Sc Bar Exam - Trusts (Separately)

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Start essay with

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A trust may be created in express terms by a transfer of legal title to a trustee or by a declaration of trust and may also be implied by law from the conduct of the parties.

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Generally

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A trust is the split of legal title and equitable title to property.

- Settlor - is the person funding the trust
- Res - the property within the trust
- Trustee - person holding legal title and usually responsible for managing the trust
- Beneficiary - person holding equitable title in the trust and for whom the trust is created

If trustee and beneficiary become same person > merger and the trust is destroyed

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Express trusts

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Created by express terms by a transfer of legal title to a trustee (could be settlor) OR by a declaration of trust

Inter vivos - created during settlor's lifetime
- Declaration of trust - settlor is trustee and states he is holding property for benefit of another
- Deed of trust - settlor funds a trust, trustee manages > for benefit of beneficiary

Testamentary trust - created by a will, exists at death/execution of will

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Statute of Uses - express trusts

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If a person holds title to LAND for benefit of another, the legal title holder must have some duties to perform for a trust to be validly created.

No duties - trust is passive and trust moves to beneficiary

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Implied trusts - resulting

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Implied trusts - a trust may be created at law, or by conduct of parties

Resulting trust -
- express trust which fails
- court may infer legal title is held in trust for settlor/settlor's estate
- legal title is placed in name of someone other than the intended beneficiary

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Implied trusts - constructive

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Used interchangeably with 'resulting trust' - but this is remedial in character

- title obtained by fraud or wrongdoing - court will hold the wrongdoer has the property in a constructive trust for the benefit of the proper party

- enforcement of contract regarding will - T contracted to devise something in will > doesn't > court will create/impose a constructive trust on devisee for benefit of contracting party

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Charitable trusts

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created for benefit of an uncertain class or public generally

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Creation - intent

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Must have INTENT to create a trust

- intent to split title - settlor must manifest intent to split legal title and equitable title (no special wording is necessary)

- Precatory terms are not sufficient - "wish, desire, etc.
- there must be a creation of enforceable duties, mandatory in nature. Options to obey are insufficient

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Creation - capacity for a Revocable trust

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Must have TESTAMENTARY capacity -

age, understand the nature of the res, objects of affection, disposition

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Elements of a trust

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must have:

- res
- trustee (legal title holders)
- beneficiaries (equitable title holders)

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The Res

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- Must be ascertainable
> transferable and in existence at time trust is created
> no expectant property
> property interests may be held in trust

* Poor over exception - a person may devise assets at death into an inter vivos trust that is recognized as having been created during the testator's lifetime, even though no assets were put in the trust until death

to be valid - be in writing and signed no later than time of execution of will or in a will of a person who predeceased T

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Trustees

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Must have one or more

Who may serve - any individual with sufficient capacity to deal with is own property
(banks, trust company, corporations if trust is germane to business)

Bond - if trust requires or if court adds beneficiary

Settlor may be sole trustee under declaration of trust

Trustee can be a beneficiary - so long as not sole beneficiary and sole trustee

Trustee not required to accept - equity will allow a willing trustee to be appointed

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Resignation or removal of Trustee

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Trustee may resign upon 30 days notice to beneficiaries, settlor, and other co-trustees or with approval of court

Trustee may be removed by a court on its own motion or upon a request by settlor, co-trustee, or beneficiary

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Vacancy of trustee?

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Look to:

Trust designation > unanimous decision or beneficiaries > appointment by court

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Beneficiaries

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Must be ascertainable - either definite, or definitely ascertainable within period of Rule Against Perpetuities

honorary trusts for care of pets is specifically permitted

Prior to settlor death - Death of Beneficiary - anti-lapse provisions kick in, issue takes

Divorce of beneficiary of revocable trust - upon divorce, any beneficial interest held by spouse of settlor is revoked.

