Term
|
Definition
Trust is an arrangement for making gifts of property and for hte management of assets for the benefit of the beneficiaries.
|
|
|
Term
| Who holds legal title to trust assets? |
|
Definition
| in a trust, the trustee holds legal title to the trust assets. |
|
|
Term
| Who has the burdens of ownership of a trust? |
|
Definition
The trustee has all of the burdens of owenrship including:
duty to manage,
invest,
insure, safeguard, etc. |
|
|
Term
| What do beneficiaries get in a trust? |
|
Definition
| Beneficiaries have equitable title and all the benefits of ownership. |
|
|
Term
| What are the types of trusts and how are they created? |
|
Definition
EXPRESS: arises from the expressed intention of the property to create a trust with respect to the property.
RESULTING: arises from the presumed intention of the owner of the property
CONSTRUCTIVE: arises in wrongful conduct and unjust enrichment cases. |
|
|
Term
| How can a trust be created? |
|
Definition
1. self-declaration of trust
2. transfer to a third person named as trustee
3. will (testamentary trust)
4. exercise of a power of appointment |
|
|
Term
| What are the rules for consideration? |
|
Definition
NO consideration required for the creation.
HOWEVER,
IS REQUIRED for a PROMISE to create a future trust. |
|
|
Term
|
Definition
| A person with legal capacity who intends to create a trust and delivers the trust property to the trustee. |
|
|
Term
|
Definition
A person with legal capacity named to administer a trust.
A settlor or a beneficiary, (if not the sole beneficiary) can be a trustee.
a bank or a trust company can be a trustee.
No trust fails for lack of trustee; court will appoint. |
|
|
Term
| What are the requirements of a valid trust? |
|
Definition
Settlor must:
deliver trust property to the trustee for the benefit of the beneficiary with intent to create a trust for a lawful purpose.
Statute for frauds may require that it be in writing. |
|
|
Term
| When is an oral trust valid? |
|
Definition
An oral trust is valid when:
a. it consists solely of personal property
b. all other requirements are met &
c. the trustee is a 3P. |
|
|
Term
| What property is sufficient for a trust? |
|
Definition
Any property that the settlor has the power to convey whether tangible or intangible.
Settlor's interest in property must be assignable; can be fractional.
An expectancy is not property but a future interest IS presently owned property.
Property must be specifically and adequately described.
A promise supported by consideration to contribute property to the trust gives rise to a property interest in the trust. |
|
|
Term
| What constitutes an illegal trust purpose? |
|
Definition
A trust will fail if:
1. its enforcement involves committing a crime or tort
2. was created to defeat settlor's creditors or
3. was based on illegal consideration
THE FOLLOWING ARE VOID:
Total restraints on marriage
Conditions that encourage divorce
Provision calling for destruction of property
Provision for forfeiture of interest due to actions of 3P |
|
|
Term
| What constitutes acceptance of the trust office by the trustee named in the trust instrument? |
|
Definition
The trustee's signature signifying acceptance.
The trustee's conduct i.e. exercising trust powers or performing duties. |
|
|
Term
| What must an individual named as trustee do upon appointment. |
|
Definition
| An individual named as trustee must post a fiduciary bond to secure the faithful performance of their duties UNLESS the settlor waived this requirement. |
|
|
Term
| When is a corporate trustee required to post bond? |
|
Definition
| A corporate trustee is not required to post bond as adequate security is given by the bank's general corporate assets. |
|
|
Term
| Is a trustee entitled to compensation? |
|
Definition
| A trustee is entitled to reasonable compensation and reimbursement for all expenses reasonably incurred in administering the trust. |
|
|
Term
| What are the rules regarding beneficiaries? |
|
Definition
Non-charitable trust: must have definite and ascertainable beneficiaries AND must not violate the rule against perpetuities
Charitable trust: cannot be to an indentifiable person and is not subject to the RAP |
|
|
Term
| What is the effect of precatory language in a trust agreement? |
|
Definition
Though no particular words are required in a trust agreement, precatory language renders the trust non-binding.
words: desire, want, I wish, I would like, I request, hope |
|
|
Term
| What is a resulting trust? |
|
Definition
| It's actually not a trust at all. It is a term the courts use when a trust fails. |
|
|
Term
| when are trusts not required to be in writing? |
|
Definition
All trusts must be in writing EXCEPT a transfer in personal property to a third person (other than settlor or beneficiary) along with a declaration of intent to create a trust simultaneously or prior to the transfer.
