E3 // Fl(Tr) F12

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TRUSTS - Creation/Formation:
Creation of an Express Inter Vivos Trust:

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Creation/Formation:
Creation of a Inter Vivos Trust (i.e., Express/Living Trust)


RULE - Requirements for creation of a Valid Private Trust:

SETTLOR must DELIVER the trust RES to a TRUSTEE with the INTENTION to create a trust for the benefit of the designated BENEFICIARIES.

The trust must have a LAWFUL PURPOSE.

Settlor must have LEGAL CAPACITY, be of legal age, of sound mind, with CAPACITY TO CONVEY TITLE to the Trustee.

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Trusts – Generally

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➢ An arrangement under which the trustee holds legal title to property for the benefit of the trust’s beneficiaries. Trustee has burdens and fiduciary duties, and the beneficiaries receive the benefits of property ownership.

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Private Trust:
(6) Requirements for a Valid Private Trust

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(6) Requirements for a Valid Private Trust:

(1) Intent
(2) Delivery
(2) Res
(4) Trustee
(5) Beneficiaries
(6) Valid Purpose

"I Don't Really Trust Black Valet-parkers"

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(1) Intent

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(1) INTENT→ A settlor who intends to create a trust
Settlor's Intent to Presently Create a Trust:

•PRESENT INTENT: The use of the word “trust” in the instrument is not critical, but there must be a CLEAR INTENT by the settlor to CREATE A TRUST and IMPOSE A DUYT ON TRUSTEE to manage it for the beneficiaries.

Examples:
- Sufficient: “$100,000 to A to be used for the education of X and Y”
- Insufficient: “It is my desire, wish, and/or hope that A uses this property to look after X and Y” (language of suggested use, imposes no duty on A)

•EXCEPTION: Language of suggested use can create a valid trust if the settlor’s wishes are specifically described and his intent was not to suggest a use, but to require one.

- Ex: “It is my wish and desire that A use the income for the support of X and Y until both have attained the age of 18, at which time A will distribute the principal of this gift to X and Y outright."

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(2) Delivery

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DELIVERY→ Delivers Legal Title:

• The delivery requirement does NOT have to be satisfied for:

(a) SELF-DECLARATIONS of TRUSTS made by S (i.e., “I hereby declare myself trustee.”); OR

(b) For TESTAMENTARY trusts (trusts created by will).

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(3) RES

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RES→ To the trust assets (subject matter of the trust)

• The subject matter of the trust to which the trustee’s duties relate must be CERTAIN, IDENTIFIABLE and SEGREGATED OUT.

Example: A owes B $10,000. In writing, A states “I hereby declare myself trustee of the debt that I owe to B.” ➢ This is not a valid trust because A has not segregated out a specific interest in property to be held by the trust (A and B remain in a creditor/debtor relationship)

- The subject matter of the trust can be an INTANGILBE property interest (e.g., stocks, copyrights, patents, debts owed, etc.)

- An EXPECTANCY INTEREST to inherit under a will or through inestacy is NOT recognized as a recognized property interest (b/c an expectancy only ripens into a prop. interest if the testator dies w/o changing his will and the will is valid/admitted to probate). ---If someone tries to create a trust with an EI, its considered a "gratuitous" promise (i.e., one not supported by consideration) to create a trust in the future - and b/c its a gratuitous promise, its unenforceable and no trust is created - unless the EI holder reaffirms his intent to create the trust by words or conduct after the EI has turned into a vested property right.

- FUTURE PROPERTY INTERESTS (e.g., contingent remainders, executory interests) are interests in property that CAN BE the subject matter of a trust, even if the interest could be defeated.

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Creation of a Trust: RES (Trust Property) Requirement

Empty Trusts

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Empty Trusts

➢ An empty trust (i.e., a trust not containing any assets) will be valid if the trust is named the direct beneficiary of a life insurance policy, a pension plan death benefit, or the settlor’s will.

•Example: F writes a trust instrument naming X as trustee and providing that during F’s life, the income 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 actually transfer any assets into the trust, but instead names the trust as beneficiary under several of his insurance polices. This is valid.

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(4) Trustee

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TRUSTEE→ The settlor must deliver the trust property to a Trustee....

• Although a Trustee is required to create a valid trust, an otherwise valid trust will not fail for lack of a trustee (e.g., no trustee is named; the named trustee dies or resigns), and the court will appoint one.

➢Exception: Powers Personal to the Named Trustee:
• If the court finds that the settlor intended for the trust powers to be personal to a named trustee, such that the settlor would want the trust to fail if the named trustee is no longer capable of serving, the court will terminate the trust (rarely invoked)

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Trustee Discretion:
Discretionary Support Trust

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Discretionary Support Trust = Where the trustee to a trust set up for the support of the beneficiary is given discretion to distribute the income as he sees fit

•Example: If a trust is set up for the purpose of supporting X, and the trustee has sole discretion to determine when and how much support is necessary, the beneficiary has no right to receive a set income and the trustee only has a duty to support X if he cannot support himself.
➢No duty to pay for luxuries or bills X can pay himself.

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Trustee Discretion:
Pure Discretionary Trust

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Pure Discretionary Trust = Where a trustee is given the sole discretion to accumulate or distribute income to the beneficiary (e.g., no standard of support)

•Beneficiary has a right to an honest trustee who exercises his duties with good faith and a proper motive, but he has no right whatsoever to any distribution.

•Sole T/B Conflict:
➢ A trustee can also be a beneficiary, but the sole beneficiary of a trust cannot be the sole trustee (if there is only one trustee and one beneficiary, they cannot be the same person)**
➢ Situations that are permissible:
(i) Two or more trustees, even though one of the trustees is the sole beneficiary
(ii) Two or more beneficiaries, even though the sole trustee is one of the beneficiaries

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(5) Beneficiaries

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BENEFICIARIES→ For the benefit of beneficiaries...

Beneficiaries must be human and ascertainable:

• Naming “my friends” as the beneficiaries is not an ascertainable standard (not objective), but naming “members of my high school football team” as the beneficiaries is sufficient because the members can be established by objective criteria.
[Note: Naming “members of my immediate family” is a close call, but most courts would uphold it and determine who would take under the intestacy statute.]

