Term
| Private express trust - definition |
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Definition
| A trust is a fiduciary relationship with respect to property whereby one person, the trustee, holds legal title to the trust property subject to the enforceable equitable rights of another, the beneficiary. |
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Term
| Private express trust - requirements |
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Definition
1) settlor must manifest an intent to create a trust
2) a trustee must be appointed
3) there must be a trust res, or property, in which the settlor has a presently existing interest
4) there must be a beneficiary to enforce the trust (any ascertainable person or group of people)
5) the trust must have a legal purpose, and cannot be contrary to private policy |
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Term
| Private express trust - intent |
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Definition
A settlor must intend for the trust to take effect immediately (present manifestation of trust intent).
Words of hope, wish, or suggestion that property be used in a certain way is presumed ineffective to create a trust, but can be overcome by
1) definite and precise directions
2) directions addressed to a fiduciary
3) a resulting "unnatural" disposition of property if no trust imposed
4) extrinsic evidence showing that settlor previously supported the intended beneficiary |
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Term
| Private express trust - trustee |
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Definition
| A trust must have a trustee, but the court will NOT allow the trust to fail solely because there is no trustee or a trustee refuses to serve. A court wil appoint a trustee. |
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Term
| Private express trust - trust purpose |
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Definition
| A trust purpose is invalid if 1) it is illegal, 2) its performance requires a criminal or tortious act, or 3) it is otherwise contrary to public policy by encouraging immorality. |
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Term
| Private express trust - condition attached to trust that is against public policy |
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Definition
If a condition is attached to an interest that is against public policy, the settlor's alternative desire controls if expressed.
If the illegal condition is a condition subsequent (makes trust illegal at time of creation), the condition is invalidated but trust is invalidated.
If the condition is a condition precedent (makes trust illegal after creation), a resulting trust is decreed based on the intent of the parties. |
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Term
| Charitable trust - differences from private trusts |
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Definition
1) a charitable trust must have indefinite beneficiaries
2) it may be perpetual, AND
3) the cy pres doctrine applies |
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Term
| Charitable trust - charitable purpose, beneficiaries |
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Definition
| A charitable trust must have a purpose to benefit the public, and the beneficiaries must be indefinite |
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Term
| Charitable trust - cy pres |
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Definition
| If a settlor manifests a general charitable intent, but the mechanism for effectuating that intent is not possible or practicable, the court can modify the mechanism "cy pres", as nearly as possible, to effectuate S's general charitable intent |
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Term
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Definition
| The RAP does not apply to a charitable trust if it shifts the beneficial interest in a trust from one charity to another |
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Term
| Private express trust - inter vivos trust - creation, present intent, delivery |
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Definition
A trust can be created either by a person declaring himself trustee for another or by the the transfer of property from another as trustee.
The present intent required must be manifested by conduct (delivery of deed or property) or words (declaring oneself trustee).
Delivery means placing the trust property out of the settlor's control (unless he is the trustee) |
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Term
| Private express trust - inter vivos trust - statute of frauds |
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Definition
| The Statute of Frauds require a writing signed by the person entitled to impress the trust upon the property. However, an oral trust of land may be enforced by imposing a constructive trust. |
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Term
| Private express trust - beneficiaries |
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Definition
| Beneficiaries of a private trust must be ascertainable by the time their interests are to come into enjoyment. A class that is to benefit must be reasonably definite. Extrinsic evidence can be used to ascertain beneficiaries. |
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Term
| Pour Over Trust - definition, theories |
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Definition
| A pour-over trust occurs where a testator devises all or part of his estate to a trustee of an inter-vivos trust. Courts have admitted such a trust instrument into probate – and thus effectuated its terms – under three theories: (1) acts of independent significance, (2) incorporation by reference, and (3) the Uniform Testamentary Additions to Trust Act (UTATA). |
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Term
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Definition
| Under the UTATA, a pour-over trust may be entered into probate by statute if (1) the trust is valid, and (2) the trust was executed before or contemporaneously with the trust instrument. |
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Term
| Secret trust - definition, parol evidence admissible? |
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Definition
A secret trust results when a gift is made in RELIANCE upon the beneficiary’s promise to hold the gift property in trust for another.
