Trusts - Short Rules
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What is an express trust?
- Trust is
- 1) a fiduciary relationship
- 2) with repsect to property where
- 3) one person, the trustee, holds the legal title to the trust property (res)
- 4) subject to enforceable equitable rights in another, the beneficiary
requirements of an express trust?
- 1) intent: manifest intent by settlor to create a trust
- 2) trustee: trustee must be appointed
- 3) res/property: identified and transferred to the trustee
- 4) beneficiary exists: to enforce the trust
- 5) public policy: cannot be contrary to public policy
how do you argue intent to create a trust?
argue that it was precatory language, and not manifest intent
- 1) duty of care
- 2) duty of loyalty
- 3) duty to preserve trust property (make trust property productive, invest with reasonable care)
- 4) prudent investor rule
- 5) duty to separate and earmark property
- 6) duty to diversify investments
- 7) duty to follow settlor's instructions
what due care does a trustee owe?
- trustee must exercise the degree of care that a reasonable prudent person would exercise in manging their own property
- bad decision by the trustee? try breach of due care
what is the trustee's duty of loyalty?
- trustee owes a duty of undivided loyalty to the trust and its beneficiaries.
- cannot engage in self-dealing.
- cannot borrow from or encumber trust funds.
what is trustee's duty to preserve property?
implied in the duty to preserve the trust property is a duty to make the trust property productive and to invest with reasonable care.
what is prudent investor rule?
Under the prudent investor rule, trustee must invest as would a prudent business person in making a permanent disposition of her own funds, considering both the probable income and the probable safety of capital.
what is trustee's duty to earmark trust property?
- trust assets must be kept physically separate from the trustee's personal assets and assets of other trusts.
- trustee is strictly liable for any losses to the trust.
- if the trust funds are commingled with the trustee's personal funds, it will be presumed that the personal funds were expended before the trust funds
what is trustee's duty to diversify trust assets?
duty to diversify trust assets.
what is trustee's duty to follow settlor's instructions?
although trustee has some discretion in carrying out the trust's directions, trustee can breach her duty to follow settlor's instructions
innocent donee who spends trust property not knowing of the trust?
- innocent donee not liable for damages, but must restore any trust funds
- any funds spent must be returned to the trust
co-trustee, is he liable for breach by fellow co-trustees? how does he terminate his position?
- yes, liable. co-trustee cannot delegate to a co-trustee powre to invest or manage the property
- how to terminate his position?
- 1) refuse appointment
- 2) resign as trustee
What is integration of a will?
- Integration is the process of bringing together separate papers into a single, entire will.
- 1) all papers physically present when the will was executed
- 2) T intended all papers be part of the will
what is incorporation by reference of a will?
- A document may be incorporated into the will by reference when:
- 1) doc in existence at time will was executed
- 2) doc sufficiently described in the will so that it's ID is clear
- 3) sufficient proof that the document is the document that was described in the will
Act of independent significance?
- Doctrine of independent significance permits a court to: fill in certain blanks in the will by
- 1) referring to documents or acts
- 2) during T's lifetime
- 3) for primarily nontestamentary motives
What is a codici?
- testamentary instrument executed subsequent to the execution of a will.
- ordinarily intended to modify, alter, or expand the will.
- requires: same formalities required for execution of a will.
what is a pour-over trust?
- Testator adds or "pours" his estate into an inter vivos trust.
- Such trusts violate the requirement that the trust res be immediately delivered to the trustee, courts have sustained such trusts on two theories:
- 1) Incorporation by Reference
- 2) Acts of Independent Significance
- 3) Uniform Testamentary Additions to Trusts Act - pour over trusts are valid if trust is ID'd in the will, and in existence when the will was executed
- Under CA's pretermitted statute, pretermitted children take the same share they would have received had the testator died intestate unless...
- 1) omission was intentional [CA, must be on the face of the will]
- 2) T had more than 1 child, and gave most of hte estate to the other parent of hte omitted child
- 3) T provided for the child outside the will [must be accompanied by language indicating the transfer is in lieu of a testamentary bequest]
What happens if beneficiary predeceases T?
- Under CL, a gift lapses where the beneficiary predeceases T.
- However, CA has an anti-lapse statute which allows T's kindred to take by representation.
what is the remedy for a trustee's breach of duty?
- 1) liable to the trust estate for all losses resulting from the breach
- 2) liable for any profits that would have accrued to the trust, but for the breach
- 3) liable for any profits made by the trustee as a result of the breach, plus interest
- ***losses due to breach cannot be offset by gains resulting from another breach!
how are investment decisions evaluated?
- Under the Uniform Prudent Investor Act (UPIA) each investment decision must be evaluated in the context of the entire trust portfolio as part of an overall investment strategy.
- A prudent investor seeks overall return, not merely income.
what is the trustee's adjustment power?
- trustee has the power to reallocate investment portfolio return.
- a trustee's reallocation between principal and income may be proper if:
- 1) necessary to carry out the trust purposes and
- 2) fair and reasonable to all of the beneficiaries
what if the trustee delays in selling unproductive property?
- 1) Trustee has a duty to sell unproductive property
- 2) some portion of the sale proceeds should be given to the income beneficiary when the property is finally disposed of.
- 3) however, each investment decision must be evaluated in the context of the entire trust portfoilo, and the trustee has reallocation power so it might be okay not to allocate some portion of the proceeds to the income beneficiary
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