Tx Bar '14 - Trusts & Guardianship

Front 1

[Trusts & Guard: Trusts - Formalities]

What are the requirements for a valid trust?

Back 1

Settlor Must:

1) have legal capacity to convey title to trustees;

2) deliver trust property to trustee for the benefit of (ascertainable) beneficiaries

3) w/ the intent to create a trust.

Trust Must:

4) be for a lawful purpose

5) usually be in writing

As with gifts, no consideration is req'd.

Front 2

[Trusts & Guard: Trusts - Formalities]

When is an oral trust valid?

Back 2

Only for transfer of personal property, to 3rd party + Settlor must:

1) have legal capacity to convey title to trustees;

2) deliver trust property to trustee for the benefit of (ascertainable) beneficiaries

3) w/ the intent to create a trust.

Trust Must:

4) be for a lawful purpose

Front 3

[Trusts & Guard: Trusts - Formalities]

What property is sufficient reason for a trust?

Back 3

To have a trust, legal title to a specific interest in property must be conveyed to trustee. Subject matter must be certain & identifiable.

An expectation interest is not property, but a future interest is presently owned property.

A promise to contribute property to the trust supported by consideration gives rise to a prop interest in the trust.

Front 4

[Trusts & Guard: Trusts - Trustee]

What are the requirements for a trustee?

Back 4

A trustee must have legal capacity (18+) to deal w/ the property & capacity to contract & execute deeds.

An unincorporated association c/n be a trustee.

Only banks & trust companies can serve as corporate trustee. No trust EVER fails for lack of trustee; the court will appoint one if necessary.

Front 5

[Trusts & Guard: Trusts - Trustee]

Trustee's acceptance of the trust?

Back 5

Either by Trustee's signature (signifying acceptance of trust) OR

by conduct (e.g. exercises trust powers or performs trust duties - but NO trustee by estoppel).

No one can be compelled to serve. Entitled to reasonable compensation.

Front 6

[Trusts & Guard: Trusts - Trustee]

How can a trustee resign?

Back 6

1) Trustee needs ct approval upon a showing that he can no longer appropriately serve as trustee;

2) must provide an accounting.

Front 7

[Trusts & Guard: Trusts - Trustee]

What are trust purposes?

Back 7

Trust may be created for any purpose that is not illegal. Trust will fail if calls for:

1) commission of crime;

2) destruction of property;

3) unlawful condition against public policy (divorce, total restraint on marriage - partial ok).

If illegal, beneficiary takes trust prop free of the condition.

Front 8

[Trusts & Guard: Trusts - Revocable Trust]

When is a trust revocable?

Back 8

All trusts are revocable & amendable by the settlor unless expressly make irrevocable & ummendable.

Any amendment or revocation must be in writing.

Guardian of a settlor does not have the ability to revoke a trust; only a court could revoke upon finding that revocation is in the ward's best interest.

If irrevocable, only Bs can sue.

Front 9

[Trusts & Guard: Trusts - Revocable Trust]

Settlor retention of broad power?

Back 9

Trust VALID even if settlor retains:

1) income for life;

2) power to revoke, amend;

3) control administration;

4) power to control trustee;

5) trust disposes of property at death

Front 10

[Trusts & Guard: Trusts - Revocable Trust]

What does a durable power of attorney accomplish?

Back 10

A durable POA is a signed, notarized document that authorizes another person to act on behalf of the principal.

That agent's authority will not be affected by the person's incapacity if it expressly states.

The principal can grant a springing POA that only becomes effective upon incapacity.

Appointment of a guardian of the estate terminates a POA.

Front 11

[Trusts & Guard: Trusts - Charitable Trust]

What are the requirements of a charitable trust?

Back 11

Must satisfy the other formalities of a trust & be established for a charitable purpose.

NOT subject to RAP, it may be perpetual; "to be used for charitable purposes" or "to support the performing arts" is valid.

