Trust 06
Terms
undefined, object
copy deck
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Trusts:
why set up a trust: - to avoid probate
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trusts:
that is funded during the lifetime of the settlor/donor and avoids probate--does NOT have to satisfy will requirements b/c we treat it as an inter vivos transfer -
Why set up a trust?
Inter vivos/revocable/living trust -
truts:
trust is funded at death and pours over into the will. This goes through probate - testamentary trust
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trusts:
1. Allows the donor to determine how to manage the property and gives more power than the ct would have. Can name successor trustees. -
why set up a trust:
property management -
trusts:
iii. Tax advantages
iv. Creditor protection - why set up a trust
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trusts in general:
1. Written trust agreement
a. Deed of Trust:
i. settler must transfer trust property to another person as trustee
ii. if created by will the settlor cannot be the trustee
b. In most states a written decla - expressed trust
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trusts in general:
2. Oral (Declaration of Trust)
a. Settlor says “I am creating a trustâ€
b. Only enforceable for personal property. If there is real property it would violate the SOF.
c. an oral declaration of trust is admi - expressed trust
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trusts in general:
3. Note: in order to have a valid trust-the trustee must owe a equitable duties to someone other than himself (Ex S cannot be the sole trustee and sole beneficiary) - expressed trust
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trusts in general:
1. Settlor doesn’t say he is creating a trust but based on his actions that is what he implied - implied trust
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trusts in general:
created during life of settler - inter vivos trust
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trusts in general:
trust created by will - inter vivos trust
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trust in general:
settlor can change his mind and revoke the trust - revocable trust
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trust in general:
settlor cannot revoke trust once it is created - irrevocable trust
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trust in general:
: a non binding wish or desire
1. Ex if you say I give to A with the hope that you will use it for the benefit of B--this is precatory language.
2. Ex -I give to A with the intent that A will use it for B---not clea - precatory trust
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trust in general:
Not a valid trust as this lacks human beneficiaries, but the trustee can carry out the settlers wishes to care for an animal, maintain a grave site. The trustee is on his honor to carry out the trust purpose - honorary trusts
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trust in general:
1. Trustee lacks discretion and must pay in accordance with the terms of the trust
2. Must distribute ALL the income (lump sum or pay on a periodic basis) - mandatory
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trust in general:
1. The trustee has absolute discretion over the payment of income or principal or both
2. Provides greater flexibility b/c settlor cannot forsee all the problems that his family might face after the trust is created--so - discretionary
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trust in general:
limits voluntary and involuntary alienation, as beneficiary cannot voluntarily alienate their interest nor can their creditors reach their interest - spendthrift
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trust in general:
1. Exceptions
a. K for necessities
b. Alimony obligations
c. Child support obligations
d. Claims founded on torts – involuntary
e. Claims by govt. entities - exceptions to spendthrift
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trust in general:
1. Facts of the trust are secret
2. Issue comes up when a person orally agrees to carry out the expressed wish of the testator regarding property he is bequeathed outright in a will, but later refuses to carry out that w - Secret Trust or Constructive Trust
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Trust in General:
4. Example: "to A and A promises to hold in trust for B"
a. here we don’t have the intent to create a trust WHY
b. ct will have to look at extrinsic evidence to determine whether there was a secret trust - secret trust or constructive trust
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general trust:
(no beneficiary indicated so trust fails)
1. The will indicates an individual that is to hold the property in trust but does not identify the beneficiary so the trust fails
2. Example: "to A in trust"
a - under a semi secret trust
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trust in general:
trust set up for charitable purposes that benefits large number of unidentifiable beneficiaries (medicine, education, science) - charitable trust
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trust in general:
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, duress, misrepresentation
b. Oral trus - constructive trust
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trust in general:
1. When a settlor names the trustee of her inter vivos trust as the beneficiary of her life insurance policy, but does not add any other funds or assets to the trust - unfunded life insurance trust
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trust in general:
1. an unfunded life insurance trust as well as funded trust is a valid inter vivos trust - funded intervivos trust
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trust in general:
a. Not a true trust b/c no intent to create a trust
b. Where an expressed trust fails or makes an incomplete disposition
c. There is an equitable reversionary interest that arises by operation of law
d. Propert -
not tusts but hte court will consider them a trust:
Resulting trust -
trust in general:
a. Not a true trust b/c not intent to create a trust
b. if unjust enrichment ct will say there is a constructive trust for the intended beneficiary -
not tusts but the court iwll consider them a trust:
Constructive Trust -
creation of a valid trust:
the creator who provides assets to create the trust. Person must have intent, mental capacity, and be at least 18 years old. - settlor/donor
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creation of a valid trust:
All that is needed is a grantor manifesting an intention to create a trust relationship regarding a present existing property that is certain and identifiable.
