Trust 06

Front 1

Trusts:

why set up a trust:

Back 1

to avoid probate

Front 2

trusts:

that is funded during the lifetime of the settlor/donor and avoids probate--does NOT have to satisfy will requirements b/c we treat it as an inter vivos transfer

Back 2

Why set up a trust?

Inter vivos/revocable/living trust

Front 3

truts:

trust is funded at death and pours over into the will. This goes through probate

Back 3

testamentary trust

Front 4

trusts:

1. Allows the donor to determine how to manage the property and gives more power than the ct would have. Can name successor trustees.

Back 4

why set up a trust:

property management

Front 5

trusts:

iii. Tax advantages
iv. Creditor protection

Back 5

why set up a trust

Front 6

trusts in general:

1. Written trust agreement
a. Deed of Trust:
i. settler must transfer trust property to another person as trustee
ii. if created by will the settlor cannot be the trustee
b. In most states a written declaration of trust is irrevocable unless stated otherwise
i. so once you write that you are holding it in trust then you cant undo it (unless you specified in the writing “unless” you change your mind)
ii. CA by statute reverses this presumption and says the trust is revocable unless the writing states otherwise

Back 6

expressed trust

Front 7

trusts in general:

2. Oral (Declaration of Trust)
a. Settlor says “I am creating a trust”
b. Only enforceable for personal property. If there is real property it would violate the SOF.
c. an oral declaration of trust is admissible to prove a trust but it alone is NOT sufficient-you need to show clear and convincing evidence

Back 7

expressed trust

Front 8

trusts in general:

3. Note: in order to have a valid trust-the trustee must owe a equitable duties to someone other than himself (Ex S cannot be the sole trustee and sole beneficiary)

Back 8

expressed trust

Front 9

trusts in general:

1. Settlor doesn’t say he is creating a trust but based on his actions that is what he implied

Back 9

implied trust

Front 10

trusts in general:

created during life of settler

Back 10

inter vivos trust

Front 11

trusts in general:

trust created by will

Back 11

inter vivos trust

Front 12

trust in general:

settlor can change his mind and revoke the trust

Back 12

revocable trust

Front 13

trust in general:

settlor cannot revoke trust once it is created

Back 13

irrevocable trust

Front 14

trust in general:

: a non binding wish or desire
1. Ex if you say I give to A with the hope that you will use it for the benefit of B--this is precatory language.
2. Ex -I give to A with the intent that A will use it for B---not clear-ct will look at extrinsic evidence to determine what you wanted

Back 14

precatory trust

Front 15

trust in general:

Not a valid trust as this lacks human beneficiaries, but the trustee can carry out the settlers wishes to care for an animal, maintain a grave site. The trustee is on his honor to carry out the trust purpose

Back 15

honorary trusts

Front 16

trust in general:

1. Trustee lacks discretion and must pay in accordance with the terms of the trust
2. Must distribute ALL the income (lump sum or pay on a periodic basis)

Back 16

mandatory

Front 17

trust in general:

1. The trustee has absolute discretion over the payment of income or principal or both
2. Provides greater flexibility b/c settlor cannot forsee all the problems that his family might face after the trust is created--so trustee is given latitude in making sure family is cared for
3. Trustee has a fiduciary obligation to the beneficiaries of the trust

Back 17

discretionary

Front 18

trust in general:

limits voluntary and involuntary alienation, as beneficiary cannot voluntarily alienate their interest nor can their creditors reach their interest

Back 18

spendthrift

Front 19

trust in general:

1. Exceptions
a. K for necessities
b. Alimony obligations
c. Child support obligations
d. Claims founded on torts – involuntary
e. Claims by govt. entities

Back 19

exceptions to spendthrift

Front 20

trust in general:

1. Facts of the trust are secret
2. Issue comes up when a person orally agrees to carry out the expressed wish of the testator regarding property he is bequeathed outright in a will, but later refuses to carry out that wish
3. Ct will impose a constructive trust upon a proper showing that the agreement was actually made in order to enforce the agreement

Back 20

Secret Trust or Constructive Trust

Front 21

Trust in General:

4. Example: "to A and A promises to hold in trust for B"
a. here we don’t have the intent to create a trust WHY
b. ct will have to look at extrinsic evidence to determine whether there was a secret trust (promise)
5. ct will enforce a secret trust but not a semisecret trust b/c the ct feels it would be an injustice for promisor under a secret trust to keep the property

Back 21

secret trust or constructive trust

Front 22

general trust:

(no beneficiary indicated so trust fails)
1. The will indicates an individual that is to hold the property in trust but does not identify the beneficiary so the trust fails
2. Example: "to A in trust"
a. Problem: we know you want to create a trust but we don’t know for who--there is no ascertainable beneficiary indicated
b. T cannot rely on oral instructions to a trustee on how to distribute property-T must indicate who property is to go to

Back 22

under a semi secret trust

Front 23

trust in general:

trust set up for charitable purposes that benefits large number of unidentifiable beneficiaries (medicine, education, science)

Back 23

charitable trust

Front 24

trust in general:

Implied in a variety of circumstances where a person acquires title to property wrongfully. Trust is implied to remedy unjust enrichment
a. Title to property acquired by fraud, duress, misrepresentation
b. Oral trust of land under limited circumstances
c. Secret trust case
d. Semi-secret trust case

Back 24

constructive trust

Front 25

trust in general:

1. When a settlor names the trustee of her inter vivos trust as the beneficiary of her life insurance policy, but does not add any other funds or assets to the trust

Back 25

unfunded life insurance trust

Front 26

trust in general:

1. an unfunded life insurance trust as well as funded trust is a valid inter vivos trust

Back 26

funded intervivos trust

Front 27

trust in general:

a. Not a true trust b/c no intent to create a trust
b. Where an expressed trust fails or makes an incomplete disposition
c. There is an equitable reversionary interest that arises by operation of law
d. Property bounces back to T or his heirs

Back 27

not tusts but hte court will consider them a trust:

Resulting trust

Front 28

trust in general:

a. Not a true trust b/c not intent to create a trust
b. if unjust enrichment ct will say there is a constructive trust for the intended beneficiary

Back 28

not tusts but the court iwll consider them a trust:

Constructive Trust

Front 29

creation of a valid trust:

the creator who provides assets to create the trust. Person must have intent, mental capacity, and be at least 18 years old.

Back 29

settlor/donor

Front 30

creation of a valid trust:

All that is needed is a grantor manifesting an intention to create a trust relationship regarding a present existing property that is certain and identifiable.
a. A Deed transfer: a writing specifying a 3rd party trustee-- look for 1) intent of donor and 2) intent to accept the duty by trustee
b. NO particular form of words are necessary
c. the word trust or trustee need not be used
d. Ex. When a grantor conveys property to a grantee to hold "for the use and benefit" of another, this is a sufficient to create a trust

Back 30

settlor/donor

Intent

Front 31

creation of a valid trust:

(Res, Corpus) – T must have a present existing property interest that is certain and identifiable
a. This may include the right to future interest if it is vested

Back 31

settlor/donor

trust property

Front 32

creation of a valid trust:

(helps prove intent, and that trustee accepted responsibility (proof of delivery)

Back 32

settlor/donor

delivery

Front 33

creation of a valid trust:

i. execution of a deed conveying title to trustee
ii. delivering deed to trustee (or his agent)

Back 33

settlor/donor

if trust res is real property delivery may be made by:

Front 34

creation of a valid trust:

i. Physical delivery
ii. Symbolic delivery
1. gives the donee something symbolic of the object when manual delivery is impractical (Ex a written instrument)
2. executing a deed, gift, or instrument of title in favor of the trustee, and delivering that document to the trustee or agent
iii. Constructive Delivery
1. delivery to the trustee or his agent an object which represents or gives access to the property (Ex a key to a car-with the intention of transferring ownership of the car)

Back 34

settlor/donor

if trust res is personal property delivery may be made by

Front 35

creation of a valid trust:

i. Self declaration of trust does not require delivery as donor is the trustee
ii. Transfer to a 3rd party trustee requires delivery

Back 35

settlor/donor

Deliver - inter vivos trust

Front 36

creation of a valid trust:

delivery is accomplished via the will

Back 36

settlor/donor

Delivery: Testamentary Trust

Front 37

Creation of a Valid Trust:

Person holding legal title to trust property and managing the assets. They must have capacity. Can have more than one trustee

Back 37

Trustee

Front 38

creation of a valid trust:

1. Trust will not fail for want of a trustee.
2. Trustee can be an individual, a corporation, a settlor, 3rd party, or beneficiary
t

Back 38

trustee

Front 39

creation of a valid trust:

a. Loyalty: Trustee must administer the trust solely in the interest of the beneficiaries
b. Care: Trustee is held to an objective standard of care
c. Subsidiary Duties:
i. Duty of impartiality (no preference of either party) between classes of beneficiaries such as
1. Income beneficiaries -who are interested in income and high yields; and
2. Principal Beneficiaries (Remaindermen) -who are concerned with preservation of principal and appreciation in value
ii. Duty to keep trust property separate from the trustee's own property
iii. Duty to inform and to account to the beneficiaries

Back 39

trustee:

has a fiduciary duty to act for the benefit of the beneficiary set out by the terms of the trust

Front 40

creation of a valid trust:

4. Is paid a fee usually determined by a percent of the assets
5. a trustee holds legal title to the trust property--beneficiaries have equitable beneficial interest

Back 40

trustee

Front 41

creation of a valid trust:

a. If the trustee wants out he can leave, if no successor is named the ct can appoint one. The choice of trustee must be respected unless there has been misfeasance or breach of the duty to the trust.

