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71 Cards in this Set

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Private Express Trust
Definition
1. Fiduciary Relationship
2. With respect to property
3. Whereby one person - trustee
4. Holds legal title for the benefit of another
5. Arises out of the manifestation to create it
6. For a legal purpose
Private Express Trust
Property of Trust - Corpus
1. Any presently existing interest in property that can be transferred
2. Illusory intersts cannot be subject - future profits; debt S owes B
Private Express Trust
Beneficiary
1. Any ASCERTAINABLE person or group of people
- Corps OK
- Unincorporated association - CL=NO; Mod=YES
- Class - OK (not too big)
2. Watch out for RAP
Private Express Trust
Trustee
1. Must have trustee
2. BUT ct will not allow trust to fail if no trustee or trustee refuses to serve
2. Ct will appoint trustee
3. Until appointment - settlor holds legal title
Private Express Trust
Manifestation of Intent
1. PRESENT manifestation of trust intent
2. No magic words required
3. Words must be MANDATORY - precatory wds not enough
4. IF precatory wds used - ct will admit parol evidence to show intent
5. If no showing of intent - transferee owns property outright (not as trustee)
What are the two general types of private express trusts?
1. Take effect at death
2. Take effect during life
How do you create a trust to take effect at S's death?
1. Has to comply w/Statute of Wills
2. Part of the will has a provision for a testamentary trust which will take effect at S's death
I devise Blackacre to Bank to hold in trust for the benefit of my son for his life
How do you create a trust to take effect during S's life??
1. Transfer in Trust - Third person in the trustee
2. Declaration of Trust - Settlor is the trustee
How do you create a transfer in trust?
1. Trust of REAL PROPERTY - S must execute and deliver a deed transferring title to trustee
2. Trust of PERSONAL PROPERTY - delivery to the trustee of the trust property at the time S manifests intent to create the trust
- Actual, symbolic, constructive delivery
If no delivery - no trust.
How do you create a declaration of trust?
1. Real property - writing that satisfies S/F showing that S is trustee
2. Personal property - need manifestation of intent
Private Express Trust
Legal Purpose Requirement
1. Trust can be created for any legal purpose
Private Express Trust
Illegality at creation
1. Try to exise bad from good - if possible, then good will stand
2. If not possible to exise bad from good
- Ct can invalidate trust at inception; S remains owner of property
- Ct can allow trustee to keep property for himself (punish S b/c unclean hands)
Private Express Trust
Illegality AFTER creation
If trust becomes illegal AFTER creation - resulting trust.
Trustee has only one obligation - return property to S or his estate.
Charitable Trusts
Definition
1. Old - education, alleviation of poverty or sickness; help orphans
2. Now - any trust that confers a substantial benefit on society
Charitable Trusts - How created?
Same as private express trust
Charitable Trusts - Who is the beneficiary?
1. Society
2. OK for individual to get an incidental benefit - but the focus is on society
If the beneficiary is a small group of people - is that a private express trust or a charitable trust?
Trust to alleviate property among my poor relations
SPLIT OF AUTHORITY
1. Charitable trust - all society benefits from alleviation of poverty
2. Private express - only small group is really benefitting
Does the RAP apply to charitable trusts?
NO - can go on forever
If charitable trust is impossible to carry out b/c not enough $$ to do what it requires
1. Resulting trust - trustee must return property to S
2. Cy pres
Cy Pres Doctrine
Where not enough $$ to carry out purpose of charitable trust
1. Did S have general charitable intent and it is just the mechanism that is impossible / impracticable?
2. If so - then will modify the trust as nearly as possible to effectuate general intent
*Only CT can invoke Cy Pres*
What evidence is used to show whether S had general charitable intent sufficient for cy pres?
1. Intrinsic evidence - trust instrument itself
2. Extrinsic evidence -
Honorary Trust
1. Trust has no ascertainable beneficiary; no benefit to society.
2. Trust is desire of grantor - trustee is on his honor to carry it out.
3. If trustee refuses to do it - then trust fails - resulting trust.
4. RAP - no measuring life so almost always invalid.
- Some cts - invalid at inception
- Some cts - allow for 21 yrs then invalid
Totten Trusts
1. Named beneficiary takes whatever is left in bank account when S dies
2. S owes NO fiduciary duty to beneficiary
3. Name on acct - Mary as trustee for John
4. Issue - look if S does anything during her life to elevate to a private express trust - manifestation of intent
Voluntary Alienation
Beneficiary to a trust can sell his right to future payments from the trust
Involuntary Alienation
Creditors can attach or seize beneficiary's right to future payments
What are the kinds of restraints that can be put on a trust to prevent voluntary or involuntary alienation?
