Trusts

Front 1

What is a Trust?

Back 1

A trust is an arrangement under which the trustee holds legal title to property for the benefit of the beneficiaries. The trustee has burdens (repair, pay taxes) and beneficiaries have benefits of property ownership. The trustee is subject to fiduciary standards; he is not privileged to use trust property as his own. Harsh 'self-dealing' rules preclude trustee from doing so.

Front 2

Requisites

Back 2

1. Creator (settlor)
2. Delivers legal title of trust assets (the res)
3. To trustee
4. For the benefit of beneficiaries
5. With intent to create trust
6. For a valid purpose. (Cannot contradict public policy)

Front 3

Delivery

Back 3

Requirement does NOT apply to self declaration of trust or testamentary trust.

But for inter vivos trusts with third party as trustee, need delivery of the subject matter (res) of the trust to the trustee

Front 4

Requirements for a valid trust (5):

Back 4

1. Settlor (creator)
2. Intent to create trust
3. Res
4. One or More Beneficiaries
5. Trustee

Front 5

TYPES OF TRUSTS (13)
'Do My Stupid Sentences Have Some Sanity Rather Than CC's Paw Results?'

Back 5

1. Discretionary
2. Mandatory
3. Support (part of discretionary or mandatory)
4. Spendthrift
5. Honorary
6. Secret
7. Semi-secret
8. Revocable
9. Totten
10. Charitable
11. Constructive
12. Pour over wills
13. Resulting trusts

Front 6

Types of Trusts
(In General -- 3)

Back 6

1. Express Trust (or Implied)
2. Resulting Trust*
3. Constructive Trust*

*=Equitable

Front 7

Types of 'Express' Trusts

Back 7

1. Private Trust
2. Charitable Trust

Front 8

UNIFORM TRUST CODE (UTC)

Back 8

REQUIREMENTS:
1. The trustees duty to act in good faith and in accordance with the purpose of the trust;
2. The power of a court to modify or terminate a trust;
3. The effect of a spendthrift provision;
4. The trustees duty to keep the qualified beneficiaries informed of trust administration; and
5. The rights of third parties, such as bona fide purchasers, engaged in commercial transactions with the trustee.

Front 9

Present Intention to Create a Trust

Back 9

1. Done by an attorney (compare ambiguous language of a deed or will)
2. Precatory Language'I desire', 'it is my wish that,' 'I would like,' etc. versus 'I direct' or 'I want'

Front 10

Expression of Motive For Gifts

Back 10

'to my sister Sarah so she will have sufficient funds to be able to take care of dad' merely expresses the motive for the gift, and does not impose a duty on Sarah to use the funds for dad's support or maintenance.

Front 11

Use of the word 'Trust'

Back 11

does NOT by itself make the document a trust, nor does its omission prevent a trust.

Key factors to consider are:
1. The description of the trust property
2. The beneficiaries; and
3. Their interests.

Front 12

Trustee Versus Agent

Back 12

An agent does not hold legal title to assets, but only has the authority to deal with them on behalf of the principal. Whereas the settlor of trust has no power to supervise the trustee.

Front 13

TRUSTEE

Back 13

although a trustee is essential to the operation of the trust, once the trust is established it will not fail merely because of the trustees death, incapacity, resignation, or removal. A successor trustee will be appointed. Exception: in the unusual case where it clearly appears that the trust is to continue only as long as the original designated trustee continues to serve.

Front 14

TRUSTEE
(Acceptance & Absence)

Back 14

Trustee may accept by:

1) Substantially complying with the method for acceptance stated in the trust instrument; or

2. Accepting delivery of trust property, exercising power or performing duties as trustee; or indicating acceptance.

If it is not accepted within a reasonable time, it is presumed declined.

Front 15

TRUSTEE
(Absence)

Back 15

the refusal of a named trustee to accept an appointment or his failure to qualify, or even the complete failure to name a trustee and a will, does not defeat a testamentary trust (a trust created by will). on the other hand, because of the necessity of a present and effective transfer in order to create a 'trust by deed' the absence of a trustee may result in an attempted inter vivos trust.