Giving Effect to a Trust That Fails for Lack of Ascertainable Beneficiaries as a Power of Appointment: [E.g., changing “$100,000 to my friend Larry, in trust for my friends” to read “$100,000 to my friend Larry, to appoint it to my friends."] - Majority Rule:
•A trust that fails for lack of ascertainable beneficiaries cannot be given effect as a power of appointment, and the property is returned to the settlor’s estate by resulting trust (implied reversion)
•This is true because a trustee is under an obligation to perform, and a holder of a power of appointment is not.
•Beneficiaries do not have to be living yet (e.g., “Tom’s future children”), as long as they are described sufficiently. [A guardian ad litem will be appointed to represent their interests. If the beneficiaries are never born, the property will be returned to the settlor’s estate through resulting trust (implied reversion)]

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(6) Valid Purpose

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VALID PURPOSE→ For a valid purpose (doesn’t conflict with public policy)

•If an otherwise valid trust contains a condition that violates public policy (e.g., puts an unreasonable restraint on marriage; encouraging divorce; encouraging the commission of a crime; restraining the free practice of religion), the trust will not fail, but the condition will be void.

[Example: If a trust is set up for the benefit A, “provided, however, that should A ever marry, she shall forfeit her entire interest in the trust,” the trust remains valid, but A will not forfeit her interest if she marries.]

•A trust set up to provide support for someone until they marry, however, is permissible because this purpose does not impermissibly restrict the right to marry.

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Modification and Termination of the Trust:

At the request of a Trustee (T) or Beneficiary (B), a Court may modify or terminate a trust if:

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(1) The circumstances were unknow to and unanticipated by the Settlor (S); and

(2) The continuation of the trust under the existing terms would impair the material purpose of the trust.

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Beneficiaries may terminate the trust only if:

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(1) All beneficiaries CONSENT (this requirement cannot be meet if any Bs are not yet born); and

(2) There is NO FURTHER TRUST PURPOSE to be served (a spendthrift clause poses a problem for this reqirement.

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A Settlor acting alone can terminate or modify a trust if:

CL/Majority Rule:

FL/Minority Rule:

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Settlor acting alone can terminate or modify a trust if:

CL/Majority Rule: Settlor EXPRESSLY RESERVED the right to revoke in the trust instrument; and S complies with all provisions in the trust instrument pertaining to the form the revocation must take.

FLORIDA/Minority Rule:

(1) ALL trusts are PRESUMED to be REVOCABLE - UNLESS the instrument creating the trust EXPLICITLY STATES its irrevocable. (Meaning the S does not have to explicitly reserve the right to revoke.)

(2) If the trust contains provisions regarding revocation, the S must follow those provisions. (Unless the instrument states that the methods are not exclusive.)

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Is a writing (a written instument) required to create a trust?

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A writing is required to create a Trust with REAL PROPERTY (for any conveyance of land to be valid, SOF requires a writing, signed by the party to be charged; and additionally, FL requires this be done in the prence of 2 subscribing Ws), however, a writing is seldom required with a trust of person personal property.

WRITING required?
Land Trust = YES
Personal Property Trust = No

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Execution of a Testamentary Trust

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It the trust is a TESTAMENTARY TRUST it must be executed in accordance with the STATUTE OF WILLS (i.e., no hologrphic wills; executed following all wills formalities and no defenses); if the testamentary trust include REAL PROPERTY, it must be in a WRITING that satisfies the SOF.

A testamentary trust is VOID is the execution is procured by FRAUD, DURESS, MISTAKE or UNDUE INFLUENCE.

To establish UNDUE INFLUENCE, one must prove that the testamentary trust (created in the will) would not have been executed BUT FOR the influence.

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Honorary Trusts

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Absent a statute, animals (pets) cannot be the Bs of a trust. FLORIDA has such a statute (Fla. Stat. 737.116) recognizing the creation of a "Honorary Trusts."

Honorary Trusts: Must meet the same requirements as a private trust, but they are set up for the benefit of non-humans. Honorary trusts are valid for:
(1) Aminals (for the life of the pet, not their offspring); and
(2) Graves (Maintenance) for 21 years.

The trust instrument or the court can appoint someone who will have standing to sue to enforce the honorary trust.

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Charitable Trust

Requirements: (3)

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Charitable Trust - Requirements:

(1) Must be for a "CHARITABLE PURPOSE" (7 recognized charitable purposes - MO RREGS: Religion, Research, Education Government, Science, Medicine/health, Other community activity);
(2) Must be an OBJECTIVE STANDARD by which to ensure that money will actually go toward a chaitable purpose;
(3) Must be IN FAVOR of a reasonably LARGE # OF UNIDENTIFIABLE Beneficiaries. (Note: Charitable trusts are not subject to the RAP)

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Modification of the Trust - Judicial Modification of a Charitable Trust:

2 Ways:

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1. Doctrine of Cy Pres
2. Changed Circumstances

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Modification of the Trust - Judicial Modification of a Charitable Trust:

Doctrine of Cy Pres

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Modification of the Trust - Judicial Modification of a Charitable Trust:

Doctrine of Cy Pres


1. Doctrine of Cy Pres (“as near as possible”)
- When a specific charitable purpose can no longer be accomplished (because it is illegal, completed, or no longer capable of being carried out), the trust may be reformed so that the money can be allocated to a use “as near as possible” to the stated purpose, if:
(1) The primary INTENT of the S was BROADER than the specific purpose expressed in the trust instrument; and
(2) The court can DETERMINE (locate the specific direction of) the Settlor’s INTENT and reform the trust accordingly.
- If the court does not modify the trust under this doctrine, the trust will be terminated and the balance will be distributed to the settlor’s estate

Ex: (1) If the primary intent of the settlor to a trust stating income is “to be distributed to do research for the prevention of polio” was to research diseases in general; And (2) A trust stating income is “to be distributed to do research for the prevention of polio” can be reallocated to research for diseases that are as similar to polio as possible and have similar symptoms.

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Modification of the Trust - Judicial Modification of a Charitable Trust:

Changed Circumstances

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Modification of the Trust - Judicial Modification of a Charitable Trust:

2. Changed Circumstances:

A court may deviate from the trust’s terms because of changed circumstances when continuing to adhere to the specific direction of the trust would frustrate the primary intent of the settlor.