1. Spendthrift Trust
2. Support Trusts
3. Discretionary Trusts
Spenthrift Trusts
Trust states that:
1. Beneficiary cannot transfer right to future payments of income or principal
2. Creditors cannot attach beneficiary's right to future payments or income
Spendthrift Trust - Can beneficiary still transfer his right to future payments
NO
Exception - Ct may recognize assignment where beneficiary told trustee to pay assignee
B/c beneficiary can revoke prior to payment
Spendthrift Trust - Can creditors still attach his right to future payments?
NO
Exception:
1. CL - preferred creditors can attach
2. Modern - any creditor can attach SURPLUS
- Amt over what is necessary to support beneficiary's station in life (subjective / reasonable amt)
What are preferred creditors?
- Govt' creditors
- Creditors who provide necessaries
- Child support
- Spousal support
- Ex spouse for alimony
- Tort judgment creditor
Can Settlor create a spendthrift trust for himself?
1. As to voluntary alienation
- Maj - ignore restriction
- Min - restriction controls - S is trying to protect from himself
2. Involuntary alienation - trust is valid but spendthrift clause is not (b/c won't let you insulate you from creditors)
Support Trust
Trustee required to use only so much of the income/principal as is necessary for beneficiary's health; support; maintenance or education
1. B cannot alienate right to future payments - defeats purpose of trust
2. Generally creditors can't attach unless preferred creditors
Discretionary Trust
Trustee is given sole and absolute discretion over determining how much to pay beneficiary (if anything) and when to pay beneficiary (if anything)
Discretionary Trust
Can beneficiary voluntarily alienate right to future payments?
SPLIT
1. NO - b/c nothing for B to assign - he may get nothing
2. YES - Assignee steps into shoes of B; if trustee has notice of assignment and choses to pay, must pay assignee or personally liable
Discretionary Trust
Can creditors attach beneficiary's right to future payments?
1. NO - nothing to attach b/c B may not get anything
2. YES - If trustee has notice of the debt and decides to pay B, then must pay creditors or is personally liable
Resulting Trust
1. Implied In Fact trust; Based on presumed intent of the parties
2. If resulting trust decreed by Ct - trustee will transfer property to settlor or his estate
What are the situations when resulting trust is created?
1. Private express trust ends by its own terms and there is no provision for what happens thereafter
2. Private express trust fails because there is no beneficiary
3. Charitable trust ends because of impossiblity / impracticality and cy pres cannot be used
4. Private express trust fails because after creation, trust becomes illegal
5.Excess corpus in private express trust
6. Purchase money resulting trust
7. Semi-Secret Trust
What is a purchase money resulting trust?
1. A pays B consideration to give title to C
2. IF A and C are NOT closely related - C is resulting trustee for A
3. If A and C ARE closely related - presumption of a gift
What is a semi-secret trust?
1. Will makes a gift to a person to hold as trustee but does not name beneficiary
2. I devise $100 to A AS TRUSTEE
3. Cannot admit extrinsic evidence to get the beneficiary b/c violates statute of wills
4. Different from secret trust
What is a constructive trust?
Remedy to prevent fraud or unjust enrichment
When ct decrees constructive trust - trustee's obligation is to give property to intended beneficiary (as determined by ct)
What are the situations where constructive trust is imposed?
1. Trustee makes profit by self-dealing - for the proft
2. Fraud in the inducement or undue influence in wills
3. Secret trust in wills
4. Oral real estate trusts
What is a secret trust?
1. Will on its face makes outright gift to A (I devise to A)
2. But gift is given based on oral promise by A to use property for benefit of B
4. Parol evidence admissible to show beneficiary was B
5. A becomes constructive trustee
Secret Trust v. Semi Secret TRust
1. Secret Trust - I devise to A
- Ct will admit parol evidence to show that B was intended beneficiary
- A will be constructive trustee - give property to B
2. Semi-secret trust - I give $100 to A as trustee
- Trust invalid b/c no beneficiary
- A becomes resulting trustee
- A gives property back to Settlor's estate
What is an oral real estate trust?
1. S to A - If I give Blackacre to you, will you hold it for benefit of B?
2. A looks like the owner of the property - If B claims, A has S/F defense
3. A will be constructive trustee IF
- A and S in fiduciary relationship
- Fraud in the inducement by A - A never meant to abide
- Detrimental reliance by B - B took possession AND made improvements
What are the POWERS of a trustee?
1. All enumerated powers
2. All implied powers (sell trust property; lease; incur expenses; borrow)
What are the DUTIES of a trustee?
Duty of Loyalty
Duty to Invest
Duty to Earmark
Duty to Segregate
Duty Not to Delegate
Duty to Account
Duty of Due Care
Trustee's Duty of Loyalty
1. Trustee must administer trust for benefit of beneficiaries
2. No other considerations
3. No self dealing
What are the consequences of finding trustee guilty of self - dealing?
