Term
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Definition
according to method of creation
bifurcated transfer: creator/settlor transfers property to trustee to be managed for benefit of 3rd party beneficiary
-trustee holds legal title; beneficiary holds equitable title
-no consideration required
revocable v. irrevocable trusts
-revocable: terminated at any time; irrevocable: cannot be terminated
-presumption: trust is revocable
-revocation by any act manifesting intent to revoke, absent other language
mandatory v discretionary trusts
-mandatory: requires trustee to distribute all trust income
-discretionary: trustee has discretion to distribute income |
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Term
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Definition
settlor: creator of trust
trustee: holds legal interest or title to trust property
beneficiary: holds equitable title to property |
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Term
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Definition
settlor's intent: generally controls; determined by looking at instrument as a whole
plain meaning: court interprets trust using "four corners" of instrument; extrinsic evidence generally prohibited
-exception: reformation to correct a mistake; evidence relevant to settlor's intent admissible, even if contradict's apparent plain meaning
extrinsic evidence: admissible to explain/determine but not contradict meaning of ambiguous terms in trust instrument
statutory rules of construction: FL trust code (FTC) applies unless contrary intent in trust terms; meaning of terms determined by law of jurisdiction, but not controlling if contrary to strong public policy in FL |
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Term
| Types of trusts - private express trust |
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Definition
| administered according to FTC; clearly states present intention of settlor to transfer property to trustee for benefit of one or more definite beneficiaries |
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Term
| Types of trusts - private express trust - elements |
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Definition
-capacity of settlor: same capacity for making a will (18 or older, sound mind); undue influence doesn't apply when settlor revokes/removes funds from revocable trust in FL
-present intent: settlor may manifest intent to make a gift orally, in writing, or by conduct; manifestation of intent must occur prior to or simultaneously with transfer of property (but promise of future trust supported by consideration is valid)
-precatory trust: express hope/wish that property transferred be used for benefit of another rather than creating a legal obligation; must be shown that absent imposition of a trust, there would be an unnatural disposition of donor's property (because of familial relations or history of support between donor and intended beneficiary)
trustee
-same capacity as necessary to hold title to property in FL; must accept office and have duties to perform
-merger: same individual cannot be both sole trustee and sole beneficiary; if so, title mergers, trust terminates
-trust won't fail for lack of trustee; court will appoint one
-resignation: 30 days' notice to all parties or court approval
-removal in FL: trustee committed serious breach of trust, failed to administer trust effectively, substantial change in circumstances, or removal requested by all qualified beneficiaries
definite or ascertainable beneficiaries
-rule: identifiable person who has present/future beneficial interest in trust, or who holds power of appointment over trust property in capacity other than that of trustee; must be at least one
-exceptions: trusts for benefit of unborn children or to a reasonably definite class will be upheld (FL RAP applies) and charitable trusts (trusts that exist for good of public at large) do not need individual ascertainable beneficiaries
trust property
-trust must be funded with identifiable trust property
-trust property must be identifiable and segregated, and described with reasonable certainty
-elective share in FL: surviving spouse's elective share is 30%
valid trust purpose: can be created for any purpose as long as it is not illegal or contrary to public policy; if one of several trust terms violate public policy, alternative terms will be honored, or, if none, term will be stricken, but trust will not fail unless removal of term is fatal |
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Term
| Types of trusts - private express trust - creation |
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Definition
1: transfer of property to another person as trustee either during settlor's lifetime or by will or disposition taking effect on settlor's death
2: declaration by the owner of property that owner holds identifiable property as trustee
3: exercise of a power of appointment in favor of trustee |
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Term
| Types of trusts - private express trust - types |
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Definition
inter vivos: lifetime transfer in trust and declaration in trust
-delivery: must accompany the declaration if a third-party trustee is named, whereby the settlor parts with dominion and control over trust property; not required for declaration of trust (settlor is trustee)
-writing: required only for real property; court will impose constructive trust when writing is lacking
-revocable inter vivos trust: if created on or after 7/1/07 with provisions that dispose of trust property upon death of settlor other than to settlor's estate, must be executed in accordance with FL formalities
testamentary
-occurs when terms of trust are contained in writing in a will or in a document incorporated by reference into a will
-secret trust: looks like testamentary gift, but created in reliance on named beneficiary's promise to hold and administer property for another; constructive trust is imposed on property for the intended beneficiary
-semi-secret trust: occurs when gift is directed in a will to be held in trust, but testator fails to name a beneficiary (resulting trust imposed on property to be held for testator's heirs)
