructional outs to save the gift, such as by holding that
1. the trust is personal to the named trustee; and/or
2. because the fund will be exhausted within the perpetuites period, it cannot last beyond the period and does not violate the rule
TRANSFER OF THE BENEFICIARY'S INTEREST:

Voluntary alienation
absent restrictions by staute or by the trust instrument, a beneficiary may freeely transfer his interst in the trust. the assigned interst remains subject to all previous conditions and limitation
TRANSFER OF THE BENEFICIARY'S INTEREST:

involuntary alienation
absetn restrictions by statute an insolvent trust beneficiarys creditaors may levy on his beneficialinterst. the interst is subject to judicial sale. to avoid this, to curt may order the trustee to pay the beneficiary income to the creditors until the debt is saftisfed
TRANSFER OF THE BENEFICIARY'S INTEREST:

restraints on alienation - spendthrift trust
a spendthirft turst precludes the beneficiary from voluntairly or involuntarily transferring his interest in the trust, and his creditors are precluded from reaching it to satisfy their claims. the purpose is to protect the beneficiary from his own improvidence. although a spendthrift trust is a restraint on alienation most courts uphold spendthrift restrictions
TRANSFER OF THE BENEFICIARY'S INTEREST:

spendthrift trust: rights of creditors
a benefiicarys creditors cannot reach his interest until income has been paid to him
TRANSFER OF THE BENEFICIARY'S INTEREST:

spendthrift trust: restrain on involuntary alienation only
a restriction permitting the beneficiary to voluntarily alienate his interest but prupoting to deny credtiors the right to reach the interst is invaild
TRANSFER OF THE BENEFICIARY'S INTEREST:

spendthrift trust: attempted assignment in violation of spenthrift provison
a benefiicarys assignees cannto force the trustee to pay them (although the trustee can do so if the beneficiary has not repudiated the trustee authorization ot pay assignees)
TRANSFER OF THE BENEFICIARY'S INTEREST:

spendthrift trust: exception - settlor as beneficiary
a pendthrift provision in invalid if the settlor is the beneficiary
TRANSFER OF THE BENEFICIARY'S INTEREST:

spendthrift trust: exceptions for special classes of creditors
many states allow certain classes of creditors to reach a beneficiary assets not withstandng a s spendhthrift retraint
TRANSFER OF THE BENEFICIARY'S INTEREST:

discretionary trusts
where a trustee is given discretion whether to apply or withold payments to the beneficiary the beneficiarys creditors or assignees have the same rights as the beneficiary. the take only if the trustee exercise his discretion to pay, unless the beneficiarys interst is also protected by a spendthrift restriction (but wher the settlor is the discretionary beneficiary his creditors can compel payments) a court will intervene where a trustee abuses his discretion
TRANSFER OF THE BENEFICIARY'S INTEREST:

support trust
a support tursts directs the trustee to pay only so much of the income or principa as is necessary for the benefiicarys upport. the interst of the beneficiary cannot be assigned or reached by reditors. it is a question of the settlor intent as to whether the beneficiary other esources houdl be considered in determing the amount payable to him out of the trust fund
MODIFICATION AND TERMINATION OF TRUSTS:

Termination of trust by its own terms
a trust terminates automatically upon the expiration of the term specificed in the instrument or when all of the pruposes of the trust have been accomplished
MODIFICATION AND TERMINATION OF TRUSTS:

power of settlor to revoke or modify
the power to revoke generally also includes the owe to amend. in many states the settlor may not revokes or amend a trust unless he expressly reserved that right. under the UTC and by statue in serveral non UTC states, a trust is presumend revocable unless the trust instrument expressly provides that it is irrevocable
MODIFICATION AND TERMINATION OF TRUSTS:

modification on termination by agreement of beneficiaries
beneficaries may compel modification or termination only when all consent and the modification or termitation will not frustrate any material trust prupose such as protecting a beneficiary from lack of ablity to manage property
MODIFICATION AND TERMINATION OF TRUSTS:

lability of trustee
where all beneficiaries consent to termination the trustee is not liable if he accommodates them by distributing the trust assets
MODIFICATION AND TERMINATION OF TRUSTS:

