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An arrangement under which trustee holds legal title to property for the benefit of beneficiaries. Trustee has burdens and benef. has benefits of property ownership. Trustee is held to fiduciary standards and not free to use trust property as his own.


Requires a Creator/settlor to deliver (unless self-declared trust) legal title of trust assets to trustee for benefit of beneficiaries with intent to create trust fora valid purpose.

a. Language cannot be precatory unless so specific that it makes intent clear.

b. Forfeiture conditions are good unless they restrain marriage, encourage divorce, commission of a crime, procreation rights, or religious rights.

Requirement of Trust Property

Trust must contain specific interest in property that is certain and identifiable.

a. Cannot declare self trustee of a debt owed to another, but can declare self trustee of a debt owed to you  (account receivable)

b. Cannot declare self trustee of an expectancy interest. When expectancy interest vests, previously declared trust does not vest unless sometime after that time person reaffirms intent by word or conduct.

1. Exception: promise to hold expectancy interest in trust is supported by consideration.

c. Can declare self trustee of a legacy interest that has vested but has not been distributed or ascertained yet.

d. Cannot make trust regarding future interests (stock dividends, etc), but can if you attach it to current interests ("all stock I now own, to pay all cash and stock dividends therefrom....).

e. Can make a trust in property interest (i.e. contingent remainders).

f. empty trusts are valid if the trustee is named the direct benefic. of a life insurance policy or pension plan death benefit or a will.

Private Trusts and Ascertainable Beneficiares

Opposite of charitable trusts (charitable purpose for a large and unidentifiable segment of public at large), Trust must have ascertainable beneficiaries.

1. Invalid for want of definite beneficiaries cannot be given effect as power of appointment because a trustee is under obligation to perform while a POA is not. The property is returned to Settlor's estate by resulting trust (implied reversion)

a. There is a minority view in AZ so the POA argument should be made.

2. Watch out for charitable purposes. Do not have to be identifiable.

3.Beneficiaries can be contingent, because if it never vests, trust property returns by implied reversion (resulting trust).

4. Honorary trusts (beneficiary is a pet or for the care of graves) are valid for lifetime of animal or 90 years for graves, and unused money is returned by resulting trust.

Pour-over wills, Revocable Trusts and Bank Account Trusts

Pour-over wills:  A will that devises interest to a trust is valid so long as trust is identified in will and its terms are set out in a written instrument, to be executed at any time. Includes amdendments to the trust after the will has been executed, even if such amendments are not executed with testamentary formalities.


Revocable Trusts

1. Sole beneficiary cannot be sole trustee

2. Valid even though settlor retains right to revoke, alter, or amend, keeps an interest as beneficiary, retains POA over trust or retains every day control over the trust by either naming herself as trustee or by retaining veto power over trustee's decisions.


Bank Account Trusts (Totten Trust): Revocable during life by any manifestation of intent to revoke, including withdrawals. Reachable to depositor's creditors during life and after death in Arizona. Majority rule is that Totten Trust will be revoked by depositor's will. AZ says no. Totten Trust automatically revoked if beneficiary predeceases Depositor.

Oral Promise to Hold in Trust (Inter Vivos Trusts)

Inter-vivos Trust: Revocable trust created while Settlor is still alive


Oral trusts of personal property are enforceable. However, trusts containing land must be evidenced by S of F Unless:

1. person who is given deed orally promised to serve as trustee and ha had, at that time, no intention to perform his promise.

2. Grantee-Trustee served in confidential relationship to grantor-settlor. Rationale is that equity's concern that one would take advantage of a confidential relationship to enrich himself outweighs S of F. But Grantee-Trustee must have agreed to hold property in  trust.

If either of these 2 can be proven, then person will be entitled to a constructive trust, which is imposed to prevent unjust enrichment.

Oral Promise Supported by Consideration To make Devise in Will

If it is for land, Can only get Quantum Meruit (Value of services) and agreement is not enforceable. Will must either contain agreement or reference to K.


If agreement was written, beneficiary can get property via constructive trust.

Testamentary Trusts

Arises upon death of Settlor and is contained in the Will.


