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86 Cards in this Set

  • Front
  • Back
Characteristics
- Fiduciary relationship
- Trustee holds legal title subject to enforceabl equitable rights of beneficiary
- Creator = settlor w/intent to create trust.
Intention to Create Trust
- Words or conduct subject to SOF and Statute of Wills.
- Oral trust of personal prop valid
- Precatory expressions not enough
- Need no communicate intent to bennies, delivery to trustee enough
- Must manifest while settlor owns prop
- Must intend trust to take immediate effect
Overcoming inference of no trust bc of intent w/
- Definite and precise directions
- Directions addressed to a FD
- Resulting unnatural disposition if no trust
- Extrinsic evidence
Trustee
Trust does not fail for lack of trustee; ct just appoints one.

-Trustee must have duties for trust to be valid.
- Trustee must have capacity to hold and administor
- Bennies must have grounds to remove unless trust doc gives power
- Trust terminates when sole trustee is also sole benny
Removal by court if
Br/trust, old age, drunkenness, conflict of interest, etc. Underlying Q is would continuing as T'ee be detrimental?
Refusal of appointment
Can refuse for any reason. Can't accept in part and reject in part.
- Acceptance relates back to date trust came into existence.
- T'ee resign only w/court permission, consent of all bennies, or per trust.
Trust Property
No res = no trust bc T'ee has nothing to manage.

- Trust prop must be existing interest in existing property.
---Future interest ok
--- Interest not yet in existence not okay
--- Future profit from existing K ok
--- Res must be segregated from other prop.
Bennies
- req'd unless charitable or honorary trust
- Resulting trust in favor of settlor/heirs if trust fails for lack of bennies
- Must have capacity to take and hold title to prop
- Express or implied acceptance by benny requ'd
- Notice to benny not required
Beneficiaries must be definite
- Unascertained can still be definite. Must be ascertainable by time their interests come into enjoyment.
Class Gifts
Class must be reasonably definite.

Trust can authorize T'ee to select members to benefit or provide reqs to benny.
Trust is invalid if it's purpose:
- Is illegal
- Performance requires criminal or tortious act
- Otherwise contrary to public policy.
If condition is against publ policy
- Settlor's alt desire controls if expressed
- If it is a condition subsequent, condition invalid but trust valid
- If condition precedent, interest valid unless evidence that S would prefer to void benny's interest if condition unenforceable.
Inter vivos trusts
1. Present declaration or transfer of trust required. Intent shown by words or conduct.

2. Must manifest intent when trust res exists. If no res, trust arises when S acquires res and RE-manifests intent.
Formal requirements of inter vivos trust
- Writing req'd for trusts of land
- Can use extrinsic evidence when ambiguity on face.
Formalities of testamentary trusts (via will)
- Intent and essential terms to be ascertained from will itself, writing incorp'd by reference into will, from facts having independent legal significance, from exercise of power of appt created by will
Secret Trust
- Will makes gift absolute on its face, but in fact made in reliance on recipient's promise to hold property in trust
- Intended trust benny may present extrinsic ev of promise.
- If prove promise by clear and convincing evidence, Constructive Trust
Semi-Secret Trust
- Will makes gift in trust w/o naming benny - gift fails.
Charitable Trusts
- Trust must be for charitable purpose
- bennies must be indefinite. Community = benny
- RAP doesn't apply
- Cy pres - if purpose settlor chose is impracticable, the court selects alternative as near as possible to settlor's intent
Honorary Trusts
- For benefit of pets, plots, etc.
- No human beneficiary to enforce --> trustee "on her honor" to carry it out.

- Courts uphold as long as named trustee is willing to perform duties. If unwilling, resulting trust imposed.
- RAP applies.
Avoiding RAP with honorary trusts
Constructional outs - trust is personal to named trustee. Bc fund will be exhausted w/in perpetuities period, cannot last beyond.
Alienation of Benny's Interest
Voluntary - absent trust or stat restrictions, can transfer.