premature termination
a court may prematurely terminate the trust where the trusts purpose has become impossible or illegal or has been completed
MODIFICATION AND TERMINATION OF TRUSTS:

doctrine of changed circumstances
a court may also upon a change of circumstances unanticipated by the settlor authorize a deviation from the administrative terms where necessary to achieve the trust prupose. such changes may not deprive the beneficiaries of their intersts in the income or corpus; however where the primary purpose of the trust was to support the icome beneficiary modern statutes have given the court power to invade the corpus. in addition, a curt can accelerate vested rights
TRUST ADMINISTRATION:

Power of the trustee: sources of trustee power
a trustee has those powers experessly conferred by the trust instrument state law and court decree plus all powers implied as are necessary of appropriate to accomplish the trust purose. the UTC confers even broader powers on the trustee. powers normally attach to the office and pass to sucessor trustees they are not personal
TRUST ADMINISTRATION:

Power of the trustee: joint powers
under the traditional view, joint trustees must exercise their power by unanimous agreement. today in nearly hald the statrs, any power vested in three or more trustees may be exerised by majority of them
TRUST ADMINISTRATION:

Power of the trustee: imperative and discretionary power
a power is imperative if the trust instruent requires its exercise. Disrectionary powers are ones that the trustee may or may not perform. both are subject ot judicial review for abus of discretion. a tsutee is not immune from review even if given controlled disrection and the court will intervene if the trustee fails to exercise any judment at all
TRUST ADMINISTRATION:

Power of the trustee: implied powers
implied powers include such things as are necessary to operate the trust. normally a trustee has no impled power to pbroww money or to mortgage or otherwise encumber trust property. however, such powers are expressly conferred by the UTC.

implied powers inlcud powe of slae, to invest, to meet expense to lease loand
TRUST ADMINISTRATION:

standard of care required by of trustee
the trustee mst exercise that degree of care, skill and caution that would be exercised by a reasoanbly prudetn person in managing her own proeprty. and if the trustee has greater or sepcial skill she will be held to a higher standard
TRUST ADMINISTRATION:

duty of loyalty
absent court approval or express waiver in the instrument a trustee cannot ener into any transaction in which she is dealing with the trust in her individual capacity.
1. trustee cannot buy or sell trust assets even if the price is a fair one
2. a trustee may not sell property of one trust to another trust ow wich she is also trstee
3. a trustee may not borrow trust funds nor loan her personal funds to the trust and any interst paid on such a loan mut be returned to the trust
4. a trustee cannot use trust assets to secure a personal oan
5. a trustee cannot personally gain therough her position as trustee
6. a coroprate trustee cannot invest in its own stock as a trust investment. but it can retain its own stock if such stock was part of the original trust res when the trust ws established, provided that retention of the stock meets the prudent investor standard
7. self employment can constitute a form of prohibited dealing. but can be compensted for extrodinary services
TRUST ADMINISTRATION:

duty of loyalty: indirect self dealing
the self dealing rules also apply to sales or loans to a trustees relatives and business accociates, and to corporations of which the trustee is a director , officer, or principal shareholder
TRUST ADMINISTRATION:

duty of loyalty: duty to account
the duty to keep and render accounts ensures that the trustee is meeting her obligation of loyalty
TRUST ADMINISTRATION:

duty of loyalty: extent of duty
the duty of loyalty extends equally to all beneficiaries, unless the trust instrument sepcifies otherwise
TRUST ADMINISTRATION:

duty of loyalty: beneficiary's rights in cases of prohibited transactions
if a prhibited transaction takes place, the beneficiary may
1. set aside the transaction
2. recover any profit made by the trustee; or
3. affirm the transaction
TRUST ADMINISTRATION:

duty to separate and earmark trust property
a trustee must keep trust assets physically separate from other asets. trust property must be title in the trustee as trustee for a pecific trust. if the trustee commingles trust assets with her own and some of the property is lost or destroyed, it is presument that the property lost was the trustees and the property still on hand belongs to the trust.

