CA Trusts

Methods of Creation

Created only if sttlor properly manifests and intent to create - Created by the following methods:

1. declaration by owner that the owner holds the propery as trustee

2. transfer of property by owner during owner's lifetime to another as trustee

3. testamentary transfer by the owner to another person as trustee

4. execise of power of appointment to another as trustee

5. an enforceable promise (contract) to create a trust

Consideration is not required to create a trust

Voluntary trust: created without consideration, either by the declaration or transfer

- must be a completed transfer of legal title

Contract: A promise to create a trust in the future requires consideration and other requirements for an enforceable contract

A trust that fails for lack of a present trust res will spring into existence when the settlor later acquires such property if there was a contract to create a trust, but not if a voluntary trust

Trust created by terms of the will must be executed with the formatilities required for wills, amended only by coldicil

Permissible for a will to pour over property into an inter vivos trust even though the trust was not formally executed

CA Trusts

Required Elements

Elements required for the present creation of a private express trust:

1. capacity

2. intent expressed with appropriate formalities

3. trust property (the trust res)

4. identifiable beneficiary

5. proper purpose

CA Trusts

Required Elements: Capacity

Creation of a trust requires testamentary capacity and freedom from fraud, undue influence, or mistake that would vitiate all or part of a will

Creation of an inter vivos trust requires present capacity to convey the trust res

CA Trusts

Required Elements: Intent

Essential that the settlor hae intent to create the trust and properly manifests this intention

- Must intend to create the trust at the present time; cannot be conditioned on some future event; must be a present trust res and present ascertainable beneficiaries

- Language such as wish, hope, request or desire does not create a trist

- Must be created by a formally executed writig satisfying the statute of wills

- Inter vivos trust may be created orally if only involves personal property; existance must be proved by clear and convincing evidfence, settlor's oral declaration not sufficient proof

CA: Express trust in land must be manifested or proved by a writing signed by the settlor while he hiolds title; oral trust in land is voidable only by the trustee

CA Trusts

Required Elements:Trust Property (res)

Trust property must be specific identifiable property that the settlor had a present right to convey at the creation of the trust

- Must be clearly described or capable of being ascertained with certainty

- Must be an alienable interest - cannot be created in a nontransferable tort claim

- Must be in existance

- May be a contingent interest but not a mere expetancy

- Contingent interest may consist of a patent, debt or an expectancy of life insurance proceeds

CA Trusts

Required Elements:Identifiable Beneficiary

There are no present beneficiaries if the only designation is of "heirs" who are not ascertainable until the settlor's death

Settlor may designate a class of persons if the class is definite and ascertainable, such as "my children", but not "my friends"

Beneficiary or class must be sufficiently described so it can be determined whether a person meets the description or is in the class

CA Trusts

Required Elements:Trust Purpose and Failure

A private express trust can be created for any purpose that is not illegal or contrary to public policy

A trust will not be enforced if it was given for illegal consideration, if it would involve the commision of a criminal or tortious act, or was created to defraud creditors

A trust will not fail for lack of a trustee unless the settlor specifies that the existance od the trust is dependent on acceptance by the named trustee

CA Trusts

Chartiable Tursts: Generally and Beneficiaries

Favored by the law, liberally construed and are exempt from some of the restrictions that apply to private express trusts

May be created by any of the methods of creating an express trust and there must be a settlor with capacity to convey, property expressed intent, and a specific trust res

In order to qualify as charitable, there must be a public benefit, so the persons to be benefited must be members of an indefinite class

CA Trusts

Chartiable Tursts: Purpose

Must have a purpose that is recognized by the law as charitable

- Include furtherance of health, religion, education, governmental establishments such as parks, museums, releif of poverty or discrimination

A gift in trust for such charitable purposes as the trustees may select is a valid charitable trust

Cy Pres Doctrine: a court may apply the gift to another charitable purpose as near as possible to the settlor's original intent, if the original purpose has been accomplished, can no longer be accomplished, and the settlor manifested a more general intent to devote the property to charity

CA Trusts

Chartiable Tursts: Duration/Power of Enforcement

Rule Against Perpetuities applies to contingent gifts to charity, except where a valid gift to a charity is followed by a possible remote gift over a second charity

Duty of enforcing rests solely with the state Attorney General, neither settlor nor member of the community who might benefit may bring suit to enforce

CA Trusts

Spendthrift Trusts

CA: Settlor may create a spendthrift trust, prohibiting anticipatory transfer of the beneficiary's interest in income or principal and making the trust fund not reachable by creditors

- Outside of CA, it is against public policy to prohibit only involuntary alienation (i.e., attachment by creditors)