Back 41

removal of trustee

Front 42

creation of a valid trust:

i. Can be denied compensation
ii. Subject to personal liability
iii. can be removed as trustee by the court
iv. if T misappropriates trust property then the trustees can benefit from any increase in value that results from the misappropriation (Ex if buy stock and stock goes up in value).
v. if stock goes down in value then can sue trustee personally for the value of the trust property and interest that the money would have earned if it was left in the savings account earning interest

Back 42

removal of trustee if trustee improperly manages the trust

Front 43

creation of valid trust:

a. Active Trust: have duties
i. just having the duty of conveying the property in trust to the beneficiary is enough to satisfy the duty requirement
b. Passive Trust: No duties specified
i. there is no reason to recognize a trust-so it will fail
ii. when a trust fails b/c trustee has no duties to perform--the beneficiaries acquire legal title to the trust property

Back 43

to have a trust the trustee must have some duties to perform

Front 44

creation of a valid trust:

a. If settlor intends to create a trust but fails to name a trustee-then the ct will appoint a trustee to carry out the trust

Back 44

a trust will not fail for want of a trustee

Front 45

creation of a valid trust:

a. but once you accept position of trustee you can only be released from liability by obtaining the consent of the beneficiaries or by a court order

Back 45

cannot have trustee positino forced upon you

Front 46

creation of a valid trust:

Person(s) holding equitable title and receiving the benefit of the assets (Private Trust-b/c held in the name of beneficiary)

Back 46

beneficiary

Front 47

creation of a valid trust:

a. There must be one or more beneficiaries specified (someone to enforce the trust)
i. as long as the beneficiary will be ascertainable at some point in the future they don’t have to presently exist (Ex future children)
b. Exception: Charitable Trusts do NOT need a specific identifiable beneficiary b/c if they do they are no longer considered charitable

Back 47

beneficiary: a gift in a trust will fail for it no beneficiary is specified

Front 48

creatino of a valid trust:

2. There can be a remainder beneficiary

Back 48

beneficiary

Front 49

creation of a valid trust:

a. can go after trustee to get the value of the property back if trustee mismanages it
b. beneficiaries can trace assets and recover from 3rd parties the property value unless they are bona fide purchasers for value

Back 49

beneficiaries have a personal claim against trustee for a breach of trust

Front 50

creation of a valid trust:

4. Personal creditors of the trustee-other than the trust beneficiaries-cannot reach the trust property
5. Private trusts almost always have successive beneficiaries
a. Ex "to A in trust for life then to B"

Back 50

Beneficiary

Front 51

creation of a valid trust:

v. Lux v Lux: Lux died testate but her will was ambiguous (said she wanted grandchildren to get property and then said she wanted it to be maintained for their benefit). court had to determine whether she devised certain property to her grandchildren outright or in trust. ct held the absence of the word “trust” or designation of a trustee is immaterial where the requisite intent of the testator can be found. based on the language the ct concluded she intended to create a trust--she did not intend to give her grandchildren fee simple title to her property. the magic words "in trust" DO NOT have to be used

Back 51

creation of a valid trust case law

Front 52

creation of a valid trust:

vi. Jimenez: P brought an action against her dad for an accounting. P claims that her dad was given money in trust for her education and that dad was the trustee. Ct held for P, because the ct looked at the language from the parties to show intent and dad letter to P acknowledged a trust. Dad breached by not properly accounting for funds and co-mingle funds.

Back 52

creation of a valid trust case law

Front 53

creation of a valid trust:

1. Hebrew University v. Nye #I: Yahuda owned an extensive library that she promised to give to a university in jerusalim but never delivered before her death. Rule; An imperfect gift due to lack of delivery may not be turned into a trust without an express manifestation of intent. The court said no trust because there was no manifestation of intent to create a trust. There was nothing that happened to show that she had legal title.

Back 53

Say a gift fails, for failure to deliver -can we save the gift by characterizing it as a trust case law

Front 54

creatino of a valid trust:

1. Unthank v. Rippstein: Craft sent a letter to Rippstein (p) promising to give her 200 per month. Rule: a mere promise to givee periodic gifts in the future will not support a finding that a trust has been established. Tehre is no property that is ubject to a trust here, here there was a requireument that there be a trust rest.

Back 54

Necessity of trust property

Front 55

creatino of a valid trust:

2. Brainard v. Commissioner: Brainard declares his wife and mom that he is making a trust that all of his profits from stock trades will benefit his mom, children and wife. So whatever profit he makes from 1928 will go to the wife, mom, and children. He paid himself 10k. After he dividied up the property to the people he promised it to. The problem here is whether there wsa a valid trust, because of the tax implications and being in a higher tax bracket. Rule: A trust can be created from a promise to create a trust with property that will be acquired in the future IF after acquiring the property the settlor re-manifests an intent to create the trust

Back 55

necessity of trust proeprty

Front 56

creation of a valid trust:

3. Speelman v. Pascal: P was D’s secretary and mistress. D wrote P a letter that he would give her a % of the profits of a production Pygmalion a play. D died and P wants the profits. Rule: A gift of property to be acquired in the future is valid and effective if the donor manifests an irrevocable intention to make a present transfer of his interest.

Back 56

necessity of trust property

Front 57

creation of a valid trust:

Bottom line: there is a requirement of a present existing property interest that is certain and identifiable for a trust to be valid

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necessity of trust proeprty:

trust rest

Front 58

creation of a valid trust:

1. manifestation of intent to make a trust, 2. there must be trust rest (characterizing a present property interest), and 3. has to be ascertainable trust beneficiaries.

Back 58

necessity of trust property:

Valid Trust

Front 59

necesssity of trust beneficiary:

i. This means that the particular people that qualify as beneficiaries have to be ASCERTIANABLE at some time when the trust vest.

