estates chapter 8 creation of trusts

Jane's will says, ''I give my house to Sebastian. I have given him instructions, and he has agreed to transfer the house as I have instructed him.

'' This is a semi-secret trust because the will indicates that Sebastian is supposed to hold the property as trustee but provides no information about the terms of the trust

two ways to create a valid trust

1. declare yourself as trustee of your own property for the benefit of another, which is a "declaration of trust" 2. transfer your property to a third party to hold for the benefit of another, which is "transfer in trust"

legal requirements of a trust

1. must have capacity -- testamentary trust & revocable trusts require same capacity is required for wills aka sound mind & 18+ yrs --irrevocable trusts require slightly higher standard 2. must have intent to impose a mandatory duty on self or third party to hold for the benefit of another 3. must be free of undue influence, duress, or fraud

1. S owns several bonds. She writes "these bonds are for Marco when he turns 22 on the outside of the envelope and puts the bonds inside. --a. S dies, and the envelop with the bonds is found in her safe box. S's intestate heirs seek the bonds. advice marco. what if he is only 16 when she dies, what about 40? --b. before S dies, she tears up the envelop and sells the bonds. what rights does M have if he is 20? if he is 25?

1. she intended to create a declaratory trust-- she doesn't have these in fee simple anymore- no longer her probate property a. Evidence that it's in a safe deposit box & she isn't using it so pretty strong argument for her as settlor and trustor and Marco as the beneficiary --Court can step in and make a bank trustee to hold the bonds until he turns 22 --If he had gotten it when 40 though, presumption might be that she had intended to revoke it under the UPC b. If under common law, it'd be irrevocable and she breached her duty as a trustee and should have turned the bonds over If he's 25- depends on jurisdiction and whether it's irrevocable or not, if so then she's in breach but if not then it's revocable

elements of a valid trust

1. the trust must be established for a valid, legal purpose 2. the settle must be competent when creating the trust 3. the trust must have a trustee (but it won't fail for lack of one) 4. the settlor must have intended to create a trust 5. the trust must be funded i.e. must have some corpus (property or res) 6. the settlor must identify an ascertainable beneficiary some states require trust to be in writing but MOST require it in writing if it holds real property

what happens in a state that's adopted the statute of frauds if a property owner attempts to transfer land to a trust but does not do so in writing? the trust won't be void but also won't be enforceable against the transferree/trustee. transferee has legal title and if she is allowed to keep the property & not subject to the trust then she's unjustly enriched-- rules have developed to solve this

1. voluntary trust --an trust of real estate isn't void a trustee can carry out the terms and if so then can't terminate trust based on lack of writing --if transferee refuses to carry out terms, he cannot be held in breach bc lack of writing provides a defnese and the trust is unforceable 2. partial performance --if transferee partially performs the trust and then stops, the trust can be enforced. 3. constructive or resulting trust ---transferree holds property under this for intended beneficiaries if 1. the transferree used fraud/Undue I, or duress to cause the property owner to transfer the prop OR 2. at the time of transfer, the transferree was in a confidential relation to owner if neither of these apply, court may find that the transferee holds property as resulting trust (trust fails and property returns to settlor or as constructive trust for benefi of owner or benes

precatory v. mandatory language

D sends a check to his Bro with a note that reads " J i'm so delighted to hear about your son's success. i know college is expensive and i hope you will use the enclosed check to help with his college tuition" the check is made out to J words like hope, wish, desire, are precatory & are not enforceable if D's note had said please use this for your son's college, there is a stronger arugment that the transfer created a trust

K gave money to T, telling him it was for her son B. K dies and T refuses to use the money for B. K's friend J can testify that K told her she was giving the money to T as trustee to hold for B.. what if K had said nothing?

J cannot testify that she thinks K intended to create a trust simply because she "knows" K would not have given money to T otherwise.. need real evidence

Jane's will says, ''I give my house to Sebastian.'' Jane and Sebastian have discussed the gift, and Sebastian has orally agreed to give the house to Jane's cousin, Julia.

