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89 Cards in this Set
- Front
- Back
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Express-Private Trust
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Trust requires an unequivocal, present intent to create a bifurcation of title involving a fiduciary relationship concerning property thereby imposing legal obligations upon the holder of legal title (trustee) and designates one or more persons (beneficiaries) to enjoy equitable benefits
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Creation of Trust - Inter Vivos
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Inter Vivos - settler transfers property during lifetime)
1) present tranfer intent 2) trust can be created by declarationin which case settlor is also the trustee (no delivery is necessary) 3) Delivery required when trustee third person 4) statute of fraud at issue where land is involved (constructivce trust remedy available for failure to perform oral trust) 4) Alternative around statute of will (where settlor wants to pass property at death (revocable trust-see card) |
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Revocable Trusts
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Settler passes equitable interest during lifetime to avoid Statute of Wills
1) Totten Trust 2) Pay at Death 3) Life Insurance Trust |
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Totten Trust (financial institution)
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Valid even though settler (depositor/trustee) retains total control. Look for intention to revoke eg by will to defeat beneficiary's right or if account is make irrevocable
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Pay on Death
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An account payable on request to one (or more) persons during lifetime and onthe death of the person to one or more payees
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Testamentary Trust
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Testamentary Trust (look to a will to establish trust elements)
1) doctrine of independent Significance/ Incorporation by reference applicable to establish truse 2) deivery of res not required 3) wills cross over |
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Elements (Settlor's intent)
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Settler (creator of trust) must express verbally or though conduct an intention to create a present trust at the time of ownership of the property
1) trust must take effect immeidately 2) Precatory Words - intent or mere suggestion 3) presumption exists against intent but facts may support intent |
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Trust Purpose
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Trust purpose (look to settlor's intent)
1) is purpose illegal or contrary to public policy 2) if a condition violative of public policy is attacvhed to trust, argue severance |
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Res
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1) required as trustee must haver property to manage
2) exisiting interest v. mere expactancy 3) must be identifiable 4) must be delivered if truee 3rd party a) acutal b) symbolic c) constructive |
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Trustee
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Facts will normally identify trustee
1) required for a valid trust to exist 2) court will appoint if trustee not named 3) look for delivery issue when inter vivos trust involved 4) obligations required 5) where trustee also bene merger takes place thereby terminating the trust |
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Trustee qualifications, resignation, removal
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1) qualifications - ability to acquire/hold property for own benefit
2) resignation a) before acceptance - valid b) after acceptance- void unless all beneficiaries consent/court approved/trust provides for resignation 3) removal (trustees conduct scrutinzed) a) breach of fiduciary duty b) Court must protect the trust to effectuate the settlor's intent |
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Beneficiary
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Beneficiary ( look for individuals who receives direct benefit)
1) required to enforce a trust. If no bene, resulting trust will result in favor of settlor |
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Beneficiary must be definite
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Ascertainable by time interest mature
1) RAP if possible that any bene may not be ascertainable within a life in being plus 21 years the interst fails and would revert back to the settlor under a resulting trust 2) Charitable trust does not require definite bene |
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Beneficiary acceptance
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Acceptance is implied unless
1) detriment exists to ben (taxes) 2) beneficary expressly rejects |
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Class Gifts
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1) class must be definite (Family, friends, etc)
2) beware of trustee's unlimited discretion (power to name all members of the class) 3) beware of the rule of convenience |
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Types of Trusts (mnemoic)
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Patron -Pour Over Trust
Saint - Secret/Semi-Secret trust Sam - Spend thrift Support - Support Sassy Disciples - Discretionary By - Blended Trust Praying - protective trust Charitable - Charitable Honorably - Honorary And Open - Operation of Law |
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Pour - Over - Trust
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A devise to a trust, the terms of which are not set forth in the will. Facts will indicate settlor sets up an inter-vivos trust subsequently writes a will that pours over into pre-existing trust (attempting testamentary gift to a pre-existing trust)
1) established during the testor's lifetime 2) the trust must be identified in the testator's will and its terms set forth in written instrument 3) the trust may be amendable or revocable and the settlor may be a trustee |
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Doctrine of Independent Significant
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Applicable to establish trust
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Incoporation by reference
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is merely a means by which the will can complete a testamentary trust when the drafter does not want to state all the trust elements in the body of the will itself
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Independent significance
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A true pour over is found when the existing intervivos trsut is a fact of independent significance and the will devises property to this trust. The net effort is to leave only one trust, the inter vivos trust, which is enriched by the property devised under the will
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Secret Trust
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A trust which does not appear on the face of the will but where the devisee has orally promised the testor to use the property for another person. Facts will indicate testor/settlor intends for property to pass to a bene even through bene is not mentioned in the will.