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neccessity of trust beneficiary

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necessity of trust beneficiary:

ii. Clark v. Campbell: A trust was created by decedents will that specified all of his personal property was to be distributed to his "friends" at the sole discretion of the trustee. Rule: a bequest to an indefinite person or group is invalid. There is not enough information to indicate who qualifies to be included in the class as friends. If he had used "brothers, sisters, or relatives" then it would be easy for the ct to ascertain who those individuals are

Back 60

necessity of trust beneficiary case law

Front 61

necessity of trust beneficiary:

whether the class of beneficiaries are so described that some person might reasonable be said to answer the description

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the test for a valid class

Front 62

necessity of trust beneficiary:

Giving someone the power to appoint what to do with the property. no need for ascertainable beneficiaries b/c they can give to whoever they want. no obligation to pick anyone in order to dispose of the property--they have no duty at all--not considered a fiduciary (like in a trust

Back 62

power of appointment

Front 63

Honorary Trust:

in trust to A for care of my animal. Does not succeed as a charitable trust or private trust. Usually for pets. This is precatory (wishful) language.

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honorary trust

Front 64

honorary trust:

ii. In re Searight's Estate: S died leaving $1,000 to be paid to Florence Hand at a rate of .75 cents a day for the care of his dog Trixie--until the dog died. If money was left over when Trixie died he specified a list of individuals it was to be distributed to, if they were still living. Ct held an "Honorary Trust" is created when a trustee agrees to take on the duties of caring for the animal b/c there is no beneficiary capable of enforcing the trust. Note: if she had declined to care for the dog then she would hold the property (dog) upon a Resulting Trust and the property would be returned to the settlor or the settlor's successors

Back 64

honorary trust case law

Front 65

semi secret trust:

1. Olliffe v. Wells: Mrs Donovan died leaving a will that gave her residuary estate to Reverend Wells to "distribute in such a manner as in his discretion shall appear best calculated to carry out the wishes which I expressed to him" (which was to use her estate for charitable purposes--help the poor, aged, infirm, and needy under the care of St. Stephen's Mission of Boston). Rule: a semi-secret trust is not enforceable for lack of an ascertainable beneficiary. Ct said Reverend Wells was given no beneficial interest in the estate-he was only to distribute the proceeds of the estate to some unknown class of persons. This substitutes the intent of the decedent for that of Reverend Wells so it is too indefinite to be valid

Back 65

semi secret trust case law

Front 66

rights of beneficiary to get distributions from trust:

the trustee can distribute up to 100 bucks a year if he so chooses. The levels of discreation vary greatly, there can be complete discreation, the trustee can have discreation with certain set parameters.

Back 66

discretionary trust

Front 67

rights of beneficiaries to get distributions from a trust:

2. Marsman v. Nasca: SM died leaving a trust for husband Cappy. Trust was discretionary with standard to pay for support and maintenance. C was short on funds so asked trustee for principle but trustee only given small amount and asked C to explain in writing why he needed the support. C had to convey his interest in his house to daughter in exchange for her paying his bills. C remarried M, then died and left house to M in will. M sued. Ct held for M, because trustee violated duty by not giving C money for support. General rule: is a beneficiary can sue the trust itself-if there is money left (b/c it is the trust that was supposed to pay you). here ct let Margaret go after the trust to get whatever payments Farr should have made out of the trust to Cappy. Here the trustee didn’t take affirmative steps to inquire about Cappy's needs

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case law

Front 68

rights of beneficiaries to get disributions from a trust:

A trust that has language such as "comfortable maintenance" will require a trustee to make some sort of inquiry on the beneficiaries status

Back 68

a support trust

Front 69

rights of beneficiaries to get distributions from a trust:
a. trustee lacks discretion and must pay in accordance with the terms of the trust.

Back 69

mandatory trust

Front 70

rights of beneficiaries creditors:

creditors have no greater right to the trust res than the beneficiary himself
1. So if the beneficiary cannot demand the money then neither can the creditors.
2. But in some states creditors can get an order from the ct-which gives them the right to money from a trustee when he decides to make a distribution to the beneficiary.
3. If the trust gives the trustee the right to make payments to a 3rd party-then the beneficiary can request the trustee make payment directly to the 3rd party (Ex. Circuit city for a new TV)

Back 70

rights of beneficiaries creditors general rule

Front 71

rights of beneficiaries creditors:

limits voluntary and involuntary alienation, as beneficiary cannot voluntarily alienate their interest nor can their creditors reach their interest. Ct’s usually uphold spendthirft provisions

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spenthrift clause

Front 72

rights of beneficiaries creditors:

1. Suppliers of necessities (food, medical care)
2. Alimony obligations
3. Child support obligations
4. Claims founded on torts – involuntary
5. Claims by govt. entities
6. Taxes
7. Note:
a. a settlor cannot create a trust to alienate money from creditors
b. What if settler tries to write a clause that prevents involuntary alienation but not voluntary alienation. Ct says if creditors cannot take it from you then you should not be able to give it to who you want

