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Requisites Creator, Delivery, Legal Title of Trust Assets (the res), Trustee, Benefit of Beneficiaries, Intent to Create Trust, Valid Purpose
Forms of Delivery Actual, Constructive, Symbolic
Precatory Language "My wish" "My desire"
Res The corpus, the principal, the SUBJ MATTER of the trust. In order to have trust, there must be a SPECIFIC INT in property to which the TE's duties relate. Subj matter of Trust must be CERTAIN and IDENTIFIABLE; if it is not; there is no Trust.
No Trustee No Trust fails for want of a TE. If intention to create a Trust is clrly manifested, but no TE is named, or TE dies/resigns, Ct will appt suitable TE. EXCEPTION: Power Personal to Named TE.
Valid Empty Inter Vivos Trusts Trust named 1) Benef of Life Insur Policy, 2) Benef of Death Benefit uner Pension Plan, 3) Will gift w/ named Benef
Charitable Trust Public is Beneficiary
Inter Vivos Trust An oral trust of personalty is enforceable provided its terms can be established by clr and convincing evid. Trusts containing land must be evidenced by a writing that satisfies the SoF.
Fraud in the Inducement At time of promise, promisor had no intention to perform promise.
Testamentary Trusts – Secret Trust Absolute devise by will w/ oral promise to hold on trust.
Testamentary Trusts – Semi-Secret Trust Devise "in trust" w/ oral agreement as to beneficiaries.
Exception to Spend-Thrift Clause 1) Claims for necessities, 2) Alimony and child support obligations, 3) Claims by US or a St
Duty of Loyalty No Self-Dealing by Fiduciary (Automatic Wrong, even if increases Trust value)
Prudent Investor Rule Except as in Trust, TE must manage property as prudent investor, by considering purposes, terms, distribution req's, and circ of Trust and pursue reasonable investment strategy. TE must adhere to standard of reasonable care, skill, caution in decisions
Elements of Prudent Investor Rule 1) Duty NOT to commingle (earmark), 2) Duty t o balance return w/ potential risk, 3) Duty to diversify investments, 4) Duty to keep trust productive.
Portfolio View TE's compliance w/ Prudent Investor Rule is measured using a portfolio view. The fact that one/more assets held by Trust are underperforming is not a problem as long as the TOTAL RETURN of the overall portfolio is reasonable.
Duty to Preserve and Protect Trust Property In addition to investing prudently, this duty frequently menas that the TE must insure trust property against casualty losses.
Duty of Impartiality Absent a Trust provision permitting TE to prefer one beneficiary over another, a TE must be fair and impartial to all beneficiaries.
Duty to Account and Inform A TE has a duty to account periodically to the beneficiaries and to keep them reasonably informed about the administration of the Trust.
Beneficiary's Options for Breach of Trust 1) Ratify transaction and waive breach, 2) Sue for resulting loss (Action of Surcharge), 3) Trace and Recover property for the Trust
Exculpation Clause Clause relieving TE of liability for breach of Trust is unenforceable to the extent it relieves the TE of liability for reckless or bad faith actions or the clause was drafted by or at the direction of TE and Settlor was not rep'd by independent counsel
Tort Traditional: TE is personally liable on all torts of self and agents. Can be reimbursed fr trust estate if TE was not personally at fault. UTC: TE may be sued personally ONLY if TE was personally at fault.
Contract Traditional: TE is personally liable on Ks unless stip in the K relieves of personal liability. UTC: Claimant must sue TE in rep capacity; TE may not be sued personally unless TE failed to reveal her rep capacity when entered into K.
Resulting Trusts May arise upon failure of express trust or when express trust purposes accomplished and corpus not exhausted.
Purchase Money Resulting Trust Presumed to arise when consideration for purchase of property is paid by person other than the person taking Title. DEFENSES: 1) gift, 2) loan (presumption gift, if person providing consideration is close family member)
Constructive Trusts Implied in a variety of circ where a person acquires Title to Property Wrongfully. Trust implied to remedy unjust enrichment.
When does Delivery Requirement not apply? Self-Declaration of Trust or Testamentary Trust
When does Delivery Requirement apply? Inter vivos trust w/ third party as trustee
Example of Constructive Delivery Making a gift of a car by delivering the keys to the donee
Example of Symbolic delivery delivering a signed writing evidencing the gift
Intent Legal Title in one person's name and duty to others
Unreasonable restraints/conditions of Trust restraint on marriage, encouraging divorce, encouraging commission of crime, restraint on procreation, restraint on practice of religion
Is an expectancy (e.g. prospective heirs) a property interest that can be Trust property? No.
Gratuitous Promise to create a Trust (i.e. not supported by consideration) A trust arises when all elements of a valid trust have been met if, but only if, at that subsequent time the settlor manifests an intention then to create the trust (reaffirmation).
Promise to create Trust supported by Consideration Under K principles, Trust automatically attaches when the property is received.
Power of Appointment when Trust fails for lack of ascertainable class of Beneficiaries. GENERALLY, trust invalid for want of definite beneficiaries can't be given effect as power of appt b/c TE under obligation to perf, holder of power is not. EXCEPT, (majority) it can; and If "TE" declines to exercise it, Resulting Trust
Honorary Trust CL, violates Rule Against Perpetuities and is void. UTC, valid for lifetime of pets.
Same individual Trustee and Beneficiary GENERALLY, sole beneficiary of a trust cannot be sole TE. EXCEPT, 1) when two TEs, or 2) two or more beneficiaries.
Are Revocable Trusts Valid? Yes, such trusts are valid even though the settlor retains the rt to revoke, keeps an interest in the trust as benef, retains a power of appt over trust corpus, or retains cntrl over trust by naming self as TE or retaining veto power over TE's decisions.