a. A Deed transfer: a writing specifying a 3rd part -
settlor/donor
Intent -
creation of a valid trust:
(Res, Corpus) – T must have a present existing property interest that is certain and identifiable
a. This may include the right to future interest if it is vested -
settlor/donor
trust property -
creation of a valid trust:
(helps prove intent, and that trustee accepted responsibility (proof of delivery) -
settlor/donor
delivery -
creation of a valid trust:
i. execution of a deed conveying title to trustee
ii. delivering deed to trustee (or his agent) -
settlor/donor
if trust res is real property delivery may be made by: -
creation of a valid trust:
i. Physical delivery
ii. Symbolic delivery
1. gives the donee something symbolic of the object when manual delivery is impractical (Ex a written instrument)
2. executing a deed, gift, or instrument of -
settlor/donor
if trust res is personal property delivery may be made by -
creation of a valid trust:
i. Self declaration of trust does not require delivery as donor is the trustee
ii. Transfer to a 3rd party trustee requires delivery -
settlor/donor
Deliver - inter vivos trust -
creation of a valid trust:
delivery is accomplished via the will -
settlor/donor
Delivery: Testamentary Trust -
Creation of a Valid Trust:
Person holding legal title to trust property and managing the assets. They must have capacity. Can have more than one trustee - Trustee
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creation of a valid trust:
1. Trust will not fail for want of a trustee.
2. Trustee can be an individual, a corporation, a settlor, 3rd party, or beneficiary
t - trustee
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creation of a valid trust:
a. Loyalty: Trustee must administer the trust solely in the interest of the beneficiaries
b. Care: Trustee is held to an objective standard of care
c. Subsidiary Duties:
i. Duty of impartiality (no pr -
trustee:
has a fiduciary duty to act for the benefit of the beneficiary set out by the terms of the trust -
creation of a valid trust:
4. Is paid a fee usually determined by a percent of the assets
5. a trustee holds legal title to the trust property--beneficiaries have equitable beneficial interest - trustee
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creation of a valid trust:
a. If the trustee wants out he can leave, if no successor is named the ct can appoint one. The choice of trustee must be respected unless there has been misfeasance or breach of the duty to the trust. - removal of trustee
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creation of a valid trust:
i. Can be denied compensation
ii. Subject to personal liability
iii. can be removed as trustee by the court
iv. if T misappropriates trust property then the trustees can benefit from any increase in va - removal of trustee if trustee improperly manages the trust
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creation of valid trust:
a. Active Trust: have duties
i. just having the duty of conveying the property in trust to the beneficiary is enough to satisfy the duty requirement
b. Passive Trust: No duties specified
i. there is no - to have a trust the trustee must have some duties to perform
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creation of a valid trust:
a. If settlor intends to create a trust but fails to name a trustee-then the ct will appoint a trustee to carry out the trust - a trust will not fail for want of a trustee
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creation of a valid trust:
a. but once you accept position of trustee you can only be released from liability by obtaining the consent of the beneficiaries or by a court order - cannot have trustee positino forced upon you
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creation of a valid trust:
Person(s) holding equitable title and receiving the benefit of the assets (Private Trust-b/c held in the name of beneficiary) - beneficiary
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creation of a valid trust:
a. There must be one or more beneficiaries specified (someone to enforce the trust)
i. as long as the beneficiary will be ascertainable at some point in the future they don’t have to presently exist (Ex future - beneficiary: a gift in a trust will fail for it no beneficiary is specified
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creatino of a valid trust:
2. There can be a remainder beneficiary - beneficiary
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creation of a valid trust:
a. can go after trustee to get the value of the property back if trustee mismanages it
b. beneficiaries can trace assets and recover from 3rd parties the property value unless they are bona fide purchasers for v - beneficiaries have a personal claim against trustee for a breach of trust
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creation of a valid trust:
4. Personal creditors of the trustee-other than the trust beneficiaries-cannot reach the trust property
5. Private trusts almost always have successive beneficiaries
a. Ex "to A in trust for life then - Beneficiary
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creation of a valid trust:
v. Lux v Lux: Lux died testate but her will was ambiguous (said she wanted grandchildren to get property and then said she wanted it to be maintained for their benefit). court had to determine whether she devised cer - creation of a valid trust case law