pour-over trust: provision in will that directs distribution of property to a trust upon happening of an event, even if the trust instrument was not executed in accordance with the statute of wills, as long as the trust is identified in the will and its terms are set forth in a written isntrument |
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Term
| Types of trusts - charitable trusts |
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Definition
charitable purpose: relief and poverty, advancement of education/religion, good health, governmental purpose, and other purposes benefiting community at large
indefinite beneficiaries: beneficiaries must be community at large or class comprising unidentifiable members
FAP: exempt; may continue indefinitely
cy pres doctrine
-court may modify charitable trust to seek an alternative charitable purpose if the original one becomes illegal, impracticable, impossible to perform, or wasteful; must be consistent with settlor's charitable purposes
-FL courts can select charitable purpose or beneficiaries if none identified in trust
-settlor/trustee/qualified beneficiary can assert cy pres
-deviation doctrine: deals with methods of accomplishing trust's purpose
enforcement: settlor/qualified beneficiary/FL attorney general may bring suit to enforce charitable trust
honorary trusts: no charitable purpose, no private beneficiaries (usually for a pet); may not be enforced for more than 21 years unless for care of animals |
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Term
| Types of trusts - remedial trusts |
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Definition
equitable remedy not subject to trust creation requirements
resulting trust: when trust fails, court will create a resulting trust requiring holder of the property to return it to settlor or his estate to achieve settlor's likely intent
-when imposed: purchase-money resulting trust, failure of express trust, or incomplete disposition of trust assets due to excess corpus after purpose satisfied
constructive trust: used to prevent unjust enrichment if a person causes fraud, duress, undue influence, breach of duty, or detrimental reliance by third party on a false representation; wrongful conduct required |
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Term
| Forfeiture of killer's interest |
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Definition
| person who kills another on whose death a beneficiary's interest depends on cannot obtain trust interest; killer treated as predeceasing V |
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Term
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Definition
| any provision in revocable trust that affects settlor's spouse is void upon divorce or annulment; revocable trust administered as if settlor's spouse died on divorce/annulment date (unless trust instrument or court judgement provides otherwise) |
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Term
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Definition
| substitute gift created in deceased beneficiary's surviving decedents per stirpes and interest lapses if no surviving decedents (unless contrary intent in trust) |
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Term
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Definition
general rule: freely alienable unless statute or trust instrument limits this right
rights of creditor/assignee: in absence of spendthrift provision, creditor/assignee can reach beneficiary's interest by attachment or other means
rights of creditors of settlor: property of revocable trust subject to claims of settlor's creditors during settlor's lifetime if property not otherwise exempt, even with a spendthrift provision
spendthrift trust: expressly restricts beneficiary's power to voluntarily or involuntarily transfer his equitable interest; creditors usually cannot reach the trust interests before beneficiary receives interest or distribution from trustee if governing instrument contains spendthrift clause, but can be reached after paid to beneficiary
-FL exceptions: when settlor is also beneficiary, alimony and child-support claims, government claims, judgment creditors, or trustee fails to make mandatory distribution
pour-over trust: assets poured over from a will into an inter vivos trust pass outside of the reach of testator's creditors as long as the trust was executed before or simultaneously with the will
discretionary trust: trustee is given complete discretion regarding whether or not to apply payments of income/principal to beneficiary; creditors have same right as a beneficiary if trustee exercises discretion to pay (unless spendthrift applies); if trustee does not exercise discretion to pay, beneficiary's interest cannot be reached by creditors |
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Term
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Definition
| contest penalties are unenforceable; if entire revocable trust is revoked, then action to contest cannot be commenced until after settlor's death |
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Term
| Expiration or accomplishment of trust purposes |
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Definition
| trust will automatically terminate to extent the trust expires, is revoked or is properly distributed; trust terminates automatically when all trust purposes have been accomplished |
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Term
| Revocation or modification by settlor |
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Definition
in general: if created on/after 7/1/07, may be revoked or amended unless terms expressly provide that trust is irrevocable
multiple settlors: if community property, can be revoked by either spouse acting alone, but amended only by action of both spouses; for other property, each settlor can revoke portion of trust property attributable to their contribution
methods:
-substantial compliance with method provided in trust
-by later will/codicil that expressly refers to trust
-any other method manifesting clear/convincing evidence of settlor's intent |
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Term