Back 72

exceptions

Front 73

rights of beneficiaries creditors;

iv. Scheffel v Krueger (tort): Lorie Scheffel as the mother of Corey C. (a minor) filed a tort claim against Krueger for allegedly sexually assaulting her daughter, videotaping the act, then broadcasting the videotape over the internet. Ct had to determine whether the legislature intended the spendthrift statute to shield trust assets from tort creditors. Ct. held the spendthrift statute will not be enforced unless 2 exceptions apply: The beneficiary is also the settlor; or When the assets were fraudulently transferred to the trust. Ct held the spendthrift statute barred P's claim against the trust. ct said b/c the legislature specifically only provided 2 exceptions they did not intend any other to apply-. ct said creditors proceed at their own risk-so before a creditor sells a product (Ex TV) they better check the buyers credit

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rights of beneficiaries creditors case law

Front 74

rights of beneficiaries creditors:

v. Shelley v. Shelley (alimony, child support): HS left his property in trust to wife and son with spendthrift clause. Son married twice and had 2 children from each marriage. Wives are trying to get child support and alimony from the trust. Ct held that D’s interest in the trust income was subject to the claims of his children and former wives. The right to child support and alimony trumps a spend thrift clause b/c of public policy--b/c the state will have to pay to support them (but only in regards to distributions from the trust-it does not apply to principal). A spouse or child can attach any present or future distribution made by the trustee, but they cannot attach the trust corpus to satisfy their claim b/c its disbursement was within the discretion of the trustee--and D had no right to the corpus until the trustee exercised his discretion to invade the corpus and disperse it to him.

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rights of beneficiaries creditors case law

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modification of trusts:

If the settlor and all beneficiaries consent, the trust may be modified or terminated (only possible if the settlor is alive)

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modification of trust general rule

Front 76

modification of trusts:

2. The trust may not be modified or terminated, even if all beneficiaries agree, if to do so would be contrary to a material purpose of the settlor. (Claflin rule) Material purpose includes spendthrift, discretionary trusts.

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modification of trusts

Front 77

modification of trusts:

i. A trust cannot be terminated or modified prior to the time fixed for termination, even if all the beneficiaries consent, if termination or modification would be contrary to a material purpose of the settlor.

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chaflin doctrine

Front 78

modification of trusts:

i. authorizes a court to "modify the administrative or dispositive provisions of the trust or terminate the trust if, owing to circumstances not known to the settlor and not anticipated by the settlor, the continuation of the trust under its terms would defeat or substantially impair the accomplishment of the purposes of the trust

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CPC Sec 15409. Modification of Trust CA Law

Front 79

modification of trusts:

a. Ct may modify or terminate a trust upon petition by the trustee or beneficiary if changed circumstances mean continuation in the same manner would defeat the purpose of the trust.
i. CPC Section 15409
1. Allows for modification even if it defeats the purpose of the trust.
b. Divorce – by operation of law can modify or terminate a trust

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changed circumstances

Front 80

modificaion of trusts:

4. In Re Trust of Stuchell: An income beneficiary is seeking to have the trust altered for the benefit of the remainder man who is retarded H. H needs public assistance and if he receives the trust outright he would no longer be eligible for public assistance. A trust may be termined if all of the beneficiaries agree, none of the beneficiaries is under a legal disability, and the trust’s purpose would not frustrated by doing so. Ct did not allow modification even though all the beneficiaries consented b/c the modification was to make trust more advantageous to the beneficiaries and NOT to insure the continued accomplishment of the purpose of the trust

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modificiation of trust case law

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modification of trusts:

The terms of a trust cannot be modified after the death of a settlor, UNLESS: modification is necessary to prevent the purpose of the trust from being substantially impaired due to circumstances that arise after the settlors death and which were unknown to the settlor at the time the trust was created

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modificaiton after death

Front 82

modification of trusts:

an equitable remedy that conforms the instrument to reflect what the settlor actually intended at the time of its execution

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reformation

Front 83

modificaiton of trusts:

changes the terms of the instrument to reflect not what the settlor meant to say, but what the court believes the settlor would have said, had the settlor anticipated the changed circumstances. Modification to achieve the settlors probable intent in light of changed circumstances

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equitable deviation

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terminatino of trusts:

Generally a trust cannot be terminated if any of the following apply b/c such trusts state a material purpose of the settler and to deviate from them would violate his intent. Material Purpose Includes:
a. Spendthrift Trust
b. Support Provision (trust is for the support of the beneficiary)
c. Minimum Age Provision
i. beneficiary not to receive principal until attaining a specific age
d. Discretionary Provision (discretionary trust)
e. Mandatory Duration Requirement

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termination of trusts black letter law

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trusts in general:

trust created by will

Back 85

inter vivos trust

Front 86

trust in general:

settlor can change his mind and revoke the trust

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revocable trust

Front 87

trust in general:

settlor cannot revoke trust once it is created

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irrevocable trust

Front 88

trust in general:

: a non binding wish or desire
1. Ex if you say I give to A with the hope that you will use it for the benefit of B--this is precatory language.
2. Ex -I give to A with the intent that A will use it for B---not clear-ct will look at extrinsic evidence to determine what you wanted

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precatory trust

Front 89

trust in general:

Not a valid trust as this lacks human beneficiaries, but the trustee can carry out the settlers wishes to care for an animal, maintain a grave site. The trustee is on his honor to carry out the trust purpose

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honorary trusts

Front 90

trust in general:

1. Trustee lacks discretion and must pay in accordance with the terms of the trust
2. Must distribute ALL the income (lump sum or pay on a periodic basis)

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mandatory

Front 91

trust in general:

1. The trustee has absolute discretion over the payment of income or principal or both
2. Provides greater flexibility b/c settlor cannot forsee all the problems that his family might face after the trust is created--so trustee is given latitude in making sure family is cared for
3. Trustee has a fiduciary obligation to the beneficiaries of the trust

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discretionary

Front 92

trust in general:

limits voluntary and involuntary alienation, as beneficiary cannot voluntarily alienate their interest nor can their creditors reach their interest

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spendthrift

Front 93

trust in general:

1. Exceptions
a. K for necessities
b. Alimony obligations
c. Child support obligations
d. Claims founded on torts – involuntary
e. Claims by govt. entities

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exceptions to spendthrift

Front 94

trust in general:

1. Facts of the trust are secret
2. Issue comes up when a person orally agrees to carry out the expressed wish of the testator regarding property he is bequeathed outright in a will, but later refuses to carry out that wish
3. Ct will impose a constructive trust upon a proper showing that the agreement was actually made in order to enforce the agreement

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Secret Trust or Constructive Trust

Front 95

revocable trust:

transfers legal title to property to another person as trustee pursuant to a writing in but settlor retains the power to revoke alter or amend the trust and the right to trust income during lifetime. Upon Death of settlor the trust assets are to be distributed to beneficiaries.
a. All jurisdictions recognize this either by statute or by case law.

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settlor

Front 96

revocable trust:

if a trust doesn’t specify the manner of revocation -any method that shows intent to revoke can be used
a. so if the trust said nothing about how to revoke it---and we found the torn up pieces of the trust--this would be sufficient to revoke the trust

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revocable trust black letter law

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revocable trust:

this can be revocable or irrevocable

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inter vivos

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revocable trust:

this can only be irrevocable

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testamentary

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revocable trust:

these are created during lifetime and become funded upon the death of the donor

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pour over trust

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revocable trust:

7. Farkas v. Williams: AF purchased stock, which he held in trust for D (AF’s employee). AF’s heirs claim this is an invalid testamentary gift (and not a trust) b/c AF retained the right to sell and benefit from the stocks and to revoke it. Rule: the retention of power by a trustee to sell or redeem stock and to keep the proceeds for his own use does NOT render a trust instrument testamentary in character and does not invalidate an inter vivos trust. Ct held for D, because AF did part with some interest and had a fiduciary duty to the trust.

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revocable trust case law

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revocable trust:

8. In Re Trust of Pilafas (To what extent are we going to apply the law of wills to trusts): SP created an inter vivos trust that left the remainder to 8 charities. SP was not speaking to 3 kids, but he later reconciled and drafted a new will to reflect this. But when SP died his son could not find the will or the trust. Son claims the trust benefiting the charities was revoked. Rule: a will last seen in the testators possession that cannot be found after his death is presumed revoked, however when a settlor reserves the power to revoke his trust in a particular manner, he can revoke it only in that manner. Ct held that the will is revoked by physical act, but the trust is not revoked. The trust specified the manner to which it was to be revoked and it was not done in that manner so it was valid --b/c son presented no evidence showing that decedent complied with the required method of revocation, the inter vivos trust was not revoked and remained valid

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revocable trust case law

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revocable trust:

9. if a trust doesn’t specify the manner to revoke then any manner will suffice, BUT if it does specify the manner then you must use it

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revocable truts

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revocable trust:

10. State Street bank & Trust Co. v Reiser: 1971 Dunnebier created a revocable inter vivos trust. 1972 he borrowed $75,000 from State Street Bank. 4 months later he died. His estate has insufficient assets to pay the entire indebtedness due to the bank. Ct has to determine if the assets of decedents inter vivos trust can be used to pay debts owed by the estate of the settlor of a trust. Rule: Where a person places property in trust and reserves the right to amend and revoke, or to direct disposition of principal an income, the settlors creditors may, following the death of the settlor, reach into those assets owned by the trust that settler had control over at the time of his death and could use for his benefit

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revocable trust case law

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pour over wills:

i. Testator wants probate assets to pour over into an inter vivos trust when he dies

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pour over wills

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pour over wills:

a. A will can incorporate by reference a trust instrument in existence at the time the will is executed, but it cannot incorporate trust amendments made after the will is executed
i. writing must be in existence when will made, specifically identified, and intent to incorporate
ii. If you make changes to trust after will is created then changes will not take effect
iii. Incorporates terms of trust into the will

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incorporation by reference

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pour over wills:

a. Some significance apart from you leaving property at death. A will may dispose of property by referring to some act that has significance apart from disposing of probate assets--in this context, by reference to an inter vivos trust that disposes of assets transferred to the trust during life
b. Doesn’t solve testamentary intent problem
c. Must fund the trust (with res) while you are alive
d. If you create trust and don’t fund it then what is the independent significance?
i. There is none if it isnt funded
ii. But ct wanted people to be able to do something like this so ct came up with UTATA