This is a secret trust because the will does not reveal that Jane intends Sebastian to hold the property for someone else.

oral trusts

UTC 407 requires clear & convincing evidence to establish an oral trust. elements of trust don't require a writing, a signature by the settlor, or witness sigs. but typically drafted with palces for sigs to help indicate intent and for the trustee to sign to indicate acceptance if it's a trust with real property then it's unenforceable-- must be in writing & signed by either the settlor or trustee

accepting trusteeship

UTC 701 provides 2 ways the trustee may accept the duties-- doesn't have to be formal acceptance 1. substantially complying with a method of acceptance provided in the terms of the trust or 2. if no method is provided, by accepting delivery of the trust property, exercising powers or performing duties as a trustee, or otherwise indicating acceptance of the trusteeship

C wants to create a trust for her pet llama. she doesn't ralize a trust for a llama will be invalid under CL bc lacks human beneficiary, her will gives 20k to R to care for the llama & gives the residue to her kids A & B. what happens when C dies?

a court can declare the attempted trust invalid due to the lack of human beneficiary. If so, the 20k willbe distributed with the residue of her estate to A & B OR the court can create an honorary trust with R as trustee and he can choose to honor C's wishes and use the money for the llama or he can give the money to A & B. Rob has the authority to use the money for the llama & A/B will receive whatev is left when the llama dies

trust or imperfect gift

a gift requires intent and delivery of property. courts are reluctant to abrogate the requirement of delivery by finding a declaration of trust any time an inter vivos gift fails due to lack of delivery. delivery can be constructive or symbolic but sometimes courts will refuse to find a trust but use delivery to solve "a gift which is imperfect for lack of delivery will not be turned into a dec. of trust for no better reason than lack of of delivery

UTC animal exception

a trust can be create to provide care for an animal but it terminates when it dies

exclupatory clause

aka an exoneration clause is a clause included in a trust document to excuse the trustee from liability for ordinary negligence although generally not from bad faith or willful neglect "no individual trustee shall be liable for any act or failure to act in the absence of such trustee's own bad faith"

corpus

aka property or res the property that is held and managed by the trustee and may alaso be referred to as the trust estate any property can be used to fund a trust and there is no minimum amount necessary

Sophia was concerne about the logging of old-growth forests. in her will she created a testamentary trust 1. to education the public 2. to organize protests 3. to pay the legal fines of anyone arrested for civil disobedience in connection

although no identifiable beneficiary, which is require for private trust, the trust won't fail if it is a chartiable one and the educational purpose might qualify it as such

C creates a trust for his gchild H to pay for H's education. when H graduates, the trust no longer has a valid purpose. if the terms of the trust do not say what happens next, what happens

any remaining property returns to C or to C's estate if he is no longer alive. similarly, if H had died at age 8 and if the terms do not provide for other beneficiaries, the trust property returns

competent settlor

because a testamentary trust is created in a will, the standard of capacity is the same aka at least 18 with a sound mind irrevocable inter vivos trust is a lil diff --level of capacity required is the standard to make a gratuitous transfer: the settlor must not only have the understanding required for wills but also understand the effect that creating a trust has on her future financial security and ability to support any dependents revocable trusts --the primary purpose of a revocable trust is to transfer property at death & because a revocable trust operates as a will substitute it should have same standards

beneficiary and qualified beneficiary

beneficiary= person with beneficial or equitable title to the trust property there can be multiple at the same or diff times and can vary between future and present interests i.e. S could create a trust for her 3 kids, with distributions to be made in the trustee's discretion to any or all 3 kids until the youngest reaches a certain age at which time the trust would terminate and all remaining property would be distributed to the kids in fee simple S could also create a trust that provides a life estate for her surviving spouse and then a remainder interest to her descedents qualifed B= subset of beneficiaries who have certain rights under the UTC certain beneficiaries to whom certain notices must be given or consents received 1. must get notice of trustee resignation 2. must be kept informed of trust's administration 3. must get notice before trust is combined or divided 4. they can apportion successor trustees 5.& they must get notice by the trustee 60 days prior to tranferring trust's principal place of administration

honorary trust

courts will sometimes find one when the owner of property attempts to transfer the property to a devisee in a trust for noncharitable purpose & without IB devisee will hold propety for the benefit of the persons who would take the property owner's estate as beneficiaries or as heirs with a nonmandatory power to make distributions to carry out settlor's wishes cannot last longer than 21 years so that it won't violate RAP