The will on its face makes a gift to A, but the gift is given on the basis of a promise by A to use the property for the benefit of B.
Parol evidence is admissible to prove |
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Term
| Secret trust - how to prove |
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Definition
| To prevent unjust enrichment of the named beneficiary, courts will allow the intended trust beneficiary to offer extrinsic evidence of the agreement. If the agreement can be proven by clear and convincing evidence, a constructive trust will be imposed on the named beneficiary. |
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Term
| Constructive trust - definition |
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Definition
| A constructive trust is an equitable remedy imposed by the courts when the retention of property by the defendant-wrongdoer would result in unjust enrichment or ill-gotten gain. |
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Term
| Constructive trust - return of property |
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Definition
| The wrongdoer serves as a “trustee” and must return the property to the intended beneficiary. |
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Term
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Definition
An honorary trust is a trust
1) with no ascertainable beneficiary, and
2) confers no substantial benefit on society |
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Term
| Honorary trust - when will courts uphold |
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Definition
| Courts will uphold honorary trusts as long as the named trustee is WILLING to perform her duties. If trustee fails because she is not willing, a resulting trust is imposed. Honorary trusts frequently violate RAP |
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Term
| Totten trust - characteristics, fiduciary duties |
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Definition
| A Totten trust is a tentative bank account, whereby the beneficiary takes whatever is left in the bank account at the death of the owner. Depositor/trustee owes NO financial duties to beneficiary, unless the trust is elevated to a private express trust through manifestation of trust intent. |
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Term
| Alienation - voluntary, involuntary |
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Definition
The beneficiary of a private trust can voluntarily alienate (transfer) his interest in property.
Creditors can involuntarily alienate a beneficiary's right to property (e.g., attch or seize a beneficiary's right to future payments) |
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Term
| Spendthrift trust - definition |
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Definition
| A spendthrift trust prevents the beneficiary from voluntarily or involuntarily transferring his interest in the trust, and creditors are prevented from reaching it to satisfy their claims. The purpose is to protect a beneficiary from his own improvidence. |
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Term
| Spendthrift trust - how to recognize in terms |
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Definition
| "No beneficiary of this trust shall be allowed to voluntarily transfer his right to future payments, and no creditor shall be allowed to attach any beneficiary's right to future payments" |
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Term
| Spendthrift trust - voluntary alienation - exception |
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Definition
| Sometimes a court will recognize an assignment on the ground that the beneficiary merely has given the trustee a direction or order to pay the beneficiary's agent or representative (the assignee). |
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Term
| Spendthrift trust - involuntary alienation - exception |
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Definition
| Many states allow certain classes of creditors to attach the beneficiary's right to future payments - IRS, those providing B's necessities of life, child support, alimony |
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Term
| Spendthrift trust - settlor creates spendthrift trust for himself |
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Definition
| A spendthrift provision is invalid if the settlor is the beneficiary (the settlor cannot protect his own retained interests from his creditors) |
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Term
| Support trust - definition, terms |
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Definition
Trustee is required to use only so much of the income/principal as is necessary for B's health, support, maintenance, or education
The terms must manifest this intent |
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Term
| Support trust - rules of alienation |
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Definition
| Same as spendthrift trust |
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Term
| Discretionary trust - definition |
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Definition
| Trustee is given full, sole, and absolute discretion in determining how much to pay the beneficiary (if anything) and when to pay the beneficiary (if ever) |
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Term
| Discretionary trust - voluntary alienation |
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Definition
| Argue both ways: B cannot voluntarily transfer because she may not be paid anything, but if there was an assignment the assignee steps into the shoes of the B and the trustee must pay the assignee if he chooses to pay |
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Term
| Discretionary trust - involuntary alienation |
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Definition
| Argue both ways: creditors cannot attach the beneficiary's rights to future payments because there is nothing to attach, BUT if the trustee has notice of the debt and the creditor's judgment against the beneficiary, and the trustee does decide to pay, they must pay the creditors |
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Term
| Resulting trust - definition, effect |
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Definition
A resulting trust is an implied in fact trust and is based upon the presumed intent of the parties.