Front 16

TRUSTEE
(Must Have Duties)

Back 16

If the trustee does not have enforceable duties the trust will fail

Front 17

TRUSTEE
(Compensation & Reimbursement)

Back 17

Trustee is entitled to 'reasonable compensation' or to compensation is specified in the trust instrument (as adjusted by the court when necessary)

A Trustee is entitled to reimbursement for expenses incurred in the trusts administration and any other expenses that resulted in a benefit to the trust.

Front 18

TRUSTEE
(Removal of Trustee)

Back 18

a court may remove a trustee on its own motion or upon request by the settler, a qualified beneficiary, or a co-trustee.

Front 19

TRUSTEE
(Resignation)

Back 19

once a trustee has accepted appointment, he can resign by either 1) giving 30 days notice to the qualified beneficiaries, Settlor (if living), and co-trustees; or 2) obtaining court approval.

Front 20

SUCCESSOR TRUSTEES
(Priority Order)

Back 20

1. Person designated in the trust instrument as a successor trustee.
2. Person appointed by a majority of the qualified beneficiaries.
3. Person appointed by the court.

Front 21

MERGER of TITLE where Sole Trustee is ALSO Sole Beneficiary

Back 21

If sole trustee and sole beneficiary are the same person there is a merger of the legal and equitable titles.

This defeats and terminates the trust, creating a fee simple absolute.

Multiple trustees or multiple beneficiaries will preclude merger.

Front 22

BENEFICIARIES

Back 22

Trust need someone to enforce it.

Thus, a beneficiary is necessary to the validity of every trust except a charitable trust (which can be enforced by the state attorney general although the beneficiaries are indefinite) and so-called honorary trusts (e.g., trust for animals or to maintain graves).

A 'private trust' requires that there be 'definite beneficiaries' (or at least that the beneficiaries will be ascertainable within the period when all interests must vest under the Rules against Perpetuities.)

Front 23

CLASS GIFTS

Back 23

A. 'private trust' may exist for the benefit of members of a class, providing the classes one that is sufficiently definite. In fact, as long as the class is a 'reasonably definite' one it is permissible that the members of the class are to be selected by the trustee in his discretion, that the property is to be held for such members of the class as the trustee finds meet certain requirements. If the class is too broad, however, the trust may be unenforceable.

Front 24

TRUST PROPERTY

Back 24

1. No res -- no trust
2. Property May Be of Any Type
3. Trust Property Must Be an Existing Interest in Existing Property
4. Property that settlor has power to convey can be subject of trust.
5. Trust res must be segregated from other property.
6. Unenforceable gratuitous promise cannot be trust res. 'A promises to pay B

Front 25

CREATION EXPRESS TRUSTS

Back 25

1. Inter Vivos Trust
2. Testamentary Trust: By will or other disposition taking effect upon the settlor's death.
3. Declaration
4. Exercise of a Power of Appointment in favor of a trustee
5. Protective Trust: A Court for a minor or disabled person

Front 26

STATUTE OF FRAUDS

Back 26

Generally, a trust does not have to be in writing. However, the creation of an oral trust in its terms may be established only by 'clear and convincing evidence.'
Exceptions:
1. Writing Required for Trusts of Land
2. Parol Evidence Rule 'ambiguous on its face'.

Front 27

TESTAMENTARY TRUSTS
(Formalities)

Back 27

1. Essential Terms -- (as applicable under the Statute of Wills)
2. 'Secret' & 'Semi-Secret' Trusts-- Absolute gift but trust intended ('Secret Trust') -- Constructive Trust May be Imposed.

Front 28

CHARITABLE
(Requirements)

Back 28

1. Must have indefinite Beneficiaries
2. Cy Pres Doctrine Applicable
3. May Be Perpetual and is not subject to the RAP.

Front 29

HONORARY TRUSTS

Back 29

An 'honorary' trust is a trust that is:
1.NOT FOR CHARITABLE PURPOSES; and
2. has NO PRIVATE BENEFICIARIES

Not a legally enforceable trust because not for charitable purpose and no beneficiaries to enforce it.

Not actually, a trust, so if person refuses to carry out the specified purpose, a RESULTING trust arises in favor of the settlor's estate.

