Term
| Characteristics of an Express Private Trust |
|
Definition
| Characteristics if an express private trust: a trust is an arrangement for making gifts of property and for the management of assets, under which the trustee holds legal title to the trust assets for the benefit of the beneficiaries, who hold equitable title. The trustee has the burden of ownership (duty to manage, safeguard, invest, insure, etc.); beneficiaries have equitable title and the benefits of ownership. The three ways to make an express trust are: (1) inter vivos transfer; (2) inter vivos declaration of trust; or (3) will |
|
|
Term
|
Definition
1. Intent 2. Settlor 3. Trustee 4. Trust Property 5. Beneficiaries 6. Lawful Purpose |
|
|
Term
|
Definition
| Intent: the settlor’s intent to create a trust is essential. Intent may be manifested by written or spoken words or by the conduct of the settlor—unless the Statute of Wills or Statute of Frauds applies. An oral trust of personal property is valid. Communication of intent to the beneficiaries is not necessary; delivery of the deed to the trustee is sufficient. a. the intention to create a present trust must have been externally manifested by the settlor at the time he owned the property and prior to its conveyance to another. (settlor’s intent must also be that the trust take effect immediately) b. precatory expressions: a settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way is called precatory language. Precatory expressions do not create a trust. |
|
|
Term
|
Definition
| Settlor: creator of the trust, besides the requirement for intent, he must have legal capacity to make the trust (at least 18) |
|
|
Term
|
Definition
| Trustee: holds legal title to the property subject to enforceable rights of the beneficiary. Once established, a trust will not fail because the trustee dies, refuses to accept appointment, or resigns. The court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee served. a. qualifications: must have legal capacity (at least 18 and capacity to contract and execute a deed) |
|
|
Term
|
Definition
| removal: a court can remove a trustee or refuse to confirm an appointment (grounds for removal include: serious breach of trust, old age, habitual drunkenness, conflict of interest, etc. The basic factor considered is whether continuation in office would be detrimental to the trust.) |
|
|
Term
| Disclaimer or Resignation by Trustee |
|
Definition
| disclaimer or resignation by trustee: before acceptance, a trustee can disclaim or refuse appointment for any reason. However, a trustee cannot accept a trust in part and disclaim it in part. Once an appointment has been accepted, the trustee cannot resign without court permission, unless all beneficiaries consent or the trust provides otherwise. |
|
|
Term
|
Definition
| Trust Property: also called the res, corpus, principal, or the subject matter of the trust. To have a trust, legal title to a specific interest in property must be conveyed to the trustee. The subject matter of the trust must be certain and identifiable. If there is no trust property, there is no trust. a. existing interest in existing property: a future interest may be held in trust; an interest not yet in legal existence can’t b. segregation: the res must be identifiable and segregated, but the res may be a fractional or undivided interest c. indebted property: a debtor cannot hold his own debt in trust, but the debtor can declare himself trustee of particular property from which the debt is to be paid; and the debt can be held in trust by another person |
|
|
Term
|
Definition
Beneficiaries: a trust cannot exist without someone to enforce it. Thus, a beneficiary is necessary to the validity of every trust except charitable and honorary trusts. If a trust fails for lack of beneficiary, a resulting trust in favor of the settlor or his successors is presumed.
a. capacity: any person, natural or artificial, capable of taking and holding title to property can be a beneficiary of a private trust
b. indirect beneficiaries: not everyone who benefits from a trust is considered a beneficiary. The trust must operate directly to benefit the person.
c. notice to and acceptance by the beneficiary: notice is not an essential element. Lack of notice may indicate, however, that no trust was intended. Acceptance by the beneficiary is required, but can take place after a valid trust is created.
d. definiteness: there must be definite & ascertainable beneficiaries to have a private trust (not for charitable trusts)
i. unascertained beneficiaries: may be “definite” even though not yet ascertained (e.g. unborn beneficiaries). Beneficiaries must be ascertainable by the time their interests are to come into enjoyment.