To be charitable purpose, the trust must confer a substantial amount of social benefit - religion, science, art, medicine, etc. - c/n benefit an individual/group.

If the charitable purpose can no longer be carried out, a court can reform it to carry out the settlor's general intent as near as possible. (Cy Pres Doctrine)

Front 12

[Trusts & Guard: Trusts - Charitable Trust]

Who can enforce a charitable trust?

Back 12

Any specifically named charitable beneficiary & attorney general. AG is a proper party to any proceeding re: the trust.

New §: if named beneficiary ceases to exist, trustee can pick a new beneficiary w/o ct. approval, but must notify AG.

Front 13

[Trusts & Guard: Trusts - Charitable Trust]

What is an honorary trust?

Back 13

Its really a gift where the beneficiaries are not people but objects (ie car); gift will be upheld if the trustee decides to perform.

If the gift fails, there is a resulting trust in favor of the residuary beneficiary. RAP = problem, trust should be limited to 21y

Front 14

[Trusts & Guard: Trusts - Charitable Trust]

What is a resulting trust?

Back 14

Ct term for trust that has failed for some reason; fiction based on Settlor's implied intent [trust code doen't apply].

Purchase Money Resulting Trust: occurs where A pays the purchase price of property & has title taken in B's name, not intending a gift.

If A & B are related, presumption is gift;

if they aren't, presumption = PMRT. Extrin Evid ok.

Front 15

[Trusts & Guard: Trusts - Charitable Trust]

What is a constructive trust?

Back 15

A constructive trust is not a trust. It is an equitable remedy whose object is to disgorge unjust enrichment.

Elments: wrongful conduct & unjust enrichment.

Front 16

[Trusts & Guard: Trusts - Spendthrift & Creditors]

What is a spendthrift trust?

Back 16

Spendthrift trust protects a trust's beneficiaries from creditors by prohibiting voluntary assignment or involuntary transfer of the beneficiary's interest.

Thus, judgment creditor c/n reach B's interest through garnishement/attachment.

Given full effect in TX;

Exceptions:

1) Ks for necessities,

2) child support obligations,

3) interest retained by settlor,

4) federal tax liens

to be a spendthrift trust, the instrument must expressly provide.

Front 17

[Trusts & Guard: Trusts - Spendthrift & Creditors]

Can creditors reach a Grantor's trust interests?

Back 17

Creditors can reach any interest in a revocable trust. In an irrevocable trust, only the grantor's income interest can be reached. Creditor c/n reach the principal unless it was fraudulent transfer.

Front 18

[Trusts & Guard: Trusts - Spendthrift & Creditors]

Who can compel a trustee w/ sole discretion to make distribution?

Back 18

Settlor c/n compel a distribution.

Creditors can compel trustee to distribute the maximum amount that trustee has the discretion to distribute.

Beneficiaries can challenge trustee's discretion.

Front 19

[Trusts & Guard: Trusts - Trust Admin]

Jurisdiction & proper venue over a trust dispute?

Back 19

Inter Vivos Trust = District courts & Statutory Probate Courts have concurrent jurisdiction

Testamentary Trusts = Probate Courts have Exclusive Jurisdictions.

Venue: residence of the trustee (if more than 1 trustee, situs of the trust)

Front 20

[Trusts & Guard: Trusts - Trust Admin]

When are trust beneficiaries entitled to accounting?

Back 20

Not sooner than 12 months after the trust is created & then every 12 months. Must DEMAND accounting.

Front 21

[Trusts & Guard: Trusts - Trust Admin]

What are trustee's powers?

Back 21

TX trust code, except as provided by settlor, gives broad fiduciary powers to the trustee.

Specifically, the trust code expressly authorizes a trustee to [do whatever question involves]. A trustee can do almost anything a fee simple owner can do.

Front 22

[Trusts & Guard: Trusts - Trust Admin]

What are limitations on trustee?

