Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/44

Click to flip

44 Cards in this Set

  • Front
  • Back
Creation of a Trust - Generally
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
Settlor - Capacity
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
Undue Influence
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
Intent
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
Overcoming an Inference Against Creation of a Trust
(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
Trustee - Generally
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
How can a person create a trust?
by naming himself trustee for another
When can a court remove a trustee?
if his continuation in office would be detrimental to the interest of beneficiaries
What factors will a court consider in removing a trustee?
(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
Trust Property - Generally
Where there is no trust property, the trust fails because the trustee has no property to manage
Trust of Tangible Property
need not be in writing, but a trust of real property MUST be evidenced by a writing
Promise to Create a Trust in the Future
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
Beneficiaries - Generally
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)
Identification of Beneficiaries
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
Can you make a trust "to my friends"?
NO, it is too indefinite and will render a trust invalid or want of a beneficiary
Spendthrift Trust - Generally
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
What happens if there is no spendthrift trust provision?
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
What happens once income or principal is distributed from the trust?
It loses its trust character

Thus, once trust property is distributed to a spendthrift beneficiary, his creditors may reach it
What is the underlying concept of a spendthrift clause?
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
What if the settlor also joins in requesting the termination?
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
Charitable Trusts - Comparison with Private Trusts
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
Charitable Trusts - Purpose
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
Charitable Trusts - Beneficiaries
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
Charitable Trusts - Rule Against Perpetuities
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
Charitable Trusts - Cy Pres Doctrine
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"
Support Trust - Generally
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
Support Trust - Level of Support
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
Discretionary Trust - Generally
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
Discretionary Trust - Exercising the Discretion
The trustee must follow whatever directions were given by the settlor AND must try to honor the intent of the settlor
No-Contest Provision - Generally
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
Exclusion of a Spouse - Generally
PROHIBITED
Exclusion of a Spouse - Rule
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
Prudent Investor Rule - Generally
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
3 Duties of Trustee
(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
Duty of Loyalty
Trustee cannot represent both her personal interest and the interest of the trust (no self-dealing)
Duty to Separate and Earmark Property
Trust assets must be kept physically separate from trustee's personal assets and assets of other trusts (no commingling)
Duty to Perform Personally
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
Remedies - Generally
If a trustee violates a trust duty or inappropriately exercises a power, liability is automatic
In response to a trustee violating a duty, a beneficiary may do?
In response, the beneficiary MAY do one of two things
(1) ratify the trustee's act or
(2) sue him for surcharge
Ratification
the beneficiary accepts the trustee's improper conduct
Surcharge Action
the beneficiary is entitled to receive the full amount of the loss to the trust resulting from the improper conduct
Removal of Trustee - Generally
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)
Judicial Modification - Generally
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
Rule Against Perpetuities
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