If a resulting trust is decreed by the court, the resulting trustee will transfer the property to the settlor if the settlor is alive, and if not to the settlor's estate (residuary devisees, heirs) |
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Term
| Resulting trust - when private express trust fails - situations |
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Definition
1) private express trust ends by its own terms and there is excess corpus, is void (becomes illegal)
2) beneficiary is dead or cannot be located
3) charitable trust where cy pres is inapplicable (no general charitable intent) |
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Term
| Resulting trust - purchase money resulting trust - definition, presumptions |
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Definition
A pays consideration to B to have title to property transferred to C.
1) If A and C are not closely related, there is a rebuttable presumption that C is holding as a purchase money resulting trustee for the benefit of A
2) if A and C are closely related, there is a rebuttable presumption that A simply made a gift to C (no trust presumed!) |
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Term
| Resulting trust - semi-secret trust |
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Definition
A semi-secret trust arises when the will makes a gift to a person to hold as trustee, but does not name the beneficiary. The court typically decrees a resulting trust.
This is different from a secret trust, where the courts allow parol evidence to establish the identity of the beneficiary. |
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Term
| Constructive trust - situations in which it can occur |
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Definition
1) self-dealing - trustee of a private express trust or a charitable trust makes a profit at the expense of the beneficiaries because of self-dealing
2) fraud in the inducement or undue inflience
3) secret trust
4) oral real estate trust |
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Term
| Constructive trust - obligation of trustee |
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Definition
| The sole obligation of the trustee is to transfer the property to the beneficiary |
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Term
| Constructive trust - oral real estate trust - example |
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Definition
S says to A "If I transfer Blackacre to you (A) by deed, will you hold Blackacre for the benefit of B?"
If B claims property, A can raise SoF as a defense to keep the property for himself |
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Term
| Constructive trust - oral real estate trust - when does SoF not defeat? |
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Definition
1) fiduciary relationship between settlor and trustee
2) fraud in the indicement by trustee
3) detrimental reliance by beneficiary |
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Term
| Trustee duties - standard of care, trustee of greater or special skill. |
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Definition
| A trustee must exercise that degree of care, skill, and caution that would be exercised by a reasonably prudent person in managing her own property. If the trustee has greater or special skill, they will be held to a higher standard. |
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Term
| Trustee duties - duty of loyalty - general definition |
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Definition
| A trustee owes a duty of loyalty to the beneficiaries not to engage in self-dealing. He must have no other consideration besides the beneficiaries in mind. |
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Term
| Trustee duties - duty of loyalty - consequences of breach |
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Definition
| If a trustee makes a personal profit, the trustee must disgorge the ill gotten profits |
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Term
| Trustee duties - duty of loyalty - no further inquiry rule |
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Definition
| If the trustee engages in self-dealing, the trustee will be personally liable for losses, and the trustee's good faith and reasonableness of the transaction are irrelevant. |
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Term
| Trustee duties - duty to make prudent investments - state list approach |
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Definition
| Under the state lists approach, in the absence of specific directions in the trust, the trustee must follow a list of good investments. |
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Term
| Trustee duties - duty to make prudent investments - common law prudent person test |
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Definition
| Under the common law prudent person test, each individual investment is scrutinized to determine whether the trustee acted as a reasonably prudent person investing his own property, and trying to maximize income while preserving the trust res. |
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Term
| Trustee duties - duty to make prudent investments - good and bad investments |
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Definition
Good: govt bonds, govt CDs, blue chip stocks
Bad: investments in a new business, second deeds of trust in real estate |
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Term
| Trustee duties - duty to make prudent investments - uniform prudent investor act - how investments evaluated |
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Definition
1) each individual investment is not scrutinized
2) instead, performance is measured in the context of the entire portfolio |
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Term
