Pa trusts

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  1. What is a trust?
    A fiduciary relationship which is which one person (trustee) holds property subject to an equitable obligation to protect or use the property for the benefit of another (beneficiary/ cestui que trust)

    • *Settlor= creator of trust
    • -the settlor may be the trustee & may also be beneficiary, but if @ any time he or anyone else has sole legal title to the property and sole equitable title, a trust no longer exists
  2. Trust distinguished from other relaionships
    A trust is not an agency relationship (trustee holds title to the property and is not subject to continuing supervision by the settlor or beneficiary)

    * A trust is not a debtor-creditor relationship (a trust beneficiary has an equitable interest in specific trust property and may trace corpus and recover any increases attritable to it)

    *A trust is not a bailment (a trust is a fiduciary relationship involving duties of unselfish loyalty and good faith)

  3. Types of trust: Express
    Created by expressed intention of the owner of the property, and are further classified by the identity of the beneficiaries into private express trusts and public or charitable trust
  4. Types of trust: Trust created by operation of law
    Resulting trust (where intent to create a trust is implied in law)

    Constructive trust
    (not really trust but equitable devices employed to remedy fraud or unjust enrichment)
  5. Governing Law
    Trust in Pa are generally governed by Title 20 of the Pa Consolidated Statutes

    • Several mandatory rules apply, including:
    • 1. the reqs in creating a trust
    • 2. the trustee's duty to act in good faith
    • 3. the reqs that a trust have a lawful purpose not contrary to public policy
    • 4. the power of the court to modify or terminate a trust
    • 5. the effect of spendthrift provisions
    • 6. the power of the court to adjust a trustee's compensation
    • 7. the duty of a trustee to report
  6. Methods of Creation
    • 1. written declaration (declaration of trust)
    • 2. written transfer (conveyance of trust/deed of trust)
    • 3. oral
  7. Voluntary trust: made by conveyance
    Created by either a declaration or conveyance in trust w/out consideration.

    *If made by conveyance= the transfer of legal title must be completed (land=execution of deed, personal prop=must be delivered to trustee)

  8. Voluntary trust: made by declaration
    *If made by delcaration: there is no req of delivery since legal title is not transferred (a court will not convert a mere promise to make a gift into a voluntary delcaration of trust)(must be clear showing of intent to create a trust on th epart of the settlor)

    • *Intent may be shown by such factors as notice to the beneficiary that a trust has been created for him, or segregation and labeliing of the trust
    • propety, but lack of notice doesn't necessarily defeat the declaration of trust

    *Where the owner of property makes a promise to create a trust in the future, such promise can be enforced only if it's supported by consideration
  9. Methods of creation: inter vivos
    *inter vivos= taking effecct dutin the settlor's life

    • *Must be revocable or irrevocable:
    • -created in Pa after Nov 1, 2006 maybe revoked or amended unless the trust instrument expressly provides that the trust is irrevocable
    • -created in Pa before Nov, 1 2006, is irrevocable and the settlor may not later revoke or amend it unless the power of revocation is expressly reserved
    • *Must be in writting:
    • 1. must be created during the lifetime of the settlor rather than @ his death (modern view will uphold as valid to avoid statute of wills)
  10. Methods of creation: testamentary
    A testamentary trust may be created by the terms of the decedants will(taking effect @ the settlor's death, created by his will)

    *requires a formally executed codicil in order to amend the terms of the trust

    Pa has a statute permitting pour overs to a trust to be established in writing, by the testator or any other person before concurrently w/ or after the execution of the will (not invalid because the trust was amendable or revokable)

    *An entire revocation of the trust prior to the testator's death invalidates the devise or bequest unless the will directs otherwise

  11. Saving accounts trust
    Most jurisdictions hold that a settlor (A) may validly create a savings account trust by depositing money in a bank in the name of "A, in trust for B." ("Totten Trust")

    *The settlor may keep the bankbook, may make w/drawals, and need not give notice to the beneficiary

    *The trust is revocable until the settlor dies, at which time the balance remaining in the account vest in the named beneficiary

    *Settlor may revoke the trust by a decisive act or declaration of disaffirmance during his life, such as by a letter to the bank