2) constructive trust remedy available where trustee fails to perform |
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Semi Secret Trust
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Will mentions Trust but does not specify the bene or any terms of the trust
1) Majority - resulting trust imposed in favor of testator's heir (opposite from secret trus) - extrinsci evidence inadmissible 2) Restatement - constructive trust in favor of intended bene |
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Spendthift
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Prohibits bene's interest from volunary (bene actions) or involuntary (creditor's action) transfer
1) majory issue - creditors can not reach trust interest a) exceptions - special creditors - alimony/child support b) once bene receives, res, creditor can attach |
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Support trust
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Trustee limited to pay particular sum (necessary) for beneficiary's support
1) effect same as spendthrift (non transferability/creditor). Creditors may attach if amount exceeds support or if debt relates to the support of the bene 2) argue whether life style should be taken into consideration |
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Discretionary trust
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Trustee is given discretion to apply or withhold payments to beneficiary (income v. principal)
1) until discretion exercised creditors cannot reach interest 2) settlor cannot be the beneficiary |
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Blended Trust
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A trust created for a group of persons and the interest of one member is inseparable from the interest of another
1) effect is that one member cannot transfer his/her interest and creditors cannot reach any interst in the trust |
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Protective Trust
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Ordinary trust that pays out income regularily, but which contains a forfeiture provision that upon an attempted alienation of the beneficiary's interst becomes a discretionary trust to apply the income for the benefit of any or all of the group that include the original beneficiary
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Charitable Trust
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The effect of the trust instrument is to benefit the community or a signifcant portion therefore, regardless of the intent of the settlor
1) bene must be indefinite 2) Exclusive charitable purpose (advance education, eliminate povity) 3) Cy Pres Doctrine |
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Cy Pres Doctrine
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Court willa ter the dispositve provision of a chartiable trust where necessary to effectuate settlor's intent
1) Cy Pres alters the dispositive provisions of the trust 2) applied when intial charitable purpose becomes illegal, impossible or impracticial to perform 3) argue general charitable purpose 4) a specific purpose may negate application of doctrine |
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Honorary Trust
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A non charitable specific purpose trusts, which has no beneficiary with standing to enforce it
1) look for noncharitable purpose 2) RAP 3) Issue will involve care of animals/graves |
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Operation of Law
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Court imposed to prevent unjust enrichment (to do equity)
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Resulting Trust
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Failure of express private truse, Settlor/heirs will argue for invalidity of trust and court imposition of a resulting trust in their favor
1) Does not apply to charitable trust where Cy Pres Doctrine applied 2) beware of crossover |
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Purchase Money resulting trust
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Facts will indicate that one person provides consideration for the purchase of proprty, but consents that title is taken in name of another person
1) if fraud involved - constructive trust remedy |
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Constructive Trust
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Loof for fraudulent conduct by trustee. Issue - Bene/heirs will argue for court imposition of a constructive trust to prevent injustice or unjust enrichment
1) BFP will cutt off equitable remedies |
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Trustee's Authority (power source)
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1) Express terms - may require particular conduct
2) Implied - those powers necessary to effecutate trust prupose 3) Joint- requires unanimous agreement in private trust, but only majoirty agreement in a charitable trust *** Trustee's authority to act should be carefully scrutinized |
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Trustee's oblications
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1)Obligation of due care
2)Obligation of loyalty 3)Obligation to preserve trust property 4) Obligation to prohibit commingling of trust funds 5) Obligation of personal performance 6) Obligation to legally defend trust |
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Obligation of due care
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Trustee is obligated to act with the degree of care, skill, and prudence which would be exercised by a reasonable prudent person in managing an enterprise of like character and with like aims to accomplish the expressed purpose of the trust
1) was the act authorized 2) was act performed within requisite standard of care ** trusee is under a fiduciary duty to act for the benefict of the trust/bene |
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Obligation of loyality
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1) any transaction with a bene durint the existance of the trust
2) beware of conflict of interest 3)Absolutely no self dealing 4) strict liability for losses to trust 5) bene options; set aside reover profit; assent |