if portion of commingled assets increaes in value and a portion of the commingled assets decreases in value, it is presume that it was the trustees assets that decreased and the turst assets that increased
TRUST ADMINISTRATION:

duty to perform personally
a trustee may only delegate acts that would be unreasonable to require her to perfom personally she may nebver delegat the eintire adminstration of a trust
TRUST ADMINISTRATION:

duty to perform personally - investment and management decisions
traditionally, investment decisions could not be delegated but under the UPIA (uniform prudent investor act) a trustee may delegate investment and management functions that a prudent trustee or comparable skills courld propety delgate under the circumstances
TRUST ADMINISTRATION:

duty to perform personally - remedy
if a trustee improperly limits or surrenders her control she comes a guaranto of the fund and is responsible for actual losses, no matter what cuases of the loss
TRUST ADMINISTRATION:

duty to defend trust from attack
a trustee owes a duty to defend the trust from legal attack unless examination reveals that the challenge is well founded
TRUST ADMINISTRATION:

duty to preserve trust property and make it rpoductive
the power to invest is normally implied from the duty to make trust property productive. the trustee is expected to take actions to eg lease land, collect claims, and invest money. the measure of damages for breach of this duty is the amount of income that would normally accrue from proper investments
INVESTMENTS:

generally
a trustees investment respnsibilities are governed by either the UPIA or statuory legal lists. regardless of the approach used by a state, the trust erms can expand or limit the trustee powers - UPIA or legal list provisions apply only if there is no contrary provision in the trust insturment. if the trust instrument provides that investment may be made in the trustees discretion it is a question of interpretation whether the trustee power is ecpanded beyond the UPIA or legal list. althoguh the investment power may be broadened such lanugauge will be strictly construed
INVESTMENTS:

Prudent investor v. legal list
if a preudent investor jx. only prudetn investments are permissible regardless of the trust terms

in a legal list jx, however trust languague giving th trustee broad discretion is likely to free the trustee from the list and permit investment similar to that under the prudent investor rule
INVESTMENTS:

Uniform prudent investor act: standard of care
a trustee may exercise reasonable care, skil and caution when investing and managing trust assets. a trustee with special skills or expertise who has represented herself as having such knowledge, has a duty to sue such skill or expertise
INVESTMENTS:

Uniform prudent investor act: loyalty and impartiality
a trustee must act exclusively for the beneficiary when investing and managin trust assets. if there is more than one beneficiary she must act imparitally in investing and manging trust assets
INVESTMENTS:

Uniform prudent investor act: evaluation of investment stratgety
investment decisions must be evaluated in the context of the ientire trust portfolio and as part fo an overall investment stratgety that has risk and return objectives resoanble suited to the particular trust
INVESTMENTS:

Uniform prudent investor act: type of investment permitted
UPIA permits a trustee to invest in any kind of proeprty or any type of investment provided she acts prudently no particular type o finvestment is inherently imprudent
INVESTMENTS:

Uniform prudent investor act: factors considered in making investment decisions
1. general economic conditions
2. the possible effect of inflation or deflation
3. the expected tax consequences of investment decisions or stratgegies
4. the role that each investment plays wihin the overall trust portfolio
5. the expected total return form income and the appreciation of capital
6. other resorces of the beneficiaries
7. needs for liquidity regularity of income and preservation or appreciation of capital; and
8. an ssets special relationship value to purposes of the trust or ot one of more of the beneficiaries
INVESTMENTS:

Uniform prudent investor act: diversification of investments
a trustee must diversify the investments of the trust unless she reasonably determines that the purposes of the trust are better served without diversification
INVESTMENTS:

Uniform prudent investor act: revieing compliance with act
compliance with the UPIA is determined in lighto fo the facts and circumstance existing at the time of the trustee decsion or action. a turstee who acts in suctanial complance iwth the act will not be held liable
INVESTMENTS:

Uniform prudent investor act: delegation of investment and management functions permitted
a turstee may delgate investment and management functions but must act prudently in
1. selcting an agent
2. estalishing the scope and terms of the delegation and
3. periodically reviewin the agents actions
INVESTMENTS:

statutory legal lists: generally
statutory legal lists set fort investments trust assets. if the list is permissive the trustee can invest in securities outside the list. if the list is mandadotry the trusteeprobalby commits a breach of trust if he invests in properties outside the list.

