Fl Trusts Essay Outline

Front 1

Creation of a Trust - Generally

Back 1

To create a valid trust, there MUST be:
(1) intent by the settlor to presently create a trust,
(2) trust property,
(3) one or more beneficiaries, AND
(4) a trustee

Front 2

Settlor - Capacity

Back 2

MUST have capacity to convey

The capacity required to create a revocable or testamentary trust is the same as that required to make a will.

Lack of capacity to convey presents a trust from arising, and undue influence, fraud or duress renders the trust void

Front 3

Undue Influence

Back 3

To establish undue influence, the contestants MUST establish that the product of the influence was a trust that wouldn't have been executed but for the influence

Front 4

Intent

Back 4

Language merely expressing the settlor's hope, wish or desire (so-called "precatory" language) that a trust be created generally doesn't create a trust

The "trustee" named under such a gift generally can take it outright for himself or choose to hold it in trust for the named beneficiary

Note: there are exceptions

Front 5

Overcoming an Inference Against Creation of a Trust

Back 5

(1) the directions aren't vague, but rather are definite and precise
(2) the directions are addressed by a decedent to his executor or administrator
(3) failure to impose a trust results in an unnatural disposition by the testator, or
(4) extrinsic evidence shows that the transferor had been supporting the intended beneficiary prior to executing the instrument

Front 6

Trustee - Generally

Back 6

Although a trustee is essential to the operation of a trust, once a trust is established it won't fail merely because of the trustee's death, incapacity, resignation, or removal

If the settloe failed to name a successor trustee, the court will appoint one

Front 7

How can a person create a trust?

Back 7

by naming himself trustee for another

Front 8

When can a court remove a trustee?

Back 8

if his continuation in office would be detrimental to the interest of beneficiaries

Front 9

What factors will a court consider in removing a trustee?

Back 9

(1) commission of a serious breach of trust
(2) legal or practical incapacity to administer the trust
(3) unfitness for the position such as drunkenness, extreme old age, and other practical inability
(4) refusal to post bond or account
(5) the existence of a significant conflict of interest
(6) the trustee's insolvency, AND
(7) extreme friction or hostility between the trustee and the beneficiaries where such hostility is likely to interfere with the proper administration of the trust

Front 10

Trust Property - Generally

Back 10

Where there is no trust property, the trust fails because the trustee has no property to manage

Front 11

Trust of Tangible Property

Back 11

need not be in writing, but a trust of real property MUST be evidenced by a writing

Front 12

Promise to Create a Trust in the Future

Back 12

if a settlor promised to create a trust in the future and the promise is supported by consideration (the settlor has made a contract to create a trust), the trust can arise when the property is acquired without any manifestation of intent

Front 13

Beneficiaries - Generally

Back 13

A trust generally needs someone to enforce it

Thus, a beneficiary is necessary to the validity of every trust except charitable trusts (which can be enforced by the state attorney general, although the beneficiaries are indefinite), and so-called honorary trusts (trust for animals and to maintain graves)

Front 14

Identification of Beneficiaries

Back 14

Generally, beneficiaries need not be identified at the time a trust is created, bu they MUST be susceptible of identification by the time their interests are to come into enjoyment

Front 15

Can you make a trust "to my friends"?

Back 15

NO, it is too indefinite and will render a trust invalid or want of a beneficiary

Front 16

Spendthrift Trust - Generally

Back 16

A spendthrift turst precludes the beneficiary from voluntarily 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

Front 17

What happens if there is no spendthrift trust provision?

Back 17

absent a spendthrift trust provision, an interest in a trust is alienable, descendible, and devisible unless the interest is conditioned on survival

Moreover, a creditor can reach trust assets to the extent of the beneficiary's interest in the trust

EXAMPLE:
A creditor could reach the income interest of an income beneficiary but couldn't reach the principal

Conversely, a creditor of a beneficiary of a remainder interest cannot reach teh trust assets while there are still lifetime beneficiaries

Front 18

What happens once income or principal is distributed from the trust?

Back 18

It loses its trust character

Thus, once trust property is distributed to a spendthrift beneficiary, his creditors may reach it

Front 19

What is the underlying concept of a spendthrift clause?

Back 19

Generally, its presence precludes termination of the trust on request of the beneficiaries because the clause shows that the settlor didn't trust the beneficiary to make financial decisions regarding the trust's assets

Front 20

What if the settlor also joins in requesting the termination?

Back 20

The courts generally allow it

On the other hand, if the settlor is dead, generally early termination isn't possible in the case of a spendthrift trust

Front 21

Charitable Trusts - Comparison with Private Trusts

Back 21

The rules governing charitable trusts differ from those applicable to private trusts in 3 important ways:
(1) a charitable trust must have indefinite beneficiaries,
(2) it may be perpetual, and
(3) the cy pres doctrine applies

Front 22

Charitable Trusts - Purpose

Back 22

A charitable trust must benefit the public

Examples:
relief of poverty, the advancement of education and religion, the promotion of health, and teh accomplishment of governmental purposes, such as parks and museums

Front 23

Charitable Trusts - Beneficiaries

Back 23

The courts consider the community at large the beneficiary of a charitable trust, and a particular individual eligible for its benefits has no standing to enforce its terms

The duty of enforcement is palced upon teh state attorney general

Front 24

Charitable Trusts - Rule Against Perpetuities

Back 24

A charitable trust may be perpetual

Also, the RAP doesn't apply to the shifting of the beneficial interest in a trust from one charity to another on the occurrence of a condition

The rule DOES apply, however, to shifts between private and charitable uses

Front 25

Charitable Trusts - Cy Pres Doctrine

Back 25

When a charitable purpose selected by the settler is impractical, if the court finds that the settlor had a general charitable purpose rather than a specific purpose to help only the named charity, it will select an alternative charity to be the beneficiary under the cy pres doctrine, which means "as near as possible"

Front 26

Support Trust - Generally

Back 26

A support trust provides for the beneficiary's support, such as housing, food, school tuition, etc.

