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37 Cards in this Set
- Front
- Back
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List of Trusts Issues
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Talk about intent all the time.
Elements of Formation (non-precatory intent, 3 parties, capacity, purpose, identifiable existing res, valid transfer [SOF, SOWills, present and active]) Limitations (Spendthrift, Discretionary, Support) Charitable Trusts (cy pres, rap, appropriate B, standing to enforce) Trustee Powers and Duties (Implied powers, DENIAL) (Remedies) Distribution Termination Remedies (Purchase Money, Resulting, Constructive, Defenses) |
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Trusts
Which trusts must be in writing? |
Non-compliance with SOF might cause failure for lack of conveyance, but the trust itself never needs to be in writing.
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Trusts
What requirement does Inter Vivos trust have that Testamentary trust lacks? |
Delivery
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Trusts
What is honorary trust? |
Trust that has NO ascertainable beneficiary and confers NO substantial benefit to society. Trustee has power but not required to carry out settlor’s goal.
Usually violates RAP unless there's a workaround. |
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Trusts
What is totten trust and how does it differ from a real trust? |
A bank account to pass to B on T's death.
Creditors can reach it. Settlor can spend it. The Beneficiary's interest dies with him if he predeceases. Revocable by express act or will provision. |
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Trusts
What is spendthrift trust? Which creditors can penetrate it? |
Creditors canNOT attach trust. Exceptions:
Government Child/spousal support/alimony Tort judgment creditor; Necessities providers B can voluntarily assign the income but assignee would be unable to force payment, having a cause of action only if T decided to pay B. |
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Trusts
What is a resulting trust? When does it arise? |
Implied in fact trust based on presumed intent of parties
Arises when: 1 Trust ends with no provision for what's next 2 Trust fails for lack of beneficiary 3 Charitable trust ends and no cy pres 4 PET fails b/c illegal after creation 5 Excess corpus than that required by PET 6 Purchase money resulting trust (A pay consideration to B to have title transferred to C, presumption that C is trustee for benefit of A) OR 7 Semi-secret trust (will makes a gift to person to hold as trustee, but no beneficiary) |
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Trusts
What is a secret trust? |
Will on its face makes gift outright to A, but gift is given on basis of oral promise by A to use the property for benefit of B. Remedy is constructive trust upon proof by clear and convincing evidence of true beneficiary. No showing of fraud is necessary (c.f., breach of oral intervivos real estate trust).
Also applies if intestate heir convinces S not to make a will based on promise to hold in trust for B. |
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Trusts
What is oral real estate trust? What is SOF issue? |
S orally conveys real property to A to hold for benefit of B, but deed only communicates a fee simple transfer.
A will try to keep property by raising SOF, but A will NOT be allowed to invoke SOF IF: 1 Fiduciary relationship btw S and A 2 Fraud in inducement on A's part OR 3 Detrimental reliance by B (more than taking possession) |
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Trusts
What does trustee owe to beneficiary? Acronym and how to analyze |
Duties are DENIAL:
Due care Earmark Not to delegate Invest Account Loyalty Only B can enforce, and only if they don't consent (mere failure to object isn't consent) Ask whether his act was authorized by instrument or implication. Ask whether he did so with care, etc. |
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Trusts
What are three tests for duty to invest? What duty is always implied in it? |
--State lists: good investments are gov't bonds, fed insured CODs, first deeds of trusts, public stocks, productive land. Bad include 2nd deeds, new business. Don't follow blindly.
--Common law reasonably prudent person test: compared to own investments, preserving and growing. --Uniform Prudent Investor Act: look at whole portfolio, even speculation is allowed. ALWAYS duty to diversify investments |
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Trusts
What are liabilities of trustee to third persons? Common law vs modern rules |
1. CL: Trustee is sued in his personal capacity. His personal assets are at stake.
a. Trustee can get indemnification if he acted within his powers and was not personally at fault. b. Trustee can be sued in his representative capacity if the contract so provided. 2. Modern: If the other party to the contract knows that the trustee is acting in his representative capacity, then he must be so sued, i.e. trustee signs K as John Smith, as trustee of ABC Trust. IN TORT: 1. CL: trustee sued in personal capacity but can get indemnification if he was without personal fault 2. Modern: trustee sued in personal capacity only if he is personally at fault. |
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Trusts
When can settlor modify trust or enforce it? When can ct? |
Settlor: Can modify if he expressly reserves power to do so. Can enforce only if he retained some power or interest.