Statue of Frauds requires all trusts involving real property be in writing. |
|
|
Term
| When is a trust revocable? |
|
Definition
All trusts are revocable and amenable by the settlor unless expressly made irrevocable or unamendable.
Any revocation or amendment must be in writing.
Guardian does not have the authority to revoke in the cases of incapacity; only a court upon finding that revocation is in the ward's best interest. |
|
|
Term
| What is the affect of divorce on a trust? |
|
Definition
Divorce revokes all revocable trust provisions in favor of the former spouse and relatives of former spouse who are not relatives of the settlor UNLESS . . .
the trust is re-executed or a contract/court order provides otherwise. |
|
|
Term
|
Definition
A testamentary gift to a trust that provides a mean for adding testamentary assets to a trust created by the testator during lifetime. By statute, such a gift is valid even if:
1. trust is subject to revocation and amendment and is later amended.
2. in unfunded
The trust can be created after the will is signed. |
|
|
Term
| When is the right of surivorship valid in a joint bank account? |
|
Definition
When the account agreement is signed by the party who has died, even if the survivor didn't sign unless the account is between spouses funded with community property (both must sign).
Ownership of a joint account is in proportion to each party's deposits. |
|
|
Term
| What is a durable power of attorney? |
|
Definition
It is a signed, notarized document that authorizes another person to act on behalf of a principal.
Agent's authority will not be affected |
|
|
Term
| Can a charity bring suit against a trustee to be named beneficiary of charitable trust after the named charity cease to exist? |
|
Definition
| No. Only the attorney general and settlor have standing to bring an action concerning a charitable trust. |
|
|
Term
| Can the trustee choose another charitable beneficiary if the named charity cease to exist? |
|
Definition
Yes. if a NAMED charitable beneficiary under a trust cease to exist or qualify as a charity, trustee can name a new charity WITHOUT court approval.
However, trustee must give notice of the selection of a new charity to the attorney general and the replacement charity must have same or similar charitable purpose as the failed charity. |
|
|
Term
| What occurs in cases in which the replacement charity is not related to the charitable purpose stated in the trust? |
|
Definition
| A judicial cy pres proceeding must be brought to divert income to a related charitable activity as near as possible |
|
|
Term
| What is a durable power of attorney & what does it accomplish? |
|
Definition
A signed, notarized document that austorizes a person to act on behalf of the principal.
The agent's authority will not be affected by the principal's later incapicity if it expressly states.
The P can grant a springing POA that only becomes effective upon incapacity.
Appointment of a guardion of the estate terminates a POA. |
|
|
Term
| What is an honorary trust? |
|
Definition
It's not really a trust. It's a gift to non-humans that will only be upheld if the trustee decides to perform.
If the gift fails, there is a resulting trust in favor of the residuary beneficiary.
It is subject to the rules against perpetutities, in which case, apply TX cy pres style perpetutities reform statute which would limit it to 21 years. |
|
|
Term
| What is a purchase money resulting trust? |
|
Definition
It occurs where A pays the purchase price of property but puts title in B's name, though not intending a gift to B.
Presumption is PMRT.
If A and B are related, it is presumed to be a gift or loan.
Parol evidence admissible to overcome presumptions. |
|
|
Term
| What is a spendthrift trust? |
|
Definition
Trust that protects beneficiaries from creditors by prohibiting voluntary assignment or involuntary transfer of the beneficiary's interest.
The trust instrument must specifically express the trust to be a spendthrift. |
|
|
Term
| When can a spendthrift trust be reached? |
|
Definition
- child support obligations
- federal tax lien
- contract for necessaries
- interest retained by settlor in revocable trust
- fraudluent transfer in irrevocable trust
|
|
|
Term
| Can a creditor reach a grantor's (settlor) trust interest? |
|
Definition
Creditors can reach any interest in a revocable trust.
in an irrevocable trust, only the settlor's income interest can be reached.
Cannot reach the principal unless it was a fraudlent transfer. |
|
|
Term
| Who can compel a trustee with sole discretion to make distributions? |
|
Definition
creditors can compel trustte to distribute the max amount that a trustee has discretion to distribute.
Beneficiaries can challenge trustee's discretion.
Settlor CANNOT compel a distribution. |
|
|
Term
| What court has jurisdiction over a trust dispute? |
|
Definition
Venue lies in district court or statutory probate court in country where trustee resides.
