Elements of a trust
What are the 6 elements to a trust
(1) valid, legal purpose
(2) Must have a trustee
(3) Trust must be funded/have property
(4) Settlor must be competent when creating the trust
(5) Settlor must have intended to create a trust
(6) settlor must have an ascertainable beneficiary
(1) What is a secret trust
(1) When a gift is given, but the existence of a trust in the will cannot be determined
Jessica creates a trust providing income payments to Ehsan, for life, and on Ehsan’s death, for distributions of the remaining principal to Ehsan’s descendants. Isabella, the trustee, decides to terminate the trust early and to distribute a portion of the property to Ehsan and a portion to her two children, Julia and David.
Can Ehsan represent Julia and David?
No; Ehsan cannot represent her descendants. Her interest is in conflict with the interests of her children and other descendants. (no to Julia)
Yes to David: Julia can represent her brother David, because their interests are the same, but Julia and David cannot represent their own children (Ehsan’s grandchildren), because early termination would end the interests of Ehsan’s descendants other than Julia and David.
What is away to avoid self dealing?
Get consent from all beneficiaries; and if not you have to get court approval.
What is a duty of obedience?
A duty of obedience is a trustee must carry out the terms of the trust, must act as the settlor directed, and must comply with any laws that affect trust property, including paying taxes.
Trust to hold drug money or prevent paying a judgment (i.e. a scam) or
The purpose of the trust is to have someone break up or divorce.
(2) What is a semi secret trust
(2) When a trust is known in the will, but the terms of the trust are unknown or not provided
Duty of Impartiality – Important Hypothetical
Amber creates a trust for her surviving spouse, Sam, and provides that on Sam’s death, any property left in the trust should be distributed to Amber’s child from a prior relationship, Jace. The trustee is directed to distribute all the income to Sam, and to make distributions from principal to Sam for support and maintenance. Note that the type of investments will affect how much “income” is generated in the trust, and also that any distribution of principal to Sam will affect the amount remaining in the trust for distribution to Jace.
What must the trustee do?
The trustee, Jonah, must not only follow any relevant instructions within the trust’s terms but also consider the interests of both Sam and Jace when exercising discretion as to how much principal to distribute and how to invest the trust assets.
What is the duty to inform?
What is the difference between Common Law and Uniform Trust Code
The duty to inform and report requires the trustee to keep the beneficiaries informed about their interests and the administration of the trust.
CL: requires the trustee to respond to requests for information from any beneficiary
UTC: the duties the trustee owes to beneficiaries depends on the category: permissible distributee, qualified beneficiary, or beneficiary
What is self dealing?
Is self-dealing voidable?
A transaction between the trustee acting as trustee and the same person acting in an individual capacity.
A self-dealing transaction is voidable by the beneficiaries, even if the transaction was fair to the beneficiaries and the trust.
How is a settlor competent to make a trust? Regular
Regular trust:
(1) The testator must understand who the natural objects of the testator’s bounty are, (2) the nature and extent of the testator’s property, (3) the plans the testator has for the disposition of the property, and (4) how those interrelate
What is a prudent Investor
Falls under the fiduciary duty of care, in which a trustee can invest the trust so long as they use reasonable care, skill and caution
Important Hypothetical
Jessica creates a trust providing income payments to Ehsan, for life, and on Ehsan’s death, for distributions of the remaining principal to Ehsan’s descendants. Isabella, the trustee, decides to terminate the trust early and to distribute a portion of the property to Ehsan and a portion to her two children, Julia and David.
Can Eshan represent her descendants? Why or why not
Can Julia represent her brother David? Why or why not?
Ehsan cannot represent her descendants. Her interest is in conflict with the interests of her children and other descendants. Julia can represent her brother David, because their interests are the same, but Julia and David cannot represent their own children (Ehsan’s grandchildren), because early termination would end the interests of Ehsan’s descendants other than Julia and David.
What is Representation regarding beneficiaries?
Representation is when someone who lacks legal capacity or are not born yet need to be represented.
What is a conflict of interest transaction?
Is a conflict of interest transaction voidable?
when the trustee enters into a transaction with someone close to the trustee, or a business with which the trustee is involved, we refer to that transaction
Is presumptively voidable, but the trustee can overcome the presumption by establishing the fairness of the transaction.
How is a settlor competent to make a trust? (irrevocable inter vivos trust)
Irrevocable Inter vivos Trust requires:
(1) The settlor must not only have the understanding required for wills but also understand the effect that creating a trust has on the settlor’s future financial security and ability to support any dependents
What is a duty of loyalty
The duty of loyalty is the duty to act solely in the interests of the beneficiaries.
Alfio creates a trust that directs the trustee to distribute income to Varsha for life and on Varsha’s death to distribute the remaining principal to Varsha’s descendants. Alfio appoints JPMorgan Chase as the trustee. Varsha dies at the age of 100, survived by six children and 36 grandchildren. It is true that:
Upon Varsha’s death, the trust must make distributions to Varsha’s descendants who survived her until they all die.
