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Trusts (BAR)
N/A
40
Law
Professional
07/17/2012

Additional Law Flashcards

 


 

Cards

Term
What is a trust?
Definition
A fiduciary relationship where a trustee holds legal title to property under a fiduciary duty to manage, invest, and administer the trust assets and income for the designated beneficiaries who have equitable title.
Term
Parties in a trust
Definition
-Grantor/Settlor/Trustor = puts together trust.
-Trustee = manages, invests and administers the trust assets. Have to maximize value of property
-Beneficiaries = have equitable title and receive the donative/commercial transfer from the settlor. They have the right to sue trustee if the trust is not being handled properly or if it’s not furthering their interest. Sometimes, the settlor can be a beneficiary.
Term
Can trustee creditors come after the property in the trust?
Definition
No, unless the trustee is also the settlor (cant hide from creditors)
Term
What is needed to create a trust?
Definition
1) Intent
2) Purpose
3) Res
4) Trustee
5) Ascertainable beneficiary
Term
Intent of a trust
Definition
Intent during lifetime or at death to create a trust relationship with the property (intention to create duties of a trustee and obligation to care for it)
Term
Purpose of a trust
Definition
To benefit a beneficiary
Term
Res
Definition
Property; if there’s no res, no trust. It must be identifiable and segregated (must be kept separate). Note: Future earnings can be res but only if those are documented in an existing contract. In case where testator declared expected profits to go to wife after the trade, the court held it’s not a trust until there was property. Not until the stock was traded and generated profit was a trust created.
Term
Trustee
Definition
Named trustee or a court can assign a trustee. A trust will never fail if there’s no trustee.
Term
Ascertainable beneficiaries
Definition
A trust needs someone to enforce it. Private trusts are enforced by beneficiaries. They must be ascertainable at the time an interest matures. Class must be sufficiently definite.
Term
Exception for when the beneficiary class does not have to be sufficiently definite:
Definition
Charitable and honorary trusts
Term
Who can be a beneficiary?
Definition
Anyone who is capable of taking and holding title to property can be a beneficiary. An unincorporated association cannot take title but a corporation can be a beneficiary. A child or incompetent beneficiary must have property administered.
Term
Do beneficiaries need to receive notice?
Definition
No
Term
Do beneficiaries have to accept the transfer?
Definition
Yes, a trust cannot be forced upon a beneficiary without acceptance. A beneficiary must renounce or disclaim the benefit.
Term
What if there are unascertained beneficiaries in a trust?
Definition
Must be able to identify beneficiaries by the time their interests come into enjoinment.

Description must satisfy statute of wills or statute of frauds and may be incorporated by reference or by acts of independent significance.
Term
What if there are no beneficiaries (either not sufficiently described or died)?
Definition
The trust fails and property reverts to the settlor. If settlor is dead, then the property goes to his/her estate.
Term
Pour-over
Definition
Trust is identified in the will. The terms of the trust trusts exists separately from the will. The trust already exists.
Term
Secret trust
Definition
Gift made in reliance of a promise to hold property in trust for another. Trust doesn’t exist on face of will but courts will impose a constructive trust to give effect to gift. (a remedy to prevent fraud or unjust enrichment)

Constructive trust – trustee holds trust for beneficiary
Term
Semi-secret trust
Definition
Gift to person to hold in trust but does not name a beneficiary. Trust ends and we presume the settlor wants the property back (resulting trust)
Term
Honorary Trust
Definition
Trust that is not for charitable purposes and has no private beneficiaries with standing (i.e pets, graves) This exists when someone agrees to take on responsibility for caring for pet or other things. It’s up to named Trustee to carry out terms and if they are not willing to do so, trust fails.
Term
Spendthrift trust
Definition
A settlor wants to provide for the support of another and can impose conditions for that gift. A trust is a conditional gift so the donor can impose conditions. Beneficiary cannot transfer interest & creditors cannot reach (Except for alimony, child support, tort & government creditors). The trust is created to provide for maintenance of a beneficiary. Once income is paid out, creditors can attach. Beneficiary can assign his interest to another party but neither the beneficiary nor the assignee of the beneficiary can compel the trustee to pay. Spendthrift trusts do not protect a settlor who is also the beneficiary. Spendthrift trusts are subject to claims of dependents, gov’t and persons supplying necessities. Some states allow tort creditors.