Is gift by will to revocable, amendable trust valid? Yes. But Trust must be id'd in Will and terms set out in a written instr. Instr may be executed b/f, concurrently, or a/f Will. Devised property is added to Trust as it exists at T's death, including amendments a/f Will executed. (Pour-Over Clause)
What happens if T revokes Trust b/f death? (in re pour-over clause in Will) Lapses, Falls to Residuary
Totten Trust Revocable during life by manifestation of intent to revoke. Account reachable by depositor's Cs during life. It may be reached a/f death to extent depositor's probate assets r insufficient to pay Cs. Extrinsic evid admissible to show trust not intended.
Totten Trust in re Will (majority/UPC) Can be revoked by depositor's will, but must explicitly revoke or id trust.
What happens when beneficiary of a totten trust predeceases the depositor? Automatic Revocation
Exception to writing req in re land in Trust Fraud in Inducement or Confidential Relationship. Creates Constructive Trust.
Confidential Relationship GE-TE served in confidential relationship to GR-Settlor (e.g. attn-cl, H-W). Policy, Confidential relationship to enrich outweighs SoF. But GE-TE must have agreed to hold property in Trust.
Siblings in re Confidential Relationship Confidential per se
Oral K to make a Will Majority: If K to devise land, subj to SoF. UPC: K to make/revoke Will ONLY if 1) terms are in Will, 2) terms are in written K, or 3) will refers to the K and extrinsic evid proves terms. (existence of joint/mutual wills does not imply K not to revoke)
Remedy for breach of enforceable Will K Constructive Trust
Four distinctive rules apply to charitable Trusts 1) Not subj to RAP 2) Must be for Charitable purpose 3) Must be in favor of reasonably large number of unidentifiable benefs 4) Cy pres doctrine
Charitable Purposes 1) Religion 2) Medicine 3) Science 4) Gvt'al (parks) 5) Research 6) Education
When specific charitable purpose can no longer be accomplished? MAY be reformed under doctrine of cy pres ("as near as possible").
Related Doctrine to Cy Pres Deviation from trust administrative terms b/c of unforeseen change in circ. (applies to private as well as charitable trusts) Continuing to adhere to specific direction would frustrate the primary purpose of the trust.
Mandatory Income Distribution Trust vs Discretionary Support Trust (compare # 27 to # 29 of pgs 10 and 11 of lecture notes)
No support language in purpose of Trust Pure Discretionary Trust. Benef cannot compel distribution. GENERALLY, Cs cannot compel distribution. EXCEPT, child or spouse can compel if for child support or alimony.
Irrevocable Trust for Third Persons in re Creditors GENERALLY, Settlor's Cs have no rts. EXCEPT, fraudulent transfers (i.e. Trust created initially w/ intent of defeating known Cs).
Multiple TEs TRADITIONALLY, except in emergencies, need unanimous decisions. MAJORITY, majority rule.
If TE notifies Beneficiaries b/f Act that ends up a breach of duty, is TE no longer liable? TE is liable, unless beneficiary consents or participates in breach, waiving rt to sue. Mere knowledge of breach is NOT enough. RELATED RULE: As long as trust is revocable, TE who acts w/ consent of Settlor cannot be sued for breach by beneficiaries.
Income Beneficiaries Get Net Income
Remaindermen (beneficiaries) Entitled to Trust corpus (principal) at termination of Trust
Receipts (income) Interest, Rent, Dividends on stock paid in cash. 10% of any amts received as annuity or mineral royalty.
Receipts (principal) Proceeds from sale of Trust assets, stock splits, and dividends paid in stock.
Expenditures (income) Ordinary expenses incurred in production of income (e.g. repairs, interest, taxes).
Expenditures (principal) Extraordinary items, capital improvements and income taxes incurred on sale of trust property.
TE's fee charged half to income and half to principal
Exception to Income/Principal idea of Trust Accounting Power to Adjust: TE may adjust normal classification rules if an adjustment is NECESSARY to comply w/ TE's duty of IMPARTIALITY.
Claflin Doctrine Benefs, all of whom are of age/competent, can terminate Trust, IF 1) all benefs consent and 2) no further Trust purpose to be served.
Spendthift Clause (termination) Trust indestructible (i.e. benefs cannot terminate) Idea is that there is a further trust purpose of Settlor to be served. Settlor intended to provide benef w/ income int that could not be anticipated/assigned, and not reachable by Cs. (material purpose)
Exception to Termination Rule in re Spendthrift clause A spendthrift trust can be terminated by CONSENT OF ALL of benefs, if SETTLOR also consent.
Revocability of Trust TRADITIONALLY, not revocable unless settlor expressly reserved rt. MODERN TREND, revocable unless instr says otherwise
Two types of Resulting Trusts 1) Failure of Express Trust, or 2) Express Trust purposes accomplished and corpus not exhausted
Example of Purchase Money Resulting Trust (See # 37 on pg 17 of lecture notes)
Resulting/Constructive Trust in re BFPs A sale or exchange by TE of trust to BFP for value cuts off Benef's rts to transferred asset. BUT, TE holds any consideration received on transfer in trust for benef AND, if sale is not to a BFP. benef has choice of remedies.
Choice of remedies if Resulting/Constructive Trust sold to non-BFP 1) impose trust on consideration received by TE or 2) impose trust on original asset in Non-BFP's hands.
General Testamentary Power of Appt Donee not limited in class of beneficiaries to whom can appt. (e.g. can appt property to self, estate, or Cs of either) Testamentary b/c limited to appt by Will.
Special Power of Appt Cannot appt to self or estate.
To exercise Power of Appt in Will Must reference the power.
Created by: Sarah_Shore
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