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66 Cards in this Set

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Is consideration required for a trust?
No.
Is a writing required for a trust?
Not if it's personal property.
What are precatory expressions?
A settlor's expression of a hope, wish or suggestion that property be used in a certain way. The inference is that it's NOT a trust, although this can be overomce by: 1. definite and precise instructions; 2. directions addressed to a fiduciary; 3. a resulting 'unnatural' disposition of property; 4. extrinsic evidence showing the settlor previously supported the intended beneficiary.
What if a trust is established but the trustee refuses to take appointment?
Court will appoint one unless it is clear that the settlor intended that just this one trustee serve.
What is a passive trust?
It's where the trustee has no duties.

A passive trust is void, and beneficiaries take legal title.
Who can serve as a trustee?
Anyone who has capacity to acquire and hold property for his own benefit and has capacity to administer the trust.
Who can remove a trustee?
Courts, with grounds; beneficiaries, if given the power.
Can a trustee disclaim or refuse appointment as trustee?
Yes, but not in part.
What is relation back of acceptance?
A testamentary trust is treated as in existence as of the settlor's death, and the trustee's acceptance 'relates back' to that date. Trustee could even be personally liable on a tort claim that arises prior to the time he accepted!
Can a trustee resign?
Only with court permission, or if ALL beneficiaries agree, or if the trust says he can.
What if trustee is also sole beneficiary?
The titles merge and the trust terminates.
What if there is no 'res' (trust property)?
The trust fails.
What does it mean that the trust res must be segregated from other property?
You have to know which property is part of the trust.
Can an unenforceable gratuitous promise be trust res?
No.
What if there is no beneficiary?
Trust isn't valid, except for charitable and honorary trusts.

If a trust fails for lack of a beneficiary, a resulting trust in favor of the settlor or his heirs is presumed.
Is notice to beneficiary essential?
No. But lack of such notice may indicate that no trust was intended.

Acceptance by the beneficiary is required, but it can take place after a valid trust is created.

Beneficiaries may within a reasonable time renounce rights to the trust.
Do private trusts have to have definite beneficiaries?
Yes. They can be definite even though not yet ascertained (e.g., unborn).

If the trust benefits a class, it must be reasonably definite.
What happens if a trust purpose is invalid? (illegal, requires criminal act, against public policy)
The settlor's alternative desire controls if expressed.
What are the elements of a private trust?
Intent to create
Trustee (inter vivos trusts only)
Trust property (res)
Definite beneficiaries
Valid trust purpose
How can express trusts be created?
1. Inter vivos transfer
2. Inter vivos declaration of trust
3. Will
How can an inter vivos trust be created?
Either by a person declaring himself trustee for another or by the transfer of property to another as trustee.

Present intent required must be manifested by conduct (delivery) or words (declaring oneself trustee).

Failure to name a trustee, or a promise to name a trustee in the future, may evidence a lack of present intent and prevent delivery of the res.
Are writings required for a trust?
Not for personal property, although they are for real estate.

Although oral may be sufficient for a constructive trust, e.g., A conveys land to B on oral trust for A or C.
Is extrinsic evidence allowed to resolve ambiguities on writings creating trusts?
Yes.
What are the formalities for a testamentary trust?
Trust intent and the essential terms of the trust must be ascertained from the will itself, from a writing incorporated by reference into the will, from facts having independent legal significance, or from the exercise of the power of appointment created by the will.
What is a secret trust? What are the rules?
A secret trust is where a will makes a gift that is absolute on its fact, but was in fact made in reliance on the beneficiary's promise to hold the property in trust for another.

The intended beneficiary may present extrinsic evidence of the promise. If the promise can be proven by CLEAR AND CONVINCING EVIDENCE, a constructive trust will be imposed.
What is a semi-secret trust? What are its rules?
In a semi-secret trust, the will makes a gift in trust but fails to name the beneficiary.

The gift fails, and the trustee holds the property on resulting trust for the testator's heirs.
What are the distinctive characteristics of charitable trusts?
1. Indefinite beneficiaries (duty of enforcement is placed on the state attorney general);
2. It's perpetual (RAP does not apply to shifting beneficial interest from one charity to another, although it does for shifts between private and charitable interests);
3. Cy Pres applies (when a charitable purpose selected by the settlor is impractical, court will select an alternative).
What is an honorary trust? What are its rules?
Honorary trusts are established for the benefit of pets or for the maintenance of burial places.

Trustee is "on her honor" to carry out its terms. Courts uphold these trusts as long as the trustee is willing to perform her duties; failing this, a resulting trust is imposed (for trustee's heirs).

RAP does apply.
May beneficiaries alienate their trust interest?
Yes, absent restrictions by statute or the trust.
Is a beneficial interest subject to judicial creditor sale?
Yes. To avoid this, a court may order a trustee to pay the beneficiary's income to creditors until the debt is satisfied.

A restriction permitting beneficiary to voluntarily alienate his interset but not giving creditors the right to get to it is invalid.

Usually creditors can't get at a spendthrift asset unless they are dependents or furnishers of necessities.
What are support trusts? Rules?
Support trusts direct the trustee to pay only so much of income or principal as is necessary for the beneficiary's support.

The beneficiary cannot assign the interest, and creditors cannot get at it.
Do settlors have the right to revoke andor amend?
Only if it is reserved.
May beneficiaries compel modification or termination?
Only when all consent and it won't frustrate any material trust purpose.
Can trustee terminate a trust?
Only as provided in the trust instrument; otherwise, it terminates only when the trust purpose is accomplished.