under either type of statutory list, the trustee cannot blindly follow the list; he must exercise reasonable care skill and caution in investing while taking into account all relevant circumstances proper investments include government securities, first mortgages on land with adequate security, and high grade corporate bonds
INVESTMENTS:

statutory legal lists: unsecured loans and second mrotages
unsecured loans and second mortagages are generally improper investments
INVESTMENTS:

statutory legal lists: cororpate stocks
most statutory lists exluded common and perferred stocks
INVESTMENTS:

statutory legal lists: land
courts are divided on whether investment in land is proepr. unproductive land is not a proper investment
INVESTMENTS:

statutory legal lists: investment arrangments
mortage participations, common turst funds, and mutual funds are increasingly permitted by statute
INVESTMENTS:

statutory legal lists: testators business
a trustee cannot carry on the testaors business unless authorized by the trust
FIDUCIARY OBLIGATIONS:

Summary
as two questions:

1. was the act one that the trustee was authorized to perform by the instument, state law, or implication

2. if the act was proepr to perform did the trusteee do so with the appropriate care, skill, and caustion
LIABILITIES OF TRUSTEE:

Enforcement by beneficiaries: generally
beneficiaires may seek dmages or remoaval of the trustee for breach of duty. the settlor may sue if he is also a beneficiary, but outsiders cannot enforce the trust. the trustee is liable for losses resulting from breach, lost profits to the trust, and interst on her liability from the time of breach. prior to actual breach a court of equity will comple the trustee to perform her dutites and enjoin her from comitting breach
LIABILITIES OF TRUSTEE:

Enforcement by beneficiaries: denfenses
equity will not enforce the trust if the beneficiaries consented to or joined in the breach of trust.

the beneficiary must sue within a reasoanble time or he will be estopped by doctrien of laches.

mere failue to object at the time of breach does not consititute consent
LIABILITIES OF TRUSTEE:

Enforcement by beneficiaries: more than one breach
a trustee is not permitted ot offset loss from one breach by fain that resulted from another breach
LIABILITIES OF TRUSTEE:

Enforcement by beneficiaries: trustees liability for acts of agent
agent - if

1. directs, permits, or acquienseces in the act, conseals the act or fails to compel the agent to redress his wrong
2. impropertly selects or improperly delegates; or
3. fails to exersie reasonable supervision over the agent
LIABILITIES OF TRUSTEE:

Enforcement by beneficiaries: trustees liability for acts of co-trustees
a trustee will be liable for acts of a co-trustee if
1. approved acquiesced, or participated in the breach or negligently disregarded her own dutites
2. concealed the breach or fialed to take setps to compel redress; or
3. improeprly delegrated authrity to the co-trustee
LIABILITIES OF TRUSTEE:

Enforcement by beneficiaries: trustees liability for acts predecessor trustees
a trustee will be liable for a predecessor trustees breach if she
1. knew or should have known of the breach and failed to compel redress or
2. was negligent in determing what property should been delivered to her
LIABILITIES OF TRUSTEE:

Enforcement by beneficiaries: trustees liability for acts successor trustees
sucessor trustees can mainatin the smae action sas the orginal trustee
LIABILITIES OF TRUSTEE:

effect of exculpatory clause
clauses attempting to relive a trustree of laiblity for breach of trust generally are strictly construed, but are enforceable where:
1. no bad faith, intential breach, or recklessness is involved or
2. they were not inserted inthet rust as a restul of the trustee abuse of a confidential relationship with the settlor

clauses absovlign the trustee rom all laiblitity however are void
LIABILITIES OF TRUSTEE:

trustee liability to third parties: contract liability
unless the contract specifically rpovides othewise, a trustee is personally liable to thrid parties on contracts made in the course of trust administration.