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acts of independant significance

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pour over wills:

i. allows a pour over will even if trust was not funded during life
ii. a will can pour over into a trust as long as the trust document was put into writing during life
1. Amendments:
a. doesn’t say an amendment must be in writing
iii. but amendment must be communicated to Trustee while alive (orally instructions or delivery of amendment)

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UTAT

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pour over wills:

3. Clymer v. Mayo: CM created a pour-over trust at the same time she created a will. D her ex husband was the beneficiary unless he predeceases her then it would go to the niece and nephews. CM’s only surviving relatives are her parents P who claim the will and trust fail by operation of law from the divorce. Rule: Divorce revokes any trust provisions for the divorced spouse, but will not revoke provisions made for blood relatives of the former spouse. Ct held the will and the trust were so integrated that D predeceases by operation of law and the niece and nephews take under the provisions of the will and trust

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pour over wills case law

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pour over wills:

a. When you get a divorce and forget to change your will the ct will presume you meant to cut out your ex-spouse unless you state otherwise
b. but this is not what we have here--we have a will that leaves property to a trust. so what happens when a trust is the beneficiary in the will (and the beneficiary of the trust is the Ex-spouse)? -ct says any interest James had in the trust was revoked upon divorce

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the law of presumed intent

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testamentary trust:

i. if you create the trust by stating in your will "I hereby est. a trust"…
ii. must satisfy will requirements
iii. requires probate
iv. Practical difference between Testamentary trust and inter vivos trust: in many jxn's if it is a testamentary trust it will require court supervision--so trustee will have to get ct approval to conduct acts (so all of the advantages of the trust are gone)

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testamentary trust

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trustee duties:

i. Common law rule: says trustee only has powers listed in the trust instrument
ii. Modern Rule: Most states say a Trustee has broad powers UNLESS trust instrument says otherwise (can sell, transfer, divest, etc.)

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general law for trustee duties

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trustee duties:

i. Trustee owes a fiduciary duty to administer the trust solely in the interest of the beneficiaries
1. Trustee has broad obligations-regardless of whether specified in the trust or not

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fiduciary duty

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trustee duties:

1. protect beneficiaries interests as if they were your own
2. Trustee breaches duty of loyalty by not acting in the best interest of the beneficiary.
a. Ex. Selling trust property to a buyer just to increase the value of the trustee’s own property.

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duty of loyalty

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trustee duties:

a. If ct determines there has been self dealing then that’s it the trustee loses. Ct does not care if trustee has a reasonableness argument to explain why he did what he did

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duty of loyalty:

no further inquiry rule

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trustee duties:

a. Get settler authorization
i. Hard to do b/c settler is usually dead
b. Get ct approval
i. Ct says this is good for everyone
c. Get beneficiaries to authorize it, BUT for this to work:
i. there must be full disclosure to all beneficiaries;
ii. and it must be objectionably reasonable
*it is hard to get a self dealing transaction approved b/c something usually stinks
about the transaction

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3 ways to engage in self dealing

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trustee duties:

1. Asks whether you are being sensible with the trust funds/property

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duty of prudence

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trustee duties:

i. Duty to collect
1. guy establishes a trust and names x trustee--X must not sit around -he needs to get property and put it in trust
ii. Duty to protect
1. once you have it then safeguard it (if jewels-then don’t leave in front yard; if real property -then repair it; if taxes need to be paid-then pay them; take out insurance)

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duty to collect and protect trust

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trustee duties:

i. set it aside and identify it so we know what the trust property is and what property of the trustee is
ii. NO commingling of property
iii. if don’t earmark then how does ct know what is yours and what is the trust property--to determine what profits are allocated to the trust and to the person acting as trustee

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duty to earmark funds, trust property

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trustee duties:

i. b/c it makes it difficult to trace the assets
ii. cant figure out how you harmed trust-so hard to determine damages
iii. if creditors come after trustee and they cannot tell what is what then they will attach everything
iv. the mere fact that you commingle makes you liable
v. modern trend moves away from strict liability and looks at causation

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duty not to commingle trust money with trustee's money

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trustee duties:

i. Rule: Except as otherwise provided by the terms of the trust the trustee shall observe the standard in dealing with the trust assets that would be observed by a prudent business person dealing with their own property
ii. must balance risk and return -higher risk ventures have greater risk, but must ask whether it is worth it

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prudent investors rule

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trustee duties:

2. In re Gleeson's Will: Gleeson leased land to Colbrook. Gleeson died 2 weeks before the second lease was going to expire and named Colbrook trustee of the land for the benefit of her 3 children. Colbrook stayed on the land for another year paying rent (increased his rent from $6 to $10 per acre and gave a share of the crops harvested) After the 3rd year he leased the land to a new tenant. Children said you cant be a trustee and be a tenant at the same time (cant pursue the best deal for the children as trustee if he is also the renter) The question is whether he breached his duty of loyalty to the beneficiaries of the trust by staying on the land when he was trustee. Rule: Where it is a mere conflict of interest--then reasonableness CAN be a defense, but if actually self dealing then reasonableness will NOT save you. Ct said Colbrook should have decided to either continue as tenant or act as trustee but his duty of loyalty prevented him from doing both.