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Obligation to preserve trust property
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Trustee must invest trust funds within a reasonable time. Failiure to invest may result in liability
1) trustee must strive to make trust property productive 2) measure damages: amount of income which would have occurred from a prudent investement 3) prudent investor rule - trustee must act in good faith with reasonble prudence at the time of eahc individual investments 4) How speculative is the investement 5) trustee may not continue to operate settlor's business unless authorized |
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Obligation to prohibit commingling of trust funds
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1) separate trust assets (measure of damages - loss to trust)
2) Earmark specific trust property a) measure damages - modernly, dmages linked to causation |
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Obligation of personal performance
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Major issue - can delegated acts reasonably be performed by another
a) trustee cannot delegate entire adminstration to trust to co-trustee b) the trustee is permitted to delegate purely ministerial duties but not discretionary acts or powers 2) look for negligence selection/supervision 3) trustee remains guarantor for any losses to trust |
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Obligation to legally defend trust
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Obligation arises if the trust may suffer a loss
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Trustee's Liabilies
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1) No offsets
2) liability may result from acts of others 3) exculpatory clauses 4) liability to third person 5) resignation 6) beneficiary's remedies |
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No Offset
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No offset allowed to unrelated transaction where successive breaches involved
1) look to investments to determine whether breaches arose out of the same transaction 20 if breach related, trusee is only liable of net loss |
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Liabilty may result from acts of others
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Look for trustee authorization, express/conduct
1) agents 2) co trustees |
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Exculpatory clauses
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Agrue against validity as to hold otherwise would promote trustee misconduct
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Liability to third person
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tort- personal liability for torts committed within the scope of trust supervisor includes acts of agents
1) indemification permitted where no personal fault 2) trustee entitlted to reimbursement 3) deriviative right Contract- personal liability for all contracts made within the scope of trust supervision (unless contract state otherwise) 1) reimbursement 2) direct suits against trust 3) bene will argue for trustee liability in order to preserve trust assets |
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Derivative Right
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a third party may bring suit directly against the trust if
1) the trustee has a right to indemnity from the trust 2) the third party is unable to collect from the trustee 3) the trustee's right to idemnity has not been impaired |
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Resignation
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trustee liable for all losses occuring until a successor appointed
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Beneficary's remedies
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1) damages
2) removal of trustee- injunction 3) construct trust |
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Third party liability
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1) BPF will cut off beneficiary's equitable interests
2) innocent donee required to return property but not liable for damages (no culpability) as opposed to guility participation (knowledge) 3) trustee proper individual to sue third party |
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Income
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Does income from the trust res belong to beneficiary or remainderman
1) beneficiary entitled to all income accuring from date trust created 2) remainderman entitled to principal and income accuring after the death of beneficiary c) caveat - look to when income is paid to determine proper allocation 1) rents/annunities accrue when paid 2) interest accrues daily and its apportionable between income/principal |
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Dividends
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1) dividends are classified per the shareholder of record date per the corporation's declaration of the divident
2) ordinary cash dividends - income 3) stock dividends a) Majority - Income if paid in cash, principal if paid in stock 2) sale of corporate stock - allocated to principal (principal also bears any potential loss) |
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Wasting Assets
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Items which loses value through use
1) depreciation charged against income 2) receipts from the sale of portions of wasting assets are merely a transformation of principal 3) open Mind Doctrine |
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Open Mind Doctrine
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Allocatioln dependent upon time mine opened. Prior to creation - income, after creation - principal
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Unproductive assets
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(swamp lands, timber land)
1) portion of purchase price allocated to income when property sold 2) where settlor authorizes trustee to hold property, all income when sold is principal 3) implied duty to sell unless terms state otherwise |
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Expsenses used to preserve or increase trust corpus are charged as what?