MA USRAP: honorary trust valid for 90 years

Front 30

TRANSFER OF THE BENEFICIARIES INTERESTS

Back 30

1. Voluntary Assignment
2. Involuntary Transfer -- Rights of Creditors (in the absence of a spendthrift provision, creditors may, without court order, reach the trust beneficiaries interest by attachment of present or future distributions to or for the benefit of the beneficiary.
3. Restraints on Alienation

Front 31

test for determining whether beneficiary is also settlor:

Back 31

if a person furnishes the consideration for the creation of a trust, he is the settlor. 'in consideration of the conveyance of Blackacre from A to B, B transfers Whiteacre into a revocable trust for A for life, remainder to A's children.' A is the settlor of the trust. A's life estate can be reached by his creditors and can be assigned by hand, even though the trust contains a spend thrift clause.

Front 32

DISCRETIONARY TRUSTS

Back 32

if the trustee has the power to pay income to the beneficiary were accumulated, or has the power to appoint the income among several beneficiaries in whatever amounts you may choose, the 'beneficiary' does not have any 'right' to the income until the trustee exercises the power. (Protection from creditors) Once the trustee has been served with process, however, he cannot exercise his power in favor of the beneficiary without first satisfying the creditors claim.

Front 33

MODIFICATION & TERMINATION

Back 33

a trust will terminate automatically at the expiration of the trust terms specified in instrument. Likewise, the trust will terminate when all of the purposes of the trust have been accomplished or the purposes have become unlawful, contrary to public policy, or impossible to achieve.

Front 34

MODIFICATION

Back 34

HS may be terminated or modified upon the consent of the settlor & ALL BENEFICIARIES. (or his agent, conservator, or conservator ad litem)

Front 35

Advantages of a Revocable Trust -- versus a Will

Back 35

1. Management of Assets
2. Planning for Incapacity -- Avoidance of Guardianship
3. Avoidance of Probate
4. Secrecy
5. Choice of Law

Front 36

RESULTING TRUSTS

Back 36

Equity Doctrine of 'unjust enrichment' by the person who has obtained title. The SoF is inapplicable, even where real property is involved.
1. Purchase Money Resulting Trusts
2. Resulting Trusts arising from an incomplete disposition of trust assets (excess corpus)

Front 37

CONSTRUCTIVE TRUSTS

Back 37

a constructive trust is not really a trust at all. Rather 'constructive trust' is the name given to a flexible equitable remedy imposed by a court to prevent and unjust enrichment of one person at the expense of another as the result of wrongful conduct, such as fraud, undue influence, or breach of a fiduciary duty.
Proof of facts necessary to establish a constructive trust must be by 'clear and convincing evidence'.

Front 38

VALID PURPOSE
(Doesn't Conflict with Public Policy)

Back 38

Cannot be created for illegality, restraints on marriage, encouraging divorce, restraining the free practice of religion, encouraging the commission of a crime.

Front 39

VALID PURPOSE-- in a Will
'I make no provisions for my son, David, because I disapprove of his religious convictions.'

Back 39

This is VALID because there is no 'condition'.

Front 40

GRATUITOUS PROMISES OF FUTURE PROPERTY

Back 40

NOT considered property or a trust.
'Grandma says to her son that she is going to devise her property in her will to her son. The son then makes a deed of trust to his nephew. Not a valid trust, merely a gratuitous promise.'

Front 41

In Order for a Gratuitous Promise to have legal effect, upon the death of the testator, the person MUST:

Back 41

REAFFIRM by;
1. Word
2. Conduct

Front 42

FUTURE PROPERTY PROBLEM

Back 42

'next year's dividends'

Front 43

FUTURE 'INTEREST' IN PROPERTY PROBLEM

Back 43

ANY Present property interest - valid.
Fee Simple
Fee Simple Determinable
Contingent Remainder

Front 44

EMPTY TRUST

Back 44

Named ben. of a life insurance policy, gift under will, pension plan death benefit.