Back 22

1) NO self-dealing, or

2) imprudent investment

Trustee c/n:

1) breach fiduciary duties;

2) borrow trust funds;

3) loan to relative or trustee's biz;

4) use trust funds as collateral for a pers. loan;

5) loan funds to the trust;

6) buy or sell trust assets to itself;

7) profit from serving as trustee (except compensation).

Trustee can loan funds to beneficiary, so long as it is reasonable.

Front 23

[Trusts & Guard: Trusts - Trust Admin]

Trustee duty to insure prop?

Back 23

Trustee's duty to protect & preserve the trust's assets includes the duty to insure them against loss, if a prudent person would insure.

Front 24

[Trusts & Guard: Trusts - Trust Admin]

What happens when a trustee breaches a fiduciary duty?

Back 24

In addition to bringing an action to deny compensation & remove the trustee,

beneficiary has the option to ratify the transaction or sue for the resulting loss in a surcharge suit.

If the case involves self dealing, the "no further inquiry" rule provides that the only issue will be a determination of damages.

Front 25

[Trusts & Guard: Trusts - Trust Admin]

When does a COA accrue against the trustee & what is the limitations period?

Back 25

A suit must be brought w/in 4 years of the trustee repudiating the trust, of the trustee dying, or resigning, or giving an accounting that makes a full disclosure of the facts on which the action is based.

Front 26

[Trusts & Guard: Trusts - Trust Admin]

When there are multiple trustees, how can one protect himself?

Back 26

Majority rules w/ multiple trustees, but a co-trustee has a duty to prevent a breach by the co-trustee.

The trustee should not participate in the transaction & express dissent in writing.

Front 27

[Trusts & Guard: Trusts - Trust Admin]

How is trustee's investment performance measured?

Back 27

Uniform Prudent Investor Act trustee must establish & maintain a custom investment strategy that will effectuate settlor's intent based on Modern Portfolio Theory; which looks at:

1) Total Return,

2) Potential Appreciation,

3) Capital Gain & Income

General duty to diversify investments unless unwise.

Trustee's prudence is measured at the time the investment was made.

Under Uniform Principal & Income Act (UP&IA), trustee can exercise adjustment power in favor of income beneficiary where appropriate & allocate capital gain/principal to income.

Front 28

[Trusts & Guard: Trusts - Trust Admin]

How does trustee allocate b/t principal & income in O&G interest?

Back 28

Delay Rental = all allocated to income;

Royalty & Bonus = allocated equitably (presumed equitable: 15% to principal + 85% to income; if pre-2004 trust, 27.5% to P & 72.5% to income)

Front 29

[Trusts & Guard: Trusts - Trust Admin]

How does a trustee allocate b/t principal & income in other unusual assets?

Back 29

Pensions & IRAs = Income until they exceed 4% of the plan's value at the beginning of the period.

Other liquidating assets = 5% or 10% to income & the rest to principal.

Commissions & Expenses = 1/2 against income, 1/2 against principal.

Front 30

[Trusts & Guard: Trusts - Trust Admin]

When can a B bring an action against a 3p who injured the trust?

Back 30

When either the trustee is unable or unwilling to bring an action or when trustee participated w/ the party in committing a breach of trust.

Front 31

[Trusts & Guard: Trusts - Trust Admin]

Trustee exculpatory clauses?

Back 31

Settlor can include a valid exculpatory clause relieving trustee of beneficiary liability.

Except for:

1) gross negligence,

2) fraud, or

3) bad faith,

but such clauses are strictly construed.

If it purports to relieve trustee from liability for any of these three things, it is unenforceable.

While self dealing rules can be waived, an exculpatory clause, by itself, does not authorize self dealing.

Front 32

[Trusts & Guard: Trusts - Trust Admin]

When can a court terminate a trust prior to the time fixed for its termination?

