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71 Cards in this Set

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  • Back
Very generally, what is a trust?
It is an arrangement for making gifts of property and for the management of assets under which the trustee hold LEGAL TITLE to trust assets but beneficiaries hold EQUITABLE TITLE and all the benefits of ownership.
What is the general significance of the date July 1, 2006?
It is the date after which the Uniform Trust Code applies to ALL charitable and noncharitable trusts
What are the general requirements for the creation of a trust?
1) settlor (grantor)
2) delivers
3) trust property
4) to trustee
5) for the benefit of beneficiaries
6) with the intent to create a trust
-Must be for a lawful purpose
-No consideration is required
What are the requirements w/r/t the settlor?
-Must have legal capacity (18 or over; capacity to convey title to trustee)
What are the requirements w/r/t the delivery requirement?
-doesn't apply to self-declaration of trust
-for inter vivos trusts, mere intent to create a trust is not sufficient. must have:
1) delivery of subject matter of trust w/ intent to convey legal title to trustee

[(i) DELIVERY (ii) with INTENT (iii) to CONVEY LEGAL TITLE (iv) to TRUSTEE]
If S gave agent authority to transfer securities to trustee, but S dies before delivery was made, what result?
Delivery fails if agent's authority terminated upon principal's death (but if he gave a durable power of atty, delivery complete I think)
What satisfies the trust property requirement?
-legal titel to a specific interest in property must be conveyed to trustee
-subject matter must be certain and identifiable
-if no trust property--no trust
Hypo: Hobie signs an irrevocable Declaration of Trust: "I declare myself trustee of my interest in Whiteacre; and when I receive it from Grandpa's estate (eventually), I shall pay the cincome therefrom to Ned for life, remainder to his issue." Was a trust validly created?
-Settlor had capacity
-Intent to convey trust property to trustee for the benefit of beneficiaries with the intent to create a trust BUT NO PROPERTY TO CONVEY--no trust
-expectancy is no more than fervent hope
-If trust had been supported by consideration, though, contract principles would apply and trust would automatically attach when the property was received
Can a non-resident idividual serve as a testamentary trustee?
Can a non-resident bank?
-Yes but must appoint an agent in Virginia to receive service of process
-No. BUT if resident bank is acquired by nonresident bank, sucessor bank should nonetheless be appointed trustee.
What happens if a trust fails to name a trustee?
-Valid trust created
-Court will appoint a suitable trustee
What constitutes acceptance by the trustee?
-Trustee's signature
-Acceptance by conduct (if he performs a trust duty, or exercises a trust power)
If a person designated as a trustee inspects trust property, has the designated trustee accepted the trust property through conduct?
-No. A designated trustee may inspect trust property to determine potential liability under environmental law
-Actions to preserve trust property during the inspection period do not constitute acceptance by conduct
Must a trustee post fiduciary bond to secure faithful performance of his duties?
-No. Unless the court finds bond is needed to protect the interests of the beneficiaries
-Corporate trustee never required to post bond
What is required w/r/t beneficiaries in order to form a valid noncharitable trust?
-Must be definite and ascertainable
-Their interests must vest within period of the RAP, AND
-Must be named in the trust instrument
What is a resulting trust?
It is what the court calls a failed trust
What does the Rule Against Perpetuities state?
-No interest is good unless it must vest, if it does vest, not later than 21 years from some life in being at the creation of the interest
-BUT settlor can provide that the RAP doesn't apply to personal property
What does the Rule of Perpetuities mean?
-If a trust is created with a contingency that extends beyond 21 years (+ gestation period) in an OPEN CLASS -- void
Hypo: Teddy is living and devises land: "To my son John for life, and on John's death to such of his children as live to attain age 30." At Teddy's death, John has 3 children: Tommy (12), Dicky (8), and Harry (4).
1) Is the trust valid?
2) What if ". . . such children who reach age 21." Valid?
3) What if John predeaces Teddy? Valid
1) NO. It creates a contingency greater than 21 years in an open class. The contingent remainder is void.
2) Yes. Contingency in open class does not extend beyond the 21 year period.
3) Yes. It is a closed class.
How should you analyze a RAP problem?