Front 45

Bank Account Trust

Back 45

Estate Planning

Front 46

Pour-Over Trust

Back 46

The clause itself validates trust.
1. A pour over trust results when the testator adds or “pours” his estate into an inter vivos trust.
2. Case Law View:
a. While such trusts violate the requirement that title to the trust res be immediately delivered to the trustee, they will be upheld under the theories of:
i. Incorporation by reference (if the trust is already in existence before the will is executed and is specifically referenced in the will, it can be incorporated); or
ii. Independence Significance (if the trust’s purposes were more than to merely provide for distribution of property at the settlor’s death)

Front 47

Revocable Trusts

Back 47

i. Are valid, even though the settlor may retain:
1. The right to revoke, alter, or amend the trust;
KEY: Trust is irrevocable unless right to revoke or amend trust is reserved.
2. An income interest or other interests in the trust as beneficiary;
3. A power of appointment over the trust corpus; and
4. Every day control over the trust either by naming himself trustee or by retaining veto power over the trustee’s decisions

Front 48

Uniform Testamentary Additions to Trusts Act

Back 48

a. Pour over trusts are valid as long as:
i. The will references the trust; and
ii. The trust is created during the settlor's lifetime (can be created after the will)

Front 49

TOTTEN TRUSTS
(Revocable)

Back 49

(“to me in trust for X”; “Testator, trustee for X”)
i. During the lifetime of the depositor he can withdrawal money for his own use and doesn’t have to use it for the benefit of the beneficiary, but the balance is paid to the beneficiary at the death of the depositer
ii. May be reached by the depositer’s creditors during his lifetime and after his death, but only to the extent the depositer’s probate assets are insufficient to pay his creditors
iii. Extrinsic evidence is admissible to show a trust was not intended despite the designation on the signature card
iv. Revocation

Front 50

TOTTEN TRUSTS
(Cont.)

Back 50

1. Totten trusts are revocable during the lifetime of the depositer by any manifestations of intent to revoke, including making withdrawals (partial withdrawals = partial revocation)
2. Can be revoked by the depositer’s will, but in order for the revocation to be effective, the will must explicitly name the account (cannot just state “all of my property goes to Debbie”)
3. If the beneficiary predeceases the depositer, there is an automatic revocation of the trust (becomes a typical bank account), unless the anti-lapse statute applies to pass the trust to the beneficiary’s issue

Front 51

ORAL TRUSTS

Back 51

a. Inter Vivos Trusts
i. Oral trusts of personal property are enforceable, except that trusts containing land must be in writing (to satisfy the statute of frauds)
1. Exception: An oral trust containing land will be enforced if part performance has occurred

Front 52

ORAL TRUSTS
(Part Performance)

Back 52

a. “Part Performance”
i. Beneficiary must have done more than just her obligation under the agreement (e.g., enters into sole possession of the land or otherwise changes her position in detrimental reliance on the trust)
1. Example: S promised X that he would provide a home for her if she would keep house and serve as hostess. Thereafter, he handed his brother a deed naming the brother as grantee, saying “hold this deed in trust for X until her death in consideration of services rendered by X.” Cannot be enforced as a trust unless X has performed more than her mere obligation under the agreement (e.g., in addition to keeping house and serving as hostess, she also sold the house in reliance on the agreement)

Front 53

ORAL TRUSTS
( Constructive Part Performance)

Back 53

b. If sufficient part performance has not been rendered, a constructive trust for the benefit of the beneficiary might be imposed where:
i. There Was Fraud in Inducement: If the trustee had no intention to perform his oral promise, at the time he made the promise (very difficult to prove)
ii. The grantee-trustee agreed to hold the property in trust, and he is in a confidential relationship with the grantor-settlor (attorney-client, business associates, husband-wife, father-child, siblings).

Front 54

ORAL TRUSTS
(Consideration)

Back 54

c. If no constructive trust is imposed, the intended beneficiary can sue the grantor-settlor’s estate in quantum meruit for the value of the services performed

Front 55

'Semi-Secret'

Back 55

1. When a will devises something to the devisee “in trust,” but the only evidence of who the intended beneficiaries are is in the form of an oral agreement made between the testator and the devisee (e.g., testator’s will devises land “to my good friend Steve, as trustee, for purposes already communicated to him”), the court will not enforce the trust for the intended beneficiaries, but will impose a resulting trust for the testator’s heirs/residuary holders (otherwise the Statute of Wills’ requirement that beneficiaries be named in the will would be violated)

Front 56

Father executes a valid deed of Blackacre naming Daughter as the grantee. Subsequently, Father Hans the DB Brother telling him orally at the time, 'hope this deed and recorded if Daughter survives me.'
Has Father created a valid trust?