B. Upon Varsha’s death, the trust must make distributions to Varsha’s descendants who satisfy the provisions of the Rule Against Perpetuities until they all die.
C. The trustee must transfer all trust property to Varsha’s estate.
D. The trust terminates upon Varsha’s death.
D. The trust terminates upon Varsha’s death.
What is Duty of Impartiality?
What is the duty of care
Impartiality-Duty for the trustee to treat the beneficiaries fair.
Care- Trustee has a duty to protect and manage trust property
The Amarillo Land Trust holds farm property located in the northern section of Amarillo, Texas (i.e., in Potter County). The trust instrument does not expressly address the issue of self-dealing. Now, the best way to generate income for the trust is for the trustee to lease the property to the trustee, in the trustee’s individual capacity. It is true that, to avoid a charge of self-dealing, the BEST step trustee should take is:
A. Petition the Potter County District Court for approval of the lease because this court has general jurisdiction over probate matters in Potter County.
B. Petition the Potter County Court for approval of the lease because this court has general jurisdiction over probate matters in Potter County.
C. Lease the property to the trustee because this is the best way to generate income for the trust, and therefore an option that would be in the best interest of the beneficiaries.
D. Get the consent of the beneficiaries to lease the property to the trustee in the trustee’s individual capacity.
D. Get the consent of the beneficiaries to lease the property to the trustee in the trustee’s individual capacity.
Suppose you are advising a trustee of an irrevocable trust. The trust’s only assets are two pieces of real property. The trustee wants to diversify the trust’s assets and comes to you for counsel. What three other facts do you need to know before making a recommendation?
-Are the pieces adjoining?
-Are they developed?
-Is there sentimental value in the property to the beneficiaries?
-How much is the property worth?
-Is that likely to increase?
-Is there a market for the property (does the trustee want to buy the property)?
What is the Material purpose doctrine
A trusts can be modified by the beneficiaries only if the modification is not contrary to a “material purpose” of the settlor
nCody creates a trust that directs the trustee to distribute income to Charlie for life and on Charlie’s death to distribute the remaining principal to Charlie’s descendants. Cody appoints Lubbock National Bank (LBN) as the trustee. The trust instrument gives LBN as trustee the power to make distributions of principal to Charlie for Charlie’s best interests. If Charlie dies at age 110 survived by ten children and 50 grandchildren, it is possible that:
A. The trust would have terminated prior to Charlie’s death.
B. The trust would be void because its wording violates the rule Against Perpetuities.
C. The trust would be void because it entrusts the trustee with too much discretionary power.
D. The “best interests” provision in the trust instrument would ensure that upon Charlie’s death, trust property would remain for distribution to his many descendants.
A. The trust would have terminated prior to Charlie’s death.
Can you give me a general idea for what you will write for James Essay regarding the Reverend Gentleman?
Rule: Co-trustess, duty to inform and report & duty of care
Florence Watkins was the beneficiary of a testamentary trust set up for her by her husband, Julian Watkins, in his will. The trust provided for Florence for her life, with the remainder going to Julian’s daughter (Florence’s stepdaughter), Leneva Hosey. The trustees were Leneva and Leneva’s husband, N.R. Hosey. The trust held farmland that had been farmed by Florence’s husband.
When he retired, he leased the property to Leneva and N.R. Hosey. They agreed to pay $35 per acre per year and also agreed not to sublet the property.
Nine years after entering into this lease, N.R Hosey stopped active farming and he and Leneva leased their own land as well as the land held by the trust to Dixie Hill Farms for an annual payment.
N.R. Hosey died. Subsequently, Florence died. The probate court appointed Marysue Burgess to serve as executrix of decedent Florence Watkins’s estate. Thereafter, Ms. Burgess sued Leneva Hosey as the sole remaining trustee to recover the difference between the income paid to her mother from the original lease and the rental income received by N.R. and Leneva Hosey under the sublease.
It is true that:
A. Marysue Burgess has standing to bring the suit because she is a beneficiary of the Last Will and Testament of Julian Watkins and of his estate.
B. Marysue Burgess has standing to bring the suit because she is a beneficiary of the Last Will and Testament of her mother, Florence Watkins.
C. The court hearing the suit will most likely hold that the trustees must pay to the Estate of Florence Watkins Ms. Watkins’s share of the income earned from the sublease of the trust property to Dixie Hill Farms.
D. The court hearing the suit will most likely hold that by entering into the subleasing contract with Dixie Hill Farms, the trustees breached their fiduciary duty to Florence Watkins.
C. The court hearing the suit will most likely hold that the trustees must pay to the Estate of Florence Watkins Ms. Watkins’s share of the income earned from the sublease of the trust property to Dixie Hill Farms.