Involuntary - unless Stat or trust restricts.
- Insolvent benny's creditors may levy on his interest.
- To avoid judicial sale, court may order t'ee to pay ben's income to creditors until debt satisfied.
Restraints on alienation w/spendthrift trusts
- Benny cannot transfer int.
- Creditors can't reach until income paid to benny
- Restraints on creditors only are invalid
- If benny transfers interest in violation, assignees cannot force t'ee to pay them.
- Invalid if settlor is benny
Discretionary trusts
-Creditors have same right as bennies - take only if t'ee exercises his discretion to pay, unless benny's interest is also protected by sthrift restriction

_ where settlor is the discretionary benny, his creditors CAN compel payment.
Support Trusts
T'ee to pay only so much as is necessary for Benny's support.

Creditors cannot reach benny's interest

Question of settlor's intent whether benny's other resources considered in determining amount payable to him.
Modification and termination of trusts
- Power of settlor to revoke or modify
- Modification or termination by agreement of bens.
Termination by Bens
---- all bens must consent and cannot frustrate any material trust purpose. No liability of trustee when all bens consent to terminate. Settlor cannot bar termination when B's have right to terminate.
Termination by T'ee
Only as provided in trust doc. Otherwise, terminates only when trust purpose accomplished.
Judicial power to terminate or modify
- Premature termination when purpose impossible, illegal, or complete.
Doctribe of changed circs
- Upon change unanticipated by settlor
- Can allow court to authorize deviation from terms where necessary to achieve purpose
- Changes may not deprive bens of their interests
- But, if purpose = support ben, ct may invade corpus.
- Ct can accelerate vested rights.
Sources of powers of t'ee
Express in trust doc, state statutes and court orders, implied as necessary or appropriate to accomplish trust purpose.
Joint power of trustee
CL = joint t'ees must unanimously agree to exercise power.

ML = If 3 or more t'ees, exercise by majority.
Imperative and discretionary powers of t'ees
Imperative = if trust doc reqs its existence.

Discretionary = T'ee may or may not perform/

T'ee MUST exercise good judgment.
Implied Powers
Those necessary to operate trust
Standard of Care by T'ee
R/ably prudent person in managing her own property

If t'ee has greater/special skill, held in higher standard.
Duty of loyalty
Undivided loyalty to trust and bens

- Cannot buy/sell trust assets
- May not sell prop of one trust to another of which also t'ee.
- May not borrow trust funds nor loan personal funds to trust
- Cannot use trust assets to secure personal loan
- Corporate t'ee cannot invest in its own stock as trust investment
Self-employment
Self-employment can be prohibited self-dealing. But, if t'ee renders extraordinary services to trust, may be entitled to extra compensation.
Self-dealing
Rules apply to sales/loans to t'ee's relatives and biz associates, to corps where t'ee is director, officer, or principal s'holder. T'ee's good faith and actual benefit to trust irrelevant.
Duty to account
Keep and render accounts
Ben's rights when prohibited transfer
- Set aside transaction
- Recover profit t'ee made
- Afirm transaction
Separate trust property
- Must keep trust property physically separate from t'ee's own prop.

- If commingles and some prop lost/destroyed, presume t'ee's prop lost/destroyed.

- If portion of commingled assets increases in value and portion decrteased, presume T'ee's assets decreased and trusts's increased.
Duties of Trustee
- Loyalty
- Care
- Separate trust prop
- Perform personally
- Defend trust from legal attack unless find challenge is well founded
- Preserve trust prop and make it productive
Perform personally
1. Can never delegate entire admin of trust
2. Can only delegate duties unr/able for t'ee to perform
3. Can delegate investment/management if RP would under the cirs.
4. If t'ee improperly delegates, she becomes guarantor of fund and is responsible for actual losses, regardless of the cause
Preserve trust property and make it productive
- Implies power to invest
- Damages for br/duty = amount of income would normally accrue from proper investment.
Investments
T'ees investment repsonsibilities governed by either UPIA or legal lists
Uniform Prudent Investors Act (UPIA)
Standard of care = r/able care, skill, and caution when investing and managing assets.
- Loyalty and impartiality when investing/managing
- Prudence evaluated to overall investment strategy
- Any type of investment ok as long as act prudently.
- Delegation of investment and management fx ok.
Reviewing compliance with UPIA
- Determined in light of circs at time of T'ee decision/axn
- No liability if act in substantial compliance with UPIA
- Must act prudently in selecting agent, est'ing scope and terms of delegation, and periodically reviewing agent's axns.
Statutory Legal Lists
- Approved investments for trust assets
- T'ee cannot blindly follow list, but use r/able care, skill, and caution
- Proper investments include gov securities, first mortgages, high grade corp bonds, corp stocks, land if productive, investment arrangements.
- Unsecured loans and 2nd mortgages = improper
- Investment in testator's biz ok only if trust authorizes
Enforcement of bens
- Seek damages or removal of t'ee.
- T'ee liable for losses from br/, lost profits, interest.
- Can compel t'ee to perform duties and enjoin from committing br/.
Defenses to T'ee liability
- No relief if bens consented to/joined br/.
- Mere failure to object at time of br/not consent.
-Laches