CA: a spendthrift trust created for one's own benefit is valid, but the restraint against transferees and creditors is invalid

- Outside of CA, the law does not allow creation of a spendthrift trust for one's own benefit

Spendthrift provision will not bar claims of creditors for necessaries supplied to the beneficiary or his family

Once a beneficiary receives a distribution from a spendthrift trust, his creditors may reach that distribution

CA Trusts

Trust Administration: Powers of Trustee

Powers of trustee are generally established by the trust instrument and statutes

May also have implied powers that are necessary to administrate the trust and not prohibited by law or the terms of the trust

CA: Trustee may continue the operation of the settlor's business for a reasonable time pending sale or wind-up

- Otherwise, the trustee may continue a business as part of the trust property only if expressly authorized by the trust instrument or court

Trust instrument may dictate how expenses and accretions should be apportioned between income and principal of the trust

Generally, pay ordinary expenses from income and extraordinary expenses and those solely beneficial to the remainder out of principal

CA Trusts

Trust Administration: Duties of Trustee - Generally

Trustee is a fiduciary who owes a duty of loyalty and utmost good faith

- Duty of loyalty extends equally to life tenants and remainderman

- Must avoid conflicts between his own interests and those of the trust, must not enter into transactions with the trust in his individual capacity, unless authorized to do so by the trust, receives permission from the court, or from all beneficiaries

If the trustee purchases property in his individual capacity that he should have purchased for the trust, the beneficiaries can compel the trustee to hold the proprty in a constructive trust

CA Trusts

Trust Administration: Duties of Trustee - Duty of Care

Trustee is required to exercise reasonable care and the full extent of his skills in managing the trust

A trustee that represented himself as having special skills on which the settlor relied has a duty to exercise them and will be held to a higher standard

- Not strictly liable for his mistakes in judgment as long as he exercises the required standard of care

- Settlor may expand or restrict the reasonable care standard by express provisions

- Separate standards aply to investment decisions

- Provisions to lower the trustee's standard of care are valid, but may not excuse breaches made in bad faith

CA Trusts

Trust Administration: Duties of Trustee

Delagation of Duty

Duty to Make Property Productive

Duty to Invest

Trustee may not delegate the performance of his duties unless purely administrative or the trust grants such permission

Duty to hold and preserve trust res against loss or waste

Trust property should be labeled amd should not be comingled

A constructive trust will follow trust res comingled or wrongly used

Trustee has a duty to invest or otherwise make trust property productive and must observe the "prudent investor" rule

CA Trusts

Trust Administration: Duties of Trustee

Duty to Account

Liability to Third Parties

Duty to account for the trust res

- Purpose is to show how the trust has been adminstered and to help determine any amounts the trustee should be held personally liable

Trustee is personally liable to third parties for torts, contract claims, and claims arising from ownership of property

CA: Trustee is NOT personally liable for contracts properly entered into in his fiduciary capacity unless he fails to reveal his representative capacity and the identity of the trust

Trustee is personally liable for torts of the trustee is personally at fault - thus a creditor may impse liability directly on the trust assets without having to furst impose liability on the trustee

CA Trusts

Termination of Trusts

A trust must terminate when any of the following occurs:

1. trust term expires

2. trust is revoked

3. trust purpose is fulfilled, becomes impossible or unlawful

Upon termination, the trustee continues to have powers reasonably necessary to wind up the affairs

CA Trusts

Termination of Trusts: Revocation by the Settlor

Generally: trust is irrevocable and cannot bve terminated except by its own terms, unless the power to terminate was expressly retained by the settlor in the trust instrument

CA: A trust is revocable unless expressly may irrevocable (minority)

- If a trust is created by more than one settlor, each may revoke the portion of the trust he contributed

CA: Allows revocation by writing, other than a will unless the method of revocation in the trust is explicitly made the exclusive method

CA Trusts

Termination of Trusts: Termination by Beneficiaries After Settlor's Death

After the settlor has died, courts are reluctant to terminate an active trust if that would interfere with the settlor's intent

Traditional Rule: after settlor's death, trust will not be terminated until its stated term expires or the purpose is accomplished even though all beneficiaries approve of such termination

CA Rule: the beneficiaries of an irrevocable trust may compel modification or termination upon petition to the court if all beneficiaries consent

CA Trusts

Termination of Trusts: Termination by Trustee

CA: A trustee alone has the power to terminate a trust if the principal does not exceed $20K, even if the trust contains provisions restricting transfer of the beneficiary's interest

Generally, a trustee who is not the sole beneficiary may not unilaterally terminate a tust without consent of all beneficiaries and then only if the court determines the purpose has been accomplished or is no longer valid