Probate courts have exclusive jurisdiction over testmentary trusts
If more than one trustee, county of situs of the trust. |
|
|
Term
| When are beneficiares entitled to an accounting. |
|
Definition
Trust beneficiaries are entitled to an accounting not sooner than 12 months after the trust is created.
Then, entitled every 12 months. |
|
|
Term
|
Definition
| The Texas Trust Code, except as otherwise provided by the setllor, gives broad fiduciary powers to the trustee. A trustee can do almost everything that a fee simple owner can do. |
|
|
Term
| What are the managinf limitations on a trustee? |
|
Definition
A trustee cannot:
- borrow trust funds or use as collateral for a personal loan
- buy or sell trust assets to himself
- loan trust funds
- profit from serving as trustee
- or breach fiducicary duties
Trustee CAN loan funds to beneficiary as long as it's reasonable |
|
|
Term
| Does a trustee have a duty to insure trust assets? |
|
Definition
| A trustee's duty to protect and preserve the assets includes a duty to insure them against loss if a prudent person would insure them. |
|
|
Term
| What remedies are available if a trustee breaches a fiduciary duty? |
|
Definition
In addtion to bringing an action to denial of compensation and removal, beneficiary has the option to:
ratify the transaction & waive the breach,
bring a surcharge action, or
petition for the impositin of a constructive trust if trustee still has possesion of the property.
|
|
|
Term
| When does a cause of action accrue against the trustee & what is the limitation period? |
|
Definition
| A suit must be brought w/i 4 years if the trustee repudiating the trust, dying, resinging or giving an accounting that makes full disclosure of the facts on which the action is based. |
|
|
Term
| When there are multiple trustees, how can one protect himself? |
|
Definition
Majority rules in trust with multiple trustees, but a co-trustee has a duty ro prevent a breach by another trustee.
The trustee should not participate in the transaction and expressly dissent in writing. |
|
|
Term
| How is a trustee's investment performance measured? |
|
Definition
Under the Uniform Prudent Investor Act (UPIA), a trustee's prudence is measured at the time the investment was made.
UPIA is based on mdern portfolio theory and looks to the total return.
Under UPIA, a trustee must establish and maintain a custom investment strategy that will effectuate the settlors intent.
Under UPIA, a trustee can exercise adjustment power & allocate capital gains to income. |
|
|
Term
| How does a trustee allocate b/t principal & income in Oil & Gas interests? |
|
Definition
Delay rentals are allocated to income.
Royalty & bonus are allocated equitably
(15%p/85%i)
If trust is pre-2004, (27.5/72.5) |
|
|
Term
| How does a trustee allocate principal & income in other unusual assets? |
|
Definition
Pensions and IRAs are treated as income until they exceed 4% of hte plan's value at the beginning of the period.
Other liquidating assets allocate wither 5% or 10% to income & the rest to principal.
Commissions & expenses are allocated half against income and half against principal. |
|
|
Term
| When can a beneficiary bring an action against a 3p that injured the trust? |
|
Definition
When the trustee is unable or unwilling to the bring the action
OR
when the trustee particiapted with the party in committing a breach of trust |
|
|
Term
| What are the rules regarding trustee exculpatory clauses? |
|
Definition
Settlor can include a valid exculpatory clause relieving trustee of beneficiary liability EXCEPT for:
gross negligence, fraud or bad faith.
Such clauses are strictly construed.
If it purports to relieve trustee from liability for any of these 3 things, it is unenforceable.
While self-dealing rules can be waived, an exculpatory clause, by itself does not authorize self-dealing.
|
|
|
Term
| When can a court terminate a trust prior to the time fixed for termination? |
|
Definition
| Upon petition fron the trustee or a beneficiary, a court may terminate the trust or modify it if the court finds that the provision of the trust have been fulfilles, or have become illegal or impossible to fulfill, or because of changed circumstance, compliance with trust terms would defaet or substantially imapir accomplishment of trust purposes. |
|
|
Term
| How is an uneconomic trust terminated? |
|
Definition
After giving notice to the beneficiaries, the trustee of a trust having a value of less that $50k may terminate the trust if he determines that teh cost of administration doesn't justify continuation.
No court order necessary. |
|
|
Term
| What powers does a trustee have after a trust has been terminated? |
|
Definition
After a trust terminates, the trustee may continue to exercise trust powers for the reasonable time necessary to:
wind up trust affairs and
make distributions to beneficiaries. |
|
|
Term
| For federal tax purposes, how much is the credit shelter? |
|
Definition
$1 million lifetime gifts
$2 million for the estate (including lifetime gifts) |
|
|