Back 56

NO -- no delivery of legal title to brother. This is an escrow arrangement.

Front 57

has the Father made a valid gift of Blackacre to Daughter?

Back 57

DEPENDS -- to make a gift, Father must deliver the property to the donee or the donees agent. Delivery can be actual, constructive (making a gift of a car by delivering the keys to the donee) or symbolic (delivering a signed writing evidencing the gift).

Front 58

Regardless of the method, what must the gift be?

Back 58

Irrevocable

Front 59

100,000 'to able to be used for the education of Pete and Repeat.' Does Able hold the hundred thousand dollars in trust for testators two children?

Back 59

even though there was no use of the word 'trust' it is okay because the testator intended a trust -- to put legal title in one person's name with the duty to manage for another.

Front 60

What is precatory language?

Back 60

'It is my wish', it is my desire'... 'in hopes of'

Front 61

What are the areas in which a trust will be forfeited? Conditions?

Back 61

Unreasonable restraints on marriage, illegal purpose, commission of crimes, restraining the right to procreate, or the free practice of religion.

Front 62

what are examples of 'intangibles' that may be used to be put in trust?

Back 62

Accounts Receivable, Debts, causes an action that may lead to property or interests are sufficient to support a trust.

Front 63

Grandfather tells Uncle that he is leaving Blackacre to Uncle in his will. Uncle thereupon records a Declaration of Trust 'I declare myself trustee of my interest in Blackacre, income to Nephew for life, remainder to his issue.' Is this a valid trust?

Back 63

NO -- a gratuitous promise to create a trust in the future. To become valid, grandfather must die without changing his will and the will is admitted to probate.

Front 64

What happens is a promise to hold property (to be received in the future) entrusted supported by consideration?

Back 64

This is indicia of trust. There, under contract principles the trust automatically attaches when the property is received.

Front 65

How are the terms 'certain and identifiable' applied to a residuary legatee?

Back 65

Whatever the property is at the time of the testator's death.

Front 66

how are Charitable Trusts differentiated?

Back 66

Such trusts must be for a reasonably large and unidentifiable segment of the public at large.

Front 67

What is the result of a testators will that creates a testamentary trust for the benefit of her descendents, with the shares of each left to the discretion of the trustee?

Back 67

This is a valid trust. The classes identified and defined. Shares can be left to the discretion of the trustee.

Front 68

100,000 to the Reliable Trust Bank to be held in trust for 'Tom's future children.' Unfortunately, COM was jilted within the week by his fiancée and Aunt died shortly thereafter. Valid trust?

Back 68

Yes -- resulting trust and implied reversion.

Three points 1) a trust has no living beneficiaries but it is not a problem because you only need to have the beneficiaries be described. 2) the goal was appointed to represent interests of unborn kids. 3) if you never has kids, it returns to Aunt.

Front 69

1000 during the first three years for that purpose after which time she discontinued that use saying she believed she'd keep the remainder of the 'trust money' for herself.

Back 69

This type of trust is called 'honorary trust'. It is valid for the lifetime of the animals and if for graves 21 years.
What happens to the corpus after the last dog dies? Either the instrument can say for it is returned to the testator 's estate through 'resulting trust'

Front 70

REVOCABLE TRUST & BANK ACCOUNT TRUSTS (Example)

Back 70

Testator placed her business reality in a revocable trust, naming herself and her son Charles as co-trustees and designating herself as the sole beneficiary of the income from the trust for her lifetime. The trust further provides that on testator's death the trust property was to be held in further trust for Charles daughter Betty. Testator later executes a will devising her residual estate 'to the trust of which I am cotrustees with my son Charles.' (POUR OVER CLAUSE

Front 71

what can the sole beneficiary of a trust not be?

Back 71

The sole trustee!

Front 72

Are revocable trusts valid?

