TRUSTS SHORT OUTLINE/CHECKLIST

CHECKLIST

I. Creation of a Valid Private Express Trust (7)

a. Settlor
b. Intent
c. Trustee
d. Beneficiaries
e. Trust Property (Res)
f. Delivery
g. Valid Trust Purpose

II. Types of Trusts (9)

a. Charitable
b. Honorary
c. Totten
d. Spendthrif
e. Discretionary
f. Support
g. Resulting
h. Constructive

III. Modification/Termination of Trusts

a. Self-Termination
b. Settlor’s Power to Modify/Revoke
c. Beneficiaries’ Power to Modify/Terminate
d. Judicial Power

IV. Trust Administration & Trust Duties

a. Source of Power
b. Fiduciary Duty
c. Duty of Care*
d. Duty of Loyalty*
e. Liability to Third Persons
f. Income v. Principal

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I. Creation of a Valid Private Express Trust (7)

a. A private express trust is a fiduciary relationship with respect to property whereby one person, the
trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a
manifestation of interest to create it for a legal purpose. A valid trust must have the following elements:
i. (1) Settlor/Trustee
1. Every trust needs settlor – the person who creates the trust and provides the asset to
create the trust
ii. (2) Intent
1. There must be a present manifestation of trust intent made by the settlor, by words,
writing, or conduct, not a future intent.
2. There must be mandatory words of trust intent. No trust is created by precatory words,
which are words of wish, hope or desire.
a. Prior Support – if the settlor was supporting the beneficiary prior to the creation
of the trust, that parol evidence can be used to create a valid trust.
iii. (3) Trustee
1. A trust must have a trustee, but the court will not allow the trust to fail solely because
there is no trustee or a trustee refuses to serve. If a trustee refuses to serve, the court
can appoint a trustee.
iv. (4) Beneficiaries
1. Any ascertainable person or group of people can be the beneficiary of a private express
trust. Person includes a legal person.
a. Can be a corporation, a class (if not too big or may be charitable), a child
conceived when trust is created, and an unincorporated association under the
modern law (not under the common law).
b. Gifts cannot violate the RAP.
c. Notice to the beneficiary is not required – but the beneficiary must accept.
v. (5) Trust Property (Res)
1. The trust must include trust property (corpus or res), which is any presently existing
ascertainable interest in property that can be transferred.
a. No illusory interests like future profits, debts, or mere expectancies
vi. (6) Delivery
1. Transfer in Trust
a. Real property – the settlor must execute and deliver a deed transferring title to
the trustee
b. Personal property – there must be delivery to the trustee of the trust property
at the time settlor manifests the intent to create the trust
i. Delivery: Actual, symbolic or constructive
ii. No delivery = no trust. A promise to deliver is not delivery.
2. Declaration in Trust – settlor herself is the trustee
a. Real property – declaration of trust for real property requires a writing satisfying
the Statute of Frauds
b. Personal property – Because the settlor is the trustee, there is no issue of
delivery: one cannot deliver property to oneself. Thus, all that is needed is a
present manifestation of trust intent
vii. (7) Valid Trust Purpose
1. A trust may be established for any legal purpose. It cannot violate the law or be against
public policy.

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II. Types of Trusts (8)

a. Charitable Trusts
a. A charitable trust is a trust created for a charitable purpose, which is one that confers a
substantial benefit upon society (helping the poor/sick, advance education/religion).
b. It is created the same way a private express trust is created, except the beneficiaries must be
indefinite or unascertainable.
i. If the class is small, there is a split of opinion as to whether it’s a charitable trust:
1. (1) one view: it results in a private express trust
2. (2) another view: charitable trust regardless of size b/c society benefits
c. RAP does NOT apply to charitable trusts.
d. Cy Pres
i. If a charitable purpose is impracticable or the trust does not have sufficient funds to
accomplish its goals, then the court may select an alternative charitable purpose under
the doctrine of cy pres (“as near as possible”) as long as the settlor had a general
charitable intent, and not a specific intent.

b. Honorary Trusts
a. An honorary trust is one that has no ascertainable beneficiary, and confers no substantial
benefit on society (such as trusts for benefits of pets or for maintenance of burial place).
i. The trustee is not required to carry out the settlor’s goal, but has the power to do so and
is on his honor ONLY to carry out the settlor’s intent – if the trustee is unwilling to carry
out the settlor’s intent, a resulting trust will occur.

c. Totten Trusts
a. A Totten trust is also referred to as tentative bank account trust, whereby the named
beneficiary takes whatever is lef in the account at death of the owner of the account. It is NOT
a true trust – usually a savings account.
i. Trustee owns the account during the depositor’s lifetime and owes the beneficiary no
fiduciary duties.