    *The settlor may make the trust irrevocable by an unequivocal act or declaration (i.e delivering the bankbook to the beneficiary w/ intent to complete the gift [may not be revoked by will)
  12. Required Elements
    • *7 elements:
    • 1. A settlor w/ capacity and intent.*where the trust is testamentary, a settlor must possess testamentary capacity in order to create a trust by will (trust voidable to the extent that its creation is influenced by fraud/duress)
    • *to create a inter vivos trust, the settlor must have the capacity to convey the trust property (age, mental condition, nature of ownership)(A trust won't fail for lack of a trustee)

    2. A signed writing expressing the intent to create a trust and trust provisions at the present time and not @ sometime in the future (no particular form of words necessary, the word trust doesnt have to be used)(needs present intent to create trust)

    3. a sufficiently identifiable beneficiary capable of enforcing the trust terms (must be living and definately identifiable or ascertainable w/in the period of the Rule Against Perpetuities) (in a private trust, the trustee cannot be given discretion to chose beneficiaries)

    • * must always be someone presently capable of enforcing the trust
    • *Exception: class must be definate unless the trustee has specifically been granted the power to select beneficiaries from an indefinite class

    4. the settlor must intend to impose enforceable duties upon a trustee (should be stated definately, not in precatory language i.e "wish", "hope" "desire" etc...) (courts look @ nature of the relationship of parties)

    *Pa courts will uphold a trust using precatory languge when it's intended as a polite way to phrase the order.

    5. a separation of the trustee and beneficiary (settlor must intend to separate legal and equitable title in the nature of a trust as opposed to creating any other kind of relationship)

    • 6. Specific trust property, and:
    • a. trust must have specific identifiable property (settlor has to have present right to convey
    • b. property must be clearly described or be ascertainable w/ certainty
    • c. property interst may be realty or personalty, a patent or chose in action
    • d. a debtor can't hold his debt to another in trust (creditor can hold the debt of another in trust if debt is enforceable)
    • e. an interest that is inalienable cannot be the res of a trust
    • f. a trust must have an existing trust res (no trust can be created where the only trust res is shares of stock that haven't yet been acquired or issued @ the time of the declaration)

    • 7. a proper trust purpose (can be created for any purpose that is not illegal or contrary to public policy)
    • *purposes that restrict fundamental rights typically stricken
  13. Time Restrictions: RAP
    Pa has abolished the RAP w/ respect to trust after 12/31/06

    *Pa has adopted the "wait and see" doctrine, which instead of claiming interest violated RAP, Pa wanted to see if it did vest
  14. Time Restrictions: Rule Against Accumulations
    Pa has abolished the Rule Against Accumulations with respect to income

    *a private trust may accumulate income only for the period of the RAP, as measured by actual rather than possible events

    *a charitable trust may accumulate income beyond that period if found reasonable
  15. Protection of Beneficiary's interst (against themselves)
    Unless the terms of the trust provide otherwise, a beneficiary may voluntarily assign his right to present or future income or principal of the trust (can be subject to creditors/judgments)
  16. Protection of Beneficiary's interst: "Spendthrift Trust"
    Created to provide support while secuting it against his own improvidence

    *created by a term or similar terminaolgy

    *valid in Pa as lng as it restrains both voluntary an involuntary transfers

    • *Once a beneficiary receives distrubution from the trust, his creditors may reach that distribution
    • - spendthrift trust isn't immune to the claims of creditors who provided ncessaries to one whome the income B has a legal duty to support (child, ex-spouse
    • P: a person is not allowed to create a spendthrift trust for his own benefit
  17. Protection of Beneficiary's interst: "Discretionary Trust"
    The beneficiary does not have a right to income from the trust until the trustee decides to pay it

    * Neither the beneficiary nor creditors of the B can compel payment, although creditors can reach any interest actually paid by the trustees

    court may compel distribution from a discretionary trust to satisfy a judgment or court order agaisnt the trust B for support or maintenance of child or spouse
  18. Charitable Trust
    CTs are favored by the law and are liberally construed to achieve the charitable/public purpose of the settler (religion, edu, poverty)

