Wills

Front 1

What is required to have capacity to make a will?

Back 1

1) at least 18
2) understand the extent of her property
3) know the natural objects of her bounty (spouse, issue, parents)
4) testator must know the nature of her act (that she's executing a will)

Front 2

Define Trust

Back 2

A fiduciary relationship with respect to a presently existing interest in property whereby a trustee holds legal title for the benefit of the beneficiaries which arises out of a manifestation of settlor's intent to create a trust for a legal purpose.

Front 3

Elements of a trust

Back 3

1) Property: existing interest in existing property (not a future expectancy)
2) trustee (trust doesn't fail for lack of trustee - court will appoint one)
3) beneficiary (ascertainable)
4) Settlor
5) Present INTENT to create a trust
6) legal purpose
7) For inter vivos trust - legal title delivery (transfer in trust or declaration in trust)

Front 4

Types of Trusts

Back 4

1) mandatory trust
2) spendthrift trust
3) support trust
4) discretionary trust
5) honorary trust
6) secret trust
7) semi-secret trust
8) Totten trust
9) Charitable trust
10) Pour-Over Wills
11) Testamentary trust

Front 5

Mandatory Trust

Back 5

Trustee lacks discretion and must act according to the strict terms of the trust

Front 6

Spendthrift Trust

Back 6

Precludes beneficiary from voluntarily or involuntarily transferring his right to future payments of income principal ALSO creditors cannot attach beneficiary's right to future payments of income/principal.
Invalid when created by beneficiary.

Front 7

Exceptions to Spendthrift Trust

Back 7

Common law allows preferred creditors to attach beneficiary's right to future payments:
1) govt creditors (IRS)
2) those who provide necessities of life to beneficiary
3) child for child support
4) spouse for spousal supposrt
5) ex-spouse for alimony;
6) tort judgment creditor
AND surplus can go to any creditor if trust income exceeds what is necessary for B's Station in Life (subjective standard)

Front 8

Support Trust

Back 8

Trustee must use as much income and principal as necessary for health, education, maintenance, and support (HEMS)

Front 9

Discretionary Trust

Back 9

Trustee has sole and absolute discretion in determining how much to pay beneficiary (if anything) and when to pay (if ever).
If T has notice of voluntarily assignment and credit judgment, and still decides to pay it out, then the assignee/creditor has a right to the payment

Front 10

Honorary Trust

Back 10

(1) no ascertainable beneficiaries and (2) no benefit to society.
T has power, but is not required to carry out S's goal; if he refuses, the trust fails (bc this is the only case where court won't appoint a new T), and there's a resulting trust in favor of S
ALSO rule against perpetuities is usually violated bc no life in being is referenced.

Front 11

Secret trust

Back 11

Will makes a gift in reliance on B's oral promise to hold the gift in trust for another; intended beneficiary may introduce extrinsic evidence to prove (must be by clear and convincing evidence) -->constructive trust

Front 12

Semi-secret trust

Back 12

Will makes a gift to a person to hold as a trustee, but does not name the beneficiary; unenforceable and extrinsic evidence is inadmissible --> court imposes a resulting trust

Front 13

Totten trust

Back 13

not a true trust, but rather a bank account where beneficiary takes whatever is left upon settlor's death; S does NOT OWE ANY FIDUCIARY DUTY.
Note: subsequent actions may give rise to a formal trust, e.g. if S manifests intent to have it be a trust --> she'll have fid. duties

Front 14

Charitable Trust

Back 14

elements: (1) charitable purpose; and (2) beneficiaries must be indefinite
- RAP doesn't apply
- doctrine of cy pres may save trust if charitable purpose fails

Front 15

Doctrine of cy pres

Back 15

If the specific charitable purpose indicated by the settlor is accomplished or becomes impractical, the court may direct the trust property to be applied to another charitable purpose that is close to original purpose, so long as T had a GENERAL charitable intent (not specific intent to leave it to that charity)

Front 16

Pour-over Will

Back 16

Settlor/Testator devises part of all of estate to a trust, which will be validated by: (1) incorporation by reference (2) act of independent significance (3) UTATA - so long as trust is avlid and in existence before or at time the will was executed.
Trust need not be funded during life.

Front 17

Modification of a Trust by Settlor

Back 17

General rule: trust can be modified by settlor only if settlor expressly reserves the power to modify OR has the power to revoke

Front 18

Modification of trust by beneficiaries

Back 18

All beneficiaries must consent AND cannot frustrate purpose of the trust.

Front 19

Modification by the court

Back 19

cy pres
doctrine of changed circumstances: (1) changed circumstances (2) that are unanticipated by settlor (3) make a modification necessary to achieve trust purpose.
Note: Court cannot change beneficiaries.

Front 20

Revocation of a Trust

Back 20

Majority: settlor can only revoke if he expressly reserves the power in the trust instrument.
Minority: settlor has power to revoke unless trust is expressly made irrevocable.