- Cannot offset loss from one br by gain resulting from another br/.
T'ees liability for acts of Agents
- If he Directs, permits, or acquiesces in act, conceals act, or fails to compel agent to redress his wrong.
- Improperly selects or improperly delegates
- Fails to exercise r/able supervision.
Liability for Co-Trustees if T'ee
- Approved, acquiesced, or participated in br, or negligently disregarded her own duties.
- Concealed breach or fialed to take steps to compel redres.
- Improperly delegated authority to Co-T'ee
Liability for Predecessor T'ees if T'ee
-- knew or should have known of breach and failed to compel redress
-- Negligent in determining what property should have been.


Successor trustees also maintain same actions as original.
Effect of Exculpatory clauses
- Strictly construed.
- Enforceable if no bad faith, intentional breach, or recklessness.
- Clause absolving t'ee from all liability = void.
T'ee K Liability to 3P
T'ee personally liable to 3P on Ks made in course of administration unless K says otherwise.

T'ee entitled to indemnification from trust if K was w/in her power an acted as an RP.
Tort liability of T'ee
- Personally liable if committed in course of administration.

- This includes torts by t'ee agents

- Indemnification only if t'ee not personally at fault or tort normal incident to activity in which t'ee properly engaged.
Liability of 3Ps to the trust
- Property improperly transferred to non BFP = Ben/successor t'ee can set aside

- Transfer to BFP cuts of ben's interest

- Participation in br/trust - liable for loss to trust if knowingly take part

- Direct suit by bens//3P not allowed. must bring suit in equity to compel t'ee unless t'ee can't/won't sue
Allocation of receipt and expenses between income and principal accounts - UPIA
- Gives t'ee adjustment power.
- Trustee must administer impartially.
- Adjustment not permitted if result would be adverse tax consequences.
Adjustment Power
- Power to reallocate investment portfolio return.
- Authorizes T'ee to characterize items as income if t'ee deems it appropriate/necessary to carry out trust purpose.
- Follow trust's intent for distro
- If usual distro rules don't meet purpose, may adjust between principal and income.
Allocation of Receipts.
- Follow traditional accounting rules
.
Receipts from income
$=income

All else = principal
Insurance policies and other Ks
Proceeds are income if K insures t'ee // type of loss.

Dividends on ins. allocated to acct from which premiums paid.
Deferred compensation or pension plan
10% = income, rest principal unless plan says otherwise.
Proceeds from liquidating assets
LA = Asset whose value decreases over time bc expected to produce receipts for ltd time, e.g., patents and copyrights.

10% = income, rest principal
Mineral interests
10% income, rest principal
Allocation of expenses charged to incom
1/2 t'ee and those providing t'ee compensation, 1/2 expenses for accounting, court and matters affecting interests, all ordinary expenses, insurance premiums covering loss of principal asset.
Expenses charged to principal
Other halves of above, payment on principal of trust debt, expenses of proceeding re: interest in principal, estate taxes, disbursements re: environmental matters.
Revocable Inter Vivos Trust
- Not a will if transfer creates a present gift.
- Determining whether interest passes - settlor may retain powers over trust property.