A power in a trustee to invade principal may be broad enough to effectively entitle him to terminate the trust.
Can courts terminate or modify trusts?
Yes, if the trust's purpose is impossible, illegal or completed.

Also, if circumstances have changed, courts can authorize a deviation from the administrative terms of the trust when necessary to achieve the trust purpose. Also, courts can accelerate vested rights.
What agreement is necessary if there are multiple trustees?
Traditionally, joint trustees had to exercise their power unanimously. Today, in nearly half the states, any power vested in three or more trustees may be exercised by a majority.
What are 'imperative' and 'dsicretionary' powers?
A power is imperative if the trust requires its exercise. Discretionary powers are powers that the trustee may or may not perform. Both are reviewed for abuse of discretion.
What is involved in the trustee's duty of loyalty?
Trustee cannot personally buy or sell trust assets; sell property of one trust to another trust of which she is trustee; may not personally borrow or loan funds; may not use trust assets to secure a personal loan; may not personally gain through position as trustee; may not unreasonably self-employ.
In whose name is a trust property titled?
The trustee.
What if the trustee commingles property and the value goes up or down?
It goes against the trustee.
May trustee delegate duties?
Only those that it would be unreasonable to do personally. May never delegate the entire administration of a trust.

If a trustee improperly limits or surrenders control, she becomes a GUARANTOR of the fund and is responsible for actual losses.
What governs a trustee's investment responsibilities?
The Uniform Prudent Investor Act or statutory "legal lists."

Either way, the trust terms can expand or limit the trustee's powers.
What types of investment are permitted by the UPIA?
Any type.
When speaking of legal lists, what do "permissive" and "mandatory" mean?
Persmissive means the trustee can invest in securities outside the list.

Mandatory means the trustee commits a breach of trust if she invests in property outside the list.

Lists usually prohibit unsecured loans, second mortgages, common stock, unproductive land.
Who has remedies if the trustee breaches trust?
Beneficiaries may seek damages or seek removal.

The settlor may sue if he is also a beneficiary.

Outsiders cannot enforce the trust.
Let's say the trustee breaches investment rules twice -- one results in a gain, the other a loss.

Can the two offset?
No.
When are trustees liable for the acts of others?
When they direct, permit, approve, acquiesce in the act, conceal the act, or fail to take steps to redress.
Are exculpatory clauses good to get trustees off the hook?
Yes, but they are strictly construed, and clauses cannot absolve the trustee from all liability.
Are trustees personally liable to third parties on contracts made in the course of trust administration?
Yes, but they can get indemnified if they were acting properly.
Are trustees personally liable in tort?
Yes. There is indemnification if the trustee was not personally at fault or if the tort occurred while properly engaged. If the trustee is entitled to indemnification, those to whom he is liable can reach trust assets.
If the trustee breaches and a BFP gets an asset, what happens?
BFP gets it.
What if the purchaser had reason to know the trustee shouldn't sell?
Then he's not a BFP.
Who can sue third parties who damages trust property?
Just the trustee. Not the beneficiaries.
What is the UPIA?
The Uniform Pricipal & Income Act. It applies to all trusts and estates unless the trust instrument says otherwise.
What does the UPIA do?
Gives trustee adjustment powr to reallocate investment portfolio return, thus enabling trustee to characterize various items as income, if it helps to carry out trust purposes.
What is allocation power?
The ability of trustee to allocate between principal and income, to carry out settlor's purposes.
Can a pour over trust receive proceeds of life insurance?
Yes, even if there was no significant res prior to the settlor's death.
What is a Totten Trust Account?
It's where a bank account depositor declares herself trustee of the account for a person who is to receive the money in the account at the time of the depositor's death.
Is a Totten trust revocable?
Yes, by 1. the withdrawal of funds, 2. any lifetime act manifesting the intent to revoke, and 3. a specific contradictory provision in a will.
What does the UTMA provide for?
The Uniform Transfers to Minors Act provides a convenient procedure for making gifts to a minor, in that it allows proper to be transferred to a person as custodian for a minor.

The LEGAL TITLE IS IN THE MINOR, subject to the custodian's statutory power. The custodian is a fiduciary.
What is a purchase money resulting trust?
This type of trust is presumed whenever the beneficiary furnishes the consideration for the acquisition of real or personal property, but, with the beneficiary's consent, title is taken in the name of the trustee.
Who has the burden of proof for the establishment of a purchase money resulting trust?
The person who's saying "This dude purchased this for me."
What is the presumption in a purchase money resulting trust?
If X paid for it but license goes in Y, the presumption is that it's a trust for X.

UNLESS, they're close relatives. Then it's presumed to be a gift.
What is a resulting trust on failure of express trust?
It's when the settlor goofs up in making a trust:

1. settlor has conveyed property to a trustee under an express trust, and
2. the trust is void or unenforceable or
3. the beneficiary is dead or cannot be located.
What is a constructive trust?
It's not really a trust but rather is a flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct.

The constructive trustee's only duty is to convey the property to the person who would have owned it but for the wrongful conduct.

Proof of the facts needed for a constructive trust must be made by CLEAR AND CONVINCING EVIDENCE.
What if A transfers real property to B on B's oral promise to hold it for C?
Only a few jurisdictions will imply a trust for C. The majority consider the Statute of Frauds to be a bar. Exceptions: fraudulent promise; breach of promise where there is a fiduciary duty.