Back 72

Yes, by statute and by case law in almost every jurisdiction, such trusts are valid even though the settler retains the right to revoke, alter, or amend the trust, keeps an income interest or other interest in the trust as beneficiary, retains the power of appointment over the trust corpus or retains every day control over the trust either by naming himself trustee or by retaining veto power over the trust these decisions.

KEY: Trust is Irrevocable unless Settlor reserves right to amend or revoke trust

Front 73

Is a gift by will to a revocable, amendable trust valid?

Back 73

YES -- under the Uniform Testamentary Additions to Trust Act, the only requirements are that the trust must be identifiable in the testators will and its terms must be set out in a written instrument. The instrument may be executed before, concurrently, with, or after the will. The device property is added to the trust as if it exists at testators death, including any amendments after the will was executed, even though the trust amendments were not executed with testamentary formalities.

Front 74

What happens if Testator revokes the trust before she dies?

Back 74

'Gift' in the will will lapse.

Front 75

INTER VIVOS TRUSTS (Rules)

Back 75

oral trusts of personal property are enforceable. However, trusts containing real property must be evidenced by a writing that satisfies the Statute of Frauds.

Front 76

Under what conditions will a 'constructive trust' be created?

Back 76

Fraud in inducement (hard to show)

Duress or Undue Influence

Confidential Relationship

Front 77

Oral Promise (supported by consideration) to make devise in will?

Back 77

Not a Trust but a Contract, NO contract to make a will, not to make a will, or not to revoke a will can only be shown if the terms are in the will itself, or in a separate writing, or the will discloses the contract, in which case extrinsic evidence is admissible to prove the terms.

Front 78

TESTAMENTARY TRUSTS
(Absolute devise by will with oral promise to hold in trust -- SECRET TRUST)

Back 78

Testator dies leaving a will that devises Blackacre to Jones; the will makes no mention of any trust. Testator Sec. now alleges that testator orally told Jones that Jones was to hold the land as trustee for the secretary's benefit, and that Jones agreed to serve as trustee. Can the secretary enforce the promise?

YES. More precisely, her testimony is admissible to show the existence of a promise. 'Clear, cogent, and convincing evidence (there must be no reasonable doubt)'. Since a will and not indeed is involved,the SoF is inapplicable. A constructive trust is imposed to prevent unjust enrichment.

Front 79

SEMI SECRET TRUST

Back 79

testators will devises land 'my good friend Sam Smith as trustee, for purposes I have already communicated to him.' Smith is willing to identify testator's purposes and intended beneficiaries and is willing to serve as trustee. What result?

Smith holds on a resulting trusts for testator's heirs. The semi secret trust situation involves no element of wrongdoing so to impress the trust for benefit of intended beneficiaries would violate the requirements of the Statute of Wills, but the beneficiaries be identifiable from language in the will. If Smith does not voluntarily comply, then implied reversion results.

Front 80

CHARITABLE TRUSTS
(4 Distinctive Rules)

Back 80

1) not subject to the rules against perpetuities
2) must be for charitable purpose... religion, medicine, science, governmental, research, & education.
3) must be in favor of a reasonably large number of unidentifiable beneficiaries.
4) when specific charitable purpose can no longer be accomplished, may be reformed under the doctrine of 'cy pres'

Front 81

SPENDTHRIFT and SUPPORT TRUST

Back 81

1) Creditors must wait until distribution (spendthrift clause only operates on property still in the trust. once distributed--fair game)

2) Exceptions:

1. child support

2. spousal support

3. government

4. claims by creditor who provided services for the protection of the beneficiaries interest or necessities

But remember: these creditors can only reach the debtor's interest. If the debtor has no interest in the principal, then they cannot reach the principal

3) Testators Creditors? Out of luck, if trustee has any discretion as to distribution.

4) Exception: Fraudulent Transfer Doctrine. Cannot create trust with the intent of defeating a known creditor.

Front 82

DUTIES OF TRUST ADMINISTRATION

Back 82

1) Duty of Loyalty
2) Duty to Invest Prudently
3) Other Duties Of a Trustee (duty to preserve and protect trust property, duty of impartiality, duty to account and inform)

Front 83

What happens if one of the trustees (co-trustees) resigns? Who decides to replace them?

Back 83

The majority in number of the living trust beneficiaries.