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Principal
1) extraordinary/capital expenditurs 2) special assessments resulting in permanent improvements 3) principal payments on mortgage 4) taxes on capital investments 5) real estate taxes 6) stock broker fees |
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expenses related to production of income (daily activities) are charged against income
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1) oridinary taxes
2) mortgage payment interest 3) ordinary repairs, maintenance, expenses, insurance premiums |
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Trustee compensation, legal fees, are paid how
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Trustee compensation legal fees to defend the trust and expenses for periodic of final accounting are apportioned between principal and income
*** Caveat - allocate according to above rules always keeping in mind settlor's intent to whom was the benefit intended to pass |
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Beneficiary Rights
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1) general rule - beneficiary can freely transfer interest
a) writing required if real property involved b) exception 1) spendthrift trust 2) support trust 3) protective trust per forfeiture provision |
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Beneficiary creditors
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Beneficary's creditors may attach trust interest
1) spendthrift - once bene receives res, creditors can attached 2) support - creditors can not attach res unless it amount exceeds that which is required for support or if debt relates to the support of the beneficiary 3) discretionary |
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Modification (circumstances have changed since creation)
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A majority of jurisdiction will not permit an amendemtn to an intervivos trust unless the power is expressly reserved in the trust instrument. A minority of jurisidiction will allow an amendment unless the trust instrument is made expressly irrevocable
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Doctrine of Change Circumstances
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Allows for a deviation from administrative terms where essential to achieve trust purpose
1) rule is designed to carry out the settlor's original purpose not that of the bene 2) changes circumstances must not have been contemplated by the settlor 3) Deviation cannot change a bene's interest |
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Revocation
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Majority - settlor not permitted to revoke unless right reserved
Minority - permitted unless expressly made irrevocable |
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Termintation - trustee
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Look to the terms of the trust - has trust purpose been accomplished
1) trustee must wind up afairs 2) Trustee may be able to use all of the principal and thereby terminate the trust |
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Termiantion - beneficiary
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Unanimous consent requireed to protect the settlor's intent (bewware of unborn bene) while the minority does not require unanimous consent
2) termination will not hinder settlor's intent *** Claflin Rule - a trust cannot be terminated even with the consent of all the beneficiaries so long as a material trust prupose remains unfulfilled 2) if settlor and the bene agree, termination allowed |
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Operation of law
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1) purpose frustated/impossible to complete
2) expiration of trust terms 3) merger |
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Exculpatory clauses
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Agrue against validity as to hold otherwise would promote trustee misconduct
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Liability to third person
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tort- personal liability for torts committed within the scope of trust supervisor includes acts of agents
1) indemification permitted where no personal fault 2) trustee entitlted to reimbursement 3) deriviative right Contract- personal liability for all contracts made within the scope of trust supervision (unless contract state otherwise) 1) reimbursement 2) direct suits against trust 3) bene will argue for trustee liability in order to preserve trust assets |
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Derivative Right
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a third party may bring suit directly against the trust if
1) the trustee has a right to indemnity from the trust 2) the third party is unable to collect from the trustee 3) the trustee's right to idemnity has not been impaired |
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Resignation
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trustee liable for all losses occuring until a successor appointed
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Beneficary's remedies
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1) damages
2) removal of trustee- injunction 3) construct trust |
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Third party liability
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1) BPF will cut off beneficiary's equitable interests
2) innocent donee required to return property but not liable for damages (no culpability) as opposed to guility participation (knowledge) 3) trustee proper individual to sue third party |