1) What interests are created without regard for the rule? (any contingencies)
2) Is there an open class?
3) Apply the common law RAP
4) Apply USTRAP
What is USTRAP?
The Uniform Statutory Rule Against Perpetuities.
-It provides an alternate vesting period of 90 years
-Wait and see approach
-Interests are valid if valid under common law RAP or the interest ACTUALLY vests/fails within 90 years after the interest's creation
What effect does precatory language have on the creation of a trust?
-Precatory language (of wish, desire, hope, request) makes the trust fail as merely a suggestion
Do the words "in trust" or "trust" need to be included for the creation of a trust?
-No, there are no magic words
Describe the lawful purpose requirement.
-if its purpose is against public policy, the court will not enforce
(1) encourages divorce or (2) total restraint on marriage (partial restraints allowed)
-keep an eye out for trusts where motives are lawful but purport to restrain marriage (e.g., to provide support during widowhood)
Are oral trusts valid?
-In VA, oral trusts of real property area VALID if proved by C&C evidence of intent to create that trust
What is the default rule on inter vivos trusts created after Jult 1, 2006.
-All inter vivos trusts are revocable and can be amended unless settlor expressly made irrevocable and unamendable
What is the fertile octogenarian rule?
-Doesn't matter if the idividual is beyond childrearing years--apply RAP
What words are sufficient for trust creation?
-words like "for the use and benefit"
-"trust" not necessary but must be more than precatory words
What are restraints are there on revocable trusts w/r/t incapacitated settlors?
-If settlor is incapacitated, a conservator or guardian or agent w/ durable power of attorney may REVOKE or AMEND a revocable trust or DISTRIBUTE trust property ONLY:
(1) if expressly authorized by the trust, OR
(2) authorized by the court for good cause shown
What are revocable trusts often used for?
Will substitutes
What is a "pourover will"? Are they allowed in VA?
When are they valid?
-One that makes a gift to an existing trust.
(1) even if trust is subject to revocation or amendment and is later amended,
(2) even if trust is unfunded during the settlor's lifetime
-nonresident bank CAN serve as trustee of an inter vivos trust and receive a pourover gift by will
-also, an inter vivos trust may be designated as beneficiary of life insurance policies/employee death benefits
What is a self-declaration of trust? Is it recognized in VA?
-Settlor names himself as trustee (often retains income for life and power to revoke and provides that if S does not revoke, on his death, a successor trustee shall serve)
-VA recognizes
When must an action contesting the validity of a trust be brought?
The earlier of (1) 6 months after the trustee sends the person a copy of the trust instrument, or (2) two years after settlor's death
What is constructive delivery?
Where actual delivery would be impossible, non-delivery of tangible item does not defeat trust
-e.g., with stock certs held as joint tenants with right of survivorship
What type of presumption does the creation of a joint account create?
-A rebuttable presumption of right of survivorship
-Can be rebutted by clear and convincing evidence that no right of survivorship was intended
What is a durable power of attorney?
What is a springing durable power?
-It authorizes another person to act on behalf of the principal, and if durable, it contains language that makes it unaffected by death or incapacity of principal
-A durable power of attorney that does not become effective until death/incapacity
What are the 4 distinctive characteristics of a charitable/honorary trust?
1) Not subject to RAP
2) Must be for a charitable purpose
3) Must be in favor of a reasonably large number of unidentifiable members of the public at large
4) When the stated purpose can no longer be achieved, it can be reformed by judicial proceeding under the cy pres doctrine
What is the cy pres doctrine? How is it carried out?
1) allows charitable trusts to be reformed "as near as possible" (equitable approximation) if the particular charitable purpose becomes unlawful, impracticable, etc.
2) trust is reformed to carry out the general intent as near as possible to settlor's intent
What happens if a settlor creates a charitable trust with a contingency where it reverts to settlor?
-if settlor is still alive--it reverts
-if S is dead, it does not go to S's children if more than 21 years have passed
What is an honorary trust?
Are honorary trusts valid in VA?
-If created after July 1, 2006, the UTC allows
-Honorary trusts are trusts created for the benefit of an animal, object, etc.
-But valid for 21 years only
What is a slayer statute? Does VA have one?
