What is a trust?
A trust is a fiduciary relationship wherein one (trustee) is given legal title/interest by the creator (settlor) to hold and protect the property for the benefit of another (beneficiary) who takes the equitable title/interest and therefore possesses the power to enforce the trust
What are the rules for the presumption of the revocability of trusts?
- UTC (majority)—trusts are presumed to be revocable
- Traditional rule (minority)—trusts are presumed to be irrevocable
When is a trust created?
- S must intend to make a gift in trust; look for words of trust, e.g., “for the benefit of”
- Manifestation of intent may be oral, in writing, or through conduct (delivery); a writing is required if created in a will (Statute of Wills) or the subject matter is land (Statute of Frauds)
- Ambiguous language—precatory words such as “hope” or “desire” are insufficient; precatory language will suffice if accompanied by specific instructions to another, and failure to impose a trust would result in an unnatural disposition of donor’s property or enforcing a trust would be consistent with a history of support between the donor and beneficiary
When is a promise to create a trust in the future enforceable?
Promise to create a trust in the future is unenforceable unless it is supported by consideration or the intent is manifested anew upon transfer.
What is required for trust property?
Presently identifiable and not a mere expectancy, unless it qualifies as a pour-over devise from a will
When are beneficiaries ascsertainable? When do they not have to be?
- Must be presently identifiable or (UTC) capable of being identified by the time the beneficiaries receive their interest
- Exceptions—class gifts, unborn children, and charitable trusts
What are the three types of express trusts?
- Inter vivos (living) trust –> either settlor as trustee (declaration of trust, must be in writing for real property) or someone else (deed of trust, must be in writing always)
- Pour-over gift from will (must be in writing and identified in will)
- Testamentary (funded independently of will)
What are secret trusts and semi-secret trusts?
- Secret Trust: What appears to be an outright gift in a will is actually based upon a promise by the devisee (trustee) to the testator (settlor) to hold the property for another’s benefit
◦ Burden of proof is clear and convincing evidence
Remedy is constructive trust - Semi-Secret Trust: A will directs a gift be held in trust without naming a beneficiary
◦ Common law—prevents extrinsic evidence to prove the trust so the gift fails
◦ Remedy is a resulting trust in favor of the testator’s heirs; modern trend would impose a constructive trust in favor of the intended beneficiary, if known
What is a charitable trust and what are the valid purposes?
A trust created for a charitable purpose benefiting the community
* Charitable purpose—advancement of health, education, religion, government, relief of poverty, or other purpose benefiting the community at large or a particular segment
* Large class of unidentifiable beneficiaries—the beneficiaries must not be ascertainable, such as the community at large or a segment of unidentifiable members
* NOTE: Not subject to RAP
What is the cy pres doctrine?
- Allows the court to modify the terms of a charitable trust when it cannot be performed as written, so long as consistent with settlor’s intent; UTC allows even if intent unknown
- The court will seek a similar charitable purpose if the original purpose becomes illegal, impracticable or impossible to perform
Enforced by the Attorney General; UTC also allows the settlor to enforce.
What is an honorary trust?
An honorary trust is one without a charitable purpose and without a definite human beneficiary to enforce the trust (e.g., to care for a pet or tend to a grave)
* Usually terminates upon death of last surviving animal or limited by statute (e.g. 21 years under UTC)
What are three trust substitutes?
- Totten Trust—a fully revocable designation on a bank account where the depositor is named “trustee” for one or more named beneficiaries and retains control through her lifetime
- UTMA (Uniform Transfers to Minors Act)—account for a minor managed by custodian
- Life Insurance Trust—policy paid at death; okay even though not funded until settlor dies
What are the limits of the alienability of a beneficiary’s interest in a trust?
The beneficiary’s interest (right to receive income or principal) is freely transferable unless limited by law or the trust. Certain devices put a restraint on alienation. Once the property is distributed to the beneficiary however, there can be no restraint on alienability.
When can a creditor reach a beneficiary’s interest in a discretionary/support trust?
Until the T exercises her discretion, the beneficiary’s interest cannot be reached;
* Once T makes payment, if she has notice of a creditor assignment/attachment, T must pay the creditor (absent a spendthrift provision)
* EXCEPTIONS: creditors who provide necessities (health, education, support) can reach the assets
What is a spendthrift trust? What are its exceptions?
Restricts the beneficiary’s power to transfer his equitable interest; creditors cannot reach the assets until the property has been paid out to the beneficiary. Cannot be reached in bankruptcy proceedings or if an employee pension.
* Exceptions—claims for child/spousal support or holders of tax liens (in some jurisdictions, also creditors providing necessities)
When can an interest in a trust be disclaimed and what effect does it have?
C/L (renunciation) allowed anytime
* By statute in most states, a disclaimer is valid if it is in writing and executed within nine months after the future interest would become indefeasibly vested (e.g., for a revocable or testamentary trust, when the settlor dies)
* The beneficiary will be treated as having predeceased
* When the income beneficiary disclaims, the principal becomes immediately distributable to the remainder beneficiaries
What are the differing rules for gifts to surviving children (e.g., Inter vivos trust specifies beneficiaries as the settlor’s “surviving children” after an intermediary interest in another for a term of years)
- C/L—“surviving” is measured at settlor’s death
- UPC/majority—“surviving” is measured at the end of the prior intermediary interest; if a child who survives the settlor but then predeceases the time of distribution has surviving issue, that issue receives the share to which the parent would have been entitled had the parent been alive at the time of distribution (i.e., a substitute gift)
What are the differing rules for gifts to issue and their descendants (e.g., Gift to issue but issue predeceases grantor)
- Traditional rule—anti-lapse statutes do not apply to nonprobate gifts, so the gift fails
- UPC (modern rule)—has an anti-lapse provision for trusts creating a substitute gift in the descendants of the deceased issue, even if there is language to the contrary, e.g., “to my issue who are living”
When will a trust automatically terminate?
A trust will automatically terminate when (i) the trust is revoked or expires pursuant to its terms; (ii) it has no remaining unfulfilled purpose; or (iii) its purpose becomes unlawful, contrary to public policy, or impossible to achieve.
When can a revocable trust be terminated or amended?
Can be amended or terminated by the settlor:
* By substantial compliance with the terms of the trust; or
* If no exclusive method is provided, by (i) a later will or codicil or (ii) any other method manifesting clear and convincing evidence of the settlor’s intent
When can a noncharitable irrevocable trust be modified?
- Can be amended or terminated by:
- Consent of all beneficiaries—permitted if (i) continuance is not necessary to achieve any material purpose of the trust, or (ii) modification is not inconsistent with a material purpose of the trust
- Consent of all beneficiaries and the settlor—permitted even if inconsistent with a material purpose of the trust
What is the Claflin doctrine?
If the settlor dies and all beneficiaries agree to terminate, the trustee can block termination if contrary to a material trust purpose (e.g., support trust, spendthrift trust, age-dependent trust, trust with a future interest).
When can a court modify or terminate a trust?
The court can modify or terminate (i) if unanticipated changes prevent trust’s purpose of create an inability administer the trust effectively, (ii) if the trust is uneconomic, (iii) to correct mistakes of fact or law, or (iv) to achieve the settlor’s tax objectives.
When can a trustee resign or be removed?
A T may resign on 30 days’ notice to the beneficiaries, S (if living), and any co-Ts, or with court approval
* Unless the terms otherwise provide, neither S nor the beneficiaries have the right to remove T
* The court can remove T if the trustee becomes incapable or materially breaches a duty, a conflict of interest or serious conflict with the beneficiaries arises, or for poor performance