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Income
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Does income from the trust res belong to beneficiary or remainderman
1) beneficiary entitled to all income accuring from date trust created 2) remainderman entitled to principal and income accuring after the death of beneficiary c) caveat - look to when income is paid to determine proper allocation 1) rents/annunities accrue when paid 2) interest accrues daily and its apportionable between income/principal |
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Dividends
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1) dividends are classified per the shareholder of record date per the corporation's declaration of the divident
2) ordinary cash dividends - income 3) stock dividends a) Majority - Income if paid in cash, principal if paid in stock 2) sale of corporate stock - allocated to principal (principal also bears any potential loss) |
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Wasting Assets
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Items which loses value through use
1) depreciation charged against income 2) receipts from the sale of portions of wasting assets are merely a transformation of principal 3) open Mind Doctrine |
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Open Mind Doctrine
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Allocatioln dependent upon time mine opened. Prior to creation - income, after creation - principal
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Unproductive assets
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(swamp lands, timber land)
1) portion of purchase price allocated to income when property sold 2) where settlor authorizes trustee to hold property, all income when sold is principal 3) implied duty to sell unless terms state otherwise |
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Expsenses used to preserve or increase trust corpus are charged as what?
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Principal
1) extraordinary/capital expenditurs 2) special assessments resulting in permanent improvements 3) principal payments on mortgage 4) taxes on capital investments 5) real estate taxes 6) stock broker fees |
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expenses related to production of income (daily activities) are charged against income
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1) oridinary taxes
2) mortgage payment interest 3) ordinary repairs, maintenance, expenses, insurance premiums |
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Trustee compensation, legal fees, are paid how
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Trustee compensation legal fees to defend the trust and expenses for periodic of final accounting are apportioned between principal and income
*** Caveat - allocate according to above rules always keeping in mind settlor's intent to whom was the benefit intended to pass |
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Beneficiary Rights
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1) general rule - beneficiary can freely transfer interest
a) writing required if real property involved b) exception 1) spendthrift trust 2) support trust 3) protective trust per forfeiture provision |
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Modification
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(Circumstances have changed since creation)
A majority of jurisdictions will not permit an amendment to an intervivos trust unless the power is expressly reserved in the trust instrument. A minority of jurisdictions will allow an amendment unless the trust instrument is made expressly irrevocable |
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Doctrine of changed circumstances (Judicial)
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Allows for a deviation from administrative terms where essential to achieve trust purpose
1) rule is designed to carry out the settlor's original purpose not that of the beneficiaries 2) changed circumstances must not have been contemplated by the settlor 3) deviation cannot change a beneficiary's interest |
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Revocation
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Majority - settlor not permitted to revoke unless right reserved
Minority - Permitted unless expressly made irrevocable |
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Termination - trustee
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Look to the terms of trust - has the trust purpose beeen accomplished. The trustee must wind up the affairs of the trust with reasonable promptness, retaining only such powers as are necessary to preserve the property and to distribute it to the beneficiaries
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Termination - Beneficiary
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Majority - Unanimous consent required to protect the settlor's intent while the minority does not require unanimous consent
2) Termination will not hinder settlor's intent (spendthift clause) |
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Claflin Rule
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A trust cannot be terminated even with the consent of all beneficiaries so long as a material trust purpose remains unfulfilled
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Termination - Operation of Law
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1) purpose frustrated/impossible to complete
2) expiration of trust terms 3) merger |
