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28 Cards in this Set

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  • Back
Charitable trusts
must have indefinite beneficiaries, may be perpetual and cy pres applies

RAP does not apply unless shift between private and charitable uses

cy pres--when purpose is impractical, ct selects alternative

honorary trusts
transfer of beneficiaries interest
may freely transfer interest

spendtrift trusts--preclude beneficiary of transfering his interest or creditors of reaching it

restraint on involuntary alienation only is invalid

discretionary trusts--beneficiaries creditors or assignees have same rights as beneficiary

support trusts--cannot be assigned or reached by creditors
Modification and termination of trust
in most states, settlor can't revoke or amend unless he expressly reserved that right

beneficiaries--all agree and won't frustrate material trust purpose

trustee has no power except as provided in instrument

judicial-when pupose is impossible or illegal

doctrine of changes circumstances
Powers of the trustee
expressly conferred and plus powers implied that are necessary to accomplish trust purposes

joint trustees must exercise power by unaimous agreement. in majority of states, any power in 3 or more trustees..need majority

normally no implied power to borrow money, or to mortgage or otherwise encumber the property
standard of care required of trustee
must exercise that degree of care, skill and caution that would be excercised by a reasonably prudent person in managing her own property
duty of loyalty of trustee
trustee ows duty of undivided loyalty to the trust and its beneficiaries

cannot sell or buy assets even if price is a fair one

may not sell property of one trust to another

may not borrow trust funds nor loan her personal funds

cannot use trust assets to secure personal loan

trustee cannpt invest in its own stock
Beneficiaries rights in case of prohibited transaction
1. set aside the transaction

2. recover any profit

3. affirm the transaction
other duties of trustee
1. no commingling

2.. Uniform Prudent Investor Act--may delegate investment & management functions that a prudent trustee of comparable skills could properly delegate under the circumstances

3. duty to defend trust from attack

4. duty to preserve trust property and make it productive
Uniform Prudent Investor Act
1. a trustee must exercise reasonable care, skill and caution when investigating and mananging trust assets

investment decisions must be evaluated in context of entire portfolio and as part of overall investment strategy

can invest in any type of investment provided trustee acts prudently

must diversify instruments of the trust unless reasonably determines better off without diversification
Summary of the trustee's fiduciary obligation
ask yourself

1. was the act one that the trustee was authorized to perform by the instrument, by state law, by implication?

2. if the act was proper to perform, did the trustee do so with the appropriate care, skill and caution?
Liabilities of the trustee
removal, lost profits, interest from time of breach

must sue within reasonable time or stopped by doctrine of laches
Will substitutes
Life insurance trusts are upheld

totten trust accounts are upheld

Uniform Transfers to Minors Act (UTMA)--custodianship is not a trust; legal title is in minor, not custodian
trustee liable for the acts of others
agents--if she (i)directs, permits, or approves the act, fails to compel agent to address wrong, (ii) improperly selects or improperly delegates, (iii) fails to excercise reasonable supervision of agent

co-trustees--(i) approved or participated in breach, concealed or failed to take steps to correct breach, (iii) improperly delegated athority to co-trustee

predecessor trustees--(i) knew or should have known and fails to redress, or (ii) was negligent in determing when property should have been delivered to her
trustees liablity to third parties
K liability--entitled to reimbursement only if acted within her powers and reasonably

tort liability--idemnification only if not personally at fault or tort occurred as mornal incident to activity in which trustee properly engaged
liability of third parties to trust
a BFP cuts off equitable interests of beneficiaries

direct suit is not allowd by beneficiaries; only trustee unless trustee participated in the breach, has left juridiction or fails to sue a 3rd person liable in tort or K
Uniform Principle and Income Act
gives the trustee an adjustment power to reallocate investment portfolio return.

authorizes the trustee to characterize items such as capital gains, stock dividends, etc., as income if the trustee deems it necessary to carry out the trusts purposes
Allocation rules
cash dividends treated as income unless characterized as capital gains for federal tax purposes

stock dividends=principle

proceeds from life insurance policy=principle unless insures trustee against certain type of loss, then =income

patents and copyright=10% income, 90% principle

deferred compensation= same as patents
Allocation of Expenses

Expenses charged to income
one-half of regular compensation of trustee or any other person providing investment, advisory, or custodial services

one half for accountings, judicial proceedings

entire cost of ordinary expenses and insurance premiums covering loss of a principle asset
Allocation of Expenses

Expenses charged to principle
remaning one half of the compensation of trustee and any person providing investment, advisory, or custodial services

remaining one half for accountings and jusdicial proceedings

payment on the principle of a trust debt

expenses of a proceeding that primarily concern the principle

estate taxes

enviornmental matter
Will substitutes

revocable inter-vivos trusts
the test for distinguishing a trust from a will is whether the transfer creates some present gift, even if that gift is of a future interest subject to divestment

usually upheld even when settlor is trustee as well as life-tenant with powers to revoke as long as third parties notified though words or actions of settlors intent to make trust

may be used for convenient management of assets, to plan for possibility of incapacity, avoid probabte costs and delays
Resulting Trusts

Purchase Money Resulting trust
is presumed whenever beneficiary furnishes the -c for the acquisition of real property or personal property, but with beneficiaries consent, title is taken in the name of the trustee

the -C must be for the purchase of the property

burden of proof on beneficiary to prove he supplied -c by clear and convincing evidence

once X proves -C, trust is presumed by Y can rebut by showing no trust was intended
Resulting trusts

where parties closely related
when party paying -C is parent, grandparent or husband of trustee, a gift is presumed

split of authority when beneficiary is wife of trustee as to whether a gift or trust

normal presumtion of trust if uncle, aunt, brother/sister, child or grandchild is person receiving title
Resulting trust

Unlawful purpose
a trust cannot be implied though recent cases suggest implied trust is still proper when beneficiaires misconduct is slight compared to the unjust enrichment trustee will enjoy if permited to keep the property

no trust when transferee obtained title wrongfully (fraud)
Resulting Trusts

on failure of express trusts
if express trust is void or unenforceable or the beneficiary is dead or can't be located, the express trust terminates and the settlor becomes the beneficiary of the resulting trust
Resulting trust

when not implied
the trust instrument specifically provides for disposition of property when the trust has failed or been completed

the settlor was given -c for his original transfer in trust

cy pres is applicable in cases of charitable trusts

resulting trust IS implied when the trust purpose is satisfies and some res remains
Constructive trusts
is not really a trust but a flexible equitable remedy to prevent unjust enrichment resulting from the wrongful conduct, such as fraud, undue influence, or breach of a fidicuiary duty

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

arising from homicide
if one person kills another and is convicted of murder or manslaughter, he holds any property he acquires from the victim by will or intestacy as constructive trustee in favor of whomever would have taken the property had the killer predeceased the victim
Constructive trusts

where killer and victim hold property in joint tenancy
kiler obtains full legal title to the property

however, he holds as least one-half interest as constructive trustee for the estate of the victim