| Modification or termination by trustee |
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Definition
uneconomic trust: trustee may terminate upon notice to qualified beneficiaries when value is less than 50k if trust res is insufficient to justify cost of administration
combination/division of trusts: trustee may combine two trusts into single trust, or divide one trust into two trusts, upon notice to qualified beneficiaries if rights not impaired and no adverse effect on trust purposes
trustee with absolute power to invade principal: 1) beneficiaries of 2nd trust can only include beneficiaries of 1st trust, 2) 2nd trust cannot reduce fixed income, annuity or interest in assets of 1st trust, and 3) trust contributions in 1st trust that qualify for marital/charitable deduction from federal taxes cannot be prevented in 2nd trust |
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Term
| Judicial modification, reformation or termination of trust |
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Definition
general rule: upon application of trustee or any qualified beneficiary, court may modify irrevocable trust if purposes of trust have been fulfilled, or are illegal, impossible, wasteful, or impracticable, compliance with trust terms would defeat or substantially impair accomplishment of material purpose, or material purpose no longer exists
uneconomic trust: upon application of trustee or any qualified beneficiary, court can modify/terminate trust or remove/change trustee if value of trust res is insufficient to justify cost of administration (not precluded by spendthrift provision)
trust not in best interests of beneficiaries: court can modify irrevocable trust, must exercise discretion in manner that conforms to settlor's intent; applies to trusts created on/after 1/1/01
judicial remedies: amend/terminate trust, permit trustee to do unauthorized/prohibited acts or prohibit trustee from doing permitted acts
reformation: court can reform trust even if unambiguous, to conform to settlor's intent if proven by clear/convincing evidence that accomplishment of settlor's intent and terms were affected by mistake of fact/law (evidence contrary to plain meaning of trust can be considered if relevant to settlor's intent) |
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Term
| Modification/termination by agreement |
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Definition
settlor and all beneficiaries: can terminate irrevocable trust even if trust purpose not completed and even if discretionary/spendthrift
after settlor's death: can be modified/terminated by unanimous agreement of trustee and all qualified beneficiaries (applies to trusts created on/after 1/1/01)
permitted modifications: amend/terminate trust, permit trustee to do unauthorized/prohibited acts, or prohibit trustee from doing permitted acts |
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Term
| Trust administration and trustee's duties - powers |
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Definition
powers necessary to act as a reasonably prudent person in managing the trust, including power to K, sell, lease or transfer trust property
co-trustees: must act unanimously, and if not, by majority decision
discretionary powers: trustee can decide whether exercise of power is appropriate |
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Term
| Trust administration and trustee's duties - duties |
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Definition
good faith: duty to administer trust in good faith; held to higher standard if trustee has special skills or expertise
duty of loyalty; no self-dealing
-when trustee personally engages in transaction involving trust property, COI arises between trustee's duties to beneficiaries and her own personal interest
-prohibited transactions: buying/selling trust assets, selling property between trusts that trustee manages, borrowing from or making loans to trust, using trust assets to secure personal loan, engaging in prohibited transaction with friends/relatives, or otherwise acting for personal gain through trustee position
-once self-dealing is established, no further inquiry into trustee's reasonableness or good faith is required because self-dealing is a per se breach
-COI transactions are voidable unless authorized by terms of trust, approved by court, beneficiary consented to conduct
presumption of COI (rebuttable): sale, encumbrance, or other transaction relating to trust property with
-trustee's spouse
-trustee's descendants, siblings, parents, or their spouses
-trustee's officer, director, employee, agent or attorney
-corp., person, or enterprise in which trustee posses an interest that might affect trustee's judgment
transaction not precluded if fair to beneficiaries
-agreement between trustee and beneficiaries relating to appointment or compensation of trustee
-payment of reasonable compensation
-transaction between trust and another trust, decedent's estate, or guardian of property on which trustee is fiduciary or beneficiary has interest
-deposit of trust money in bank operated by trustee
-advance by trustee of money for protection of trust
-employment of attorneys, accountants, investment advisors, or agents, to advise or assist trustee in exercise of trustee's powers
lawyer's client is fiduciary: communications between lawyer and client who is acting as fiduciary when trustee are privileged and protected from disclosure to same extent as if client were not acting as fiduciary
duty of control/protection of trust property: trustee required to take reasonable steps to take control/protect trust property; trustee must defend against any actions brought against trust so long as valid defense is available
duty to separate and identify trust property: trust property must be segregated from other property; trustee is guilty of breach of trust if property is commingled
duty of reasonable care and prudence
-general rule: trustee must administer trust as a prudent person would, by considering purposes, terms, distribution requirements, and other circumstances of the trust, and is ordered to exercise reasonable care, skill, and caution in doing so