If settlor is the t'ee, then trust is upheld if S notified 3Ps or acted to show clear intent to make trust.
Advantages of revocable trust
- Convenient management of assets
- Plan for possibility of incapacity
- Avoid probate
- Allow S to choose applicable state law
- Permit secrecy re: bens and assets
Pour-Over gift from will to trust
- OK if trust est'd during S's life and before/at same time as will.
- May remain unfunded during S's life
- Trust must be clearly id'd in will language.
Totten trust bank accounts
- Bank acct depositer declares selt t'ee and retains full control of $$ during his life.
- Ben receives $ upon depositor's death.
- Revocable by: w/drawal of funds, lifetime act manifesting intent to revoke, or specific contradictory provision in will.
- Funds not protected from creditors
- Trust terminates if ben predeceases S
Uniform Transfers to Minors Act
Legal title in minor subject to custodian's statutory power.

Custodian = fiduciary
Trusts arising as a matter of law - Constructive and Resulting Trusts
Implied by law or imposed by court.

RT based on S's presumed intent.

CT = to prevent unjust enrichment.
Purchase Money RT
1. Presumed when Ben furnishes consideration for acquisition of property, but with ben's consent title in T'ee name.

2. Consideration - must be for PURCHASE of property, and must be furnished at/before time Y takes title.

3. Burden on Ben to prove gave consideration by clear and convincing ev. Rt presumed when burden met.
------------a. T'ee rebuts w/ev no trust intended bc consideration was gift, loan, satisfaction of a debt
Exceptions to Purchase $ RT
- Presume gift if ben and t'ee closely related.
- No RT if title for illegal purpose. (Possible RT if misconduct slight compared to T'ess unjust enrichment if allowed to keep prop)

- No RT if transferre obtainted title wrongfully (but CT may be imposed)
Pro rata RT
If Ben only gives part of consideration, RT only for pro rata share.
Circs giving rise to RT
S conveyed property to T'ee under express trust AND
1. Trust is void or unenforceable
2. Ben is dead or cannot be located.

Failure of charitable trust where cy pres inapplicable. Express trust terminates and S becomes RT ben

Honorary t'ee refuses
Circs where RT not implied
- Trust doc specifically or implicitly provides alternate disposition.
- S given consideration for original trust transfer
- S created trust for illegal purpose
- Cy pres available if charitable trust.
RT in favor of S from excess corpus
When trust purpose satisfied and some prop remains.
Constructive Trusts
Equitable remedy to prevent unjust enrichment from wrongful conduct.

T'ees only duty is to convey prop to rightful owner.

Need Clear and convincing evidence of facts necessary to est CT.
CT arising from theft/Conversion
If thief uses property to take title to other items
CT arising from fraud/duress
- Acquire property via fraud/duress, hold in CT for true owner.
- If convey to 3P who is not BFP, 3P = Constructive T'ee.
- If take property under forged/fraudulent will, hold in CT for rightful inheritor, even if take innocently.
CT arising from breach of FD
CT on fiduciary in favor of person to whom he owes the duty.
CT arising from homicide
Slayer hold property acquired from V by will/intestacy in CT for who would have taken if slayer predeceased V.

If V and slayer JTs, slayer holds V's 1/2 in CT and has title to other 1/2.
CT arising from br/promise
Generally not CT from mere breach of promise. Exceptions? Of course.

1. Fraudulent promise.
2. Br by one in confidential relationship
3. Br/promise by devisee/heir to hold for 3P's benefit.
4. Br/promise by decedent to devise prop to one rendering services in reliance thereon.
5. Br/promise to debtor by the buyer at a f/closure sale to hold property for debtor, causing debtor not to bid at sale.
Obligations of T'ee in RT or CT:
T'ee's sole duty is to convey legal title to ben.

T'ee must also account for profits taken from prop or fair rental value of his use of it from the time of the occurrences raising the implied trust.
Application of Equitable Principles
- Defenses and principles apply
- Inadequate remedy at law requirment does not apply except to br/oral promise to make a will or hold property purchased at f/closure.