Trusts

Front 1

Is consideration required for a trust?

Back 1

No.

Front 2

Is a writing required for a trust?

Back 2

Not if it's personal property.

Front 3

What are precatory expressions?

Back 3

A settlor's expression of a hope, wish or suggestion that property be used in a certain way. The inference is that it's NOT a trust, although this can be overomce by: 1. definite and precise instructions; 2. directions addressed to a fiduciary; 3. a resulting 'unnatural' disposition of property; 4. extrinsic evidence showing the settlor previously supported the intended beneficiary.

Front 4

What if a trust is established but the trustee refuses to take appointment?

Back 4

Court will appoint one unless it is clear that the settlor intended that just this one trustee serve.

Front 5

What is a passive trust?

Back 5

It's where the trustee has no duties.

A passive trust is void, and beneficiaries take legal title.

Front 6

Who can serve as a trustee?

Back 6

Anyone who has capacity to acquire and hold property for his own benefit and has capacity to administer the trust.

Front 7

Who can remove a trustee?

Back 7

Courts, with grounds; beneficiaries, if given the power.

Front 8

Can a trustee disclaim or refuse appointment as trustee?

Back 8

Yes, but not in part.

Front 9

What is relation back of acceptance?

Back 9

A testamentary trust is treated as in existence as of the settlor's death, and the trustee's acceptance 'relates back' to that date. Trustee could even be personally liable on a tort claim that arises prior to the time he accepted!

Front 10

Can a trustee resign?

Back 10

Only with court permission, or if ALL beneficiaries agree, or if the trust says he can.

Front 11

What if trustee is also sole beneficiary?

Back 11

The titles merge and the trust terminates.

Front 12

What if there is no 'res' (trust property)?

Back 12

The trust fails.

Front 13

What does it mean that the trust res must be segregated from other property?

Back 13

You have to know which property is part of the trust.

Front 14

Can an unenforceable gratuitous promise be trust res?

Back 14

No.

Front 15

What if there is no beneficiary?

Back 15

Trust isn't valid, except for charitable and honorary trusts.

If a trust fails for lack of a beneficiary, a resulting trust in favor of the settlor or his heirs is presumed.

Front 16

Is notice to beneficiary essential?

Back 16

No. But lack of such notice may indicate that no trust was intended.

Acceptance by the beneficiary is required, but it can take place after a valid trust is created.

Beneficiaries may within a reasonable time renounce rights to the trust.

Front 17

Do private trusts have to have definite beneficiaries?

Back 17

Yes. They can be definite even though not yet ascertained (e.g., unborn).

If the trust benefits a class, it must be reasonably definite.

Front 18

What happens if a trust purpose is invalid? (illegal, requires criminal act, against public policy)

Back 18

The settlor's alternative desire controls if expressed.

Front 19

What are the elements of a private trust?

Back 19

Intent to create
Trustee (inter vivos trusts only)
Trust property (res)
Definite beneficiaries
Valid trust purpose

Front 20

How can express trusts be created?

Back 20

1. Inter vivos transfer
2. Inter vivos declaration of trust
3. Will

Front 21

How can an inter vivos trust be created?

Back 21

Either by a person declaring himself trustee for another or by the transfer of property to another as trustee.

Present intent required must be manifested by conduct (delivery) or words (declaring oneself trustee).

Failure to name a trustee, or a promise to name a trustee in the future, may evidence a lack of present intent and prevent delivery of the res.

Front 22

Are writings required for a trust?

Back 22

Not for personal property, although they are for real estate.

Although oral may be sufficient for a constructive trust, e.g., A conveys land to B on oral trust for A or C.

Front 23

Is extrinsic evidence allowed to resolve ambiguities on writings creating trusts?

Back 23

Yes.

Front 24

What are the formalities for a testamentary trust?

Back 24

Trust intent and the essential terms of the trust must be ascertained from the will itself, from a writing incorporated by reference into the will, from facts having independent legal significance, or from the exercise of the power of appointment created by the will.

Front 25

What is a secret trust? What are the rules?

Back 25

A secret trust is where a will makes a gift that is absolute on its fact, but was in fact made in reliance on the beneficiary's promise to hold the property in trust for another.