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creation of a valid trust:
vi. Jimenez: P brought an action against her dad for an accounting. P claims that her dad was given money in trust for her education and that dad was the trustee. Ct held for P, because the ct looked at the language - creation of a valid trust case law
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creation of a valid trust:
1. Hebrew University v. Nye #I: Yahuda owned an extensive library that she promised to give to a university in jerusalim but never delivered before her death. Rule; An imperfect gift due to lack of delivery may not b - Say a gift fails, for failure to deliver -can we save the gift by characterizing it as a trust case law
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creatino of a valid trust:
1. Unthank v. Rippstein: Craft sent a letter to Rippstein (p) promising to give her 200 per month. Rule: a mere promise to givee periodic gifts in the future will not support a finding that a trust has been establish - Necessity of trust property
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creatino of a valid trust:
2. Brainard v. Commissioner: Brainard declares his wife and mom that he is making a trust that all of his profits from stock trades will benefit his mom, children and wife. So whatever profit he makes from 1928 will - necessity of trust proeprty
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creation of a valid trust:
3. Speelman v. Pascal: P was D’s secretary and mistress. D wrote P a letter that he would give her a % of the profits of a production Pygmalion a play. D died and P wants the profits. Rule: A gift of property to be - necessity of trust property
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creation of a valid trust:
Bottom line: there is a requirement of a present existing property interest that is certain and identifiable for a trust to be valid -
necessity of trust proeprty:
trust rest -
creation of a valid trust:
1. manifestation of intent to make a trust, 2. there must be trust rest (characterizing a present property interest), and 3. has to be ascertainable trust beneficiaries. -
necessity of trust property:
Valid Trust -
necesssity of trust beneficiary:
i. This means that the particular people that qualify as beneficiaries have to be ASCERTIANABLE at some time when the trust vest. - neccessity of trust beneficiary
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necessity of trust beneficiary:
ii. Clark v. Campbell: A trust was created by decedents will that specified all of his personal property was to be distributed to his "friends" at the sole discretion of the trustee. Rule: a bequest to - necessity of trust beneficiary case law
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necessity of trust beneficiary:
whether the class of beneficiaries are so described that some person might reasonable be said to answer the description - the test for a valid class
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necessity of trust beneficiary:
Giving someone the power to appoint what to do with the property. no need for ascertainable beneficiaries b/c they can give to whoever they want. no obligation to pick anyone in order to dispose of the property- - power of appointment
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Honorary Trust:
in trust to A for care of my animal. Does not succeed as a charitable trust or private trust. Usually for pets. This is precatory (wishful) language. - honorary trust
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honorary trust:
ii. In re Searight's Estate: S died leaving $1,000 to be paid to Florence Hand at a rate of .75 cents a day for the care of his dog Trixie--until the dog died. If money was left over when Trixie died he specified a list of indi - honorary trust case law
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semi secret trust:
1. Olliffe v. Wells: Mrs Donovan died leaving a will that gave her residuary estate to Reverend Wells to "distribute in such a manner as in his discretion shall appear best calculated to carry out the wishes which I exp - semi secret trust case law
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rights of beneficiary to get distributions from trust:
the trustee can distribute up to 100 bucks a year if he so chooses. The levels of discreation vary greatly, there can be complete discreation, the trustee can have discreation with certain - discretionary trust
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rights of beneficiaries to get distributions from a trust:
2. Marsman v. Nasca: SM died leaving a trust for husband Cappy. Trust was discretionary with standard to pay for support and maintenance. C was short on funds so asked trustee for prin - case law
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rights of beneficiaries to get disributions from a trust:
A trust that has language such as "comfortable maintenance" will require a trustee to make some sort of inquiry on the beneficiaries status - a support trust
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rights of beneficiaries to get distributions from a trust:
a. trustee lacks discretion and must pay in accordance with the terms of the trust. - mandatory trust
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rights of beneficiaries creditors:
creditors have no greater right to the trust res than the beneficiary himself
1. So if the beneficiary cannot demand the money then neither can the creditors.
2. But in some states creditors can ge - rights of beneficiaries creditors general rule
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rights of beneficiaries creditors:
limits voluntary and involuntary alienation, as beneficiary cannot voluntarily alienate their interest nor can their creditors reach their interest. Ct’s usually uphold spendthirft provisions - spenthrift clause
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rights of beneficiaries creditors:
1. Suppliers of necessities (food, medical care)
2. Alimony obligations
3. Child support obligations
4. Claims founded on torts – involuntary
5. Claims by govt. entities
6. Taxes - exceptions
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rights of beneficiaries creditors;
iv. Scheffel v Krueger (tort): Lorie Scheffel as the mother of Corey C. (a minor) filed a tort claim against Krueger for allegedly sexually assaulting her daughter, videotaping the act, then broadcasting the - rights of beneficiaries creditors case law
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rights of beneficiaries creditors:
v. Shelley v. Shelley (alimony, child support): HS left his property in trust to wife and son with spendthrift clause. Son married twice and had 2 children from each marriage. Wives are trying to get child su - rights of beneficiaries creditors case law
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modification of trusts:
If the settlor and all beneficiaries consent, the trust may be modified or terminated (only possible if the settlor is alive) - modification of trust general rule
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modification of trusts:
2. The trust may not be modified or terminated, even if all beneficiaries agree, if to do so would be contrary to a material purpose of the settlor. (Claflin rule) Material purpose includes spendthrift, discretionary tr - modification of trusts
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modification of trusts:
i. A trust cannot be terminated or modified prior to the time fixed for termination, even if all the beneficiaries consent, if termination or modification would be contrary to a material purpose of the settlor. - chaflin doctrine
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modification of trusts:
i. authorizes a court to "modify the administrative or dispositive provisions of the trust or terminate the trust if, owing to circumstances not known to the settlor and not anticipated by the settlor, the continua - CPC Sec 15409. Modification of Trust CA Law
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modification of trusts:
a. Ct may modify or terminate a trust upon petition by the trustee or beneficiary if changed circumstances mean continuation in the same manner would defeat the purpose of the trust.
i. CPC Section 15409
1. A - changed circumstances
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modificaion of trusts:
4. In Re Trust of Stuchell: An income beneficiary is seeking to have the trust altered for the benefit of the remainder man who is retarded H. H needs public assistance and if he receives the trust outright he would no l - modificiation of trust case law
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modification of trusts:
The terms of a trust cannot be modified after the death of a settlor, UNLESS: modification is necessary to prevent the purpose of the trust from being substantially impaired due to circumstances that arise after the set - modificaiton after death
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modification of trusts:
an equitable remedy that conforms the instrument to reflect what the settlor actually intended at the time of its execution - reformation
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modificaiton of trusts:
changes the terms of the instrument to reflect not what the settlor meant to say, but what the court believes the settlor would have said, had the settlor anticipated the changed circumstances. Modification to achieve t - equitable deviation
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terminatino of trusts:
Generally a trust cannot be terminated if any of the following apply b/c such trusts state a material purpose of the settler and to deviate from them would violate his intent. Material Purpose Includes:
a. Spendthri - termination of trusts black letter law
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revocable trust:
transfers legal title to property to another person as trustee pursuant to a writing in but settlor retains the power to revoke alter or amend the trust and the right to trust income during lifetime. Upon Death of settlor the - settlor
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revocable trust:
if a trust doesn’t specify the manner of revocation -any method that shows intent to revoke can be used
a. so if the trust said nothing about how to revoke it---and we found the torn up pieces of the trust--this would b - revocable trust black letter law
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revocable trust:
this can be revocable or irrevocable - inter vivos
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revocable trust:
this can only be irrevocable - testamentary
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revocable trust:
these are created during lifetime and become funded upon the death of the donor - pour over trust
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revocable trust:
7. Farkas v. Williams: AF purchased stock, which he held in trust for D (AF’s employee). AF’s heirs claim this is an invalid testamentary gift (and not a trust) b/c AF retained the right to sell and benefit from the stocks - revocable trust case law
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revocable trust:
8. In Re Trust of Pilafas (To what extent are we going to apply the law of wills to trusts): SP created an inter vivos trust that left the remainder to 8 charities. SP was not speaking to 3 kids, but he later reconciled and dr - revocable trust case law
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revocable trust:
9. if a trust doesn’t specify the manner to revoke then any manner will suffice, BUT if it does specify the manner then you must use it - revocable truts
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revocable trust:
10. State Street bank & Trust Co. v Reiser: 1971 Dunnebier created a revocable inter vivos trust. 1972 he borrowed $75,000 from State Street Bank. 4 months later he died. His estate has insufficient assets to pay the entir - revocable trust case law
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pour over wills:
i. Testator wants probate assets to pour over into an inter vivos trust when he dies - pour over wills
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pour over wills:
a. A will can incorporate by reference a trust instrument in existence at the time the will is executed, but it cannot incorporate trust amendments made after the will is executed
i. writing must be in existence when will - incorporation by reference
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pour over wills:
a. Some significance apart from you leaving property at death. A will may dispose of property by referring to some act that has significance apart from disposing of probate assets--in this context, by reference to an inter viv - acts of independant significance
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pour over wills:
i. allows a pour over will even if trust was not funded during life
ii. a will can pour over into a trust as long as the trust document was put into writing during life
1. Amendments:
a. doesn’t say an amendme - UTAT
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pour over wills:
3. Clymer v. Mayo: CM created a pour-over trust at the same time she created a will. D her ex husband was the beneficiary unless he predeceases her then it would go to the niece and nephews. CM’s only surviving relatives are - pour over wills case law
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pour over wills:
a. When you get a divorce and forget to change your will the ct will presume you meant to cut out your ex-spouse unless you state otherwise
b. but this is not what we have here--we have a will that leaves property to a t - the law of presumed intent
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testamentary trust:
i. if you create the trust by stating in your will "I hereby est. a trust"⬦
ii. must satisfy will requirements
iii. requires probate
iv. Practical difference between Testamentary trust and inter v - testamentary trust
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trustee duties:
i. Common law rule: says trustee only has powers listed in the trust instrument
ii. Modern Rule: Most states say a Trustee has broad powers UNLESS trust instrument says otherwise (can sell, transfer, divest, etc.) - general law for trustee duties
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trustee duties:
i. Trustee owes a fiduciary duty to administer the trust solely in the interest of the beneficiaries
1. Trustee has broad obligations-regardless of whether specified in the trust or not - fiduciary duty
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trustee duties:
1. protect beneficiaries interests as if they were your own
2. Trustee breaches duty of loyalty by not acting in the best interest of the beneficiary.
a. Ex. Selling trust property to a buyer just to increase the valu - duty of loyalty
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trustee duties:
a. If ct determines there has been self dealing then that’s it the trustee loses. Ct does not care if trustee has a reasonableness argument to explain why he did what he did -
duty of loyalty:
no further inquiry rule -
trustee duties:
a. Get settler authorization
i. Hard to do b/c settler is usually dead
b. Get ct approval
i. Ct says this is good for everyone
c. Get beneficiaries to authorize it, BUT for this to work:
i. there must b - 3 ways to engage in self dealing
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trustee duties:
1. Asks whether you are being sensible with the trust funds/property - duty of prudence
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trustee duties:
i. Duty to collect
1. guy establishes a trust and names x trustee--X must not sit around -he needs to get property and put it in trust
ii. Duty to protect
1. once you have it then safeguard it (if jewels-then don - duty to collect and protect trust
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trustee duties:
i. set it aside and identify it so we know what the trust property is and what property of the trustee is
ii. NO commingling of property
iii. if don’t earmark then how does ct know what is yours and what is the trus - duty to earmark funds, trust property
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trustee duties:
i. b/c it makes it difficult to trace the assets
ii. cant figure out how you harmed trust-so hard to determine damages
iii. if creditors come after trustee and they cannot tell what is what then they will attach every - duty not to commingle trust money with trustee's money
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trustee duties:
i. Rule: Except as otherwise provided by the terms of the trust the trustee shall observe the standard in dealing with the trust assets that would be observed by a prudent business person dealing with their own property
ii - prudent investors rule
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trustee duties:
2. In re Gleeson's Will: Gleeson leased land to Colbrook. Gleeson died 2 weeks before the second lease was going to expire and named Colbrook trustee of the land for the benefit of her 3 children. Colbrook stayed on the land fo - duty of prudence case law
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trustee duties:
3. In re Rothko: A trust is set up with 3 trustees to benefit charity. Trustees sell property (artwork) to a Co the trustees have an interest in at a discounted rate. Also Co. agrees to show one of the trustees artwork to thank - duty of prudence case law
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trustee duties:
a. Trad rule: trustees must act unanimously, but some states req just a simple majority when there are 3 or more trustees
b. Settlor can always specify what he wants in trustee instrument - co trustee rules
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trustee duties:
requires the trustee protect the interests of both.
a. He must produce reasonable income for the Income beneficiaries while preserving the corpus for the principal beneficiaries---this is difficult to juggle - duty of impartiality
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duty of impartiality:
want to maximize profits--even at the expense of burning up the principal - income beneficiary
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duty of impartiality:
4. Trustee is not screwing over one beneficiary for his own benefit-so not a loyalty issue--it is a prudence issue-your job is to benefit everyone--if benefit some to the detriment of others then not doing job correctly - duty of impartiality
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duty of impartiality:
5. Dennis v. RI Hospital Trust: Trustee was to manage 3 buildings in downtown Rhode Island. Income beneficiaries were averaging 11%, but principal beneficiaries were not b/c property was decreasing in value. Trustee sold - case law
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duty not to delegate:
a. A trustee is prohibited to delegate things the trustee could reasonably be required to personally perform, however they are allowed to delegate administrative functions as long as they supervise
b. not expec - traditional rule
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duty not to delegate:
2. Shriners Hospital v. Gardiner: Trustee allowed her son who was an alternate trustee to handle all of the investing b/c he was a stockbroker. Alt trustee embezzled funds. Can the Trustee delegate this authority? Ct held - case law
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duty not to delegate:
a. if breach was not the cause of the loss then trustee not on the hook
b. Broadens prudent investor standard
i. Instead of asking would a prudent investor invest in this stock we ask would a prudent investor de - modern rule
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remedies for beneficiaries:
waive the breach if outcome is positive. Beneficiary is agreeing that the trustee was wrong but has chosen not to pursue it. - ratify the transaction
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remedies for beneficiaries:
sue for resulting loss - surcharge the trustee
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remedies for beneficiaries:
except if the purchaser is a BFP without notice of the breach - trace and recover the property
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remedies for beneficiaries:
these are a punitive damage because of self-dealing or serious conflict of interest.
i. Determined by the difference of what it sold for the value at the date of trial (Rothko)
ii. Also could be the diffe - appreciation damages
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remeedies for beneficiaries:
1. a breach of fiduciary duty (dishonest or who has engaged in a serious breach of trust); or
2. For continuously underperforming
3. BUT cannot be removed simply b/c the beneficiaries are not happy with h - removal of trustee: can be removed for:
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rmedies for beneficiaries:
ii. The task is to set the threshold for trustee removal high enough that the trustee can carry out the settlor's wishes (including the protection of future beneficiaries) in the teeth of a contrary preference of the - removal of trustee
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successor trustees:
a. Generally successor trustees are not liable for the activity of a predecessor trustee
b. you are not liable for things that happened before you became trustee, but once you become trustee
c. you will be liable - successor trustees