intent to create a trust

creation of trust requires manifestation of intent in ascertaining intent, the court may consider various forms of extrinsic evidence in addition to written evidence and can consider any documents or testimony of witnesses

vacancy in the trusteeship

either someone quits, dies, rejects, canot be found, doesn't exist, disqualified/removed, or a guardian/conservator is appointed a vacancy of a noncharitable trust that is required to be filled goes in the following order: 1. by a person designated in the terms of the trust to act as a successor trustee 2. by a person appointed by unanimous agreement of the QBS or 3. by a person appointed by the court

constructive trusts

equitable remedy created by a court for the limited purpose of getting property to the correct owner UTC does not apply here because not a trust and rather a remedy & is typically used to prevent unjust enrichment and to transfer property to intended party

UTATA

faced with settlor and sometimes lawyer mistakes that result in an unfunded revocable trust and ineffective dispositive documents, UTATA was created a revocable trust will be considered an inter vivos trust as long as the will identifies the trust and the trust is funded either during the settlor's life or at death. this means that although the trust did not exist at s's death because it had no corpus, it iwll be treated for purposes of distributions after death as if it did UTATA permits a provision in a will to devise property in the estate of the testator to a trust, either one that exists prior to the devise or one that is initially funded by the bequest from the will. Such a provision is commonly called a "pour-over" provision, and such a trust is commonly called a "pour-over" trust. "Pour-over" provisions are a very useful tool for estate planning. Pour-over trusts are frequently used to remove property from the probate estate. Unless there is a statute authorizing such pour-over arrangements, it is not clear that they can be utilized. UTATA has provided the states with the means to authorize such trusts since 1960. UTATA (1991) is simply more up-to-date than the original version. It makes clear the availability of pour-over provisions for trusts that are not funded until the bequest funds them. It removes perceived problems with the flexibility of the earlier UTATA in meeting the intent of the person making the will and establishing the trust. UTATA (1991) continues the known advantages of the pour-over concept with better utility than before.

choosing a trustee

family members-- often ideal because they know the needs of the benficiaries firsthand. but can also be difficult & the 2 below might be better options because of their expertise & ability to stay neutral/impartial professional individual trustee corporate trustees i.e. banks some combo

trustee detailed

hold title to the property interests held in a trust i.e. might have roles such as managing or investing the property and making either mandatory or discretionary distributions to the beneficiaries

trustee general

holds legal title to the property can be person or corporation trusts can have multiple trustees there are strict fiduciary duties on them including not to self deal and other management/investment things

avoiding termination of the trust from merger

if a beneficiary is aware of the potential for merger, they may avoid termination by refusing to be trustee which would then result in the court appointing a trustee

identifiable beneficiary

important because they have standing to enforce the trust under common law, may be one person or class such as "children or descendants works" but class of "my friends" doesn't other people may represent minor or unborn beneficiaries and can enforce the trust on their behalf UTC permits certain trusts without identifable beneficiaries A trust without a named beneficiary may nonetheless exist if (i)the court is willing to find an honorary trust, (ii) under the UTC, the trust is an animal trust or a trust for a purpose, or (iii) the trust qualifies as a charitable trust

settlor control

in general, settlors can dictate the terms of the trust because the property being used to create the trust belongs to them but there are limits on their control

inter vivos & testamentary trusts

inter vivos= created during the settlor's lifetime testamentary= created upon the settlor's death through her will --created in the will which directs personal representative of the probate estate to distribute some amount of the estate's assets, often residuary estate, to the trustee named in the will the will, rather than a trust document, has the terms of the trust within it i.e. the beneficiaries, the standards of distribution, powers, responsibilities of the trustee & when the trust terminates

irrevocable trust

irrevocable-- if the settlor CANNOT modify, amend or revoke the trust arise in one of ways 1. all testamentary trusts are irrevocable when the settlor dies 2.settlor may create an inter vivos irrevocable 3. revocable living trusts become irrevocable when the s dies a settlor might create an irrevocable life insurance trust to hold a life policy so that the insurance proceeds are not included in the settlor's estate for estate tax purposes, if the settlor retains no interest in the trust, the creditors have no access