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Trusts as Valid Will Substitutes:

(2) Types of trusts that act as valid will substitutes:

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1. Revocable Inter Vivos Trusts
➢ Pour-Over Wills / Trusts

2. Totten Trust (i.e., bank account trusts)

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Revocable Trusts

REVOCABLE TRUSTS are VALID, even though the SETTLOR may retain:

[4] R.I.P. T/V.

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Revocable Trusts

REVOCABLE TRUSTS are VALID, even though the SETTLOR MAY RETAIN:

(1) The RIGHT to REVOKE, ALTER, or AMEND the trust;
(2) A INTEREST (in income or otherwise) as a BENEFICIARY;
(3) A POWER OF APPOINTMENT over the trust corpus; and
(4) Every day CONTROL over the trust either by either naming himself TRUSTEE, or by retaining VETO POWER over the trustee’s decisions.

R.I.P. T/V.

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Resulting Trusts:

POUR-OVER Trust

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Resulting Trusts: POUR-OVER Trust

A POUR-OVER (Resulting) Trust results when in the will (a "pour-over" will) the Testator/S adds (“pours”) his estate into an Inter Vivos Trust.

POUR-OVER Trusts are VALID under the UTATA as long as:

(1) The WILL REFERENCES the TRUST; and

(2) The TRUST is already IN EXISTENCE when the WILL is EXECUTED or is created CONTEMPORANEOUSLY with the will


[UTATA: Uniform Testamentary Additions to Trusts Act]

[Slide 3: Case law approach]

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Totten Trust

(Bank Account Trusts)

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Totten Trusts:

➢ Creation of a TT / Bank Account Trusts - The Depositor (S) is creating the account for the benefit of another (B).
➢ During the lifetime of the depositor he can withdrawal money for his own use and doesn’t have to use it for the benefit of the beneficiary, but the balance is paid to the beneficiary at the death of the depositor.
➢ May be reached by the depositer’s creditors during his lifetime and after his death, but only to the extent the depositer’s probate assets are insufficient to pay his creditors.

REVOCATION of a Totten Trust:

➢ TTs are revocable during the lifetime of the depositer by any manifestations of intent to revoke, including making withdrawals (partial withdrawals = partial revocation)
➢ TTs an be revoked by the depositer’s will, but in order for the revocation to be effective, the will must explicitly name the account. (Cannot just state “all of my property goes to Debbie.”)
➢ If the beneficiary of a TT predeceases the depositer, there is an automatic revocation of the trust (and it becomes a typical bank account), unless the anti-lapse statute applies to pass the trust to the beneficiary’s issue.

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Oral Trusts (Oral Promise to Hold Property in Trust): Inter Vivos Trusts

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Oral Trusts (Oral Promise to Hold Property in Trust): Inter Vivos Trusts:

G/R: Oral trusts of personal property are enforceable, except that trusts containing land must be in writing (to satisfy the statute of frauds).

Exception: An oral trust containing land will be enforced if "part performance" has occurred.

E2G/R - PART PERFORMANCE:
• Beneficiary must have done more than just her obligation under the agreement (e.g., enters into sole possession of the land or otherwise changes her position in detrimental reliance on the trust).

[[Ex: S promised X that he would provide a home for her if she would keep house and serve as hostess. Thereafter, he handed his brother a deed naming the brother as grantee, saying “hold this deed in trust for X until her death in consideration of services rendered by X.” Cannot be enforced as a trust unless X has performed more than her mere obligation under the agreement (e.g., in addition to keeping house and serving as hostess, she also sold the house in reliance on the agreement).]]


[[Slide 3: E2E / CONSTRUCTIVE TRUST: If sufficient part performance has not been rendered...]]

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Oral Promise (Supported by Consideration) to Make a Devise in a Will:

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Oral Promise (Supported by Consideration) to Make a Devise in a Will:

If someone makes an oral promise (supported by consideration) to another to devise him something in his will, but never actually makes the devise, the other party can:

(a) Sue to enforce the promise if there has been part performance (e.g., the person did more than just his mere obligation under the agreement); or
(b) Sue in quantum meruit to receive compensation for services rendered
If the agreement had been written, the party could sue to enforce the promise through a constructive trust

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Oral Trusts
Testamentary Oral Trusts:
2 kinds of Testamentary Oral Trusts:

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Oral Trusts
Testamentary Oral Trusts:
2 kinds of Testamentary Oral Trusts:
1.SECRET TRUSTS
2.SEMI-SECRET TRUSTS

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Testamentary Oral Trusts:
SECRET TRUSTS

[[Ex: Testator dies leaving a will that devises Greenacre to Jones. The will makes no mention of a trust, but testator’s son alleges that testator orally told Jones that he was to hold the land as trustee for the son and Jones agreed.]]

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Testamentary Oral Trusts:
SECRET TRUSTS:

• When an ABSOLUTE DEVISE OR GIFT IS MADE IN A WILL (e.g., “all my stock to X”) IN RELIANCE upon the DEVISEE’S ORAL PROMISE that he will HOLD that PROPERTY in TRUST for ANOTHER, the TRUST will be ENFORCED (for the benefit of the intended beneficiary) IF sufficient PROOF of the agreement is produced (extrinsic evidence is permitted).

- It will be enforced to prevent unjust enrichment by the devisee.

[[Ex: Testator dies leaving a will that devises Greenacre to Jones. The will makes no mention of a trust, but testator’s son alleges that testator orally told Jones that he was to hold the land as trustee for the son and Jones agreed. The son can testify as to this agreement and a constructive trust will be imposed for her benefit if she can prove the promise by clear and convincing evidence.]]

• If the devisee never orally agreed to hold the property in trust, the devisee will take the property free and clear (because he isn’t a wrongdoer who repudiated an agreement).

[[Ex: If the testator never asked the devisee to hold the property in trust, but a note found with the will ordered the devisee to hold it in trust then devisee takes free and clear b/c he isn’t a wrongdoer here.]]