ii. class gifts: if a private trust exists for the benefit of a class, the class must be reasonably definite
|
|
|
Term
|
Definition
| Lawful Purpose: if trust purpose is to further commission of a crime, or calls for the destruction of property, it is invalid as against public policy. Also, unlawful conditions are unenforceable. Must not totally restrain marriage. |
|
|
Term
|
Definition
| Inter Vivos Trust: can be either by transfer or declaration. The present intent required must be manifested by conduct (delivery) or words (declaring oneself trustee). Delivery means placing the trust property out of the settlor’s control (unless the settlor acts as the trustee, of course). a. Statute of Frauds: most states don’t require a writing for a trust of personal property. For land, however, a written instrument signed by the person entitled to impress the trust upon the property is commonly required under the Statute of Frauds. Note: an otherwise invalid oral trust of land may be enforced by imposing a constructive trust. b. Parol Evidence rule: most states allow extrinsic evidence where an ambiguity appears on the face of the writing |
|
|
Term
|
Definition
| Testamentary Trusts: (trusts made by will) Trust intent and the essential terms of the trust (trust res, beneficiaries, and trust purpose) must be ascertained from the will itself, from a writing incorporated by reference into the will, from facts having independent legal significance, or from the exercise of power of appointment created by the will. |
|
|
Term
| Characteristics of an Non-Express Private Trust |
|
Definition
| Characteristics of a non-express private trust (trusts arising as a matter of law—resulting trusts and constructive trusts): these trusts are implied by law or imposed by courts. Resulting trusts involve reversionary interests and are based on the presumed intent of the settlor. Constructive trusts are used to prevent unjust enrichment. |
|
|
Term
|
Definition
Resulting Trusts: three types—(1) PMRT; (2) Failure of an Express Trust; (3) Excess Corpus
1. Purchase Money Resulting Trust: presumed whenever the beneficiary furnishes the consideration (usually money) for the acquisition of real or personal property, but with the beneficiary’s consent, title is taken in the name of a trustee. Except:
a. no trust presumption when there is a close personal relationship between the parties
b. no trust presumption when there is an unlawful purpose
c. no trust presumption when the transferee obtained title wrongfully (e.g. fraud)
d. pro rata resulting trust: where beneficiary provides only part of consideration, he takes trust only in that portion
2. Resulting Trust on Failure of Express Trust: a resulting trust is implied where a settlor has conveyed property to a trustee under an express trust and (1) the trust is void or unenforceable; or (2) the beneficiary is dead or cannot be located.
3. Resulting Trust Implied from Excess Corpus: when the trust purpose is fully satisfied and some trust property remains.
|
|
|
Term
|
Definition
Constructive Trusts: not really a trust, but rather a flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct, such as fraud, undue influence, or breach of a fiduciary duty. Clear and convincing evidence is required.
1. Arising from Theft or Conversion: if trustee steals property from beneficiary, title remains in beneficiary. But if trustee uses the property to acquire other items, he takes title to the items and holds them in constructive trust for beneficiary.
2. Arising from Fraud, Duress, Etc.: where trustee acquires property from beneficiary by fraud, duress, mistake of fact, or be breach of a fiduciary duty owed to beneficiary, trustee holds the property in constructive trust for beneficiary’s benefit. If property is conveyed to a third party who is not a BFP, the 3rd party can be declared a constructive trustee.
3. Arising from breach of Fiduciary Duty: fiduciary’s duty forbids him from taking title to property belonging to a beneficiary and from seizing for himself an opportunity to acquire property that comes to him in his capacity as fiduciary. If he violates this duty, courts may impose a constructive trust in favor of the person to whom duty is owed.
4. Arising from Homicide: if trustee kills beneficiary and is convicted of murder or manslaughter, he holds any property acquired from beneficiary by will or intestacy as constructive trustee in favor of whomever would have taken the property had the trustee predeceased the beneficiary.