| Trustee duties - duty to make prudent investments - uniform prudent investor act - factors in evaluation |
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Definition
At the time of trustee's decision, evaluate
1) general economic conditions
2) effects of inflation or deflation
3) tax consequences
4) role each investment plays
5) expected total return from income and appreciation of capital
6) other resources of the beneficiaries
7) needs for liquidity, regularity of income |
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Term
| Trustee duties - duty to invest - duty to diversify |
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Definition
| The trustee owes a duty to the beneficiary to diversify trust investments, and not to speculate in high risk investments |
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Term
| Trustee duties - duty to earmark - definition |
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Definition
| The trustee has a duty to earmark assets by keeping them physically separate from the trustee’s personal assets and from other trusts. |
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Term
| Trustee duties - duty to earmark - result of loss |
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Definition
| Modern view: If there is a failure to earmark and there is a loss, the trustee is held liable ONLY IF the loss was caused by the failure to earmark |
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Term
| Trustee duties - duty to segregate (not commingle funds) - definition, presumption |
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Definition
The trustee has a duty not to commingle trust funds with the trustee’s personal property. This protects against the trustee’s person creditors attaching trust property.
Where there is commingling, the court will presume that personal funds are expended before the trust funds. |
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Term
| Trustee duties - duty not to delegate |
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Definition
| The trustee can rely on professional advisors in reaching a decision, but the trustee cannot delegate decision-making authority to these advisors |
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Term
| Trustee duties - duty to account |
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Definition
| trustee must give beneficiaries a statement of income and expenses of the trust regularly |
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Term
| Trustee duties - duty to allocate between income and principal (Uniform Principal Income Act) - trust income, principal |
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Definition
| Generally, trust income is paid to the life tenant, while trust principal is reserved for the remaindermen. |
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Term
| Trustee duties - duty to allocate between income and principal - cash dividends, stock dividends, capital gains - traditional, (Uniform Principal Income Act) |
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Definition
Traditionally, cash dividends on corporate stock is treated as income and paid to the life tenant, while stocks dividends and capital gains are allocable to the remainderman.
However, under the Uniform Principal & Income Act, the trustee has adjustment power to reallocate investment portfolio return to carry out the trust purposes and the allocation is FAIR and REASONABLE to all beneficiaries. |
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Term
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Definition
| Traditionally, cash dividends on corporate stock is treated as income and paid to the life tenant. While stocks dividends and capital gains are allocable to the trust principal. However, under the Uniform Principal & Income Act, the trustee has adjustment power to reallocate investment portfolio return to carry out the trust purposes and the allocation is fair and reasonable to all beneficiaries. |
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Term
| Liability of trustee to 3rd persons - liability in contract - |
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Definition
| A trustee is personally liable to 3rd parties on contracts unless the contract specifies otherwise, but is entitled to indemnification fro the trust if the contract was within her powers and she acted with reasonable prudence |
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Term
| Liability of trustee to 3rd persons - liability in tort |
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Definition
| A trustee is personally liable for torts committed in the course of the trust administration, including those committed by the trustee's agents. There is indemnification only if the trustee was not personally at fault and the tort occurred as a normal incident to activity in which the trustee was properly engaged. |
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Term
| Trust - modification by settlor - when he has the power |
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Definition
A settlor can modify trusts if he
1) expressly reserves the power, or
2) if he has the power to revoke |
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Term
| Trust - modification by court |
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Definition
| A court may authorize a derivation from the administrative terms where necessary to achieve the trust purpose because there was 1) unforeseen circumstances, or 2) necessity to preserve the trust |
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Term
| Trust - modification or termination by agreement of beneficiaries |
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Definition
| Beneficiaries may compel modification or termination only when ALL consent, and the modification or termination will NOT frustrate any material trust purpose. |
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