a trustee is entitled to reimbursement (indemnification) from the trust, howeve, if the ocntract was wihin her powers and she acted with reasoanble prudence
LIABILITIES OF TRUSTEE:

trustee liability to third parties: tort liablity
trustee = personally liable for tors committed in the course of the trust administration, including those committed by the trustees agents

there is indeminfication only if the trustee was not personally at fault and the tort occurred as a normal incident to activity in which the trustee was proeprly engaged.

if the trustee is entitled to indemnification, creditors to whom she is liable can reach trust assets to satisfy claims
LIABILITY OF THIRD PARTIES TO THE TRUST:

Property improperly transferred to party who is not BFP
a beneficiary or sucessor trustee can set aside trancations that are breaches of trust if the proeprty is not in the hands of a BFP
LIABILITY OF THIRD PARTIES TO THE TRUST:

Transfers to BFP
a BFP cuts off the beneficiaries equitable interest

a third party is BFP if he actuires the proeprty for value without notice of the trust

an innconet donee is not liable for damages but must restore the property, its value of its subsitute to the trust
LIABILITY OF THIRD PARTIES TO THE TRUST:

participation in breach of trust
a knowing participant in a breach of trust is liable for the resulting loss to the trust estate
LIABILITY OF THIRD PARTIES TO THE TRUST:

direct suit by beneficiares
are not permitted against thrid parites who damage trust proeprty, the trustee alone can sue.
the beneficiaries remedy is to bring suit in equtity to compel the trustee to sue the tird party

exceptions: wher trustee
1. particiapted in breach
2. has left the jx and no sucessor trustee is appointed or
3. fails to sue a third person liable in tort or contract
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

Uniform principal and income act
this act which applies to all trust and estates unless the governing instuement provide sotherwise give sthe trustee or personal representative an adjustment power ot reallocated investment portfolot return. this djusment pwoer authorized the trustee to characterized itels such as capital gains, and stock dividend as income if the trustee deems it approrprate or necessary to carry out trust pruposes
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

Uniform principal and income act: adjustment power
if the trust calls for distrubiton of trust income to beneficiary, the trustee must follow tranditonal trust accounting ruels by distributing interst and dividend income to the beneficiary.

if however the trusstee determines that by distributing only the trusts income she is unable to comply with the requiremnt that all beneficiares bue treated fairly, the trustee may adjust between prinicpal and icnome to the extent necessary
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

Uniform principal and income act: factors to be considered
factors to consider in adjusment power
1. the nature, prupose and expected duration of the trust
2. the intent of the settlor
3. the identiy and circumstances of the beficiaries
4. the needs for liquidy regularity of incoem and preservation and apprecation of captial
5. the nature of the trust assets
6.whether and to what extent the trustgives or denies the trustee the power to invade princiapl or ccumulate income
7. the net ammount allocated to incomeunder the other sections of the act and the increase or decrease in the value of the principal assets
8. the actual and anticipated effect of econcomic conditions on principal and incoem and effects of inflation and deflation and
9. the anticipated tax consequences of an adjustment
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

Uniform principal and income act: adjustment not permitted if result would be adverse tax consequences
the trustee may not make an adjustment if the trustee is a beneficiary of the trust, as this would give the beneficiary a general power of appontment for estate tax purposes and thr trust assets would be taxed in the beneficiarys estate. also, an ajdustment cannot be made if the adjustment power would disquaify the trust for a federal estate tax marital or charitable deduction
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

allocation of receipts - receipt from equity
money received from an entity such as a corproation is characterized as income unless the money is characterized as a capital gain for federal income tax purpose or is recived in parital or total liquidation of the entiy. all property other than money recieved from an enity is chracterized as principal.
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

allocation of receipts - insurance policies and other contracts
proceeds from a life insurance policy or other contract in which the trust or trustee is named beneficiary are allocated to principal. if a contract insures the trustee against a type of loss the proceeds are allocated to income. dividends on an insurance plicy are allocated to the accunt from which the premiums are paid
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

allocation of receipts - deferred compensation
for periodic recepts from a deferred compensation paln the recepit is income ot the extent that the payment is characterized by the payor as ncome and the blance is prinicpal. if no part of the payment is characterized as income or as a divident, 10% of the payment is characterized as income and the balance is prinicpal = ten percent default rule
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