1) killer forfeits interest in victim's estate if convicted of murdering him (includes insurance, wills, trusts, intestacy)
2) Neither the killer nor those claiming through him can take
3) Does not apply to manslaughter, but constructive trust rules might apply
What is a constructive trust?
-It results when there is wrongful conduct + unjust enrichment (e.g., killer and beneficiary of T pleads guilty to a lesser charge)
-Not really a trust, just a name given to disgorge unjust enrichment arising from wrongful conduct
What is a purchase money resulting trust?
-It is created by presumption when buyer pays purchase price for land but causes title to be taken in the name of another, unrelated person
-evidence is admitted to rebut the presumption and show that it was: (a) a gift, or (b) loan of purchase price
-Must be shown by C&C evidence
NOTE: if buyer and person on title are related, presumption is gift not PMRT
What is the following:
"No interest of any beneficiary shall be assignable by the beneficiary or subject to the claims of the beneficiary's creditors by garnishment, attachment, or other legal process."
It is a spendthrift clase and it is given full effect in VA.
What is the purpose of a spendthrift clause?
Protects a trust beneficiary's interest from creditors by prohibiting voluntary assignment and involuntary transfer
What are the exceptions to a spendthrift trust? Who can reach?
1) child support obligations
2) lawyer who has provided legal services for protection of beneficiary's interest
3) claims of the US gov't, the Commonwealth, county, city, town (for taxes, etc.)
4) claims of a state agency for reimbursement of public assistance
Can income from spendthrift trusts be reached?
Yes. After distributed, it is no longer subject to the trust or the spendthrift clause.
Can spendthrift clauses be valid by simply stating that they're spendthrift clauses?
Yes. UTC provides so expressly.
If trustee is given "sole discretion," can settlor sue to compel distribution?
If trustee is given "sole discretion" to distribute "as needed for B's support," can trustee be compelled to make a distribution?
-Beneficiary can compel distribution in the amount she shows a need for support
-Any amount distributed in excess of support amount, however, would constitute breach of trust
What 5 activities violate the duty of a trustee to not engage in self-dealing?
1) cannot buy or sell trust assets to himself
2) cannot borrow trust funds
3) cannot loan funds to the trust (can be waived but waivers are strictly construed)
4) cannot profit from serving as trustee (except being compensated) (e.g., confidential information, etc.)
5) corporate trustee cannot buy its own stock as a trust investment (unless its stock was part of the estate when the trust was created, and provided that retention of the stock is preudent)
Can trustees get around the self-dealing rules with relatives, business entities, etc.?
No. Indirect self-dealing is prohibited.
-Apply to relatives, bus entity of which trustee is an officer, employee, partner, or principal shareholder
What is the statute of limitations against a trustee?
-1 year IF t'ee gives beneficiary an accounting that (i) discloses facts showiong potential existence of breach of trust, AND (ii) informs B of time allowed for commencing an action
-in all other cases, 5 years after the first to occur: (i) t'ee's removal/resignation/death, (ii) termination of B's trust interest, or (iii) termination of the trust
What rules may a settlor waive when creating a trust?
GR: VTC provides only the "default" rules that are applied absent contrary provision by the settlor.
EX: there are 9 rules a settlor may not waive.
What are the 9 rules a settlor cannot waive when creating a trust?
1) modify the reqs for creating a trust
2) eliminate duty of trustee to act in good faith and in accordance with trust purposes (but t'ee can waive self-dealing rules)
3) limite the req that trust may not have an unlawful purpose
4) limit a court's jurisdiction to modify or terminate a trust, remove a trustee, req fiduciary bond, adjust/deny a trustee's compensation
5) modify a spendthrift provision so as to limit the rights of certain creditors (like the gov't for tax, etc.)
6) include an EXCULPATORY CLAUSE that relieve liability for acts in BAD FAITH or RECKLESS INDIFFERENCE, or insert and exculpatory clause that relieves liability for ordinary negligence without adequate compensation to settlor* (NEW NON-WAIVEABLE RULE)
7) limit the protection of persons dealing with the trustee
8) limit the SOL for commencing a judicial proceeding
9) limit the court's power to take such action and exercise such jurisdiction as may be necessary in the interests of justice
What are the remedies a court can oorder if it finds a breach of trust?