Examples:
-Discretionary trusts (discretion to apply and distribute payments)
-Support trust (required only to pay as much of the income or principal that is necessary for support of beneficiary)
Term
Charitable trusts
Definition
For the benefit of a charitable purpose. It should advance a purpose that benefits the public. This includes:
-the relief of poverty
-the advancement of knowledge or education
-the advancement of religion
-the promotion of health
-governmental or municipal purposes; and
-other purposes that are beneficial to the community
Term
How to modify charitable trusts
Definition
Cy pres doctrine - any modifications must be “as near as possible” to the intent of the settlor; this is allowed if the stated charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful
Term
Totten Trust
Definition
Tentative bank account trust whereby the named beneficiary takes whatever is left in the account at death of the owner of the account. (not a true trust)
Term
Trustee's fiduciary obligations, if not expressed, include the implied authority to:
Definition
1) to sell (unless trust terms indicate otherwise)
(2) to incur necessary expenses
(3) to lease - lease land and manage it, record documents that need to be recorded. Secure insurance on trust properties. Safeguard securities, funds and documents
Term
Trustee's fiduciary obligations include:
Definition
-Duty of loyalty
-Duty of care
-Duty to invest
-Duty to earmark
-Duty to segregate
-Duty not to delegate
-Duty to account
Term
Duty of loyalty for a trustee means:
Definition
-No self-dealing (includes relatives, business associate)
-No buying or selling trust assets to benefit self
-No borrowing trust funds or making loans
-No selling from one trust to another
-No buying own corporate stock
-No personal gain through Trustee position
-Trustee cannot give preference to one beneficiary vs. the other. Doesn’t mean being fair, just means being impartial. Has to go with settlor’s intent.
Term
Duty of care means:
Definition
Trustee must act as a reasonably prudent personal dealing with his own affairs
Term
Duty to invest:
Definition
Invest trust funds, investigate and consider liquidity, tax consequences, etc., and diversify when investing
Term
Duty to earmark:
Definition
Requires trustee to label trust property as trust property
Term
Duty to segregate:
Definition
Trustee cannot commingle his own personal funds with trust funds
Term
Duty to account:
Definition
Keep beneficiaries reasonable informed when you are administering/managing the trust. If it involves their interest, include them.
Term
When a trustee wrongfully conveys property, beneficiaries can pursue assets for their current holders unless:
Definition
Person is a bona fide purchaser for value
Term
If trustee breaches his fiduciary duty, beneficiaries may:
Definition
-Remove trustee
-Set aside the transaction
-Beneficiaries or court may ratify the transaction and waive the breach
-Sue for resulting loss
-Trace the money and recover the property (through constructive trust)
-If trustee comingles assets, presumption is that lost, destroyed, or devalued property is the trustee’s so the remaining property is the trust’s property
Term
What is trustee doesn't want to be a trustee?
Definition
He/she must provide a written rejection to the settlor or a beneficiary (if settlor is dead or incompetent)
Term
If there are co-trustees, are they liable for each other's acts?
Definition
Yes. To not be liable, a co-trustee must show that he/she failed to prevent the action, did not participate in the breach or acted to remedy the breach when he/she found out about it.
Term
A trust terminates when:
Definition
-The term of the trust expires
-The trust purpose is fulfilled
-The trust purpose becomes unlawful
-The trust purpose becomes impossible to fulfill
-The trust is revoked under the terms of the trust
Term
Can a settlor modify a trust?
Definition
Yes, BUT he/she must reserve the right to modify or revoke
Term
Can the court modify the trust?
Definition
Yes, under changed circumstances. The court permits a trustee to deviate from the trust terms if there are changed circumstances not anticipated by the settlor. The deviation must be necessary to accomplish the trust purpose (advantage to beneficiaries not sufficient) If circumstances changed in a way that the Settlor did not anticipate, the court can authorize a different outcome if it is deemed necessary to fulfill the Settlor’s intent and the trust’s purpose and it does not deprive beneficiaries of their interests.
Term
Claflin Doctrine
Definition
Prohibits termination or modification if it is contrary to the intent of the settlor.
Term
Is a trust revocable?
Definition
CA presumes the trust is revocable unless otherwise stated in the trust
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