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Testamentary Oral Trusts:
SEMI-SECRET TRUSTS
[[Ex: The testator’s will devises land, “to my good friend Steve, as trustee, for purposes already communicated to him.”]]

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Testamentary Oral Trusts:
SEMI-SECRET TRUSTS:

-A court will NOT ENFORCE the Trust for the intended Bs, however…
-A court will IMPOSE a RESULTING TRUST in favor of the testator’s heirs.

• When A WILL DEVISES something to the devisee “IN TRUST,” but the ONLY EVIDENCE of who the intended beneficiaries are is in the FORM OF AN ORAL AGREEMENT made B/T the TESTATOR AND THE DEVISEE, the A COURT WILL NOT enforce the TRUST for the intended Bs…. But WILL IMPOSE a RESULTING TRUST for the TESTATOR’S HEIRS/RESIDUARY HOLDERS. (B/c otherwise the Statute of Wills’ requirement that beneficiaries be named in the will would be violated.)

[[Ex: The testator’s will devises land “to my good friend Steve, as trustee, for purposes already communicated to him.” Here, the ct will not enforce the trust for the intended Bs - b/c to do so would violate the SoW requirement that Bs be named in the will – But the court will impose a resulting trust for the testator’s heirs/residuary holders.]]

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➢ Alienability and Creditors’ Rights: Spendthrift and Support Trusts:
Beneficiaries
• Beneficiary’s Rights

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➢ Alienability and Creditors’ Rights: Spendthrift and Support Trusts:
Beneficiaries
• Beneficiary’s Rights


• A beneficiary may freely sell or give away his interest in the income of a trust or use it as security for a loan, unless the trust contains a spendthrift clause. (e.g., “No interest of any beneficiary herein shall be assignable by such beneficiary nor shall it be subject to the claims of the beneficiary’s creditors”)

- If a trust contains a spendthrift clause and the beneficiary breaches the clause by assigning his interests to creditors, he is estopped from later suing the trustee if the trustee actually does pay income to the creditors (a beneficiary who participates in a breach is estopped from suing thereon).

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➢ Alienability and Creditors’ Rights: Spendthrift and Support Trusts:
Beneficiaries
• Beneficiary’s Creditor's Rights

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➢ Alienability and Creditors’ Rights: Spendthrift and Support Trusts:
Beneficiaries
• Beneficiary’s Creditor's Rights:

• B's Creditors CANNOT reach the trust property itself (b/c the trustee, not the B, holds title), but creditors CAN reach the B's INCOME INTEREST. → This interest can then be sold and the proceeds can be applied to the debt.
- However, courts are more likely to enter an order directing the trustee to give the B’s income to the creditors until the debt is paid off.

• If the trust contains a SPENDTHRIFT CLAUSE, creditors cannot reach the trust property itself or the B’s interest in receiving future income.

• Once the income is actually distributed to the B, the creditors can attach, but they cannot attach to the B’s interest to receive payments in the future.

• EXCEPTIONS - creditors can still attach for:
(i) Ks for necessities (food, shelter, clothing, and medical care);
(ii) Alimony obligations;
(iii) Child support obligations;
(iv) Tort claims (claims founded on tort COA); and
(v) Governmental entities claims (federal or state taxes)

• A spendthrift clause will only be valid if it forbids both the B from assigning his interests and creditors from attaching.

- A STT clause will violate public policy if it allows the B to sell his interest, but prevents creditors from attaching).

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➢ Alienability and Creditors’ Rights: Spendthrift and Support Trusts:

Creditors of the Settlor:

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➢ Alienability and Creditors’ Rights: Spendthrift and Support Trusts:

Creditors of the Settlor:

• A settlor CANNOT put money into a trust for the purposes of avoiding creditors, and creditors can:

(1) Attach to the settlor’s interest in the trust (spendthrift clauses are unenforceable as against the creditors of the settlor); AND/OR

(2) If the creditors have proven that the settlor’s other assets have been exhausted, they can (if there is no other source of payment i.e., "last resort" remedies):
(a) Force the settlor to revoke the trust (if the trust is revocable); or
(b) Force the trustee to distribute income to the settlor (if the trustee has the authority to distribute to the settlor).

• Settlor’s creditors have no rights as to irrevocable trusts that benefit 3rd parties.
• Exception: Fraudulent Transfers Doctrine -- If the trust was created with the intent of defrauding known creditors, it can be set aside.

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➢ Trusts Imposes by Operation of Law: Resulting and Constructive Trusts:

Resulting Trusts:

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➢ Trusts Imposes by Operation of Law - Resulting Trusts:
• A RESULTING TRUST arises when:
(i) an express trust fails for any reason (and the trust instrument is silent as to what happens in this event); OR,
(ii) when an express trust’s purposes have been accomplished and the corpus is not exhausted (equivalent to a reversion).

• Example: A trust of $10 million is created to build a hospital. The hospital is built for $8 million. The excess may be returned to the settlor by resulting trust (or could go toward related purposes or running the hospital if the court uses the cy pres doctrine).

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➢ Trusts Imposes by Operation of Law: Resulting and Constructive Trusts:

Resulting Trusts:
• Purchase Money Resulting Trust

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➢Trusts Imposes by Operation of Law:

Purchase Money Resulting Trust (PMRT):

• A purchase money resulting trust is presumed to arise when consideration for a purchase of property is paid by someone other than the person taking title.
- Exception: A trust is not presumed when the person providing consideration bears a close family relationship to the title holder (parent-child, husband-wife, grandparent-grandchild) (presumed a gift).

• If the title-holder/trustee subsequently trades the property for another piece of land (or sells the land to another), the original payer of consideration/beneficiary can impose a trust on the new property/funds received by the title-holder/trustee (the title holder/trustee must hold any consideration received on the transfer in trust for the B).
- The original payer of consideration/beneficiary cannot impose a trust on the original property (traded or sold to another) if the third party is a BFP for value.

• If the third party is not a bona fide purchaser, the original payer of consideration/beneficiary can choose to impose a trust on either the original property or the proceeds received by the title-holder/trustee.

• Defenses (raised by title holder/trustee):
(a) Gift; or
(b) Loan

[[Example: If A pays for property, but title is in B’s name, it is presumed that B holds the property in trust for A. Then B will argue against this presumption and say it was a gift or a loan.]]