d. Spendthrif Trusts
a. A spendthrift trust is a trust which prevents voluntary alienation of the trust (beneficiary cannot
transfer his right to future payments of income/principal) and similarly prevents involuntary
alienation of the trust (creditors cannot attach the beneficiary’s right to future payments of
income/principal).
i. Exceptions to the creditor’s right to attach:
1. Preferred creditors can attach. Taxes, those that provide life support for bene,
child support, spousal support, alimony payments, and tort judgment creditors.
2. Many jurisdictions allow creditors to attach surplus funds, which are funds over
and above what beneficiary requires to live off of.
b. Self-Settled Spendthrif Trust
i. This is a trust which is created by the settlor in himself to shield himself from his
creditors.
1. Involuntary Alienation: Most jurisdictions do not allow a settlor to do this for
involuntary alienation purposes (preventing creditors from attaching). Some do.
2. Voluntary Alienation: Most jurisdictions allow for voluntary alienation purposes
(allowing settlor to transfer his rights). Some don’t.

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e. Discretionary Trusts
a. In a discretionary trust, the trustee is given sole and absolute discretion in determining how
much to pay the beneficiary if anything, and when to pay the beneficiary if ever.
i. Voluntary alienation – yes and no, how does the bene know what he can transfer?
ii. No involuntary alienation – yes and no, how does the creditor know what is coming?
iii. Self-settled Support Trust – same analysis as spendthrift above

f. Support Trusts
a. A support trust directs the trustee to pay only so much of the income or principal (or both) as is
necessary for the beneficiary’s support.
i. No voluntary alienation (would defeat the purpose)
ii. No involuntary alienation (except preferred creditors) – same as spendthrift above
iii. Self-settled Support Trust – same analysis as spendthrift above

g. Resulting Trusts
a. A resulting trust is an implied in fact trust and is based upon the presumed intent of the
parties. If a resulting trust is decreed by the court, the resulting trustee will transfer the
property to the settlor if the settlor is alive, and if not, to the settlor’s estate, i.e.: to the
residuary devisees if any, and if none, to the intestate takers (the heirs).
b. A resulting trust arises in 6 situations:
i. (1) Private Express Trust Ends – by its own terms – and no provision as to what happens
with the corpus afterwards
ii. (2) Private Express Trust Fails – b/c no beneficiary or purpose has become illegal
iii. (3) Private Express Trust Has Excess Corpus
iv. (4) Charitable Trust Ends – b/c of impossibility or impracticability and cy pres cannot be
used.
v. (5) Purchase Money Resulting Trust – when A pays consideration to B to have title to
property transferred to C.
1. If A and C are not closely related, there is rebuttable presumption that C is
holding a purchase money resulting trustee for benefit of A.
2. If A and C are closely related, there is a rebuttable presumption that A made a
gift to C.
vi. (6) Semi-Secret Trusts - arises when the will makes a gift to a person to hold as trustee,
but does not name the beneficiary.

h. Constructive Trusts
a. Remedy to prevent fraud or unjust enrichment, where the trustee’s only duty is to convey the
property to the person who would have owned it but for the wrongful conduct. Arises when:
i. (1) Trustee makes a profit b/c of self-dealing.
ii. (2) There is fraud in the inducement or undue influence under the law of wills.
iii. (3) Secret Trusts – where will on its face makes a gift to A, but which is given on a basis
of an oral agreement that A will hold the property for the benefit of B.
iv. (4) Oral real estate trusts

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III. Modification/Termination of Trusts

a. Self-Terminating Trusts
a. Trust terminates automatically upon the expiration of a term specified in the instrument or when
all the purposes of the trust have been accomplished.

b. Settlor’s Power to Modify/Revoke

a. The settlor generally retains the power to revoke or amend the trust, but most courts allow this
only when the settlor expressly reserved that right in the trust instrument. Some courts allow a
settlor to modify/revoke at any time, unless the trust is expressly made irrevocable.

c. Beneficiaries Power to Modify/Terminate

a. Beneficiaries to a trust may only compel modification or termination if all beneficiaries consent,
AND modification/termination will NOT frustrate any material purpose of the trust. A settlor’s
objections do not bar beneficiaries from terminating, but may go to frustration of purpose
element.

d. Judicial Power
a. Courts may terminate a trust where the purpose has become illegal or impossible.
b. Changed Circumstances: A court can also authorize a deviation from the administration terms
as long as:
i. (1) there are unforeseen circumstances on the part of the settlor, AND
ii. (2) deviation is necessary to achieve the trust purpose.

IV. Trust Administration & Trust Duties

a. Source of Power
a. A trustee has all powers expressly conferred by the trust instrument.
b. A trustee has all implied powers that are necessary and appropriate to accomplish the trust
purposes, such as:
i. Power to sell trust property
ii. Power to incur expenses
iii. Power to lease
iv. Power to borrow

b. Fiduciary Duty
a. A trustee is a fiduciary to the beneficiaries, to administer the trust solely in the interest of the
beneficiaries. Any breach subjects the trustee to personal liability.

c. Duty of Care
a. A trustee must exercise a degree of care, skill and caution that would be exercised by a
reasonably prudent person in managing her own property. If the trustee has greater skill, he is
held to a higher standard.
b. Duties Relating to the Care of Trust Property: The trustee has specific duties of care related to
the trust property:
i. Duty to Collect/Protect Trust Property
1. A trustee must keep the property and protect the property
ii. Duty to Earmark Trust Property
1. This requires the trustee to label trust property as trust property.