Front 84

Whenever a trustee breaches of fiduciary duty (self-dealing, improper investment, etc.) beneficiaries have a choice of options:

Back 84

1) ratified the transaction and wave the breach
2) sue for the resulting loss. Name of this action is 'surcharge'. Good faith, reasonableness is no defense or justification.
3) 'Trace' and recover the property for the trust (e.g., trustee borrows trust funds and invest the proceeds, if value of purchase property goes up in value, beneficiary can claim the property for the trust).

Front 85

EXCULPATION CLAUSE

Back 85

a clause relating a trustee of liability for breach of trust is unenforceable to the extent it relieves the trustee of liability for reckless or bad faith actions or the clause was inserted as the result of a breach of fiduciary or confidential relationship to the settlor.

Front 86

TRUST ACCOUNTING

Back 86

Basic idea: the income beneficiaries get the net income while the remainder men are entitled to that trust corpus at the termination of the trust. Thus items of receipts and expenditures must be allocated to the correct account: income or corpus (i.e., principal) -- Previous Bar Question

Front 87

caveat has to a trustee who acts with the consent of the settlor

Back 87

as long as a trust is revocable, a trustee who acts with the consent of the settlor cannot be sued for breach by the beneficiaries.

Front 88

What are 'receipts'?

Back 88

Interest, rents, dividends on stock paid in cash are all income. So too is 10% of any amounts received as an annuity or mineral royalty. Proceeds from the sale of trust assets, stock splits and dividends paid in stock or principle.

Front 89

What Are 'Expenditures'?

Back 89

Ordinary Expenses Incurred in the Production of Income (E.G., Repairs, Interest, Taxes, Etc.) Are Charged to the Income Account. Extraordinary Items, Capital Improvements and Income Taxes Incurred on the Sale of Trust Property Are Charged Principle. The Trustee Fee Is Charged Half To Income and half to Principle.

Front 90

MODIFICATION, TERMINATION & REFORMATION of PRIVATE TRUSTS

Back 90

a settlor, acting alone, can revoke, terminate, or modify a trust if 1) the instrument does not explicitly state that the trust is irrevocable, and 2) the settlor substantially complies with all provisions in the trust instrument pertaining to the form that the proposed action must take (e.g., in writing, delivered to trustee, etc.)

Beneficiaries, all of whom are entitled, can terminate trust only if 1) all beneficiaries consent, and 2) there is no further trust purpose to be served. By all beneficiaries we mean all beneficiaries! Interest in minors or unborn beneficiaries precludes termination.

Front 91

REFORMATION

Back 91

may be reform by mistake of fact or law.

Front 92

RESULTING & CONSTRUCTIVE TRUSTS

Back 92

Resulting Trusts: 1) may arise upon failure of express trust or when expressed trust purpose is accomplished and corpus not exhausted. Examples: excess amount after purpose is complete, expressed trust fails for any reason and trust instrument silent as to what happens in this event. Semi secret trust.

Front 93

PURCHASE MONEY RESULTING TRUST

Back 93

presumed to arise when consideration for purchase of property is paid by person other than the person taking title. Defenses: 1) gift, or 2) loan.

Gift and not trust presumed, wind person providing consideration pairs close family relationship to titleholder.

Front 94

WHAT to WATCH OUT FOR?

Back 94

A sale or exchange of a resulting or constructive trust to a bona fide purchaser!! This cuts off any beneficiaries right to the transferred assets. BUT, trustee holds any consideration received on the transfer in trust for beneficiary AND if the sale is not to a BFP, the beneficiary has choice of remedies: 1) impose trust on consideration received by trustee or 2) impose trust on original asset in non-BFP's hands.

Front 95

CONSTRUCTIVE TRUSTS

Back 95

implied in a variety of circumstances were a person acquires title to property wrongfully. Trust implied to remedy unjust enrichment.
-- Title to property acquired by fraud, misrepresentation, duress, or mistake.
-- oral trust of land under limited circumstances set out by fraud in the inducement.
-- Secret Trust

Front 96

POWERS of APPOINTMENT

Back 96

Tom died in 1996, leaving a will that bequeathed property in trust: 'to pay the income to my daughter Dana for life, and on her death to distribute to trust principle to such persons, including Dana is a state, as she appoints by her last will. If Dana does not exercise this power of appointment on Dana's death the trustee shall distribute the trust principle to Dana's descendants.'