Back 32

Upon petition from the trustee or a beneficiary, court may terminate or modify the trust if court finds:

1) provisions of trust have been fulfilled (or have become illegal / impossible to fulfill);

2) changed circumstances (mod/termination of trust terms furthers trust purposes); or

3) to achieve tax purpses.

Front 33

[Trusts & Guard: Trusts - Trust Admin]

Termination of an uneconomic trust?

Back 33

After giving notice to the Bs, the trustee of a trust having a value less than $50K may terminate the trust if he determines the cost of administration doesn't justify continuation of the trust (no ct. order nec.)

Front 34

[Trusts & Guard: Trusts - Trust Admin]

What powers does a trustee have after a trust has been terminated?

Back 34

A trustee can wind up trust affairs & distribute the proceeds to the beneficiaries.

Front 35

[Trusts & Guard: Trusts - Trust Admin]

What is a QTIP trust & what is it for?

Back 35

A QTIP trust defers federal estate tax.

To qualify:

1) Income must be payable to spouse for life.

2) During the spouse's lifetime, no other beneficiaries are allowed.

3) The trust corpus is taxed at the spouse's death.

Front 36

[Trusts & Guard: Trusts - Trust Admin]

For federal tax purposes how much is the credit shelter?

Back 36

$1m lifetime gifts & $2m for the estate (including lifetime gifts)

If gross estate is < $5m, no estate tax.

Front 37

[Trusts & Guard: Guardianship]

Rights & Obligations of Guardian of the Person?

Back 37

1) Right to phy. possession of ward;

2) Duty of control & care;

3) Duty to provide clothing, food, medical care & shelter;

4) Power to consent to medical treatment

Front 38

[Trusts & Guard: Guardianship]

Rights & obligation of guardian of the estate?

Back 38

1) Right & duty to manage ward's property;

2) right to enforce ward's obligations;

3) right to bring or defend suits on ward's behalf

(parent as parent = no rt to prop)

Front 39

[Trusts & Guard: Guardianship]

Who has standing to commence a proceeding for the appointment of a guardian?

Back 39

Any person has standing to commence proceeding; can recover attorney's fees from wards estate if ct finds proceeding brought in GF.

Front 40

[Trusts & Guard: Guardianship]

Evidentiary Standard for Guardian Appointment?

Back 40

Clear & Convincing:

1) proposed ward is incapacitated,

2) guardian is in ward's best interest,

3) ward's rights & property will be protected by guardian's appointment

Preponderance req'd:

1) ct has venue,

2) appointee is eligible or proper

3) ward is incapacitated

Front 41

[Trusts & Guard: Guardianship]

What is proper venue for appointment of guardian?

Back 41

Minor: county where parent's reside (g named in will = county will probated or appointee resides)

Adult: where proposed ward resides or where principal estate located.

Hearings on any g'ship matter held at any suitable location in county, unless cthouse is requested.

Front 42

[Trusts & Guard: Guardianship]

Factors to consider?

Back 42

1) Priority order

2) Disqualified or Refusal

3) Not in Best Interest by preponderance.

Front 43

[Trusts & Guard: Guardianship]

Can parent choose a child's guardian?

Back 43

Y; Only surviving parent may, by will or other written declaration, appoint a guardian of the parent's minor children or incapacitated adult children.

The named person must be appointed unless the court finds them to be Dead, Disqualified, Refused, or Not in the Ward's Best Interest.

Bond can be waived for guardian of the person but NOT of the estate.

Front 44

[Trusts & Guard: Guardianship]

Probate Code's Priority of Guardian Appointment?

Back 44

Minor:

1) Surviving parent (natural guardians of their minor kids, don't need appointment);

2) last surviving parent's designation (presumed in child's best interest);

3) grandparent (automatically named G of person & estate);

4) closest next of kin

Adult:

1) Person Named in Designation of Guardian before need arises (prima facie evid person will serve ward's best interest, unless asserting claim against ward's estate, bank fruad, etc)

2) Spouse,

3) Closest Next of Kin.