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Trust purpose

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no immoral or illegal purposes

if purpose of private trust is unclear - fails > resulting trust created for settlor or settlor's estate

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Statue of frauds (inter vivos trusts)

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Must have clear and convincing evidence of a trust

Writing must have - reasonably definite description of beneficiary, res, and purpsoe

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Statute of Wills (testamentary trusts)

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Put elements of trust in will

ID beneficiaries and purpose > if will is insufficient, trust fails

secret and semi-secret trusts are not enforceable but implied trusts may be found

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Pour-over provisions

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Inter vivos trust funded at death

Trust must be created and set forth in writing before or concurrently with the execution of the will

Res is still subject to claims of creditors

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Voluntary transfer of beneficial interest (equitable title)

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Beneficiary may transfer or mortgage an interest in a trust UNLESS
- valid restraint on transfer
- inherently incapable of transfer

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Creditors of beneficiaries (involuntary transfers)

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if beneficiary can transfer his interest > at-risk for creditor claims

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Restraints on transfer

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Indirect restraint/cessor clause - beneficiary tries to transfer > interst is lost

Direct restraint/spendthrift clause - any attempt to transfer is ineffective, voluntary or otherwise. Creditors may not touch the interest while in the trust. Trustee may only make distributions to the beneficary and not the creditors. But creditors may touch after distribution

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Support trusts

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If trustee is required to pay income or principal as may be necessary for beneficiary's support, the trust is valid and the interest cannot be reached by creditors

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Discretionary trusts

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if a trustee is given authority, in their discretion, to determine how much income or principal will be paid to a particular beneficiary >

creditor cannot compel trustee to exercise discretion in their favor

But - paid benefits are freely alienable

Settlor/beneficiary benefits are at risk to maximum extent trustee would be able to pay

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Creditors

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Of trustee - cannot reach trust property

of settlor (not a beneficiary/settlor)
- revocable trusts - can be reached to the extent the settlor has power to revoke
-irrevocable trusts - generally a creditor cannot reach this property, unless settlor is a settlor/beneficiary

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Power to revoke or amend

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Presumption rule - any trust after 2006 is presumed revocable

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Method of revocation

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First - how is its specified in trust

SC Trust Code -
- Express modification or revocation in subsequent will or codicil (clear and convincing)
- Any written statement delivered to trustee of modification or revocation (clear and convincing)
- Oral trusts - oral statement to trustee to revoke or mod

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Termination

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Expiration of term

By agreement - all beneficiaries & settlor

court may modify, reform or terminate (clear and convincing proof of mistake by settlor)

Trusts less than $100,000 - trustee may terminate without court approval if cost doesn't justify

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Merger

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Termination by merger of legal and equitable interests

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Trustee powers

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all powers of a property owner unless limited by trust
- mortgage, sell, lease, borrow, make loans, vote shares of stock, settle claims

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Discretionary powers

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Good Faith

Abuse factors:
- extent of discretion conferred
- purpose of trust
- nature of power
- external standards or lack
- motives
- conflicts of interest

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Trustee Duties

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Duty to take control of property, hold it, preserve it, administer

Duty of REASONABLE CARE and SKILL
- general standard - prudent person in the circumstances exercising reasonable skill, care, and caution
- for investing - prudent investor standard - portfolio as a whole ill be considered (must diversify)

Duty of loyalty - to the beneficiary

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Delegation of duty

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may delegate so long as PRUDENT - duty to monitor, duty of care in selection of delegatees

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Trustee buying property in trust

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Voidable at the option of the beneficiary - must be:
- specifically authorized in trust
- court approves the transaction
- beneficiaries consented or ratified

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Other duties

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Duty of impartiality towards all beneficiaries

Duty to account

Duty not to comingle

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Claims by beneficiaries

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Breach of trust - trustee not liable if reasonably relied on terms of trust

who may sue
- beneficiary
- settlor if a beneficiary
- co-trustees

Statute of limitations
- 1 year after receipt of account or reporting that adequately discloses a claim or
- 3 years from removal, death, or resignation of trustee, termination of beneficiary interest, termination of trust