Front 97

Rule of Convenience

Back 97

Rule of Construction that closes the class when any member has a right to demand possession.

Once the class closes, no new members can join the class.

Front 98

Trustee's Duties

Back 98

1. Prudent Person Rule and Duty of Care

2. Duty of Loyalty

3. Duty to Act Impartially

Front 99

Allocations between Income and Principal (Uniform Principal and Income Act)

Back 99

Principal:

1. Funds from Sale of Trust Asset

2. Repayment of Loan Principal

3. Stock dividends

4. Payment of capital gains tax

Income:

1. Rent received from trust property

2. Repayment of loan interest

3. Cash dividends

4. Everyday expenses charged to income


Wasting assets should be apportioned between both income and principal

Front 100

Doctrine of Acceleration

Back 100

If the income beneficiary of a trust disclaims his interest, the trust principal becomes immediately distributable to the presumptive remainder beneficiaries of the trust PROVIDED NO ONE WOULD BE HARMED BY MAKING A DISTRIBUTION TO THEM EARLIER THAN IT WOULD HAVE BEEN MADE HAD THE INCOME BENEFICIARY NOT DISCLAIMED.

Front 101

Doctrine of Incorporation by Reference

Back 101

If the will referred to an unattested document that was in existence at the time time the will was signed, the terms of that document could be given effect as if it had been properly executed

Front 102

Uniform Testamentary Additions to Trust Act (UTATA)

Back 102

Under UTATA, a trust, even an unfunded trust, can be the beneficiary of the testator's probate estate so long as the trust is identified in the testator's will and its terms are set forth in a written instrument. The validity of the pour over arrangement is unaffected by the fact that the trust was amended after the execution of the will.

Front 103

Effect of Subsequent Divorce

Back 103

In most states, statutes revoking bequests to spouse and nominations in her favor are only applied to wills.

In Massachusetts,the will and revocable trust are read as integrated estate planning documents and divorce revokes the spouse's interest in the trust, as well (Clymer v. Mayo)

Front 104

Termination of Trusts and Claflin Doctrine

Back 104

Trust can be terminated by a court upon request and consent of all trust beneficiaries (and settlor, if still alive) unless a material purpose remains to be accomplished (Claflin Doctrine)

Claflin Doctrine assures that a trust will not be terminated when termination would be inconsistent with a Settlor's intent.

If any trust interest is subject to a spendthrift restriction, this will count as a "material purpose" remaining.

Front 105

Trustee Delegation of Investment Duties

Back 105

Uniform Trust Code (UTC) and Uniform Prudent Investor Act (UPIA) contemplate delegation of the trustee's investment responsibilities so long as the trustee exercises reasonable care, skill, and caution in selecting the agent and periodically reviewing the agent's actions in order to monitor the agent's performance and compliance with the terms of the delegation.

Front 106

Duty to Diversify

Back 106

Trustee has a duty to diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances (closely-held stock, etc.), the purposes of the trust are better served without diversifying

Front 107

Deciding between binding obligation and mere precatory language

Back 107

Must determine settlor's intent.

Courts consider:

1. Specific terms and overall tenor of the words used

2. Definiteness or indefiniteness of the property involved

3. The ease or difficulty of ascertaining possible trust purposes and terms, and the specificity or vagueness of the possible beneficiaries and their interests

4. The interests or motives and the nature and degree of concerns that may reasonable be supposed to have influenced the transferor

5. The financial situation, dependencies, and expectations of the parties

6. The transferor's prior conduct, statements, and relationships with respect to possible trust beneficiaries

7. The personal and any fiduciary relationships between transferor and the transferee

8. Other dispositions the transferor is making or has made of his or her wealth; and

9. Whether the result of construing the disposition as involving a trust or not would be such as a person in the situation of the transferor would be likely to desire

Front 108

UPC 2-707

Back 108

Implies a survivorship requirement for class gifts.

If beneficiary of class gift does not survive, a substitute gift is created in their descendants.

This presumption can be defeated by including words of survivorship (which would mean the gift lapses)