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2. Under the common law, a breach resulted in liability regardless of whether the
breach actually caused the loss.
3. Modernly, the breach must cause the loss for liability.
iii. Duty to Not Commingle Funds
1. Trustee cannot comingle his own personal funds with trust funds. Also requires
trustee not co-mingle multiple trust funds.
iv. Duty to NOT Delegate Duties
1. Trustee can rely on professional advisors in reaching a decision, but the trustee
cannot delegate decision-making authority to these advisors. Trustee cannot
delegate to another trustee.
2. Common law – trustee could not delegate the duty to invest to a professional
money manager
3. Modernly – trustee can delegate this duty to someone like a manager
v. Duty to Account
1. This requires trustee, on a regular basis, to give the beneficiaries a statement of
income and expenses of the trust
c. Duty to Invest
i. The trustee has a duty to properly invest trust property. There are three approaches to
the trustee’s duty to invest:
ii. (1) State Lists
1. Some states have lists which trustee must follow in the absence of directions in
the trust. Fed Govn’t Bonds, Fed Insurred COD, First DOTs, Stock, and never
investing in new business or Second DOTs.
iii. (2) Common Law Prudent Person Test
1. The duty to invest requires the trustee to act as reasonably prudent person
investing his own property, trying to maximize income while preserving corpus.
If the trustee holds himself out as having greater skill, he is held to that higher
standard (similar list of appropriate investments above).
iv. (3) Uniform Prudent Investor Act
1. The act simply provides the trustee must invest as a “prudent investor.”
v. Other Investment Rules Applicable to All Approaches
1. Duty to Diversify
2. Duty to Maintain Marketability of Trust Property
3. Duty to Keep Trust Property Productive
4. Duty to NOT Speculate

d. Duty of Loyalty
a. The trustee also has a duty of loyalty, which requires that the trustee administer the trust for the
benefit of the beneficiaries (implicitly, trustee must be impartial), having no other consideration
in mind.
b. Self-Dealing
i. A trustee must not engage in self-dealing – IE: cannot use trust assets for his own
personal benefit, or acquire any personal benefit from administering the trust.
ii. Liability = a “surcharge” for the losses incurred – the beneficiaries sue for damages for
any loss. The beneficiaries may also trace the property and reacquire the property
unless the purchase is a BFP.
1. However, the beneficiaries may elect to waive the breach if the outcome is
positive.
c. Conflict of Interest

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i. A trustee is also prohibited from not acting in the best interest of the corporation, by
engaging in conduct or transactions to benefit his own interests over that of the
beneficiaries’ interests.
ii. Liability = surcharge or ratification.

e. Liability of Trustee to Third Persons in Contract/Tort

a. Liability in Contract
i. Common law rule:
1. Trustee is sued in his personal capacity and the trustee’s personal assets are at
stake. But the trustee can get indemnification from trust assets if the trustee
acted within his or her powers and was not personally at fault.
2. The only time the trustee would be sued in his representative capacity is if the
contract itself provided that in the event of a breach by the trustee, the trustee
is to be sued in his representative capacity.
ii. Modern law rule:
1. If the other person to the contract, the promisee, knows that the trustee is
entering into the contract in his representative capacity, then the trustee must
be sued in his representative capacity. Thus, the trustee’s personal assets are
not at stake.
b. Liability in Tort
i. Common law rule:
1. Trustee is sued in his personal capacity
2. If the trustee was without personal fault, however, the trustee can get
indemnification from trust assets. Thus, if an agent committed the negligent act,
or if this is a case of strict liability, then the trustee can obtain indemnification.
ii. Modern law rule:
1. The trustee is sued in his individual capacity and is personally liable for torts
only if the trustee is personally at fault.

f. Income v. Principal
a. Income/Expenses to LIFE TENANT
i. The life tenant gets the following income:
1. Cash Dividends
2. Interest Income
3. Net Business Income
ii. The Life Tenant’s interest pays for the following expenses:
1. Interest on loan indebtedness
2. Taxes
3. Minor repairs
b. Income/Expenses to REMAINDERMEN
i. Remainderman gets the following income:
1. Stock Dividends
2. Stock Splits
3. Net proceeds on sale of trust assets
ii. Remainderman’s interest pays for the following expenses:
1. Principal part of loan indebtedness
2. Major repairs or improvements (new wing of a building)
c. Adjustment Power of Trustee
i. The trustee can disregard the above if necessary to administer trust fairly

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