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➢ Trusts Imposes by Operation of Law: Resulting and Constructive Trusts:

Constructive Trust:

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➢Trusts Imposes by Operation of Law: Constructive Trusts:

• A Constructive Trust arises where a person acquires title to property wrongfully (e.g., through fraud, misrepresentation, duress, or mistake; through a breach of a confidential relationship in the context of an oral trust of land; in the context of a secret trust case; or through a semi-secret trust case under the Restatements view) and we want to remedy the unjust enrichment.

[[Example: A loaned B $10,000. Under an agreement, B was to purchase Blackacre for A and put title in A’s name. B fraudulently had title to the property put in his own name.]]

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➢ Trust Administration:
Powers of the Trustee

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➢ Trust Administration:
Powers of the Trustee

Sources of Power:
• The trustee can only exercise such powers as are expressly or impliedly given to him.

(i) Express Powers =
• Those expressed in the terms of the trust or by statute or court order.

(ii) Implied Powers =
• Those powers “necessary or appropriate to carry out the purposes of the trust that not forbidden by the trust.” General trustee powers include:
- Power of Sale;
- Power to Incur Necessary & Ordinary Expenses;
- Power to Make General Improvements on Trust Property;
- Power to Lease Trust Property

• There is no implied power to borrow money on the credit of the trust estate or mortgage (or otherwise encumber) the trust property.

Co-Trustees/Joint Powers (any action taken in violation is voidable):
• Traditional Rule -- When there are more than two trustees, the trust powers have to be exercised. by unanimous agreement
• Modern Rule (Uniform Trust Act/Uniform Trustees’ Powers Act) -- Any power vested in three or more trustees may be exercised by a majority of them (but if there are only two trustees, they must act unanimously)

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Duties of the Trustee - Generally

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Duties of the Trustee
•In managing the trust, the trustee must exercise that degree of care, skill, and caution that would be exercised by a reasonably prudent person in managing her own property

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(1) Duty of Loyalty

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(1) Duty of Loyalty:

• A trustee owes a duty of undivided loyalty to the trust and its beneficiaries, and cannot act to benefit his personal interest at the expense of the beneficiaries (self-dealing)

• Trustee cannot act to benefit his personal interests at the expense of the beneficiaries (self-dealing) (and good faith is no defense to a breach of this duty)

- Cannot purchase trust assets for herself (or her relatives or agents), even for full market value
- Cannot sell assets to the trust, even for a fair price
- Cannot sell assets from one trust to another trust she manages
- Cannot borrow trust funds or make personal loans to the trust
- Cannot use the trust assets to secure a personal loan
- Cannot self-employ herself

• Exception: Trustee can employ herself as attorney for the trust, as long as the need for the attorney is not based on a breach of trust (and the court will determine reasonable compensation)

Remedies for Breach:
(a) Beneficiary can set aside the transaction and recover the profit made by the trustee; or
(b) Beneficiary can ratify the transaction

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(2) Duty to Physically Separate and Earmark Trust Property

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(2) Duty to Physically Separate and Earmark Trust Property

• No commingling!!

- Exception: Trustee may invest in common trust funds (accounts created by corporate trust companies where several smaller trusts are combined for purposes of investment)

• If trust funds are commingles with the trustee’s personal funds, it is presumed that the trustee’s personal funds were expended before the trust’s funds.

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(3) Duty to Perform Personally (Delegation)

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(3) Duty to Perform Personally (Delegation)

• A trustee cannot delegate the entire administration of a trust

- T may seek advice of others on matters that she may not delegate, but she must exercise her independent judgment and make the final decision

• A trustee may delegate acts that would be unreasonable to require her to perform personally (e.g., mailing letters)

• A trustee may delegate investment decisions that a prudent trustee of comparable skills would delegate under the circumstances

In delegating investment decisions, the trustee must use reasonable skill, care, and caution in:

a) Selecting an agent;
b) Establishing the scope and terms of the delegation; and
c) Periodically reviewing the agent’s actions

- The trustee is liable for the agent’s conduct only if the trustee did not exercise reasonable skill, care, and caution in selecting the agent

Front 43

(4) Duty to Defend

(5) Duty to Account

Back 43

(4) Duty to Defend the Trust
• From Unfounded attack

(5) Duty to Account
• To the trust Bs at least annually
• And whenever a B (or her rep.) requests it.

Front 44

(6) Duty of Impartiality

Back 44

(6) Duty of Impartiality

• Absent a trust provision permitting the trustee to prefer one B over another, a trustee must be fair to all Bs.

Front 45

(7) Duty to Preserve Trust Property and Make It Productive

Back 45

(7) Duty to Preserve Trust Property and Make It Productive

• Collect all claims due to the trust
• Lease land or manage it so that it is productive (or sell it if not productive)
• Record documents to protect title
• Invest trusts within a reasonable period of time following receipt

Front 46

(8) Duty to Take Trust Property in the Trustee’s Name

Back 46

(8) Duty to Take Trust Property in the Trustee’s Name

• Exception: Taking Title to Stock in the Name of a Nominee

Front 47

(9) Duty With Regard to Investments (unless otherwise provided in the trust)

Prudent Investor Rule

Back 47

(9) Duty With Regard to Investments (unless otherwise provided in the trust)

Prudent Investor Rule

• A trustee must invest and manage property as a prudent investor would, taking into account the purposes, terms, distribution requirements, and other circumstances of the trust (and must still meet the minimum standards of reasonable care, skill, and caution)

- Exception: A trustee who possesses a special skill, or who is named trustee on the basis of representations of possessing special skills, is held to a higher standard.