1. In a situation where the will leaves a devise to beneficiary and B alleges that T orally told B that beneficiary was to hold the land as a trustee for B's benefit, and that beneficiary agreed to serve as trustee, B will be able to enforce the promise as a constructive trust if she can prove it. 


2. If Trust is devised in will with oral agreement as to beneficiaries (To my good friend sam, as trustee, for purposes I have already communicated with him), and Sam is willing to identify T's purposes, Then:


Rest. Trusts: Imposes constructive trust.


Majority rule: Sam holds on a resulting trust for T's heirs. Semi-secretness violates requirement that beneficiaries be identifiable.

Charitable Trusts

*Not subject to RAP.

1. Must be for a charitable purpose and a reasonable mechanism for policing purpose.

2. Must be in favor of a reasonably large number of unidentifiable beneficiaries.

3. When specific charitable purpose becomes unlawful, impracticable, wasetful, or impossible, court can reform via cy pres and pick a charitable use as near as possible to original one


Equitable Deviation (Trusts)

Courts will deviate from trust terms because of changed circumstances if it can be shown that 

1. Primary purpose

2. Specific instructions related to purpose

3. Changed circumstances make adhering to specific instructions frustrating to primary purpose.

Alienability and Creditor's rights: Spendthrift and Support Trusts

1. Beneficiary can sue and get order compelling T to pay or to get T removed in the event of a falling out.

2. Beneficiary of trust can sell income interest, but as a practical matter won't find anyone willing to buy it (too risky)

3. Creditors of Beneficiary have no right to get actual assets. Can get court order from T to distribut to creditor first


4. Spendthrift Trust:  "No interest of any beneficiary herin shall be assignable by such beneficiary nor shall it be subject to the claims of the beneficiary's creditors."

a. Valid, and creditors won't be able to do anything regarding the trust. Exceptions:

1. Claims for necessities 

2. Alimony or child support

3. Claims by US or state

4. When T fails to make a required distribution in a timely manner.

b. Spendthrift clauses are unenforceable as to creditor's rights against settlor when Settlor transfers interest into a revocable inter vivos trust in which he is a beneficiary, and creditors can even reach actual trust property if the trust is revocable OR trustee has discretion to make distributions to settlor.

c. As to irrrevocable trusts for third persons, Settlor's creditors have no rights.


Discretionary Support Trusts: T has duty to support beneficiary if beneficiary cannot support himself to the extent necessary, but presumption that T doesn't have to if beneficiary can. T shouldn't support a luxury expense.


Pure Discretionary Support trusts: T with total authority to distribute in good faith.

a. Exception: Child support


*Trust property can be set aside if created initially with intent of defeating known creditors.

Duty of Loyalty: Self Dealing (Trustee)

1. Trustee cannot buy or sell trust assets to itself.

2. Trustee cannot borrow trust funds

3. Trustee cannot sell assets from one trust to another trust

4. Corporate Trustee cannot purchase its own stock as a trust investment.

5. Cannot engage in any transaction in which she seeks to secure a personal gain.


*This is a fiduciary duty and breach is an automatic wrong. Good faith or reasonableness is not a justification.

Duty to Invest Prudently (Trustee)

A trustee must manage property as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust and by pursuing an overall investment strategy reasonably suited to the trust. Must adhere to a standard of reasonable care, skill, and caution in making investment decisions.

1. Duty to keep trust productive

2. duty to balance return with potential risk

3. Duty to diversify investments

4. Duty not to commingle.

*Fact taht one or more assets are underperforming is ok as long as Total return of overall portfolio is reasonable.

Other Trustee Duties: Preserve and protect trust property,  Impartiality, account and inform.

Duty to Preserve and protect: Insure against casualty losses


Duty of impartiality: fair and impartial to all beneficiaries absent trust stating otherwise


Duty to account and inform: account periodically to beneficiaries and keep them reasonably informed.

Power of Trustee and Successor Trustee

Absent any provisions, Arizona Trustees Powers Act gives trustee authority to do virtually anything that a fee simple owner can do: take stock, invest in common trust funds (not a breach for commingling),etc. 