1) compel performance by t'ee
2) enjoin t'ee from committing breach
3) compel the t'ee to redress breach (incl pay money or restore property)
4) order the t'ee to give an accounting
5) remove the trustee
6) reduce or deny t'ee's compensation
7) impose a constructive trust
What duties are imposed on a trustee by the Virginia Trust Code for accepting a trusteeship?
Duty to:
1) act prudently
2) impartiality
3) control/protect trust property
4) segregate trust property
5) keep adequate records regarding trust administration
6) keep adequate records
7) keep beneficiaries reasonably informed
8) furnish copy of trust instrument upon request
9) IRREVOCABLE trusts created on or after 7/1/2006 - 60-day notice provision
10) duty to furnish annual reports (may be waived)
What is the 60-day notice period for irrevocable trusts?
For all irrevocable trusts created after July 1, 2006, within 60 days of accepting trusteeship, trustee must notify beneficiaries of (i) trust's existence, (ii) identify the settlor(s), (iii) their rt to request a copy of the trust, (iv) their right to request an annual report, AND (v) trustee's name, address, and telephone number
What powers does a trustee have in VA? Can they outlast the trust?
GR: if a fee simple owner can do it, so can a VA trustee
If asked whether a trustee can do it on the exam, what's the answer?
"Va's Uniform Trust Code, which applies to all trust in VA except to hte extent the trustee's powers are expanded or limited by the settlor, gives broad fiduciary pwoers to the trustee. Specifically, the Trust Code expressly authorizes a trustee to (do whatever the question involves)."
EX: self-dealing, imprudent investment
What is the Uniform Prudent Investor Act?
It is baed on the modern portfolio theory of investing and states that prudence is measured by conduct when the investment decision is made.
-A trustee can take a variety of factors into account when making the investment decision
-Under the UPIA, invest for TOTAL RETURN.
-Prudence is measured by conduct in making the investment decision at the time investment is made, NOT BY HINDSIGHT based on outcome or performance
-Can exercise adjustment power in favor of income beneficiary where appropriate and can allocate capital gainst to income
Can a trustee delegate trust powers and duties?
Yes. T'ee not liable for any actions taken by the agent if the t'ee exercised reasonable care in (i) selecting the agent, (ii) establishing the terms of the delegations, and (iii) periodically reviewing the agent's actions
In allocating receipts, starting point is that receipts are allocated 10% to income and 90% to principal in the following categories:
Mineral leases, patents, copyrights, book royalties, other assets that produce income for a limited time, receipts from deferred compensation
Where is trustee's compensation charged?
half to income, half to principal
Where are expenses charged?
1) ordinary expenses to income
2) capital expenditures to principal
Is a trustee personally liable for: (a) torts or (b) contracts?
a) not unless he was personally at fault
b) not unless t'ee's fiduciary capacity is not disclosed in the contract
What is a total return uni-trust?
it entitles beneficiary to fixed % of trust assets
In a multiple trustee situation, can trustees take action without unanimity?
Yes, majority rules
Does a co-trustee have a duty to prevent a breach of trust by a co-trustee?
YES. He should first try to persuade against conduct he feels is improper. If cannot, he should (1) not participate in the transaction, and (2) express dissent in writing
-following these steps relieves him of liability
When can a trust be modified or terminated without all beneficiaries' consent?
1) unanticipated circumstances--court may modify/terminate trust on T'ee or B's petision to further the purposes of the trust
2) inability to administer the trust effectively--court may modify or terminate for impracticability
3) to achieve settlor's tax objectives
4) may terminate if (i) no trust purpose remains to be achieved, or (ii) purposes have become unlawful, contrary to public policy, or impossible to achieve
What is an uneconomic trust and what is its significance?
-A trust valued at less than $100,000
-The t'ee may terminate w/o court approval
When are some times the court may reform/modify the trust?
1) can modify to carry out the trust's primary purpose
2) can reform to correct mistakes even if unambiguous on the face of the contract to conform to settlor's purpose if proved by C&C that the terms of the trust were affected by mistake of fact or law