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Express Trusts - What do you need to create (5)
- 1. Settlor - Capacity
- 2. Present Intent to create Trust
- 3. Trustee - Compitency
- 4. Beneficiary - Definate
- 5. Same Person: Not Sole Bene and Trustee
- 6. Oral trust: ok for personal property
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Express Trusts - How to show Present intent to create trust (5)
- 1. Must be manifest when he owns the property
- 2. Must intend for it to be effective immediatly - can be oral for personal property
- 3. Precautionary Expression: Settlor expresses "I hope, wish" are mere suggestions and do not show present intent. Overcome by showing definate instructions. Can use extrinsic evidence
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Express Trusts - How do you appoint/compensate/remove
- 1. Named Trustee: Doesnt matter if he dies
- 2. Must have duties: Court can imply duties
- 3. Qualifications of T: Anyone w/ capacity, minors/insane can hold but not distribute
- 4. Compensation: Entitled to compensation
- 5. Removal of T: Court can remove for cause - Must show he cannot effectively perform
- 6. Resignation: Once T accepts can resign, give notice to bene and court approval
- 7. Successor T: succeeds to all rights oblig
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Express Trusts - Types/requirements of Beneficiaries (6)
- 1. Qualified B: Must be a current B, or someone who could take today if a condition were satisfied
- 2. Capacity: Any person, entity capable
- 3. Incidental B: Not sufficient
- 4. Notice to B: Not necessary - shows intent
- 5. Definate B: Can be a ascertainable in the future, like unborn child
- 6. Class: Reasonably definate. Broad trustee power to decide who in the class benefits
- 7. Lack of Bene: if trust fails, a trust will be made for settlor or successors
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Express Trusts - What is/or fails as Trust Property (5)
- 1. Must be property in the trust or it fails. Must have transferred to trust
- 2. Future Interest: Ok, like future profits, but not in interest not yet a legal right (like an expected inheritance)
- 3. Power to convey: Needs the existing power to transfer
- 4. Trust Res: Must be segragated from other property
- 5. Debt: Cannot hold a debt in the trust
- 6. Gratuitous Promise: Fails. Cant say pay my maid $3k per month, need to ID specific property to pay from, like my stocks
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Express Trust - Intervivos Creation - writing/no wr/P evidence
- 1. Oral: Can be oral for personal property only, must reasonably ID trustee
- 2. Real Property: Must be in writing
- 3. Parol Evidence: Ok if ambiguity on face
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Testimentory gift to trust (in the will)- Requirements and result
Testimentory: T makes a gift to a trust in the will - Trust res and bene must be referrenced in will or facts of independent legal significance (employees still employed).
Constructive trust: If B did not agree to put the property in trust till after will executed - still enforceable by constructive trust
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Testimentory (in the will)- Secret/semi Trust - what are they
- Secret Trust: Where T made a gift in the will to B - But infact he wanted B to keep it in trust for someone else. If proved by clear and convincing evidence court will create a constructive trust
- Semi-Secret: fails to name bene- trustee holds property for heirs
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Charitable Trusts - Rules different from normal trusts (5)
- 1. Charitable Purpose: Considered to benefit public
- 2. Indefinate Bene: court can select charity - to carry out purpose - if none specified
- 3. Perpetual: Can be perpetual and not violate RAPerpetuities
- 4. Enforcing: Trustee, qualified bene, attorney general
- 5. Cy Pres: When charity unlawful, impracticable, waste, court can select charity "as near as possible" to carry out wish
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Honorary Trusts - Animals - Result
Trusts usually made for animals. If no care taker named, court can appoint someone. Residual is given back to Settlor or successors
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Transfer of Bene Interest voluntary/involuntary
- 1. Voluntary: Bene can freely transfer his int.