Front 45

[Trusts & Guard: Guardianship]

Who is not eligible to be appointed as guardian?

Back 45

Disqualified guardians include, persons who:

1) are Incapacitated;

2) have a COI;

3) are inexperience or lack of education making them incapable of Prudently Managing Ward's Estate;

4) are expressly disqualified in Designated of Guardian Before Need Arises;

5) convicted of sex offense;

6) have notoriously bad conduct (ie felons)

Front 46

[Trusts & Guard: Guardianship]

Can minor child choose guardian?

Back 46

Minor 12 or older may choose guardian in writing filed with court; Ct may veto if deems not in kid's best interest.

Front 47

[Trusts & Guard: Guardianship]

When is limited guardianship appropriate?

Back 47

When court finds a person lacks capacity to do some, but not all of the tasks necessary to care for himself. Person may be allowed to care for himself to extent he is able.

Front 48

[Trusts & Guard: Guardianship]

What procedural safeguards exists?

Back 48

1) Attorney ad litem represents the ward;

2) guardian ad litem at court's discretion;

3) mandatory court investigator;

4) may appoint a court vistor;

5) ward must be present at trial;

6) ward or attorney ad litem may request a jury trial;

7) C&C standard for incapacity;

8) g'ship reviews yearly

Front 49

[Trusts & Guard: Guardianship]

Guardian's duties upon appointment?

Back 49

1) Take an oath & posting fiduciary bond w/in 20 days;

2) Publish notice of administration in newspaper w/in 1 month;

3) File an inventory of the estate w/in 30 days;

4) File an application for monthly allowance, w/in 30 days, to be expended from income & principal on ward's behalf.

5) File an application to develop an investment plan or modify or elminate the duty to invest w/in 180 days.

Front 50

[Trusts & Guard: Guardianship]

When can a guardian be removed w/out notice & hearing?

Back 50

By Clear & Convincing

1) If G fails to post bond w/in 20 days;

2) moves/absent from TX for 3 months or c/n be served w/ notices;

3) has cruelly treated ward, failed to maintain/educate, misapplied/embezzled assets,

Front 51

[Trusts & Guard: Guardianship]

When can a guardian be removed w/ notice & hearing?

Back 51

1) grounds to believe acted inappropriately;

2) guilty of gross misconduct or mismanagement;

3) fails to comply w/ a court order or fails to file her annual report; or

4) becomes incapacitated or incapable of performing her duties.

Front 52

[Trusts & Guard: Guardianship]

What powers does a guardian have w/o court approval?

Back 52

1) retain property w/ no duty to diversify for 1y;

2) make investment decisions consistent w/ court approved plan;

3) expend amounts in excess of the monthly allowance when prior court approval is not possible or inconvenient if C&C evid they are reasonable & proper,

4) can insure the property, pay taxes, etc... as necessary to maintain the property.

Front 53

[Trusts & Guard: Guardianship]

What is required for a guardian to sell real or personal property?

Back 53

Prior court approval & sold for

1) the purpose of paying claims & expenses,

2) ward's maintenance or

3) to disponse of unproductive property.

Front 54

[Trusts & Guard: Guardianship]

How is a guardian compensated?

Back 54

G of the person can get up to 5% of ward's gross income not including social security or veterans benefits.

G of estate is entitled to reasonable compensation (5% in & out presumed)

Front 55

[Trusts & Guard: Guardianship]

What is another procedure available for handling money when a ward does not have capacity to do so?

Back 55

$100k or less can be paid into the registry or ct to avoid g'ship, ward must go to ct for disbursement.

Also, if G exists, ct can create a management trust under §867 probate code for a minor settlement.

If more than $50K a bank may be trustee. Trust continues to age 25. If no guardian an art. 142 trust will accomplish the same result, but a bank must always be trustee.