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61 Cards in this Set
- Front
- Back
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Who is a Settlor?
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Person giving the property
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Trustee?
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someone who makes usre the property is distributed according to S's wishes (18+)
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Beneficiary
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The person who gets property from the trust
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Res?
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property given in trust
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What is a trust?
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When settlor delivers legal title of res to trustee for the benefit of beneficiaries
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What are the elements of a trust?
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1. Intent ( through words, writing, or conduct)
2. Certain & identifiable res 3. Delivery (by placing res outside of settlor's control - unless S is the trustee) 4. Beneficiary 5. Trustee ( ct will appoint if none) 6. Valid purpose |
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What is the difference between a trust and a will?
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A trust gives the gift now rather than in the future
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What are the advantages of a trust?
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1. A good plan for incapacity
2. Avoids probate delays |
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What is the duty of the trustee?
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He should manage the property as a reasonable person would.
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What is the rule regarding oral trusts?
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OK for personal property if clear and convincing evidence shows intent and other elements are satisfied
Not ok for real property - need a writing to satisfy SOF |
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Can trusts be revoked?
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No - trusts are considered irrevocable unless S expressly reserves the right to revoke
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How do you terminate a trust?
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1. Sole trustee is the sole beneficiary
2. No more trust property to manage |
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How can a trustee resign?
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A trustee can resign anytime with court removal
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What is a trustee's obligation upon resigning?
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He must give an accounting of
1. Property initially received 2. disbursements 3.property on hand 4. debts and liabilities |
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How can beneficiaries force a trustee to resign?
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1. trust allows it
2. Trustee has a conflict of interest 3. Trustee's continuation will be detrimental to the trust |
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Can a trustee delegate his duty to someone?
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No
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If trust specifies trustee but trustee has no duties - what result?
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There is no trust - beneficiaries take title now.
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Can there be more than one trustee?
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Yes - majority vote for co-trustees
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How can the beneficiaries terminate the trust?
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1. All B agree
2. All B are 18+ 3. termination will not frustrate the purpose of the trust |
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Spendthrift trusts are _________ without Settlor's consent
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indestructible
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What are the powers of the trustee?
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A trustee has all the powers granted in the trust + all powers IMPLIED by the PURPOSE of the trust
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What kind of tasks can a trustee delegate?
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Only the ones that would be unreasinable for him to perform
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What happens if a trustee breaches his duties?
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the trustee is personally liable
For K: personally liable on contracts, but will be reimbursed by the trust for contracts which were within Trustee's powers and trustee acted prudently For torts: personally liable for torts committed during trust administration: indemnification only if Trustee not at fault or Trustee acted reasonably |
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What are a trustee's duties?
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1. Maintaining the standard of care as a "prudent investor"
2. Duty of loyalty |
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What consitutes actions of a "prudent investor"?
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1. Managing trust property same way normal person would his own property: Court looks at total return from overall portfolio
2. Can’t be too speculative: But maybe OK if part of an overall investment strategy 3. Must keep trust productive 4. Must balance return with potential risk |
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Can a trustee delegate investment decisions?
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No
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What happens if a trustee mismanages his role as a prudent investor?
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Beneficiary gets the income that would normally accrue from proper investing
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What is a trustee's duty of loyalty?
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1. Buy/sell trust assets to himself even if for fair price
2. Borrow trust money 3. Loan money to the trust 4.Profit as trustee (reasonable compensation is ok) 5. Invest in trustee’s own company 6. Commingle trustee’s money with trust money 7. Must be fair to all beneficiaries (unless trust states otherwise) |
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What can beneficiaries do if trustee violates duty of loyalty?
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1. Cancel the transaction (but can’t cut off BFP rights)
2. Recover any profits made by the trustee 3.Affirm the transaction |
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Is failure to object to a trustee's actions considered consent by B?
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no
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When can the B sue the trustee?
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Within a reasonable time- otherwise will be estopped by the doctrine of laches
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How can B sue 3rd parties?
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Beneficiaries can’t sue a third party directly, they can only sue to compel the trustee to sue the third party
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Can trustee offset losses from one breach of duty with gain from another breach of duty?
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No
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How is a trustee liable for an agent's breach?
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1. Permitted an agent to do wrong
2. Didn’t reasonably supervise the agent or co-trustee 3. Failed to compel agent or predecessor trustee to redress wrongdoing |
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How are clauses that limit trsutee's liabilities construed?
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Strictly - test: trustee acted in good faith
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What is the effect of clauses that state that trustee has no liability?
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These are void
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What does a trustee's income include?
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1.Interest earned from principal
2.Income from sale of an asset 3.Cash dividends from stock |
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What does principal include?
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1.Stock dividends (if the dividend gives more stock: it’s added to the principal)
2.proceeds from life insurance or other contracts where the trust is the named beneficiary |
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What is the 10% rule?