- Prudence is evaluated as to the entire portfolio and overall investment strategy (not each individual decision)

• Trustee must diversify the investments of the trust, unless the trustee reasonably determines, because of special circumstances, that the purposes of the trust are better served without diversification

• A trustee may invest with the objective of maximizing “total return” (ordinary income and capital appreciation), as long as it is what a prudent investor would do

- If the testator’s decision to invest for total return results in investments that produce significant capital gains, but little or no ordinary income, the testator should use the adjustment power to classify some of the capital gains as income so a distribution can be made to the beneficiary to comply with the duty of impartiality


[[Note]] When faced with a “prudent investor” question, you should also mention whether statutory legal lists approve of the investment made by the trustee or not (it is further support for your conclusion)
• Generally Improper Investments:
- Unsecured loans of trust funds and second mortgages
- Common and preferred stocks
• Generally Proper Investments
- Investments in mutual funds

Front 48

Breach of a Trustee’s Duties:

A beneficiary may sue a trustee who has breached a duty, unless:

Back 48

Breach of a Trustee’s Duties:

A beneficiary may sue a trustee who has breached a duty, unless:


1) He affirmatively consented to the breach (mere knowledge of a breach is not enough to prohibit the beneficiary from suing); or

2) The trust is revocable and the trustee acted with the consent of the settlor

Front 49

Breach of a Trustee’s Duties:

• Each breach by a trustee is judged separately.... This means:

Back 49

• Each breach by a trustee is judged separately -- This means that a trustee committing two or more separate breaches cannot offset one breach that resulted in a loss to the trust with another breach that resulted in a gain.

Front 50

Breach of a Trustee’s Duties

Co-Trustee Liability:

Will a co-Trustee for a breach of a duty by another co-Trustee?

Back 50

• A co-trustee can only be held liable for another trustee’s breach if the trustee was at fault in some way (e.g., participated in the breach; failed to use reasonable care to prevent the breach; or neglected to take proper steps to compel his co-trustee to redress the breach)

Front 51

Third Party Liability for a Trustee’s Breach:

Back 51

Third Party Liability for a Trustee’s Breach:

• A third party who knowingly participates in a breach of trust is liable for the resulting loss to the trust estate.

• A third party who acquires the legal title to trust property for value and without notice of the trust (BFP) takes the property free and clear of the interests of the beneficiaries.

- The third party will be deemed to have notice of the existence of the trust if he knows of facts requiring an inquiry (e.g., the existence of the trust appears on the face of a document representing the property).

• An innocent donee of trust property (e.g., one who receives funds from a trustee, but does not know that they are from trust proceeds) must restore the property to the trust, but cannot be held liable for damages.

Front 52

Trust Accounting:

Back 52

• All assets received, and all expenditures made, by the trustee must be allocated to the trust income or corpus (principal)

Front 53

Trustee’s Liability for Torts:

Back 53

Trustee’s Liability for Torts:

• When a trustee, or her agent, commits a tort, the tort victim may sue the trustee in her individual capacity.

• The trustee can be reimbursed from the trust estate if:
a) The trustee was not personally at fault; or
b) Liability is a risk that is a normal incident of the type of activity in which the trustee was properly engaged.

Front 54

Trustee’s Contract Liability:

Back 54

Trustee’s Contract Liability:

• A trustee is personally liable on contracts he enters into unless a stipulation in the contract relieves her of personal liability.

• Trustee is entitled to indemnification if the contract was not a breach of trust.

Front 55

Florida Trusts
Types

Back 55

1. express
2. resulting
3. constructive

Front 56

Florida Trusts
Express Trusts
Creation

Back 56

Creation of an EXPRESS TRUST - 3 ways:
1. Settlor transfers fund to 3P trustee
2. Settlor declares himself trustee For Benefit Of
3. Holder of power of appointment can create trust be exerting power

Front 57

Florida Trusts
Express Trusts
Classifications

Back 57

(1) Inter vivos - creating during life, avoids probate unless settlor's estate is beneficiary can be:
i) Revocable - Presumed in FL
ii) Irrevocable - Must explicitly provide for in the written doc creating the trust

(2) Testamentary - Effective upon settlor's death via pour over provision in will, property is probated.

Front 58

Florida Trusts
Express Trusts
Substantive Elements

Back 58

1. Settlor with capacity
2. Present intent
3. Definite Beneficiary
4. Res
5. Trustee
6. Purpose
Note - Same person cannot be sole trustee and sole beneficiary.

Front 59

Florida Trusts
Express Trusts
Substantive Elements
Capacity

Back 59

2 types:
1. Testamentary Capacity - for revocable or testamentary trust (trust with testamentary capacity)
2. Gift Capacity to make irrevocable trust

Requirements TESTAMENTARY trusts (trusts created in a will) after July 1, 2007:
1. T sign will at logical temporal
2. T sign/acknowledges in the presence of 2 attesting witnesses
3. 2 witnesses must attest to T's acknowledgement of signature
4. Attesting witnesses must sign in the presence of T and in the presense of each other

Front 60

Florida Trusts
Express Trusts
Substantive Elements
Present Intent

Back 60

Words strong to create legally binding directive, not precatory language.

- A trust portion procured by fraud, duress, mistake, or undue influence is VOID.

- A presumption of undue influence arrises where a substantial beneficiary who occupies a confidential relationship w/ settlor is active in procuring the trust.

- Precatory language ordinarily does not impose a mandatory obligation.

Front 61

Florida Trusts
Express Trusts
Substantive Elements
Beneficiary

Back 61

at least one definite beneficiary presently assertainable or susceptible of identification win the RAP except for charitable trust, holds equitable interest

Front 62

Florida Trusts
Express Trusts
Substantive Elements
Beneficiary
Secret Trust

Back 62

When an absolute devise by will that makes no mention of trust be extrinisic evidence is admissible to prove by CCE that trustee made an oral promise to hold property in trust results in a CONSTRUCTIVE TRUST imposed against the wrongdoer-trustee

Front 63

Florida Trusts
Express Trusts
Substantive Elements
Beneficiary
Semi-Secret Trust

Back 63

When a will mention trustee holds "in trust" & oral agreement w trustee as to identity of beneficiaries, there are 2 split views

1. Restatement - treats the remedy the same as the secret trust and imposes a constructive trust, reasoning that testator-settlor intended for property to go to benefi

2. Majority view - imposing a resulting trust (implied reversion) to testator-settlor's heirs, reasoning that the testator-settlor violated the requirements in the Statute of wills that the beneficiaries be identifiable from the language of the T's will.