    *a gift in trust for such charitable purposes as the trustees may select is a valid charitable trust (such a gift can become a charitable trust if there's evidence that the donor intended it that way)

    *in order to qualify as a valid charitable trust, the persons to be benefited must be uncertain (members of an indefinite class)

    *If the charitable purpose intended by the settlor has be accomplished or can no longer be accomplished,the court may shut down or varied/adjust to further the donor's intent called cy pres ("so near") by searching for a close benefit

    *a proceeding to enforce a charitable trust may be brought by the atty general, by the S during his lifetime, or by the T's beneficiaries

    *a charitable trust composed of assets valued @ less than $100k may be terminated by consent of atty general and all beneficiaries named in the trust instrument
  19. Trust adminstration: The trustee- appointment
    • A person named as trustee in a trust instrument accepts his appointment by:
    • 1. compliance w/ specified trust instructions
    • 2. accept delivery of trust property
    • 3. other actions indicating acceptance

    *If that trustee refuses to server or fails to qualify, the court will/can always appoint someone else

    *Where the will or trust instrument doesn't name successor trustees or prescribe a method for the selection, the court has wide discretion in naming a trustee to fill a vacancy
  20. Trust adminstration: The trustee- resignation or removal
    • Once a trustee has accepted his office, he may resign only:
    • 1. under provisions of trust instrument
    • 2. by permission of the court
    • 3. w/ consent of all beneficiaries

    * the trustee may petition for removal but will not be removed unless removal is found to be in the best interest of the beneficiaries

    • *The court, on its own motion, may also remove a trustee when:
    • 1. best interest of beneficiaries
    • 2. not inconsistent of material purpose of trust
    • 3. suitable successor is available
    • 4. for cause (breach, unfit, substantial change in circumstances, all Bs request removal)
  21. Trust adminstration: The trustee- compensation
    A trustee is entitled to receive reasonable compensation for his services, as well as reimbursement of expenses incurred in the execution of his trust (resonableness determined by court)

    *Where the trustee is an attorney, the T can receive additional fee over and above T's regular compensation (for performance of legal services that are necessary on behalf of the trust and not comprehended w/in the usual duties of T)
  22. Trust adminstration: The trustee- Powers
    The powers and dutites of the T are established by the trust instrument and by law

    *A T has powers that an unmarried competent owner would have

    *the trustee may have additional powers granted or necessary for administration and are not prohibited
  23. Trust adminstration: The trustee- Powers: power of sale or contract
    Power must be granted by instrument. If not, T must petition court for approval

    *T further has the power to execute all instruments that will accomplish or facilitate the exerise of his other powers (can take over businesses w/ court approval)
  24. Trust adminstration: The trustee- Powers: power to invest
    T has the power to invest trust property to make the property productive during the administration of the trust, but no duty to do so in Pa
  25. Trust adminstration: The trustee- Powers: Power of apportionment
    Instrument can dictate which expenses should be paid from income and capital or accretions added to income or capital

    • *ordinary expenses= T pays out of income
    • *extraordinary expenses= T pays out of principal

    *The T is to represent the best interest of all the beneficiaries and not to favor one class over another (court can control T is T acts beyond the bounds of reasonable judgment - bad faity/disregard of fiduciary duties)
  26. Trust adminstration: The trustee- Powers: Power to invade principal
    If inocme from trust is insufficient to comfort, maintenance and support beneficiaries

    *Where the trustee has power to invade principal, a decision by the trustee regarding the need for invading principal will not be disturbed unles plainly wrong
  27. Trust adminstration: The trustee-Duties: Duty of loyalty and good faith
    *In all trust matters

    *T may not enter into any transactions w/ the trust as either buyer or seller unless the trust authorizes or court grants permission

    *If a T uses trust funds in any manner for his own benefit, or otherwise improper, he must account to the trust for any profits made from such use
  28. Trust adminstration: The trustee-Duties: Duty of reasonable care and skill
    The trustee is bound to exercise reasonable care and skill in managing the trust

    *He isn't strictly liable for his mistakes in judgment

    *If a T has or procures his appointment by representing that he has greater skill, he is obligated to exercise greater skill

    *The duty of care of a trustee may be changed by the trust instrument to a lesser duty than ordinary care (exculpatory clauses may not excuse T from bad faith, reckless indifference etc..) (can't be a result of abuse of discretion)

    *A trustee may delegate duties that a prudent trustee would dictate under similar circumstances, so long as T uses reasonable care (T must review the delegatee's performance)
  29. Trust adminstration: The trustee-Duties: Duty to collect, preserve and segregate trust property
    Trust property should be labled as such, and should never be commingled w/ the T's own property or w/ funds from other trusts.