-duty to oversee decisions: trustee can delegate determination of management and investment strategies but must oversee decision-making process
trust investments
-Uniform Prudent Investor Act: requires trustee to act as a prudent investor would act when investing his own property
-standard of care: trustee must exercise reasonable care, caution, and skill when investing and managing trust assets; if trustee has special skills or expertise, she has a duty to utilize such skills and expertise
-review of decisions at time they were made, not in hindsight
-look at total performance of trust, not individual investments
-reasonable business judgment: trustee's investment actions judged in terms of reasonable business judgment under facts and circumstances at time of the action or decision
duty to diversify
-trustee must adequately diversify the trust investments in order to spread the risk of loss; not required if administrative costs would outweigh the benefits or trust purposes better served without diversification
-trustee has duty to pursue an investment strategy that considers both the reasonable production of income and safety of capital consistent with trustee's duty of impartiality and purpose of trust
delegation: may delegate investment functions to an expert; must periodically review expert's actions; must exercise reasonable care in selection
duty to be impartial: balance interests of present and future beneficiaries by investing property so that it produces reasonable income while preserving principal for remaindermen
-duty to sell: trustee has duty to sell trust property within reasonable time if failure to diversify would be inconsistent with modern portfolio approach
-principal income/allocations: focuses on total return to trust portfolio, regardless of classifications of income or principal; trustee can re-characterize items and reallocate investment return to fulfill trust purposes, as long as allocations are reasonable and in line with trust instrument
duty to inform: trustee required to keep qualified beneficiary reasonably informed of trust and its administration
duty to account: qualified beneficiary entitled to trust accounting annually, upon termination of trust, or upon change of trustee |
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Term
| Trustee's liability to a beneficiary |
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Definition
breach of trust
-violation of duty by trustee
-judicial remedies: compel trustee to perform duty, enjoin trustee from committing breach of trust, compel trustee to redress breach, order trustee to account, suspend, or remove trustee, order any other appropriate relief
-damages: greater of amount required to restore value of trust property/distributions without breach or profit made by trustee due to breach
SOL: 4 years
protection of trustee from liability
-reasonable reliance on trust terms
-consent, ratification, release by beneficiary
-exculpatory clause in trust; cannot limit liability for reckless acts or acts in bad faith; must be fair
co-trustee liability: co-trustee who does not join action of another co-trustee is not liable for action so long as reasonable care exercised to prevent breach of trust |
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Term
| Trustee's liability to third parties |
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Definition
contract liability: not personally liable, unless fails to reveal capacity as trustee and identify trust estate
tort liability: only if personally at fault |
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Term
| Liability of third parties to trust |
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Definition
tracing trust property
-trustee wrongfully disposes of property: beneficiary may reclaim property or proceeds of property from 3rd party unless 3rd party is BFP for value w/o notice
suit by beneficiaries: beneficiary generally cannot bring suit against third party who is liable to trustee or damages trust property because trustee must do so; beneficiary can bring suit if trustee personally participates in breach or injury |
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Term
| Revocable inter vivos trust |
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Definition
| interest passes to beneficiary during settlor's lifetime, subject to revocation by settlor; probate is avoided because assets, on settlor's death are held by trustee |
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Term
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Definition
designates trustee as beneficiary to hold contingent benefit under a trust for another person; FL permits testamentary trustee to be beneficiary of life insurance proceeds and retains spendthrift protection
UTMA account: custodian has legal powers to collect, hold, manage, invest, and reinvest the custodial property, as well as to pay minor the property as custodian deems advisable for minor's use and benefit until minor reaches age of 21
totten trust: bank account in depositor's name as trustee for named beneficiary; depositor's creditors can reach the funds while depositor is living or after depositor's death through his estate; can be revoked by any lifetime act manifesting depositor's intent to revoke or by will |
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Term
| Durable power of attorney in FL |
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Definition
required words for creation: "this durable power of attorney is not terminated by the subsequent incapacity of the principal except as provided in chapter 709, FL statutes," or similar words that show principal's intent that authority conferred is exercisable notwithstanding principal's subsequent incapacity
agent: fiduciary; must be at least 18; authority is limited to that specifically granted in power of attorney, and any authority reasonably necessary to give effect to express grant of authority
other institutions that can be appointed: financial institutions that have trust powers, or a place of business in FL, and authorization to conduct trust business in FL
validity: signed by principal and two witnesses, notarized |
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