shortly after G's grandchild R is born, G creates an irrevocable trust by means of a trust instrument and transfers 250k to R's aunt C as trustee with a bank as successor trustee terms of the trust provide that the trustee in her discretion can make distributions for health, education, maintanence, or support of R, the beneficiary, but the main purpose of the trust is to provide for R's college edu. the trust continues until R turns 30 because G is concerned that he is not yet ready to manage the money-- when he turns 30 the trust terminates & the assets are distributed to his descendants or if none to G's descendants-- why is the trust useful

it provides a way for G, during her lifetime, to set aside money for R's education & the trust ensures that someone she trusts will manage the property for R

mandatory and default trust rules (generally)

mandatory rules apply to ALL trusts and cannot be changed by the settlor. they are quite limited & serve to safeguard the beneficiaries who might otherwise have no way to protect their rights

corpus (property or res) detailed

methods of creating a trust: 1. transfer of property to another person as trustee during the settlor's lifetime OR by will or other disposition taking effect upon the settlor's death 2. declaration by the owner of property that the owner holds identifiable property as trustee * a trust created by self-declaration is best created by re-registering each of the assets that comprise the trust into the settlor's name as trustee.-- things should be in trustee's name because they have legal title the trust document by itself doesn't create the trust & mere expectancy is not a property right elgible to fund a trust tangibles can be scheduled

Rejection of Trusteeship

must reject within a reasonable time

revocable trusts

no need for will execution formalities a transfer at death, a testamentary transfer cannot be given effect unless reqs of a will however you can treat will subs (revocable trusts) as non-testamentary to avoid this

L creates a trust for his daughter T with the remainder on T's death to her kids. L names T's sister H as trustee. If T gives her life estate in the trust to H, is there merger?

no, merger does not apply because t's children are still remainder beneficiaries if the trust had named H rather than T's kids and T gave the estate to H, THEN H would hold all beneficial and legal interests and the doctrine of merger would apply to terminate the trust

trust protector

person authorized by settlor to exercise one or more powers over the trust-- their authority supersedes that of the trustee to the extent of the specific powers

I give my residuary estate to the trustee, acting at the time of my death, of the Marjorie M. Black Revocable Trust, created by the declaration dated January 22, 2008, by me as settlor and trustee, as the trust shall exist at the date of my death, to be added to and administered in all respects as property of the trust. I expressly direct that the trust shall not be considered to be a testamentary trust. If and only if no such trust is in effect at my death, then I give my residuary estate to my trustee subsequently named in Article __, in trust. Such estate, together with any other sums payable directly to the trustee, shall be referred to in this will as the Residuary Testamentary Trust and shall be administered in accordance with the provisions of Article __.

pour over clause in a will

A devises blackacre to J "hoping she will continue it in the family." theres no other evidence of A's intention. J sells blackacre and keeps the proceeds. A's heirs sue J for breach of her fiduciary duty to manage Blackacre for the family.

precatory -- not a trust created here

M creates a trust that provides income to her son S for his life. On S's death, income is paid to M's daughter O for her life. When neither s nor O is alive, the remainder is distributed to M's descendants who are living on the date the trust terminates but if no descendent is living on that date, the property is distribbuted to descendants of M's sister living on that date. The trustee, M's bro, wishes to resign in 39 days and needs to determine to whom to provide notice to.. assume S & O are both alive and that they both have 2 kid

qualified bens Shane is a qualified beneficiary under UTC 103(13)(A) because he is a distributee of the trust income olivia is a qualified beneficiary under UTC 103(13)(B) because she would be a distributee if shane died and trust continued in existence shane and olivia's children are QBS under UTC 103(13)(C) because they would be distributees if both S & O died and the trust terminated selena's descendants are contingent benes and are not QBS bc they wouldnt' be distributees if the trust terminated today

revocable living trusts

revocable-- if the settlor retains the power to modify or amend the terms of the trust or revoke it ---the default rule (when the trust is silent) under the UTC is that all trusts created after its enactment are revocable unless the terms of the trust expressly provide that the trust is IRRevocable. --this reverses common law presumption ( CL was that all wills presumed IRrevocable unless stated otherwise) presumption was changed because of the assumption that ppl working without lawyers are more likely to be attempting to create revocable trusts bc of their flexibility living trusts hold settlor's assets during life, distribute to the settlor whatever income settlor needs, and then at death distributes the remaining assets to beneficiaries named in the trust instrument

