Trusts

I. Introduction
A. Overview
Trust is fiduciary relationship where one party holds title to property for benefit of another
Settlor/Donor/Testator Trustee Beneficiary
B. Sources of Law
Uniform Trust Code + Rest. 3 Trusts
C. Types of Trusts
Express (intent of ownerprivate or charitable); Implied (equit/by lawresulting or
constructive)
II. Creating Express Trusts
A. Parties to a Trust
Settlor: must transfer property to trust with intent to create trust. Inter vivos or
testamentary. May be trustee or beneficiary. Must deliver assets to trust.
Trustee: owes a duty to beneficiary, may not be beneficiary. Duty to preserve property,
make productive, invest prudently, administer, account, segregate assets, treat benef.
fairly.
Beneficiary: has present/future interest in trust and holds power of appointment. May
enforce
B. General Effects of a Trust
Settlor doesnt own assets; trustee has title
C. Elements Necessary to Create a Trust
Settlor with capacity + expresses intent to create + delivery of property + to ascertainable beneficiary + duties on beneficiary + proper
trust purpose + trustee
Intent is base don relationship with parties, language, and facts; oral ok, unless RP
Delivery must be IDable and delivered (deed of trust, declaration [self], will, K)
prop inter., future intr., K rts, or interest in trust ok; future earnings, estate, debt not.
Unless charitable trust, must ascertain benef presetly or not (RAP), definite class
D. Creation of an Inter Vivos Trust
exec. deed of trust + delivery (phys, symbolic, constructive) + Intent (decl. self or mark asset)
No SoF unless RP || all inter vivos trusts
E. Testamentary Trusts
Created by will, present intent by speaking at death. Secret trusts (devised to another w/o ref); semi secret (to others undisclosed-
illeg); Pour over (direct xfer to trust est by testator/other inter vivosmust incorp by ref/have indep. significance) || UTATA: terms in
K=OK
F. Trusts Arising by Contract
Person can create trust by entering into K w/ someone who by K must: become trustee / transfer title to trustee. Specific
performance.
G. Totten Trusts
Creation of trust w/r/t bank deposit if unclear trust (tentative whether intervivos trust or deposit.) Revocable, no interest til death. cf
wills.
H. Supplemental Needs Trusts
permits person with special needs to get sup income w/out sacrificing medicare elig.
I. Honorary Trusts
Not charitable trust, but may not have idable beneficiaries (eg pet, gravesite) || unenforceable
J. RAP
no interest good unless it must vest w/in 21 years from life in being at creation of interest.
III. Trustees Power and Responsibilities
A. Sources of the Trustees Power
derived from trust instrument + granted by . Power to Settle claims, exercise all rts w/r/t/ prop, borrow $, sell assets, apportion,
expenses.
B. Duty of Loyalty and Good Faith
Trustee has duty of GF to beneficiaries. No Self Dealing, even in GF; no personal benefit; no selling assets; no borrowing against; no
CoI
C. Affirmative Duties w/r/t Trust Assets
Must incur only reasonable costs re: trust; preserve trust estate (eg insurance etc); Reasonable biz person std, unless skilled himself;
Prudent investment (gov bonds, blue chip stocks, first-trust deed mortgages); accounting for all txns.
D. Trustees Liabilities
Trustee is liable for breaches of fid. duties. Must be brought by beneficiaries. [Loyaty:] May get specific perf; enjoin; order account;
appoint fid; reduce comp; etc [own purpose] compel return of funds, or profit [sell] trustee liable for value or intrest earned on
funds
No exculp for loyalty, bad faith, or intentional, reckless, negligent; if beneficiary permits, may face estoppel
E. Removal and Resignation of Trustee
May be removed by ct, settlor, beneficiary if breach of trust, no coop, unfitness, change of circumstance
F. Trustees Liability to 3
rd
Parties
Trustee is indemnified by trust where personally liable if: tort normal incident to trust activity; SL; RS otherwise not personally liable
IV. Alienability of Trust Beneficiareies Interests and Creditors Rights
A. Beneficiaries Interest
unless restricted, beneficiary may assign interest. Land=SoF. Notice to T-ee not reqd, may refuse to honor if no writing + benef.
claims no
B. Support, Discretionary, and Spendthrift Trusts
Support (for edu, health, maint, supportno more); discretionary (payment to beneficiary is to be made in tee discretion; Spendthrift
(beneficiary may not assign + creditors may not reach || tee may accept, unless assigned || may be implied in )
C. Limitations upon the Enforceability of Spendthrift, Support and Discretionary Trusts
Frequently Tested Topics
Creating Express Trusts
Trustee Power/Responsibility
Modification
Alienability
Charitable Trusts
Trusts


creditors may reach anyway, esp if distribution made (where value assured) or mandatory [UTC]; settlor may not insulate own assets
and beneficiarys spouse/kids; necessities not attacked || up to 10k locked in; tax
D. Rights of Settlors Creditors
any settlor interest is creditors; any trust if for purpose of avoiding creditors or fraud or bankruptcy (if revocable).
V. Modification or Termination of Trusts
A. Termination by Settlor
unless irrevocable, revocable at settlors discretion; if so, only with consent of beneficiaries. Irrevocability presumed at CL. Inter vivos
by terms of trust, or, by will/codicil using trust res or other clear intent.
B. Termination of Trust by Merger
Sole Trustee = Sole Beneficiary
C. Termination by Operation of Law
if material purpose achieved/impossible/impractical; res consumed/destroyed; purpose fully accomplished
D. Administrative Duties
If trust admin provision would result in viol of law or purpose, tee may modify, but cannot change beneficial interest
E. Termination by Beneficiaries after Settlors Death
If for term, no consent of beneficiaries; esp if discretionary or spendthrift. If no material purpose remains, may terminate if all benef.
vested
F. Natural Expiration
G. Modern Trends
3
rd
Rest promotes term and modification
VI. Trusts Arising by Operation of Law-Implied Trusts
A. Resulting Trusts
Arise when: express trust makes incomplete disposition of assets, or fails after conveyance (no benef, res, invalid); purchase money
trust
B. Constructive Trusts
equitable remedy where trust created on holder of prop to redress wrongdoing or prevent unjust enrichment (ie wrongfully obtained
prop)
VII. Charitable Trusts
A. Distinguishing Characteristics
must have charitable purpose, indef beneficiaries, perpetual existence (no RAP), cy pres
B. Charitable Purpose
mainly: relief of poverty, adv. edu, adv. religion, promo health; perf. gov/muni function; community benfit
C. Indefinite Beneficiaries
must not be ascertainable, but if small group may enforce, otherwise, AG or Settlor enforces
D. Perpetual Existance
charitable interest must vest within RAP
E. Cy Pres Doctrine
if frustration/imposs/illegality + general charitable purpose = may approximate before declared failed.
F. Termination
if no cy pres, estate gets it
VIII. Future Interests
A. Powers of Appointment
Power created by donor which enables another to designate transferees of prop and shares to receive. General or specific (class
donees)
B. Exercise of Power
may be testamentary or inter vivos (+ gen/special)
C. Release of Power
donee may release or destroy power
D. Creditors Rights
creditor may seek to reach assets of power of appointment
E. RAP
applies