1. If there is a LOSS - trustee is surcharged (must make good on loss)
2. If trustee makes profit - constructive trust as to profits
Trustee's Duty to Invest
Trustee must invest according to one of three alternatives:
1. State Lists
2. Common Law Prudent Person Test
3. Uniform PRudent Investor Act
General Rule - DUTY TO DIVERSIFY
Trustee's Duty to Invest
State Lists
1. Lists of OK investments that trustee must follow if there are no instructions in trust
2. Fed govt bonds; fed insured cert of deposit; First deeds of trust in real estate; stock of publically traded corps (sometimes)
3. NEVER invest in new business; second deeds of trust
4. NO speculating
Trustee's Duty to Invest
Common Law Prudent Person Test
1. Duty to invest requires trustee to act as reasonably prudent person investing their own money; Try to max income while preserve corpus
2. If trustee holds himself out as more experienced - must meet that std
3. Ct looks at individual investments
3. Fed govt bonds; first deeds of trust in real estate; fed insured cert of dep; blue chip stocks; mutual funds (maybe)
4. No new business, speculating
Trustee's Duty to Invest
Uniform Prudent Investor Act
1. Trustee must invest as prudent investor
2. Ct does not look at individual investments but whole portfolio
3. Trustee can invest in derivatives; futures
What are the consequences if trustee breaches duty to invest??
1. If loss - trustee makes up loss
2. If gain - beneficiaries affirm
3. If two investments - one loses and one gains - then trustee must make up loss and beneficiaries will affirm gain - NO NETTTING
Trustee's Duty to Earmark
1. Trustee must label trust property as trust property - John Smith, as trustee of ABC trust
2. Consequences
- CL - if trustee breaches and there is any loss - even if not caused by failure to earmark - trustee liable
- Modern - only liable for loss caused by failure to earmark
Trustee's Duty to Segregate
1. Trustee cannot comingle personal funds with trust funds OR trust A with trust B
2. If breach - trustee removed and liable for any loss
Trustee's Duty Not to Delegate
1. Trustee can rely on personal advisors in making decision BUT cannot delegate decision-making authority
Can trustee delegate duty to invest to money manager?
CL - NO
Modern - YES
Must trustees act unanimously in making a decision to satisfy duty not to delegate?
CL - YES
Modern - NO - majority is OK
Trustee's Duty to Account
1. On regular basis
2. Trustee must give beneficiaries a stmt of income and expenses of the trust
3. If fails - beneficiaries can file action for accounting
Trustee's Duty of Due Care
ALWAYS AN ISSUE
1. Must act as a reasonably prudent person with his own affairs
Remedies for Breach of Duties
1. Damages
2. Constructive Trust
3. Tracing and equitable lien
4. Ratify transaction if good for beneficiary
5. Remove trustee
TRustee Duties Owed to Third Persons - Liability in Contract
1. CL - Trustee sued in personal capacity; can get indemnification from trust if acted w/in powers and not personally at fault
- Only sued in rep capacity if provided in contract
2. Modern - If other person to K knows that trustee is contracting in rep capacity, then must be sued in rep capacity
Trustee Duties Owed to Third Persons - Liability in Tort
1. CL - trustee sued in personal capacity; if w/o personal fault, can get indemnification
2. Modern - trustee only liable if at personal fault
When can Settlor modify the trust?
1. S expressly reserved power to modify in the trust
2. S has power to revoke
When will the court modify the trust?
1. Cy Pres for charitable trusts
2. Deviation power - modification of charitable or private express trusts
Modification of trusts
Deviation power - Doctrine of Changed Circumstances
1. Ct will change the administrative or management provisions of the trust
2. Elements
- Unforeseen circumstances on the part of the settlor AND
- Necessity - deviation is needed to preserve the trust
When does Settlor have the power to revoke?
Majority - must retain expressly in the trust instrument
Minority - power to revoke is retained unles says irrevocable in instrument
How can an irrevocable trust terminate prematurely (before the time set in the instrument?)
1. Settlor and ALL beneficiaries agree to terminate (incl. contingent remaindermen)
2. All beneficiaries agree to terminate and all material purposes have been accomplished
3. By operation of law - passive trust - private express trust of real property and trustee is just holding legal title (equity abhors useless act)
Income and Expenses Allocated to Life Tenant
Income - cash dividends; interest income; net business income
Interest pays for - interest on loan indebtedness; taxes; minor repairs
Income and Expenses Allocated to Remaindermen
Income - stock dividends; stock splits; net proceeds on sale of trust asset
Interest pays for - principal part of loan indebtedness; major repairs/improvements
Does the trustee have to allocate income and expenses as rules require?
NO - trustee has power to change allocation as fairness requires