The intended beneficiary may present extrinsic evidence of the promise. If the promise can be proven by CLEAR AND CONVINCING EVIDENCE, a constructive trust will be imposed.

Front 26

What is a semi-secret trust? What are its rules?

Back 26

In a semi-secret trust, the will makes a gift in trust but fails to name the beneficiary.

The gift fails, and the trustee holds the property on resulting trust for the testator's heirs.

Front 27

What are the distinctive characteristics of charitable trusts?

Back 27

1. Indefinite beneficiaries (duty of enforcement is placed on the state attorney general);
2. It's perpetual (RAP does not apply to shifting beneficial interest from one charity to another, although it does for shifts between private and charitable interests);
3. Cy Pres applies (when a charitable purpose selected by the settlor is impractical, court will select an alternative).

Front 28

What is an honorary trust? What are its rules?

Back 28

Honorary trusts are established for the benefit of pets or for the maintenance of burial places.

Trustee is "on her honor" to carry out its terms. Courts uphold these trusts as long as the trustee is willing to perform her duties; failing this, a resulting trust is imposed (for trustee's heirs).

RAP does apply.

Front 29

May beneficiaries alienate their trust interest?

Back 29

Yes, absent restrictions by statute or the trust.

Front 30

Is a beneficial interest subject to judicial creditor sale?

Back 30

Yes. To avoid this, a court may order a trustee to pay the beneficiary's income to creditors until the debt is satisfied.

A restriction permitting beneficiary to voluntarily alienate his interset but not giving creditors the right to get to it is invalid.

Usually creditors can't get at a spendthrift asset unless they are dependents or furnishers of necessities.

Front 31

What are support trusts? Rules?

Back 31

Support trusts direct the trustee to pay only so much of income or principal as is necessary for the beneficiary's support.

The beneficiary cannot assign the interest, and creditors cannot get at it.

Front 32

Do settlors have the right to revoke andor amend?

Back 32

Only if it is reserved.

Front 33

May beneficiaries compel modification or termination?

Back 33

Only when all consent and it won't frustrate any material trust purpose.

Front 34

Can trustee terminate a trust?

Back 34

Only as provided in the trust instrument; otherwise, it terminates only when the trust purpose is accomplished.

A power in a trustee to invade principal may be broad enough to effectively entitle him to terminate the trust.

Front 35

Can courts terminate or modify trusts?

Back 35

Yes, if the trust's purpose is impossible, illegal or completed.

Also, if circumstances have changed, courts can authorize a deviation from the administrative terms of the trust when necessary to achieve the trust purpose. Also, courts can accelerate vested rights.

Front 36

What agreement is necessary if there are multiple trustees?

Back 36

Traditionally, joint trustees had to exercise their power unanimously. Today, in nearly half the states, any power vested in three or more trustees may be exercised by a majority.

Front 37

What are 'imperative' and 'dsicretionary' powers?

Back 37

A power is imperative if the trust requires its exercise. Discretionary powers are powers that the trustee may or may not perform. Both are reviewed for abuse of discretion.

Front 38

What is involved in the trustee's duty of loyalty?

Back 38

Trustee cannot personally buy or sell trust assets; sell property of one trust to another trust of which she is trustee; may not personally borrow or loan funds; may not use trust assets to secure a personal loan; may not personally gain through position as trustee; may not unreasonably self-employ.

Front 39

In whose name is a trust property titled?

Back 39

The trustee.

Front 40

What if the trustee commingles property and the value goes up or down?

Back 40

It goes against the trustee.

Front 41

May trustee delegate duties?

Back 41

Only those that it would be unreasonable to do personally. May never delegate the entire administration of a trust.

If a trustee improperly limits or surrenders control, she becomes a GUARANTOR of the fund and is responsible for actual losses.

Front 42

What governs a trustee's investment responsibilities?

Back 42

The Uniform Prudent Investor Act or statutory "legal lists."

Either way, the trust terms can expand or limit the trustee's powers.

Front 43

What types of investment are permitted by the UPIA?

Back 43

Any type.

Front 44

When speaking of legal lists, what do "permissive" and "mandatory" mean?

Back 44

Persmissive means the trustee can invest in securities outside the list.