secret trusts and semi secret

secret trusts Will be enforced with constructive trusts & semi-secret trusts will not they will fail secret trustee acquires only legal title & will hold for the beneficiaries of the trust semi secret trustee will hold the property as a resulting trust and the property will be distributed through the estate of the person who attempted to create the trust-- generally goes to residuary takers or decedent's heirs all testamentary devises made pursuant to a will must be in the will itself or included through either incorporation, events of independent significance, and integration. references to oral instructions don't fit within these doctrines and cannot be given effect bc dont' comply with will reqs

typical structure of a revocable trust

settlor creates this during life and retain control over the property, often serving as trustee --typically provides a sucessor trustee can step in if settlor becomes incapacitated at death, settlor's power to revoke the trust ENDS and the trust becomes IRREVOCABLE usually there will be a pour over will, which transfers any probate assets (not already in the rev. trust) to the trustee of the rev. trust nonprobate things i.e. life insurance & things may list the trustee as beneficiary so they will be distributed outside of probate 3 parts, the terms for the management and disposition of the trust: 1. during lifetime of the settlor while she is not incapcitated 2. during life of s while she IS incapcitated 3. after s's death during s's life, the trust will direct the trustee to distribute trust assets to or for the benefit of the settlor under broad standard & will allow settlor to withdraw assets after s dies, the trust terms typically direct the payment of claims and taxes and then to beneficiaries

mandatory rules

settlor sets the terms of the trust BUT state law acts as a set of default rules-- a backup if a settlor misses something. but there are rules that CANNOT be changed see UTC 105(b): i.e. 1. a settlor cannot create a trust with an illegal purpose ----also can't have capricious purpose i.e. a trust to destroy money won't be upheld 2. requirements for creating a trust 3. trustees duty to act in good faith and in the interests of the benficiaries 4. the power of the court to take actions with respect to the trust which are necessary in the interests of justice 5. limitations on the settlor's ability to exculpate the trustee 6. the trustee's general obligation to keep b's informed 7. specific requirements about notice to bs

how does a trust work

settlor: creates the trust and passes property in fee simple into the trust, can also be called the grantor trustee: manages the trust has legal title & fiduciary duties to the beneficiaries beneficiaries: benefit from the trust and have beneficial title-- income beneficiaries have present interest while remaindermen have future interest

V is old but good health. sets up a declaration of trust providing for mgmt of the property by the trustee and distribution of her assets at death. she transfer title to her property to herself as trustee of the revocable trust, executing whatev she needs i.e. quitclaims etc. trust also provides mechanism for her daughter to step in as successor trustee if need be what happens on v's death

the successor will make the distributions indicated by the terms of the trus. the trust also provides that the trustee will pay any debts remaining at v's death and any taxes due after death. when these are paid, the trust terminates` this trust is irrevocable

purposes of revocable trusts

they become nonprobate planning for incapacity during life avoiding probate at death minimizing estate taxes by keeping property out of surviving spouse's estate disadavantages include no limitations on the creditor claims period unlike probate

Bob knows his elderly neighbor is beginning to lose her marbles. She knows what her property is & who the B's are but confused about how her prop will be managed Bob encourages her to set up a revocable living trust with him as trustee. After he tells her it will save her money (lie) she agrees & they get a lawyer to draft a trust agreement. document provides at her death Bob gets the property, but she has nephews who would take in intestacy-- what could they argue

they might have a problem because for revocable trusts, just need wills standard which she might have met -they could challenge it because of Bob's undue influence and fraud but the longer the trust exists before she dies, the more difficult a challenge will be. a challenge to the will focuses on the time of execution of the document for a trust, the ongoing relationship between trustee & beneficiary means that the challenge has to consider the settlor's ongoing approval of the trust*

D writes a letter to S that says "S, I want you to have my grand piano when I die. i will keep it for you until you have a house big enough for it but you should consider it yours. When d dies, the paino is still at her house, D's will leaves her personal effects to J. what should S do

this is Ambiguous-- imperfect gift. If a trust, it's declaratory & is mixed between precatory and mandatory