1. If more than one trustee, can act by majority rule.

2.  if more than one trustee, Do not need to replace a trustee unless trust requires it

Trustee liability for breach of trust, torts and contracts

Breach of Trust: whenever trustee breaches Fiduciary duty (automatic wrong), beneficiary can:

1. Ratify the transaction and waive the breach.

2. Sue for resulting loss (surcharge). 

3. in self-dealing case, can trace and recover property for the trust, including any increased value.


Tort: Third party may sue trust estate (trustee in his representative capacity) for torts committed by the trustee or his agent. T not personally liable unless personally at fault. If the trust is sued, beneficiaries may surcharge the trustee.


K: Same general rules apply, but T must sign K as T if he does not want to be personally responsible. ultimate responsibility falls on Trustee individually if contract was a breach of trust, and on the trust if it was not.


*Each breach is judged separately

-ratify good outcomes

-Surcharge bad outcomes

*Replacement Ts must mitigate discovered problems to avoid liability.

*Trustee may delegate investment decisions provided that the trustee exercises reasonable care, skill and caution in selecting an agent, defining scope and terms of delegation, and periodically reviewing agent's actions.

*As long as trust is revocable, a trustee who acts with consent of Settlor cannot be sued for breach by beneficiaries.

Trust accounting (Income v. Principal)

The income beneficiaries get the net income while remaindermen are entitled to trust principal at termination of the trust. Thus, items of receipts and expenditures must be allocated to correct account.


Recepits: Interest, rents, dividends on stock paid in cash are income. So too is 10% of any amounts received as an annuity or mineral royalty. Proceeds from teh sale of trust assets, stock splits, and dividends paid in stock are principal.


Expenditures: Ordinary expenditures incurred in the production of income (repairs, interest, taxes) are charged to income account. Extroadinary items, capital improvements and income taxes incurred on sale of trust property are charged to principal.


*Trustee has power to adjust normal classification rules if it is necessary to comply with Trustee's duty of impartiality.

Modification, termination and Reformation of Private Trusts

1. Settlor, acting alone, can revoke, terminate or modify a trust if the instrument does not explicitly state that the trust is irrevocable, and the settlor substantially complies with all provisions in the trust instrument pertaining to the form that the proposed action must take.


2. Benef. can terminate or modify if all benefic. consent and continuance of trust is not necessary to achieve material purpose of trust.

a. Spendthrift clause normally makes trust indestructible, but can be terminated if settlor also consents.

3. Court may modify the administrative or dispositive terms of a trust or terminate the trust if, because of circumstances not anticipated by the settlor, such action will further the purpose of hte trust.

4. Court may modify if continuation would be impracticable or wasteful or would impair trust's administration.

5. Court may reform to remedy a mistake of law or fact or to effectuate settlor's tax objectives.

Trusts imposed by operation of law: Resulting and Constructive Trusts

Resulting Trusts: May arise upon failure of express trust or when express trust purposes accomplished and assets not exhaused.

a. Semi-secret case under Majority Rule

b. Trust fails and trust silent as to what happens in this event.

c. A sale or exchange by a trustee of a resulting or constructive trust to a BFP for value cuts off beneficiary's rights to transferred asset. But, Trustee holds any consideration received on transfer in trust for beneficiary and if the sale is not to BFP, benefic has a choice of imposing trust on consideration or imposing trust on original asset (purchase money resulting trust)


Constructive Trusts: Implied in a variety of circumstances where a person acquires title to property wrongfully. Trust is implied to remedy unjust enrichment.

a. Title to property acquired by fraud, misrepresentation, duress, or mistake.

b. Oral trust of land under limited circumstances

b. Secret trust case

c. semi-secret trust case under view of restatement.

Powers of Appointment

General Testamentary Power: Not limited in the class of benef. to who POA can appoint, and includes herself, her estate or the creditor of either (To B for life, and on her death to distribute the trust to such persons, including B's estate, as she appoints by her last will.)


Takers in Default: people who will take if B does not exercise POA.


Special Testamentary POA: Limited to who B can choose, and can't choose herself


1. POA must mention POA in will if there is an explicit taker in default described. Presumptively a generic reference is specific enough, but can try and prove that B did not know she had POA.

2. Personal creditors of POA cannot reach property in Trust because POA does not own it.

3. Anti-Lapse statute applies to specific appointments ("To such of B's children as she shall appoint by will." B's child dies, leaving B1.)

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