5. Arising from Breach of Promise: the general rule is that a mere breach of promise will not raise a constructive trust
|
|
|
Term
|
Definition
Charitable Trusts: differ from private trusts in 3 big ways: (1) must have indefinite beneficiaries; (2) may be perpetual; and (3) cy pres doctrine applies. The Charitable trust must have a purpose considered to benefit the public (e.g. poverty relief; advancement of education or religion; promotion of health; accomplishment of governmental purposes like parks and museums). A. Indefinite Beneficiaries: courts consider the community at large the beneficiary of a charitable trust. Duty of enforcement is on the State’s Attorney General. B. Perpetuity: a charitable trust may be perpetual. The Rule Against Perpetuities does not apply to the shifting of the beneficial interest in a trust from one charity to another on the happening of a condition. RAP does apply however, to shifts between private and charitable uses. C. Cy Pres: when a charitable purpose selected by the settlor is impractical, the court will select an alternative under the doctrine of cy pres, which means “as near as possible.” The court must find a general charitable intent on the part of the settlor and ascertain his primary purpose. |
|
|
Term
|
Definition
| Alienability: absent restrictions by statute or by the trust instrument, a beneficiary may freely transfer his interest in the trust. |
|
|
Term
|
Definition
| Involuntary Alienation: absent restrictions by statute or the trust instrument, an insolvent trust beneficiary’s creditors may levy on his beneficial interest. The interest is subject to judicial sale. |
|
|
Term
|
Definition
| Restraints on Alienation (Spendthrift Trusts): A spendthrift trust precludes the beneficiary from voluntarily or involuntarily transferring his interest in the trust, and his creditors are precluded from reaching it to satisfy their claims. The purpose is to protect the beneficiary from his own improvidence. Although a spendthrift trust is a restraint on alienation, most courts uphold spendthrift restrictions. Spendthrift trust clauses are valid except as to: (1) contracts for necessities; (2) child support obligations; (3) any interest retained by the Settlor; and (4) federal tax liens |
|
|
Term
|
Definition
| Discretionary Trusts: where a trustee is given discretion whether to apply or withhold payments to the beneficiary, the beneficiary’s creditors or assignees have the same rights as the beneficiary. They take only if the trustee exercises his discretion to pay, unless the beneficiary’s interest is also protected by a spendthrift restriction. A court will intervene where a trustee abuses his discretion. |
|
|
Term
|
Definition
| Support trusts: a support trust directs the trustee to pay only so much of income or principal as is necessary for the beneficiary’s support. The interest of the beneficiary cannot be assigned or reached by creditors. It is a question of the settlor’s intent as to whether the beneficiary’s other resources should be considered in determining the amount payable to him out of the trust fund. |
|
|
Term
|
Definition
| Power of the Trustee: a trustee has those powers expressly conferred by the trust instrument, state law, and court decree, plus all powers implied as are necessary or appropriate to accomplish the trust purposes. |
|
|
Term
|
Definition
| Duties of the Trustee: requires a standard of care and a prohibition against self-dealing 1. Standard of Care: trustee must exercise that degree of skill, care, and caution that would be exercised by a reasonably prudent person in managing his own property. If the trustee has greater or special skill, he will be held to that standard. 2. Duty of Loyalty: absent court approval or express waiver by the trust instrument, a trustee cannot enter into any transactions in which he is dealing with the trust in his individual capacity. A trustee owes a duty of undivided loyalty to the trust and its beneficiaries. Therefore, a trustee: cannot buy or sell trust assets; may not sell property of one trust to another trust; may not borrow trust funds nor loan his personal funds to the trust; cannot use trust assets to secure a personal loan; cannot personally gain through position as trustee; and cannot invest in its own stock. |
|
|
Term
| Modification and Termination of a Trust |
|
Definition
Modification and Termination of a Trust:
A. Power of Settlor: the power to revoke generally includes the power to amend. In most states, the settlor may not revoke or amend a trust unless he expressly reserved the right in the trust instrument.
B. Modification by Termination or Agreement of Beneficiaries: beneficiaries may compel modification or termination only when all consent, and the modification or termination will not frustrate any material trust purpose.
C. Termination by Trustee: trustee has no power to terminate the trust except as provided in the trust instrument
D. Termination by court: a court may prematurely terminate the trust where the trust’s purpose has become impossible or illegal or has been completed.
|
|
|
