Trust Formation
Charitable Trusts
4. Charitable Purpose - One that is considered a benefit to the public.
Qualified Beneficiary & Rights of Incidental/Indirect beneficiaries
(1) Current beneficiary, or
(2) first in line remainderman
Incidental and Indirect beneficiaries have no right to enforce.
Investing Trust Property
1. Trust language strictly construed
2. standard of care applies - reasonable care, skill, and caution
3. Prudence evaluated as to overall investment strategy (i.e., diversification)
4. Delegation of investment and management of funds is permitted
Mandatory trust rules that can not be overridden
1. Trustee duty to act in good faith in accordance with the term sand purpose of the trust
2. Trust purpose cannot be unlawful, contrary to public policy, or impossible
3. Power of court to modify or terminate a trust
4. Spendthrift provision effects
5. Trustee duty to keep qualified beneficiaries informed
Trustee Duties
1. Duty to administer
2. Duty of Loyalty - No Self-Dealing (good faith or fairness are irrelevant)
3. Duty to report & keep beneficiaries reasonably informed
4. Duty to keep separate trust property and records - no commingling
5. Duty to enforce claims and defend trust from attack
6. Duty to preserve trust property and make it productive
Elements of an Express Trust
1. Settler with capacity to convey
2. Clear and unequivocal present intent to create a present trust relationship
3. Complete trustee with duties
4. Definite beneficiary
5. Same person is not the sole trustee and sole beneficiary
6. Disposition of specific property
7. Valid trust purpose
Beneficiary Disclaimer
There is no timelimit for making a disclaimer. The relevant period for federal gift tax purposes is nine months from the creation.
A beneficiary can be estopped from disclaiming if she has exercised any dominion or control over the interest or accepted any benefit under the trust.
Insolvent beneficiaries cannot use disclaimer to avoid creditors - disclaimer is barred if the beneficiary is insolvent at the time it becomes irrevocable.
Future interest as trust res and effect of promises to create a trust
Future interests: A presently declared trust can have future interest in property as trust res.
Effect of promise to create a trust: If the promise is gratuitous, the trust only arises if the settlor manifests a new intent to create the trust. If the promise is supported by consideration, trust can arise in the future when the property is acquired without additional manifestation of intent.
Honorary Trust
Not for a charitable purpose and no private beneficiaries. Limited to 1,000 years. Enforceable by someone named in the instrument or appointed by the court. Excess is redistributed to the settlor his successors unless the instrument says otherwise.
i.e., trust to care for animals, or cemetery plot
Lapse of Beneficiary Interest
If a beneficiary of a future interest (1) fails to survive the distribution date, and (2) leaves surviving descendants, the descendants take the beneficiary's interest per stripes.
Inter vivos Express Trust
1. Declaration of Trust
2. Transfer of Property
3. Delivery Required - put the trust property out of the settlors control
4. Must manifest intent when trust res exists
SOF not required unless land is the subject matter.
Resulting Trust
Where a trust fails for lack of a beneficiary, a resulting trust creates in favor of the settlor or his beneficiaries.
Qualifications of a Trustee & Grounds for Removal
1. Capacity to hold or acquire title for ones own benefit,
2. Adminsitrative capacity
Grounds: Breach of trust, lack of cooperation that substantially impairs administration, unfitness, unwilling, persistent failure, substantial change in circumstances such that removal is in best interest of all beneficiaries
Enforcement of a Charitable Trust
Can be brought by (1) settlor, (2) qualified beneficiary, or (3) attorney general
Creditor Access to Trusts (Not Spendthrift)
Creditor's can reach the interest of the beneficiary, not the trust property itself.
If the settlor is the sole beneficiary, the creditor's can reach the trust. If the trust is irrevocable, they can only reach the amounts distributable for the settlor's benefit.
Testamentary Trust
Trust intent and essential terms must ascertained from:
1. The terms of the will itself
2. Existing writing properly incorporated by reference into the will,
3. Exercise of power of appointment created by the will
Trust Res
Property can be real, personal, tangible, intangible, legal, or equitable. It can be a present or future interested, vested or contingent. An interest that is not yet in legal existence cannot be held in trust.
A debtor cannot hold their own debt to another in trust.
An unenforceable, gratuitous promise cannot be held in trust.
Resignation of Trustee
(1) As provided in the instrument and with proper notice,
(2) by giving thirty days notice to the qualified beneficiaries, settlor and co-trustees, or
(3) Obtain court approval
Slayer Statute
beneficiary who unlawfully kills or participates in procuring death of the settlor is treated as though killer pre-deceased settlor/victime. Applies to conviction for abuse, neglect, exploitation, or aggravated manslaughter of an elderly person or disabled adult.
BOP: Greater weight of the evidence
Spendthrift Trusts
Beneficiary is unable to voluntarily transfer or involuntary transfer interest. Creditors cannot reach the trust until after income has been paid out to the beneficiary.
Clause can't only prevent access by creditors. A creditor can reach a mandatory distribution of income or principal if the trustee has not made a mandatory distribution within a reasonable time for the required date.
Exception: Claims for support, alimony, or services to provided to protect a beneficiaries interest, claims by the government.
Secret & Semi Secret Trusts
Secret Trust: Appears to be an absolute gift on its face, but the gift was made in reliance on the recipients promise to hold in trust for another. The court will allow intrinsic evidence of the agreement - if shown by clear and convincing evidence, a constructive trust results.
Semi Secret: The will makes a gift to a person in trust but does not name the beneficiary. The will does not name the beneficiary and therefore the trust fails for want of a beneficiary.
Effect of Invalidity of Conditions
Where a condition is attached to an interest in a trust and it violates public policy:
1. Provision by settlor controls
2. Interest relieved of legal condition subsequent
3. Invalid condition precedent stricken
RAP: 1,000 alternative vesting period
Powers of the Trustee
1. Powers conferred by the terms of the trust
2. All powers that unmarried individuals have over their own property unless limited by trust
3. Powers appropriate to achieve the proper investment, management, and distribution of the trust property and that are not forbidden by the terms of the the trust, and
4. Powers conferred upon by the FTC unless limited by the terms of the trust.
Upon petition of the trustee or qualified beneficiary,
1. Not inconsistent with the settlor's purpose
2. Best interest of the beneficiaries
3. Continuation non-economical
4. Modification would achieve settlor's tax objectives, or
5. Reformation is necessary to correct a mistake
Modification when the trusts purpose is fulfilled or becomes illegal, impossible, or wasteful, changes circumstances substantially alter material purpose, or material purpose no longer exists:
1. Terminate the trust in whole or in part,
2. Direct or permit the trustee to do acts that are not authorized or are prohibited by the terms of the trust,
3. Amend the terms of the trust, including terms governing distribution of income or principal or terms of governing administration,
4. Prohibit the trustee from performing acts that are permitted or required by the terms of the trust.