- 2. Involuntary: Absent statute or trust provision creditors can attach B's share
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Trust - Restraint on alienation- Spendthrift Provisions - What are effects (4)
- 1. Creditors can't attach until distributed;
- 2. If D has the right to force trustee to distribute, he is not protected
- 3. Assignments: Unenforceable but trustee has discretion (like distribute to my son instead of me, to avoid creditors)
- 4. Settlor cannot be bene. Cant avoid support or gov claims
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Modification and Termination of Trust When/how (5 instances)
- 1. By its terms:
- 2. By settlor:
- 3. By Bene: All B's must agree and no material purpose frustrated
- 4. By Court: If could have by all bene and no bene hurt; becomes impractable/waste; few assets to justify administration. Can reform by clear and convinc of S intent
- 5. By Trustee: Can terminate if less than $50k, w/ notice
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Trust Administration - Trustee Powers - Source of Power/scope
- 1. Express powers:
- 2. Necessary: to acheive investment management, distribution
- 3. Statutory rights/obligations
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Trust Administration - Duty of Loyalty - What cant Trustee do (7)
- 1. Cannot buy or sell assets even fmv
- 2. May not sell from 1 trust to another
- 3. Not borrow or loan to himself
- 4. Cant use assets to secure personal loan
- 5. Cant personally gain
- 6. Corp Trustee Cannot invest in his stock, nor retain prior stock in his corp unless prudent
- 7. Cannot self-employ, but entitled to more compensation if lots of work
Doesnt matter if self dealing benefits the trust. Includes using spouses, relatives or other close relationship. Bene can void the transaction
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Trust Administration - Duties of trustee (4)
- 1. Report to Bene
- 2. Seperate trust property - keep records
- 3. Enforce and defend claims
- 4. Preserve and make productive trust property (lease land, collect accounts, etc)
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Trust Administration - What can trustee Invest in
- 1. List Jurisdiction: Some states only allow prudent investments (low risk) - Must be on list
- 2. Uniform Prudent Investor Act: (UPIA) MOST COMMON: Allows any prudent investment, but not necissarily low risk. Look at overall investment strategy. Must diversify
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Trust Administration - Investments - List Statutes - List of things Trustee cannot invest
- Generally cannot invest in:
- 1. Unsecured loans, second mortgages
- 2. Land, especially un-productive
- 3. Cannot carry on Testators biz, unless trust expressly authorizes
- 4. Mortgage participants, common trust funds, mutual funds, some states allow
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Trust Administration- Liable/not of Trustee (5)
- 1. Remedies for breach: court may order specific performance, pay money to restore property, suspend trustee
- 2. Damages to Bene: Greater of amount needed to restore or trustee's profit
- 3. Trustee not liable: if he acted prudent or bene consented or ratified
- 4. Co-trustee: not liable if did not participate
- 5. 3rd Prty: T can be sued for breach if he did not reveal he was a T
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Trust Administration- When can trustee make Adjustment to principle and interest (3 rules)
- 1. Trustee can characterize things as principle, rather than income, like capital gains, stock dividends, if trustee determines appropriate to carry out T's desire
- 2. 10% Rule: If things produce income for a limited amount of time (like royalties in mineral rights) 10% is allocated to income and 90% to principle. Same if you liquidate the asset.
- 3. Trustee/other Fees: 1/2 charged to principle and 1/2 to interest
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Constructive Trusts - Definition - Equity
This is a creation by law in order to prevent an unjust enrichment. Equitable Remedy, The court can create a trust to benefit someone where T intended to benfit them
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Resulting Trusts - Purchase money resulting trust creation and proving (6 elements)
- When X pays consideration and T gives prop to Y, intending to go to X
- 1. Consideration: money or other paid by X to T for purchase of property (improvements made not enough)
- 2. Time: Consideration must be paid at or b4 Y takes title
- 3. Burden of Proof: on X
- 4. Presumption: Once X proves he paid consideration, a rebuttable presumption that a resulting trust was created
- 5. Close relatives: Presumed a gift but can overcome presumption
- 6. Pro-rata: When only gave part consideration, resulting trust is pro-rata
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Constructive Trusts - No trust arising from Breach of Promise - Exceptions (5 scenerios)
- General Rule: No constructive trust for breach of K. Exceptions:
- 1. Fraud Promises (never intended to pay)
- 2. Breach by one in confidential relationship
- 3. Breach by descendant to hold property in trust for X
- 4. Breach of D to pay X for services rendered from trust property - unless damages work, if oral
- 5. Promise to X that if he dsnt bid on his prop at foreclosure sale that T will buy and sell back to him - Unless damages suffice
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Constructive Trusts - When do they arise crimes/breaches
- 1. Theft or conversion of X's property
- 2. Fraud, Durress, etc: If Y gets property from X by fraud, constructive trust for X to get it back
- 3. Breach of Fiduciary Duty: If Trustee breaches a fiduciary B gets a constructive trust for profit or the property
- 4. Homicide: If bene kills T, convicted, estate gets the money back in const trust
- 5. Failed Will
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Constructive Trusts - Duty of Trustee (1)
Passive trustee. Only needs to convey property to bene.
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Exam Rule Statement: Allways begin a trust question with a statement of how to a valid trust is created
In order to create a valid trust, there must be a settlor, present intent to create a trust, properly funds the trust, appoints a trustee to hold the trust for beneficiaries.
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Exam Rule Statement: When a beneficiary is not adequately identified
A trust must adequately identify the beneficiaries, they need not be specifically named, but reasonably definite.
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Exam Rule Statement: What to do with a portion of the trust fails, for lack of beneficiaries
When a portion of the trust fails for lack of beneficiaries, a resulting trust in favor of settlor or his succesors is created.
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Exam Rule Statement: When a named charity is no longer existing - Cy Pres
The Cy Pres doctrine applies when a specific charritable purpose named by settlor is no longer possible practicable. Court can direct the gift to another charity.
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Exam Rule Statement: A trustee's Duty to Invest Prudently
Trustee must invest as a prudent investor would. The investory may invest in any investment that under the totality of circumstances is prudent.
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