allocation of receipts - liquidating assets
a liquidating asset is an asset whose value will diminish over time becaue the asset is expected to produce recepts ofver a limited period. procees from such liquidating assets are allocated 10% to income and 90% to pricipal = ten percent rule
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

allocation of receipts - mineral interest
for most aoil gas mineral lease and water right payments recepts are allocated 10% to income and 90% to principal
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

allocation of receipts - unproductive property
under teh former law, if a particular trust asset produced little or no income, on the assets sale the income beneficiary was entitled to a portion of the sale proceeds under the principle of delayed income. becasue the UPIA loost to the total return from the overall proertfolio the unproducteve property rule was repaled except for certain trusts that are intended to qualify for the estate tax marital deduction
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

allocation of expenses: expenses charged to income
the following expenses are charged against income: one-hald of the regular compensation of the trustee and of any person providing investment advisory or custodial services to the trustee; one half of all expenses for accounting, judicial proceedings, and other mattes affecting both income and remainder intersts; the entire cost of ordinary expenses; and insurane premims covering the loss of a principal asset
ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS:

allocation of expenses: expenses charged to principal
the following expenses are charged against principal; the remaining one half of the compesation of the trustee and any person providing investment adviory or custodal servies to the trustee the remaing one half of all expenses of accountings judicial proceedings, and other matters affecting both income and remainder intersts; payments on the principal of a trust debt expenses of a proceeding that concerns primarily and interst in principal estate taxes; and disbursemtns related to enviromental matters
WILL SUBSTITUTES:

In general
if a person want to transfer property at the moment of death, he must comply with formal requirements for making a will. however, a settlor may make certian inter vivos (lifetime) transfers without the formalities of a will
WILL SUBSTITUTES:

revocable inter vivos trust: generally
the test for distirnguing a trust from a will is whether the transfe creates some present gift even if that gift is a ftuture interst subject to divestment
WILL SUBSTITUTES:

revocable inter vivos trust: determining whether an interest passes - settlor retain power over trust proeprty
a settlor may retain powers over trust property. the tendency is to uphold trusts even where the settlor has retained great rights and powers over the trust property. if the settlor life estate and the power to revoke the trust is generally upheld
WILL SUBSTITUTES:

revocable inter vivos trust: determining whether an interest passes - where settlor is trustee
even if the settlor is the trustee as well as the life tenatn with power to revoke, most courts uphold the trus where the settlor notified third parties or took soem action that made his intention to establish a trust clear
WILL SUBSTITUTES:

revocable inter vivos trust: advantages of revocable trust
a revocable trust may be used for convenient managemnt of assets, to plan for the possibility of incapacity to avoid probate costs an delays to permit secrecy as to beneficiaries and assets, and to allow the settlor to choose the applicable state law. in some sstates a revocable rust can defeat the spouses forced share. but many states deem a revoable trust to be illusory, so that a suriving spuse can reach the trusts assets and set aside the transfer to the extent of her forced share
WILL SUBSTITUTES:

revocable inter vivos trust: pour-over gift from will to revocable trust
under the Uniform testamentary additions to trust act, a settlro can make gifts by will to a trust - even an amendalbe and revocale trust established during his lifetime. the trust may remain unfunded during the settlors lifetime. the tust must be clearly identified from language in the will.
WILL SUBSTITUTES:

Life insurance trusts
depite the absence of a siginficant res prior to the settlors deah, inter vivios life isurnace trusts upheld
WILL SUBSTITUTES:

totten trust bank accounts
in a totten turst, a bank account depositor declares himsel ftrustee of the account for a person who is to receive the money in the account at the time of the depositors death.

the depositor retains full control of the money in the account during his lifetime. these accoutns are not really trust because they do not separate legal and equitable title nor do they meed the formal requments of wills.

a totten trust is revocalbe by
1. thw iwthdrawl of funds
2. any lifetime act manifesting the itnent to revoke and
3. unlike joint accounts a sepcific contradicotry provisions in a will.

