What is a trust?
a fiduciary relationship in which one party (trustee) holds legal title to property for the benefit of its beneficiaries.
The trustee holds legal title, whereas the beneficiary owns equitable title.
How are trusts created?
Either via inter vivos (during settlor’s lifetime) or via testamentary trusts (trusts created by will.
What is an inter vivos trust?
By either:
1. Transfer of property to a trustee
2. Settlor declares himself as holder of the property in trust for his beneficiaries.
Writing is NOT required, but oral trust can only be established through clear and convincing evidence.
What is a testamentary trust?
A trust created by will. Requires:
- trust intent
- essential terms
- identification of beneficiaries that are ascertainable
What are the requirements for an express trust?
- settlor has capacity to convey
- settlor has clear intent to create trust (writing is only required if conveying real property, per SoF)
- Definite beneficiary(s)
- settlor identifies the specific property to go in the trust (Trust Res)
- there is a valid trust purpose (not illegal or contrary to public policy)
- settlor names a competent trustee (will NOT fail if no trustee)
What are the different types of trusts?
- Mandatory Trust: trustee must make distributions from the trust
- Discretionary Trust: trustee may make distributions at her discretion (e.g. “Trustee to make payments for the health and care of beneficiary”)
- Remedial Trust: remedy created by operation of law
- Support Trust: directs trustee to pay beneficiaries from trust as much as is necessary for beneficiary’s support. Support expenses include whatever is necessary = health (hospital bills), child care (child support, daycare)
- Spendthrift Trust: prohibits beneficiaries from transferring their interests in the trust, either voluntarily or involuntarily. Creditors usually cannot reach the trust.
- Totten Trust: revokable trust given to bank account in a depositor’s name as trustee with no separation of legal and equitable title.
- Pet trusts: INVALID!
Who are the exception creditors who can reach a spendthrift trust?
EXCEPTIONS: these creditors can reach trust property:
- Spousal or child support
- Creditor who provides basic necessities to the beneficiary (food, housing, medical bills)
- Holders of federal or state tax liens
- judgment creditor
What is a charitable trust?
Trust that has the purpose of benefitting an unascertained group of people.
Requires:
1. RAP does NOT apply (all interests do not need to vest within RAP period)
- must have a charitable purpose
Relief of poverty
Advancement of education or religion
Promotion of good health
Gvt purposes
Other purposes benefitting the community - indefinite and/or unascertained beneficiaries
What is the cy pres doctrine?
A charitable trust may terminate if the charitable purpose becomes unlawful, impracticable, or impossible. However, cy pres may save the trust. Courts allow modification of a charitable trust when the charitable purpose or charity are no longer possible, unlawful, or in operation.
(e.g. Where Charity is no longer is business, a court may look to what that charity had done in the past and what the intent of the settlor was in choosing that charity and direct the funds to another charity that has a similar mission.)
What are the two types of trust income?
Rule: All assets must be allocated to either income or principal. Traditional approach assumed that any money generated by trust property was income and that any money generated in connection with a conveyance of trust property was principal.
o Income: the $30,000 in rents received from the office building and the $20,000 in cash dividends should be characterized as trust income.
o Principal: the $700,000 proceeds from selling the office building constitutes money generated in connection with a conveyance of trust property, and the 400 shares in stock dividends should be treated as trust principal under the UPAIA.
What is the rule of convenience for class gifts?
when a gift is made to a group, such as “my children,” the class closes when at least
one member is entitled to distribution.
What is a class gift?
A gift to a group of individuals with an automatic right of survivorship is a class gift.
A class remains open and may admit new members until at least one class member is entitled to obtain possession of the gift or the preceding interest terminates.
Class gift and anti-lapse
if a testator gives a gift to a group of unrelated individuals and one predeceased him, the deceased would not take, and neither would his descendants, unless the antilapse statute saved the gift.
What is a pour-over will?
When a Will stipulates that all property goes to his Trust.
Exception to Trust needing Property: a dry inter vivos trust can be funded upon the settlor’s death by a pour-over will.