The trustee has no right to provide for luxuries

A support trust can be a
(1) mandatory trust or
(2) a discretionary trust

Front 27

Support Trust - Level of Support

Back 27

The level of support relevant to a support trust is generally interpreted as the level to which the beneficiary is accustomed to

EXAMPLE:
how much support has to actually be provided to the beneficiary

Front 28

Discretionary Trust - Generally

Back 28

A discretionary trust grants the trustee discretionary to make distributions

With such a trust, a beneficiary generally cannot compel a trustee to pay out

A court will order the trustee to pay only if there is a clear abuse of discretion

EXAMPLE:
where the trust gives the trustee discretion to pay beneficiaries' medical bills and the trustee refuses to pay when the beneficiaries' need is great

Front 29

Discretionary Trust - Exercising the Discretion

Back 29

The trustee must follow whatever directions were given by the settlor AND must try to honor the intent of the settlor

Front 30

No-Contest Provision - Generally

Back 30

A provision purporting to penalize an interested person for contesting the trust instrument or instituting other proceedings relating to the trust estate or trust assets is unenforceable

Front 31

Exclusion of a Spouse - Generally

Back 31

PROHIBITED

Front 32

Exclusion of a Spouse - Rule

Back 32

Restraints are placed on the voluntary conveyance of homestead real property away from the spouse

If a married settlor solely owns any property that qualifies as homestead real property, he may NOT make a gift of the property OR transfer title by deed to the trustee UNLESS the settlor is joined by the spouse

Front 33

Prudent Investor Rule - Generally

Back 33

Absent a contrary provision, a trustee has a duty to invest trust assets as a prudent investor would, taking into account both probable income and the safety and preservation of principal

Applied in determining the propriety of investments made by a trustee

Front 34

3 Duties of Trustee

Back 34

(1) Duty of loyalty
(2) Duty to separate and earmark property
(3) Duty to perform personally

Note: this are similar to the duties attorneys owe their clients and that directors and officers owe to shareholders and the corporation

Front 35

Duty of Loyalty

Back 35

Trustee cannot represent both her personal interest and the interest of the trust (no self-dealing)

Front 36

Duty to Separate and Earmark Property

Back 36

Trust assets must be kept physically separate from trustee's personal assets and assets of other trusts (no commingling)

Front 37

Duty to Perform Personally

Back 37

Trustee must personally perform functions that a reasonably prudent person wouldn't delegate

EXCEPTION:
A trustee in FL may delegate investment and management functions that a prudent trustee of comparable skills could delegate under the circumstances as long as the trustee uses reasonable care, skill, and caution in:
(1) selecting an agent
(2) establishing the scope and terms of the delegation, and
(3) periodically reviewing the agent's actions to monitor the agent's performance and compliance with the terms of the delegation

Front 38

Remedies - Generally

Back 38

If a trustee violates a trust duty or inappropriately exercises a power, liability is automatic

Front 39

In response to a trustee violating a duty, a beneficiary may do?

Back 39

In response, the beneficiary MAY do one of two things
(1) ratify the trustee's act or
(2) sue him for surcharge

Front 40

Ratification

Back 40

the beneficiary accepts the trustee's improper conduct

Front 41

Surcharge Action

Back 41

the beneficiary is entitled to receive the full amount of the loss to the trust resulting from the improper conduct

Front 42

Removal of Trustee - Generally

Back 42

A court may remove a trustee if his continuation would be detrimental to the interest of the beneficiaries

LOOK FOR:
--commission of a serious breach of trust
--the existence of a significant conflict of interest
--extreme hostility or friction between the trustee and beneficiaries (where such hostility is likely to interfere with the proper administration of the trust)

Front 43

Judicial Modification - Generally

Back 43

In addition to rights under common law to modify, amend, and revoke a trust, FL statute provides for judicial modification of irrevocable trusts in certain circumstances

BASED ON CHANGE IN CIRCUMSTANCES:
(1) if the purposes of the trust have been fulfilled or have become illegal or impossible to fulfill
(2) because of changed circumstnaces not known to or anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair accomplishment of a material purpose of the trust

Front 44

Rule Against Perpetuities

Back 44

FL has adoped a 360-year alternate vesting period

A nonvested property interest in a trust is INVALID UNLESS:
(1) when the interest is created it is certain to vest or terminate within 21 years after the death of an individual then living, OR
(2) it actually vests or terminates within 360 years after its creation

DOES NOT APPLY TO CHARITABLE TRUSTS