Front 64

Florida Trusts
Express Trusts
Substantive Elements
Beneficiary
Anti-Lapse for Trusts

Back 64

If beneficiary does not survive utnil distribution date (time when future interest is to take effect) the beneficiary's D take by substitution per stirpes regardless fo their relationship to settlor UNLESS trust document shows otherwise

WILLS: must be a grandparent or lineal decedent of grandparent for an anti-lapse to take effect

Front 65

Florida Trusts
Express Trusts
Substantive Elements
Beneficiary
Divorce

Back 65

Provisions of revocable trust become VOID, construe as though the settlor's spouse died on date of divorce

Front 66

Florida Trusts
Express Trusts
Substantive Elements
Beneficiary
Killer

Back 66

Provisions of Irrevocable and Revocable trusts become void if a killer kills a settlor or a person on which benefit depends

Front 67

Florida Trusts
Express Trusts
Substantive Elements
Res

Back 67

Corpus - generally settlor must fund trust with certain and identifiable res at the time of its creation (contingent, executory, equitable interest), can have certain expectancies (death benefits, life insurance policy proceeds)

Front 68

Florida Trusts
Express Trusts
Substantive Elements
Res
Types

Back 68

1. Real Property - requires WRITING
2. Personal property - does not require writen document unless the trust has testemntary aspects (ie provisions of the trust instrument that dispose of the trust property on or after death of settlor orther than to the settlors estate) because then must have testementary capacity

Front 69

Florida Trusts
Express Trusts
Substantive Elements
Res
Real Property

Back 69

Must comply with SOF (writing, executed by settlor in the name of trust (or else trustee will take FSA), delivered in the presence of 2 subscribing witnesses, and grantor/settlor's signature is notarized in order to be recorded. If SOF is not complied with then either a CONSTRUCTIVE or RESULTING could be imposed

- In florida when property is ownred by 2 individials who are not H&W and there is no indication that the property is held in JTWROS it is presumed to be held in TIC

Front 70

Florida Trusts
Express Trusts
Substantive Elements
Res
Personal Property

Back 70

need not comply w/ SOF (can be oral and proven by CCE) unless the trust has testementary aspects b/c then must comply w/ will formalities. If will formalities are not complied with then the trust part has testementary aspects gets severed and is void

- A totten trust is a bank account that testator owns during his lifetime and beneficiary succeeds to funds unless testator revoked the trust by a lifetime act that manifests the intent to revoke

- Florida statutes provide that death benefits, including proceeds from an individual life insurance policy, may be payable to a trustee under a trust agreement or declaration of in existence at the time of the death of the insured

Front 71

Florida Trusts
Express Trusts
Substantive Elements
Trustee

Back 71

Trustee with duties to perform, Trust will not fail for lack of trustee, holds legal interst

Competent individual of legal age with legal capacity.

Majority rules form co-trustees unless instrument provides otherwise

Front 72

Florida Trusts
Express Trusts
Substantive Elements
Trustee
Duties

Back 72

A. Administer Trust in Good Faith
B. Loyalty to beneficiaries
C. Impartiality toward beneficiaries
D. Administer Prudently
E. Incur only reasonable Expenses
F. Use Special Skills
G. Prudently exercise Power to Delegate
H. Control and protect/preserve trust property
I. Inform and Account
J. Not to comingle

Front 73

Florida Trusts
Express Trusts
Substantive Elements
Trustee
Duties
Loyalty

Back 73

Loyalty to beneficiaries (self-dealing is voidable)
- trustee cannot sell assets to the trust even if the price is a fair one,
- cannot borrow funds,
- cannot use trust assets to secure personal loans
- cannot gain through her position as trustee

- Corporate trustee cannot purchase its own stock as trust investment but may retain if part of original trust property

Front 74

Florida Trusts
Express Trusts
Substantive Elements
Trustee
Duties
Administer Prudently

Back 74

as a prudent investor looking at the total return of the portfolio and diversification

Front 75

Florida Trusts
Express Trusts
Substantive Elements
Trustee
Duties
Inform and Account

Back 75

Irrevocable trusts gives qualified beneficiaries annual accounting

Revocable trust - give accounting to settlor

Trust accounting - income - ordinary expenses charged to beneficiaries, and remander to trust

corpus - extraordinary items charged to remainderman

trustee fee (split between the two)

Trust created after (1/2003) an trustee sends notice to beneficiaries, truste has power to adjust the normal classification rules if necessary to comply with trustee's duty of impartiality

- TRUSTEE can convert to Unitrust that pays beneficiary 3-5% of trust value isntead of income

Front 76

Florida Trusts
Express Trusts
Substantive Elements
Trustee
Duties
Liabilities

Back 76

Each breach of trust is judged in isolation, the beneficiary having a choice of options (VOIDABLE)
Beneficiaries may
1. ratify/waive
2. surchage - sue trustee for resulting loss,
- breach of fiduciary duty is automatic wrong
- good faith and reasonableness is no defense or justification
3. Trace and recover the property for the trust, imposing a constructive trust

3d Parties
1. tort: trustee is not personally liabile and may be reimbursed/indemnified from trust estate if:
- he acted within his trust powers
- in course of proper trust administration
- and was not personally at fault
2. Contract - although majority rule says trustee is personally liable unless disclosure of trustee's capacity. FLORIDA rule is trustee not personally liable unless a stipulation in the contract imposes prsonal liablity.