it does not protect funds in the account from creditors claims and it terminates if the benefiicary predeceases the depositor
WILL SUBSTITUTES:

uniform transfers to minors act
the uniform transfers to minor act provides a convenientt procedure for making gifts to minor who have no legal capcity to manage or sell proeprty under which proerty may be transferredto a person as custodai for a minor , a custodianship is not a trust. the tcustodan does not hodl legal title to the custodial proeprty; legal title is in the minor, subject ot the custodians statuory power. the ustodian is a fiducary subject to the standard of care of a prudent person dealing iwth proerpty of another. a custodal gift made pursant ot the UTMA gualfies for the 13000 per donee annual federal figt tax eclusion
TRUST ARISING AS A MATTER OF LAW - RESULTING AND CONSTRUCTIVE TRUSTS:

in general
resulting an constuctive turst are implied by law or imposed by courts. resulting trusts ivovle reversionary intersts and are based on t he presumed intent of the settlor. construtive tusts are used to rpevent unjust enrichment . they are either wher ether is no vailed express delcration of trust or freqently when no trust was even intedent. statue of frauds is inapplicalbe
RESULTING TRUST

Types
There are 3 types
1. purchase money resulting trust
2. resulting turst arising on failure of an express trust and
3. resulting trust arising from an incomplete dispostion of trust assets
RESULTING TRUST:

Purchase money resulting trust: genrally
trust is presumed whenever X (the beneficiary) furnishes the consideration for the acquisiton of real ro personal property but with X consent title is taken in the name of Y (the trustee)
RESULTING TRUST:

Purchase money resulting trust: form of consideration immaterial
athe consideration paid by X must be for purchase of the property. sums paid by X to make improvements on the propety or to pay taxes on it do not give rise to a trust
RESULTING TRUST:

Purchase money resulting trust: item when consideration furnished
the consideration must be supplied at or beofre the time y takes title
RESULTING TRUST:

Purchase money resulting trust: burden of proof on one claiming as beneficiary
the burden is on X the party claiming ot be the beneficiary of a reulting turst ot prove by clear and convincing evidence that he supplied the consideration
RESULTING TRUST:

Purchase money resulting trust: rebuttable presumption of resulting trust
once x proves that he supplied the consideraiton a reuslting trust is presumed but Y can rebut by showing that no trust wa intended. recitals as to who paid consideraton are not conclive
RESULTING TRUST:

Purchase money resulting trust: exceptions - where parties are close relatives
wher there is a close personal relationship between aprties a git is presumed rather than a trust. this presumption is alos rebuttable. the normal pesumption of a trust applies where th person furnishing consideration is the uncle, aunt, brother, sister, child, or grandchild of the person receiving title
RESULTING TRUST:

Purchase money resulting trust: exceptions -unlawful purpose
if X and Y take title for an illegal prupose a trust cannot be implied, althoguh modern cases suggest that the implied turst is sitll proper where X miscondut is slight compared to the unjust enrichment y will enjou if permitted to keep the proeprty
RESULTING TRUST:

Purchase money resulting trust: exceptions - transferee obtained title wrongfully
no esutling trust arises when the truansferee obtained title wrongfully although a constructive trust may be imposed
RESULTING TRUST:

Purchase money resulting trust: exceptions - pro rata resulting tust
wher eX supplies only part of the consideration the resulting trust in his favor is only for pro rata portion of the property
RESULTING TRUST:

resulting trust on failure of express trust: circumstances giving rise to reuslting trust
a resulting trust arises where a settlor has onveyed property to a trustee under an express trust and
1. the trust is void or unenforceable or
2. the beneficiary is dead or cannot be located

a reuslting turst may also apply on failue of a charitalb etrus thwer cy pres is inapplicable

in such even the ecpress trust terminates and the settlor beocmes the beneficiary of the resulting trust
RESULTING TRUST:

resulting trust on failure of express trust: circustances hwer reuslting trust not implied
1. the trust imustrument sepcially or impliity provides for dispositon of trust proeprty when the tust has faild or been completed
2. the setltor wa given consieration of his original transfer in trust
3. the settlor created the rust of an illegal purpose
3 cy pres is applicabe
RESULTING TRUST:

resulting trust on failure of express trust: resulting trust implied form excess corpus
a reuslting trust in favor of the settlor also arises when the trust purpose is fully satisified and soem trust proeprty remains. there could be a reuslting tust of part of the corpus even before the trust is terminated if it if clear and there ie excess trust corpus
CONSTRUCTIVE TRUSTS

