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MEE Trusts

Terms in this set (47)

Trust
A fiduciary relationship where one party holds legal title to property for the benefit of another who holds equitable titled
Private Express Trusts
Intentionally created to benefit private, non-charitable beneficiaries
Charitable Express Trusts
Intentionally created for some charitable purpose or to benefit charitable beneficiaries
Constructive Implied Trusts
Implied by operation of law and imposed to deprive a wrongdoer from retaining improperly obtained property

A trust is erected on the holder of specific property to redress wrongdoing or prevent unjust enrichment
Resulting Implied Trusts
Implied by operation of law and imposed irrespective of wrongdoing when the circumstances require it

Arises when an express trust makes an incomplete disposition offsets or fails after property has been conveyed to the trustee - settlor is left holding the equitable interest in a resulting trust
Creating Trusts
Partiers to a trust + requirements for a valid trust + type of trust + duration of trust
Parties to a Trust
Settlor, Trustee, and Beneficiary
Settlor
Creates the trust by transferring assets to a trustee with manifest intent to create a trust relationship; once a trust is created, settlor no longer owns the assets; they have been transferred to the trust
Trustee
The trustee is a fiduciary of the trust and holds legal title to trust property for the benefit of the beneficiaries (trustee must have a trustee, but failure to designate will lead to court appointment of one)
The trustee must follow the terms of the test with respect to eh preservation, enhancement, and distribution of the trust property to the beneficiaries
Beneficiary
Beneficiaries hold equitable title; must always be a beneficiary in existence who can enforce the trust against the trustee;
Generally, beneficiaries cannot alter administrative provisions of a trust, and they must wait until the property is distributed to exercise control over the property
Income Beneficiary
Present interest in the trust
Remainder Beneficiary
Remainder interest in the trust
Merger
If the sole trustee becomes the sole beneficiary the interests merge and the trust collapses
Requirements for a Valid Trust
Settlor with requisite capacity who expresses a present intent to create a trust;
Delivery of specific trust property;
At least one ascertainable beneficiary;
Proper Trust Purpose;
Trustee, and
Active duties imposed on the trustee
Delivery of Specific Trust Property
Must be delivered to trustee w/ intent to do it right now (not in future)
Must be some certainty over what is the trust property - cannot be mere expectation or unearned profits
At Least One Ascertainable Beneficiary
Must be determinable when the trust is to be distributed;
Need some objective standard (reasonable basis) to identify the beneficiaries
Proper Trust Purpose
A trust can be created for any purpose except those that are illegal, fraudulent, or against public policy
Types of Trust
Inter Vivos, Testamentary, and Totten
Inter Vivos Trust
Created during Settlor's lifetime - trust property must be place into the trust
Testamentary Trust
Created by Settlor's will, generally includes a "pour over" provision
Pour Over Provision
Often contained in a will, directs the transfer of a Decedent's property into a trust established by either Decedent during his lifetime or another person
Totten Trust
Arrangement with a bank that allows the depositor to open a bank account in his own name, as a trustee for other parties. Beneficiary's only right is to take whatever is left in the account when the depositor dies (if the beneficiary is still alive)
Duration of Trusts
All private, non-charitable trusts must comply with the RAP; CL RAP has been modified in a majority of jurisdiction to the "Wait-and-See Approach"
Wait-and-See Approach
Whether a trust violates the RAP depends upon what actually happens rather than what might happen
Trustee's Powers and Duties
Source of Trustee's Powers, Duty of Loyalty, Duty to Act as a Prudent Investor, Duty of Care, Duty to Diversify Investments, UPIA, Liability of Trustee
Source of Trustee's Powers
Trust instrument (express or by implication), and statute or implied in law as necessary or appropriate to accomplish the trusts' purposes
Trustee's Powers
Unless expressly precluded by the trust, the trustee can settle/abandon claims against the trust, borrow money, sell/lease trust assets, and incur reasonable expenses necessary to maintain trust property
Duty of Loyalty
Trustee owes the beneficiary a duty of loyalty and good faith, and is prohibited from:
Self-dealing with the trust (even if done in good faith) (any profits earned from self-dealing with the trust belong to the trust)
Obtaining a personal benefit other than the agreed-upon compensation
Obtaining a personal benefit for a third party w/ respect to dealings involving the trust estate
Being in apparent conflict of interest w/ respect to the trust and third parties
Duty to Act as a Prudent Investor
Trustee must use the degree of skill, care, and prudence exercised by a reasonable business person to use trust property in a productive manner

If a trustee possesses superior business expertise or is a professional fiduciary - a higher standard is applied
Duty of Care
The trustee owes a duty of care to the trust and beneficiary
Duty to Diversify Investments
Trustee has an affirmative duty to enhance trust property by diversifying assets
Uniform Principal and Income Act (UPIA)
Specifies the distribution of receipts between trust principal and income;
Rents and cash dividends received are allocated to trust income, and then are distributed to trust's income beneficiary
Sales proceeds and stock dividends are allocated to principal of trust
Liability of Trustee
Trustee is liable for damages cause by his breach of a duty:
If the trustee uses trust assets to buy property that increases in value - must return both trust property and increased value
If the trustee breaches duty of care in investing - must personally repay the trust for its losses
Creditors' Rights and Alienability of Beneficiaries' Interests
A beneficiary may assign his right to receive income or principal from a trust (unless the trust provides otherwise)
Spendthrift Trust
Beneficiary's interest is inalienable/non-transferrable, beneficiary cannot voluntarily transfer property and a creditor cannot attack it
Exceptions for Spendthrift Trusts
Cannot be used to defeat a claim of:
Alimony or child support
Creditors who furnish necessities to the beneficiary
Government claims against the beneficiary
Discretionary Trust
Trustee pays as much income as he believes desirable; beneficiary's creditors can get a lien on the trust but cannot get trust property until a distribution is made
Support Trust
Distributions are based on the beneficiary's needs; creditors can get liens and trust property fairly easily
Modification and Termination of Trusts
By Settlor, By Merger, By Operation of Law, or By Beneficiaries After Settlor's Death
By Settlor
CL - presume trusts are irrevocable unless stated otherwise
UTC - presume trusts are revocable unless stated otherwise
Settlor may terminate an irrevocable trust ONLY with the consent of all the beneficiaries who all must be living
By Merger
The trust ends if the sole trustee becomes the sole beneficiary
By Operation of Law
Where the trust property has been consumed, destroyed, or lost; the trust's purposes have been fully accomplished; or accomplishment of the material purposes of the trust have become illegal, impossible, or impractical
By Beneficiaries After Settlor's Death
After Settlor's death, if the material purpose of the trust has not yet been accomplished, the trust cannot be terminated before the time specified by Settlor, even if all beneficiaries agree
Charitable Trusts Distinguishing Characteristics
Cannot have ascertainable beneficiaries (unless charitable orgs)
RAP does not apply
When the trust purpose has been accomplished or has become impracticable or impossible to accomplish, the trust doesn't necessarily end - cy pres doctrine allows it to continue
Requirements for Charitable Trusts
Must have a charitable purpose:
Relief of poverty
Advancement of education or religion
Promotion of health
Performance of governmental and municipal purposes; or
Other purposes beneficial to the community
Cy Pres Doctrine
If exact charitable purpose cannot be carried out, court may direct the trust property be used for another charitable purpose that approximate Settlor's intentions
When Cy Pres can be Used
Settlor's specific charitable purpose becomes impossible, impracticable, or illegal to carry out, and
Settlor had, in addition to this specific charitable purpose, a general charitable intent
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