Front 21

Termination of irrevocable trusts

Back 21

1) settlor and beneficiaries must agree
2) all beneficiaries can agree to terminate only if all material purposes have been accomplished
3) by operation of law - passive trusts and statute of uses (if trust res is simply real property and T has no active duties and is simply holding bare title)

Front 22

Implied Powers of trustee

Back 22

1) Carry out trust purpose
2) Lease
3) Incur Expenses
4) Borrow
5) Sell trust property
CLIBS

Front 23

Fiduciary Duties of Trustee

Back 23

CD LADIES
1) Care
2) Diversify
3) Loyalty
4) Account
5) not Delegate
6) Invest
7) Earmark
8) Segregate

Front 24

Duty of Loyalty

Back 24

Trustee must administer the trust for the benefit of beneficiaries, having no other consideration in mind.
Self dealing: T cannot (1) buy, sell, or borrow trust assets for himself or his spouse; (2) prefer one beneficiary over another; or (3) hire himself as the trust lawyer.
T's good faith and reasonableness of transaction are irrelevant.

Front 25

Consequences for Breach of Duty of Loyalty

Back 25

1) beneficiaries can ratify if outcome is favorable
2) sue for damages (if T makes a profit, T becomes constructive trustee; if there was a loss, T must make good the loss)
3) trace to recover the property (unless purchaser is BFP w/o notice of breach)

Front 26

Duty of Care

Back 26

Must act as RPP in managing his own property.
a) collect and protect trust property
b) maintain marketability of trust property
c) keep trust property productive
d) diversify investments

Front 27

Duty to Invest

Back 27

3 alternative rules for what is a good investment:
1) state lists which must be followed in absence of directions (federal govt bonds, federally insured CDs, first deeds of trust in real estate, sometimes some stocks but nothing speculative)
2) common law: mostly same list as state lists; must invest as a RPP would invest own money; if T holds himself out as having greater skill, he's held to that higher standard
3) Uniform Prudent Investor Act: invest as RP investor but performance of trust portfolio is scrutinized as a WHOLE

Front 28

Remedy for breach of duty to invest

Back 28

1) T must make good the loss
2) B's can affirm the profit
3) if some investments are good, and some are in breach, they affirm the good ones, and get recovery for bad ones - NO NETTING.

Front 29

Duty to Earmark

Back 29

Label trust property as trust property
Common law: T was held personally liable for ANY loss (even if no causal relationship b/t loss and failure to earmark).
Modern: T is personally liable only for those losses caused by failure to earmark (e.g. trustee's creditors ended up attaching trust property bc it wasn't earmarked)

Front 30

Duty not to delegate

Back 30

T can rely on professional advisors but cannot delegate decision-making authority (modernly, T may delegate duty to invest to a professional money manager)

Front 31

Duty to Account

Back 31

T must regularly give Bs a statement of trust income/expenses, or Bs may file action for accounting

Front 32

Trustee's liabilities to third parties under CONTRACT

Back 32

Common law: 3P can sue T in personal capacity, but T can seek indemnification from trust if no fault.
Modern: 3P must sue T in his representative capacity if 3P knew that the contract was entered into in a representative capacity.

Front 33

Trustee's liabilities to third parties under TORT

Back 33

Common law: 3P can sue T in personal capacity but T may seek indemnification from trust if no fault
Modern: 3P can sue T personally only if T is personally liable

Front 34

Resulting Trust

Back 34

Implied in fact trust based on presumed intent of parties; resulting trustee transfers property back to settlor or his estate

Front 35

When does a resulting trust arise?

Back 35

1) trust ends on its own terms w/o any provision for disposal of corpus thereafter
2) trust fails bc no beneficiary (semi-secret trust)
3) charitable trust fails bc of impossibility/impracticability and can't use cy pres
4) trust purpose became illegal after creation
5) Purchase Money Resulting Trust (see outline)
6) Implied from excess corpus (trust purpose is fully satisfied but trust property remains)

Front 36

Constructive trusts

Back 36

not a trust, but a remedy imposed to prevent fraud and unjust enrichment (T acted wrongfully); T has duty to transfer res to intended beneficiary

Front 37

When does a constructive trust arise?

Back 37

1) trustee self-dealing
2) fraud in inducement or undue influence
3) secret trust
4) oral real estate trusts

Front 38

Oral real estate trust

Back 38

deed transfers land outright to A, but the transfer was made on an oral promise by A to hold property for the benefit of B; A can't invoke SOF to keep property from B and will be deemed a constructive trustee if (1) fiduciary relationship (2) fraud in inducement (3) detrimental reliance...look for improvements

Front 39

Allocation of Trust Income

Back 39

Life tenant: cash dividends, interest income, net business income
Remaindermen: stock dividends, stock splits, net proceeds on sale of trust asset (incl capital gains)...these all go to "principal"

Front 40

Allocation of Trust Expenses

Back 40

Life tenant: interest on loans, taxes, minor repairs
remaindermen: principal loan payments, major repairs/improvements

Front 41

Allocation of Trust Income/Expenses: Adjustment power of trustee

Back 41

T may disregard the traditional rules of income/expense allocation under the Uniform Principal and Income Act...but only if necessary to carry out trust purposes and it must be fair and reasonable to all beneficiaries.