Mandatory means the trustee commits a breach of trust if she invests in property outside the list.

Lists usually prohibit unsecured loans, second mortgages, common stock, unproductive land.

Front 45

Who has remedies if the trustee breaches trust?

Back 45

Beneficiaries may seek damages or seek removal.

The settlor may sue if he is also a beneficiary.

Outsiders cannot enforce the trust.

Front 46

Let's say the trustee breaches investment rules twice -- one results in a gain, the other a loss.

Can the two offset?

Back 46

No.

Front 47

When are trustees liable for the acts of others?

Back 47

When they direct, permit, approve, acquiesce in the act, conceal the act, or fail to take steps to redress.

Front 48

Are exculpatory clauses good to get trustees off the hook?

Back 48

Yes, but they are strictly construed, and clauses cannot absolve the trustee from all liability.

Front 49

Are trustees personally liable to third parties on contracts made in the course of trust administration?

Back 49

Yes, but they can get indemnified if they were acting properly.

Front 50

Are trustees personally liable in tort?

Back 50

Yes. There is indemnification if the trustee was not personally at fault or if the tort occurred while properly engaged. If the trustee is entitled to indemnification, those to whom he is liable can reach trust assets.

Front 51

If the trustee breaches and a BFP gets an asset, what happens?

Back 51

BFP gets it.

Front 52

What if the purchaser had reason to know the trustee shouldn't sell?

Back 52

Then he's not a BFP.

Front 53

Who can sue third parties who damages trust property?

Back 53

Just the trustee. Not the beneficiaries.

Front 54

What is the UPIA?

Back 54

The Uniform Pricipal & Income Act. It applies to all trusts and estates unless the trust instrument says otherwise.

Front 55

What does the UPIA do?

Back 55

Gives trustee adjustment powr to reallocate investment portfolio return, thus enabling trustee to characterize various items as income, if it helps to carry out trust purposes.

Front 56

What is allocation power?

Back 56

The ability of trustee to allocate between principal and income, to carry out settlor's purposes.

Front 57

Can a pour over trust receive proceeds of life insurance?

Back 57

Yes, even if there was no significant res prior to the settlor's death.

Front 58

What is a Totten Trust Account?

Back 58

It's where a bank account depositor declares herself trustee of the account for a person who is to receive the money in the account at the time of the depositor's death.

Front 59

Is a Totten trust revocable?

Back 59

Yes, by 1. the withdrawal of funds, 2. any lifetime act manifesting the intent to revoke, and 3. a specific contradictory provision in a will.

Front 60

What does the UTMA provide for?

Back 60

The Uniform Transfers to Minors Act provides a convenient procedure for making gifts to a minor, in that it allows proper to be transferred to a person as custodian for a minor.

The LEGAL TITLE IS IN THE MINOR, subject to the custodian's statutory power. The custodian is a fiduciary.

Front 61

What is a purchase money resulting trust?

Back 61

This type of trust is presumed whenever the beneficiary furnishes the consideration for the acquisition of real or personal property, but, with the beneficiary's consent, title is taken in the name of the trustee.

Front 62

Who has the burden of proof for the establishment of a purchase money resulting trust?

Back 62

The person who's saying "This dude purchased this for me."

Front 63

What is the presumption in a purchase money resulting trust?

Back 63

If X paid for it but license goes in Y, the presumption is that it's a trust for X.

UNLESS, they're close relatives. Then it's presumed to be a gift.

Front 64

What is a resulting trust on failure of express trust?

Back 64

It's when the settlor goofs up in making a trust:

1. settlor has conveyed property to a trustee under an express trust, and
2. the trust is void or unenforceable or
3. the beneficiary is dead or cannot be located.

Front 65

What is a constructive trust?

Back 65

It's not really a trust but rather is a flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct.

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

Proof of the facts needed for a constructive trust must be made by CLEAR AND CONVINCING EVIDENCE.

Front 66

What if A transfers real property to B on B's oral promise to hold it for C?

Back 66

Only a few jurisdictions will imply a trust for C. The majority consider the Statute of Frauds to be a bar. Exceptions: fraudulent promise; breach of promise where there is a fiduciary duty.