Generally
if constructive trust is not really a trust but rather is a fexible eqitable remedy to prevent unjust enrichment resulting form worngul conduct such as fraud, undue influence or breach of a fiduciay duty, the constructive trustees onl duty is to convey the property to the person who would have owned it but for the wrongful conduct. proof of the facts necessary to establish a constructive turst must be made by clear and convincing evidence
CONSTRUCTIVE TRUSTS:

constructive trust arising form theft or conversion
if Y seteals proeprty from X title remains in X there is n need to omply a trust. but if Y used the property to acquire other items, he takes title to the times and holds them in construtive trust for X
CONSTRUCTIVE TRUSTS:

COSNTRUSTIVE TRUST ARISING FROM FRAUD, DURESS
where Y acquires proeprty from X by fraud, duress, mistake of fact, or by reach of a fidcuicary duty owed to X, Y holds the property in construtive tust for X benefit.

if proeprty is conveyed to a third party who is not a BFP the tird pary can be declared a constructive trustee. if Y take property under a forged or fraudulent will, he holds it in constructibe trust for its reightful inheritor this is true even if y is innocent
CONSTRUCTIVE TRUSTS:

arising form breach of fiduciary duty
the fiducicayrs duty forbids him form taking title to proeprty belonging to a beneficiary and from seizing from himself an opportunity to acquire property that comes to him in his capicty as fidcuary. fi he vilated this duty courts may impose a constructive trust in favor of the person to whom he owes the duty
CONSTRUCTIVE TRUSTS:

cosntructive trust arising forom homicide
if y kill X and is convicted of murder or maslauter he hold any proeprty acquired from X by will or inteacy as constrive trustee in favor of whomever whould have take the proerty ahd Y predeceased X
CONSTRUCTIVE TRUSTS:

where vitim and killer held proeprty in joint tenancy
wher C and Y wehre join tentants the killer Y may be trustee of only a hone half interst and own the balance free of trust or he may hold the whole intest in constrivte trust trust less his life estate in one half
CONSTRUCTIVE TRUSTS:

arising from breach of promise - general rule - no cosntrutive trust
a mere breach of a promise will not raise a constructive thrust
CONSTRUCTIVE TRUSTS:

arising from breach of promise - exceptions to genral rule
a constructive trust will be imposed in the following cases:

1. fraudeulent promise
2. breach of promoise by one in a confidential realtionship
3. breach of promise by decdents devisee of heir to hold proeprty for the benefit of a thrid person
4. breach of promise by the decedent to devise proeprty ot one renerign sevices in reliance theron; or
5. breach of promise to the debtor by the buyer at the foreclousre sale to hold the proeprty for he debotr causign the debor to forgo bidding at the sale
CONSTRUCTIVE TRUSTS:

arising from breach of promise - standard of proof
the burden of proof is on the party seeking the ocnstructive trust to establish facts relied upon by clear and convincing evidence
TRUST ARISING AS A MATTER OF LAW - RESULTING AND CONSTRUCTIVE TRUSTS:

obligations of trustee of constructive or resulting tust
construtive and resulting trst are passive trust. once the court has declared such a trust to exist the trustee sole duty is to convey legal title to the beneficiary. the trustee must also account for profits take form the property or fiar rental value of his use of it form tiem of the occurrence raising the impleid turst.

there is no duty on the trustee to invest trust proerty
TRUST ARISING AS A MATTER OF LAW - RESULTING AND CONSTRUCTIVE TRUSTS:

application of equitable principales
actions to impress ocnstructive or reuslting trusts are in equity and most equitable prinicples are full applicabe

hover the rule tha tna adequate remetat law bars eqibale releif is not applicable except to the brach of an oral promise ot make a will or to hold porpety pruchased at a foreclosure sale for the benefit of the promise