Front 77

Florida Trusts
Express Trusts
Substantive Elements
Valid Trust Purpose

Back 77

a purpose that is possible to achieve
A. Charitable
B. Honorary
C. Private

Front 78

Florida Trusts
Express Trusts
Substantive Elements
Valid Trust Purpose
Charatible

Back 78

indefinite beneficiaries RAP inapplicable, CY PRES Doctrine will apply

Front 79

Florida Trusts
Express Trusts
Substantive Elements
Valid Trust Purpose
Honorary

Back 79

No private beneficiary not for charitable purpose, limited to 21 years, Eg.
- care of an animal
- care of cemetary plot

Front 80

Florida Trusts
Express Trusts
Substantive Elements
Valid Trust Purpose
Private
Spendthrift

Back 80

Provision that explicitly restricts a beneficiaries right to voluntarily or involuntarily alienate interest. Beneficiary may not transfer an interest in violation of a valid spendthrift provision

Creditor may not reach the interest or distribution before receipt by the beneficiary + may not compel a distrubution subject to trustee'd discretion unless
1. Support Obligation (alimony. child support)
2. judgment creditor - who helped create the trust
3. to extent beneficiary's interest not subjec tto spendthrift provision, court may authorize a creditor to reach beneficiary interest by invasion of trust corpus or attachment of distributions
4. In a self-settled spendthrift the settlor-beneficiarycreditors can access the interest the Settlor beneficiary retained in the trust (if irrevocable creditors can force distribution of max amount trustee has authorized to distrubute) or revocable (all the trust)

Front 81

Florida Trusts
Express Trusts
Substantive Elements
Valid Trust Purpose
Private
Discretionary Support Trust

Back 81

trustee has the duty to suppor beneficiary according to terms of trust, especially for necessities, but must consider all sources of income

Front 82

Florida Trusts
Modification/Termination
Charitable trust

Back 82

WHen a charitable purpose can no longer be accomplished, trust may be reformed under doctine of CY PRES (as near as possible) by looking at the primary intention of the settlor and specific directio of the instrument itself

Front 83

Florida Trusts
Modification/Termination
Revocable Trust

Back 83

Power: unless the terms of trust expressly provide trust is irrevocable, settlor may revoke or ammend a trust created after 7/1/07 (presumption of revocable trust) if a trust is created/funded by more than 1 settlor, each settlor may revoke or amend the trust with regard to the portion or trust property attributable to that settlors contribution

Method: settlor may revoke/amend revocable trust 1. by substnatial compliance with a method provided in the trust
2. if no method, a later will/codicil that expressly refers to the trust, or specifically devises property that would have passed according to the terms of the trust
3. any other method manifesting a CCE of settlor's intent

Front 84

Florida Trusts
Modification/Termination
Irrevocable Trust

Back 84

Fla. statutory provisions are in addition to and not to derogation of common law
1. common law
2. florida statutory law
a. nonjudicial modification
b. judicial modification

Front 85

Florida Trusts
Modification/Termination
Irrevocable Trust
nonjudicial

Back 85

By trustee: trustee distributed all of res, not economically feasible, trust has res valued than 50k and notice given to qualified beneficiaries

under CL - an irrevocable trust can prematurely terminate by the beneficiaries only if there is:
A. unanimous consent of the beneficiaries
B. a trust has no material purpose that would be violated by early termination (otherwise, need settlor's consent)
NOTE: spendthrift provision is a material purpose

Florida Statutory laws:
1. After settlor's death
2. Unnamomous consent of the qualified (living) beneficiaries
3. Consent of the trustee
4. not be expressly prohibited

Front 86

Florida Trusts
Modification/Termination
Irrevocable Trust
judicial

Back 86

Where the requirements for nonjudicial modifications cannot be met, an irrevocable trust can never the less be modified/terminated by a court

AT CL: if the request for modification is due change in circumstances not anticipated by settlor

Florida statutory law: provides for judicial modification when it is:
A. not inconsistent w the settlor intent and
- material purpose of trust no longer exist, illegal/impossible/wasteful/impracticable/unanticipated change in circumstances and compliance w original terms would defeat or substantially impair material purpose of trust
B. compliance w/ the trust is not in the best interest of the beneficiaries
- court must consider spendthrift provision

- A court can modify or terminate a trust whether or not the trust contains a spendthrift clause
A. at the request of any beneficiary if the modification or termination is not inconsistent with settlor's intent
B. at the request of all qualified (living) beneficiaries even if the modification or termination would interfere w/ a material purpose of settlor

Front 87

Florida Trusts
Modification/Termination
Irrevocable Trust
Settlor Prevention

Back 87

Settlor can block either judicial or non-judicial modification if the trust instrument
A. expressly prohibits such a modification AND
B. the trust was drafted to comply with the shorter RAP (CL 21 or 90 years instead of Fla. default 360 years)

Front 88

Florida Trusts
Modification/Termination
Irrevocable Trust
Reformation

Back 88

A court may reform the terms of a trust even if ambiguous to conform to the terms of settlor's intent if proven by CCE that both the accomplishment of S's intent and terms of the trust were affected by a mistake in fact or law (either in execution or inducement)

NO trust, conclude w/ Resulting Trust or if no wrongdoing the Constructive Trust but BFP cuts off beneficiary equitable remedies

Front 89

Florida Trusts
Resulting Trust

Back 89

arrises
A. upon failure of express trust, or when express trust purpose accomplished & corpus not exhausted

B. Purchase money resulting trust,

Defenses are gift, loan, gift presumed when person providing consideration bears close family relationship to title holder.

Front 90

What is the main requirement for a Revocable Lifetime Trust?

Back 90

At least one beneficiary who is NOT the settlor.

Front 91

What roles can the settlor play in a Revocable Lifetime Trust?

Back 91

(1) Trustee
(2) Income beneficiary for life
(3) Settlor's estate can be one of the beneficiaries of the principal PROVIDED there is at least 1 other beneficiary
(4) Settlor can retain the power to TERMINATE or AMEND

Front 92

What are the requirements of a Pour-Over?

Back 92

Trust must be in EXISTENCE -OR- EXECUTED CONCURRENTLY with the will.

Note: Valid even if trust UNFUNDED or only PARTIALLY FUNDED, during settlor's lifetime.

Front 93

What is a Totten Trust (TT)? Key characteristics?

Back 93

A bank account in the depositor's name "as trustee for" a named beneficiary. (a/k/a "bank account trust")

(1) Depositor can treat bank account as own till dies (i.e. deposits and withdrawals), i.e. beneficiary has NO beneficial interest during the depositor's lifetime.

(2) Beneficiary gets whatever in the account when depositor dies

Front 94

How can a TT be revoked?

Back 94

(1) WITHDRAW ALL money

(2) EXPRESS REVOCATION during lifetime of depositor:
(a) NOTORIZED +
(b) STATEMENT +
(c) NAMING the beneficiary & banking instutution +
(d) SENT to the banking institution.

(3) BY WILL (same elements as express revocation)

(4) DEATH of a beneficiary
(resut = money goes free & clear to depositor)