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duty of prudence case law

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trustee duties:

3. In re Rothko: A trust is set up with 3 trustees to benefit charity. Trustees sell property (artwork) to a Co the trustees have an interest in at a discounted rate. Also Co. agrees to show one of the trustees artwork to thank him for the deal. Daughter of the famous painter sues the trustees for breach of duty to trust, conflict of interest, self dealing and impropriety. Rule: trustees who engage in self dealing or who enter into transactions involving conflicts of interest violate their fiduciary duties. Ct said even though you could have characterized this as self dealing we don’t need to look at this and will focus on conflict of interest--trustees unloaded tons of paintings within 3 weeks--how is this looking after the beneficiaries-this is unreasonable. Ct held for daughter, because here the conflict of interest was so egregious that it amounted to self-dealing and appreciation damages were available. Majority Rule is appreciation damages are available for conflict of interest and self dealing

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duty of prudence case law

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trustee duties:

a. Trad rule: trustees must act unanimously, but some states req just a simple majority when there are 3 or more trustees
b. Settlor can always specify what he wants in trustee instrument

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co trustee rules

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trustee duties:

requires the trustee protect the interests of both.
a. He must produce reasonable income for the Income beneficiaries while preserving the corpus for the principal beneficiaries---this is difficult to juggle

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duty of impartiality

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duty of impartiality:

want to maximize profits--even at the expense of burning up the principal

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income beneficiary

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duty of impartiality:

4. Trustee is not screwing over one beneficiary for his own benefit-so not a loyalty issue--it is a prudence issue-your job is to benefit everyone--if benefit some to the detriment of others then not doing job correctly

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duty of impartiality

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duty of impartiality:

5. Dennis v. RI Hospital Trust: Trustee was to manage 3 buildings in downtown Rhode Island. Income beneficiaries were averaging 11%, but principal beneficiaries were not b/c property was decreasing in value. Trustee sold the buildings in 1945, 1970, and 1979. Principal bene's sued claiming trustee favored income bene's over principal bene's. Rule: A trustee who fails to unload trust assets that are declining in value may be liable to trust remaindermen. Ct held for P, because D did not maintain the bldg. and thus treated the IB better than the remainder man. Ct say should have sold in 50’s. Remember to first ask if trustee breached a duty and then whether the breach caused the damages

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case law

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duty not to delegate:


a. A trustee is prohibited to delegate things the trustee could reasonably be required to personally perform, however they are allowed to delegate administrative functions as long as they supervise
b. not expected to fix toilets, but when selecting bank to get mortgage you need to do this yourself
c. but what if someone else is better at picking stocks than you -and if you can delegate someone to fix toilet then why cant you delegate someone to pick stocks

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traditional rule

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duty not to delegate:

2. Shriners Hospital v. Gardiner: Trustee allowed her son who was an alternate trustee to handle all of the investing b/c he was a stockbroker. Alt trustee embezzled funds. Can the Trustee delegate this authority? Ct held no, because the trustee has the affirmative duty to supervise administrative duties. May not delegate discretionary duties.

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case law

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duty not to delegate:

a. if breach was not the cause of the loss then trustee not on the hook
b. Broadens prudent investor standard
i. Instead of asking would a prudent investor invest in this stock we ask would a prudent investor delegate authority to this advisor
ii. but still have a duty to monitor who you delegate the authority to
c. Must exercise prudence when selecting, instructing and monitoring your investment advisor

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modern rule

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remedies for beneficiaries:

waive the breach if outcome is positive. Beneficiary is agreeing that the trustee was wrong but has chosen not to pursue it.

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ratify the transaction

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remedies for beneficiaries:

sue for resulting loss

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surcharge the trustee

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remedies for beneficiaries:

except if the purchaser is a BFP without notice of the breach

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trace and recover the property

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remedies for beneficiaries:

these are a punitive damage because of self-dealing or serious conflict of interest.
i. Determined by the difference of what it sold for the value at the date of trial (Rothko)
ii. Also could be the difference of what the property sold for and what it could have sold for (Dennis)

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appreciation damages

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remeedies for beneficiaries:

1. a breach of fiduciary duty (dishonest or who has engaged in a serious breach of trust); or
2. For continuously underperforming
3. BUT cannot be removed simply b/c the beneficiaries are not happy with him

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removal of trustee: can be removed for:

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rmedies for beneficiaries:

ii. The task is to set the threshold for trustee removal high enough that the trustee can carry out the settlor's wishes (including the protection of future beneficiaries) in the teeth of a contrary preference of the current beneficiary-without setting it so high as in effect to sanction shirking or mismanagement by the trustee.

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removal of trustee

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successor trustees:

a. Generally successor trustees are not liable for the activity of a predecessor trustee
b. you are not liable for things that happened before you became trustee, but once you become trustee
c. you will be liable if you fail to take appropriate steps against them
d. Ex if predecessor trustee stole money and C becomes the new trustee then C must go after predecessor trustee or he may be held liable for the loss
e. do whatever you have to do to protect the trust once you become trustee

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successor trustees