    *If trust property has been commingled w/ the T's own, courts will impose constructive trust. Any loses will be assumed to T's loses and any gains will be assumed to beling to the trust property. (burden on T to prove)
  30. Trust adminstration: The trustee-Duties: Making property constructive
    The T has the power to invest trust property but no duty to do so (prudent investor standard)

    *where no specific mode of investment has be set out in the trust instrument, the standard for T is prudent investor
  31. Trust adminstration: The trustee-Duties: Duty to account
    The T has a duty to account for trust property periodically throughout the administration of the trust, and can be compeelde to do so by a beneficiary

    *Provisions in a trust instrument purporting to relieve the trustee of the duty to account may be upheld, BUT T is still obligated to show T is fulfilling his obligations (if not , then must account and held liable for deficiency)
  32. Trust adminstration: The trustee-Liability to 3rd parties
    A T will not be personally liable on contracts propertly entered into in his fiduciary compacity in the course of administration of the trust estate, unless he failed to reveal his represenative compacity and identiry of trust in the contract

    *A trustee is personally liable for torts comitted in the course of administration of the trust estate (if T is personally @ fault)

    *a successor trustee is not liable for acts or omissions of his predecessor trustee
  33. Trust modification and termination: By the settlor
    Once a valid trust is created, it may be revoked/amended unless the original says it''s irrevocable

    • *A settlor may amend or revoke a trust:
    • 1. by compliance w/ instructions of trust
    • 2. if amendment or revocation is not forbidden by other writing signed by settlor that refers to trust
  34. Trust modification and termination: by the beneficiaries
    In Pa, trust may be modified or terminated by the consent of the settlor and all beneficiaries, even if if termination is inconsistent (minority rule)

    *A trust can be modified or terminated by the consent of all beneficiaries if the purpose has been accomplished and all the beneficiaries approve of terms
  35. Trust modification and termination: by the court
    In emergency or other circumstances unforeseen by the settlor and causing the trust purpose to be impaired or frustrated, a court may modify or terminate a trust

    *The modification or termination should more nearly approximate the trust terms/intention of S and notice is given to all parties interest

    *the court may also terminate a trust where the trust purposes have been accomplished and all beneficiaries agree to the termination
  36. Trust modification and termination: By the trustee
    The trustee may not terminate the trust, unless options to do so under trust instrument

    * Trustees may join w/ beneficiaries to terminate the trust by merging their interest (T may pass his legal title to beneficiatries)( beneficiaries may pass their equitable title to T)
  37. Trust created by operation of law: Resulting trust
    A resulting trust arises where the court decrees a property holder to be a T from the conveyance of the property back to the settlor because it finds this to be the presumed intent of the parties

    • *2 types of circumstances may give rise to presumption of resulting trust:
    • 1. failure of express trust or failure to provide for some portion of the income from the trust
    • 2. where purchase price for property is paid by one party, but title is taken in the name of another
  38. Trust created by operation of law: Constructive trust
    A constructive trust is an equitable device employed, despite absence of any intent of the parties to create a trust, to avoid unjust enrighment of one party at the expense of another where legal title to property was obtained

    • *A constructive trust may arie:
    • 1. fraud (transaction should not have happend)
    • 2. in violation of a fiduciary or confidential relationship, or
    • 3. by testamentary devise or intestate succession in exchange for a promise to hold in trust

    *the statute of wills prevents proof of a trust where a devise or heir orally agreed to hold a testamentary transfer in trust for another (courts will allow proof [oral] to impose a constructive trust on the basis on unjust enrichment)

    *A constructive trust is not a true trust. It's merely a relationship imposed as a remedial device to redress a wrong or an unjust enrichment
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Pa trusts
Pa trusts
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