Ct: Two types 1 Cy pres for charitable trusts 2 Doctrine of Changed Circumstances allows court to change provisions or accelerate future interests or even invade corpus IF --Unforeseen circumstances --Necessity --Beneficiaries' interests aren't harmed. |
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Trusts
When does settlor have power to revoke revocable trust? |
Majority rule: Settlor MUST reserve power
Minority rule: Power to revoke UNLESS trust is expressly irrevocable. California follows. |
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Trusts
How can a trust be terminated? |
All beneficiaries agree (including contingent remainderman whose interests as well as that of their living family members must be represented) AND all S's material purposes are either accomplished or outweighed by need. Spendthrifts can't be overridden. Modified Claflin Doctrine. OR
All Bs and S agree. No petition needed. Even spendthrift provisions will fall. A non-consenting B may be ignored if modification can be done without impairing his interest substantially, but then a petition is required. OR Trustee can terminate if trust is too small. Under 20k presumptively too small. Over 20k, T or B can petition to show continuation would impair S's purposes. OR T or B can petition by showing that unforeseen circumstances will defeat purposes of the trust. |
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Trusts
Life tenant gets what income? Life tenant's interest pays for what expenses? |
Cash dividends
Interest income AND Net business income ** --Interest on loan indebtedness --Taxes --Minor repairs |
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Trusts
Remainderman gets what income? His interest pays for what expenses? |
--Stock dividends
--Stock splits --capital gains distributions from mutual funds, even if cash --Net proceeds on sale of trust asset ** --Principal on loan indebtedness --Major repairs/improvements |
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Definition of Valid Trusts
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A valid trust is a fiduciary relationship with respect to property whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a manifestation of intent to create it for a legal purpose.
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If trust is illegal at creation:
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If trust is illegal at creation:
a. Excise bad from good and trust will stand; OR b. If excise impossible, court has option to choose either (i) invalidate the trust and therefore return property to settlor or his estate; or (ii) allow trustee to keep property for himself as punishment to the settlor who does not come with clean hands. |
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What is a purchase money resulting trust?
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A pays consideration to B to PURCHASE property with title held by C
a. If A & C not closely related, rebuttable presumption that C holds as purchase money resulting trust for As benefit b. If A & C closely related, rebuttable presumption that A simply made gift to C. Exceptions - Illegal purpose. (unless misconduct is slight compared to T's unjust enrichment if allowed to keep property) - Transferee obtained title wrongfully (but CT may be imposed) |
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What are arguable issues for Charitable Trust?
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Is the beneficiary too general or too specific?
Can even a highly specific charitable trust be construed as beneficial to the public at large? RAP affects vesting, but not duration of these trusts. Should Cy Pres be used? |
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What must be argued for pour-over will?
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Validation by either Incorporation by Reference or Act of Independent Significance.
If trust modified after will executed 1) incorporation by reference no longer good b/c trust as modified not in existence when will executed; 2) but provision can still be validated by UTATA statute or as fact of independent significance. |
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What can Bs do if T self-deals or exceeds scope of her duties?
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a. Beneficiaries can ratify the transaction if outcome is favorable
b. Surcharge the trustee: sue for damages c. Trace and recover the property through Constructive Trust or lien: except if purchase is BFP without notice of breach. d. Remove trustee |
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What happens if T fails to earmark trust property?
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CL – trustee held personally liable for any loss;
modern – trustee held personally liable only for those losses caused by failure to earmark. |
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What if S makes inter vivos conveyance with a writing that does NOT state T is holding for B?
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Parol evidence to show the true intent will be allowed only for DAMFOIL, such that T never intended to be trustee. If he merely has decided to breach and keep the property, there is no remedy though the modern trend is contra.
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What are the requirements for cy pres?
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1. Frustration of Settlor's purpose
2. A GENERAL charitable purpose. |
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What must be shown for trust intent?
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Final, definite, and specific intention that trust should immediately arise simultaneously with the transfer/segregation. All elements must be designated.
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Can creditors reach corpus of revocable trust?
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Increasing view says no, unless its creation was a fraud on creditors.
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Could there be a problem if there is no trustee when S makes his inter vivos trust?
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Court will supply a trustee in general, but lack of a trustee could mean there was never a present transfer and the trust would fail.
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Can a charitable trust have a few beneficiaries chosen from a group?
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Yes, if the group is large and indefinite, and the benefit affects the general public.
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What requirements are there for Beneficiaries?
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Capable of holding title.
Accept, though this is often implied. Be ascertainable by time of enjoyment which must be within time of Rule Against Perpetuities. Need not be notified. |
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What happens when the trust has an improper condition?
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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. |
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How are decisions made by joint trustees?
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CL = joint t'ees must unanimously agree to exercise power.
ML = If 3 or more t'ees, exercise by majority. |
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Can trustee be employed by trust?
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Only in the sense of being compensated for extraordinary services he renders in administrating it. Not in unrelated services he provides.
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Can Beneficiaries sue third parties in name of trust?
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No, only trustee can. If he won't, B's can join him in a suit.
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How should income from pension plans and liquidating assets be distributed to beneficiaries?
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10% to income beneficiary, 90% to principal beneficiary.
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What expenses are charged to the principal/remainder beneficiary?
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Half of trustee expenses, payment on principal of trust debt, expenses of proceeding re: interest in principal, estate taxes, disbursements re: environmental matters.
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