M's will creates a trust for her husband H. the will directs that 75% of her residuary estate be transferred to T as trustee to be held as H's trust. the trust continues for H's lifetime and T may make distributions for H's welfare & best interests. the trust states that it terminates when H dies at which time T is directed to distribute the remaining assets to M's descendants or if none, to M's alma mater

this is a testamentary trust because the terms are in the will

private express trust

trust created intentionally by the owner of the property for private beneficiaries and not for charitable purposes resulting trusts and trusts created by a court i.e. constructive or honorary trusts are not private express

valid, legal purpose

trust must have purpose, a reason the trustee holds and manages the property i.e. provide for the care of children, pay for school, etc if and once the purpose is accomplished, the trust terminates & the trustee will distribute the trust assets as directed by the terms of the trust OR if the trust does not have terms directing, then it becomes a resulting trust and reverts back to the settlor or settlor's estate must be LEGAL trusts against public policy are technically unenforceable but this is rare can't withold an interest from someone to prevent them from marrying someone specific but usually can withold one to prevent from marrying too early or outside the faith

M creates a trust for her son K. the trust provides for distribution to K until he reaches age 40. When K turns 40, the trust terminates & any remaining assets are distributed to him. IF K dies before age 40, the assets are distributed to his estate K & his uncle B are co-trustees with no provision in the terms of the trust for successor trustees and no requirement that a co-trustee be appointed. B dies before K turns 40, leaving K as sole trustee what happens?

trust terminates at that time under the doctrine of merger

charitable trusts

trust with a charitable purpose

resignation of trustee

trustees can resign but remain liable for any acts or omissions that occurred while he was acting as trustee usually the trust gives right to resign & identifies any procedures involved & then names successor BUT if silent, the trusteee should look to common law or statutes UTC 705 provides that a trustee may resign: 1. after 30 days notice to QBS, the settlor if living, and all costrustees OR 2. with the approval of the court ---in approving, the court may issue orders/impose condititions necessary to protect the trust prop ---any liability of a resigning trustee or of any sureties on the trustee's bond for acts/omissions of the trustee aer not discharged or affected by the resignation trust will either name a successor, direct the B's to appoint someone, or be silent in which case the court will appoint someone (QBS can avoid the court process)

trust agreement/ declaration of trust

two types of documents aka instruments used to create inter vivos trusts if settlor is going to be the original trustee, he declares himself trustee using "declaration of trust" and declares that he now holds the property as trustee and NOT in his INDIVIDUAL capacity if another person is going to be the trustee, the settlor transfers property pursuant to a "trust agreement." the settlor and the trust agree to the terms of the trust spelled out in the document

resulting trust

used when an express trust makes an incomplete disposition of the property in the trust or the trust fails because it no longer has a valid purpose property in resulting trust either returns to the settlor or is distributed through the settlor's estate similar to a reversionary interest except that it arises due to a lack of planning

merger

when a trustee and the trust's ONLY beneficiary are the same person the legal and equitable interests merge and the trust terminates merger will occur even though not all of trusts purposes have been accomplished properly applicable only if ALL beneficial interests, both life interests and remainders, are vested in the same person, whether in the settlor or someone else i.e. a trust where the settlor is the sole trustee, sole beneficiary for life, and with the remainder payable to the settlor's probate estate

funding the revocable trust

when settlor creates a revocable trust, it should be funded with something even if most of the assets will be transferred later. a trust is not created until an asset is held within it. to avoid probate, the settlor should transfer all assets to the trustee before death-- any assets left in decedent's name at death will go through probate using pour over clauses-- sends residue from estate to the trustee of revocable trust

acting as trustee without accepting trusteeship

without accepting the trustee position a person designated as trustee may: 1. act to preserve the trust propety if within a reasonable time after acting the person sends a rejection of the trusteeship to the settlor or if S is deaf or lacks capacity then to the QB AND 2. inspect or investigate trust property to determine potential liability under environmental or other law or for any other reason

G has a vacay home in ID and she uses it for 2 weeks each summer and then rents it to visitors the rest of the year. G's friend R lives in ID and G decides to put the house into a trust with R as trustee without asking R, G transfers the title to the house to R as trustee. G informs R about it & then leaves the country for 2 months R does not want to be trustee but finds some fire prevention necessary. can R clear things that might be fire hazard without it accepting the position

yes but she must also notify G immediately of her refusal. IF G dies on the trip, R should notify successor beneficiary