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proceeds from patents, copyrights, oil and gas rights: 10% to Income and 90% to Principal
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How are expenses of the trust handled?
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Income Beneficiaries and Principal Beneficiaries split them
(note: Principal Beneficiaries still make the principal payments for trust assets) |
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Do charities need to specify an ascertainable beneficiary?
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No
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What is the effect of precatory words/suggestions such as " i hope that trust $ be used for B's education..."
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It's not binding. However, if there's a check on which states amount and says for B's education => binding
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What are the unlawful purposes?
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Trust invalid if:
1.Furthers commission of a crime 2.Calls for destruction of property 3.Encourages divorce 4.Total Restraint on Marriage: |
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What is an honorary trust?
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is a device by which a person establishes a trust for which there is neither a charitable purpose, nor a private beneficiary to enforce the trust.
While such a trust would normally be void for lack of a beneficiary, but two specific exceptions to this rule: 1. trusts for the care of that person's pets; and 2. trusts to provide for the maintenance of cemetery plots. The trustee is bound by honor, but not by law, to carry out the wishes of the creator of the trust. |
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What are the elements of a valid charitable trust?
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1. Must be for charitable purpose
2. Must be in favor of a reasonably large number of unidentifiable beneficiaries (Settlor can’t be just trying to give it to a few family members or friends) |
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Is a charitable trust subject to RAP?
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No. Can be perpetual
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Who can enforce a charitable trust?
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Only the attorney general
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Why would the court modify the terms of the trust?
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If it is necessary to carry out the settlor's intent cy pres: “as near as possible- this is called judicial modification
e.g.a) “to prevent polio”, cure comes out and $ no longer needed, court will substitute “as near as possible”: prevent a disease like polio |
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Can a trustee modify the terms of the trust?
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Yes, if it accomplishes Settlor's intent
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What is the purchase money resulting trust?
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PMRT is used in domestic partnership when the domestic property is purchased by both partners, but the title is only in the name of one partner.
If the title-holder dies intestate, the PMRT is awarded to the non-title holding partner on restitutionary grounds, provided the non-title holding partner has given consideration for the property. |
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2. A loaned Beneficiary $10,000, A tells Beneficiary instead of paying back the $10,000 I want you to buy Blackacre and hold it for me, Beneficiary agrees, Beneficiary takes title in Beneficiary’s own name, A goes overseas, Beneficiary trades Blackacre to X for Whiteacre, A comes back and Blackacre is worth $25,000 and Whiteacre worth $12,000. What result?
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A has a PMRT but if X is a bona fide purchaser A (as beneficiary of the PMRT) has no rights to it, but if X is not a bona fide purchaser, A can get either Whiteacre or Blackacre
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What is a constructive trust?
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an equitable remedy resembling a trust imposed by a court to benefit a party that has been wrongfully deprived of its rights due to:
1.Wrongful conduct (fraud, duress, misrepresentation); and 2.Unjust enrichment |
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Can a beneficiary transfer his interest to someone else? Is the trust alienable?
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Yes - unless the trust instructs otherwise
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Can a beneficiaries creditors levy against his trust?
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Yes, unless there is a spendthrift trust
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What is a spendthrift trust?
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a trust that is created for the benefit of a person (often because he or she is unable to control spending)
It gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary. |
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What are the qualities of a spendthrift trust?
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1.Spendthrift clause in a trust makes the trust indestructible (beneficiaries cannot terminate it because there is a further purpose to be served: provide income to beneficiary
2.Spendthrift trust can only be terminated if all beneficiaries and Settlor agrees 3.Beneficiary cannot take more $ out of trust than allowed by the trust 4.Beneficiary cannot voluntarily transfer his interest in the trust 5.Beneficiary’s creditor cannot get at the trust principal to satisfy beneficiary’s debt |
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How can the creditor get to the spendthrift thrust nevertheless?
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1. If Beneficiary owes creditor for: Necessaries.Child support / alimony, Federal taxes
2. once the money is paid to Beneficiary: Beneficiary’s creditors can get at it for any type of debt 3. WHEN Settlor creates a spend thrift trust with himself as the beneficiary (to avoid his creditors) - not allowed 4. there's a Fraudulent Transfer - Settlor cannot create trust in third party with “intent to defraud creditors” |
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What is the beneficiariaries power of appointment?
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has power to determine the remainderman
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What is a secret trust?
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1.Trust that no one really knows if it was actually created
2.Can be proved by extrinsic evidence |
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What is a semi secret trust?
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1.A Trustee is selected but no one knows who the beneficiaries are
2. Extrinsic evidence is not admissible to prove the trust was created |
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What are the elements of a semi secret trust?
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1. Must designate a beneficiary or a reasonably ascertainable class; or
2. Must give Trustee right to select the beneficiaries |
