Trusts

Created when there is a split of title, no matter how miniscule.

All responsibility of ownership of prop., none of the benefits

Benefits of the prop.

Trusts must have property in order to be created

S must also have the power to transfer the trust property

Owns the property and provides the title that is split––creates the trust

AKA: Trustor, grantor (IRS), or donor

• 1. S splitstitle
• 2. T manages trust according to state law and instrument
• 3. T's duties end when trusts terminates

• 1. Prop. depleted
• 2. By its own terms

• 1. Provide for and protect trust Bs
• 2. Asset distribution flexibility
• 3. Protect against S incompetance
• 4. Professional mgmt of prop.
• 5. Avoids probate
• 6. Tax benefits

• 1. Minors
• 2. People w/o mgmt skills
• 3. Spendthrifts
• 4. Persons susceptible to influence

• 1. Benefits spread over time
• 2. Give T's discretion
• 3. Set standards
• 4. Impose conditions

S controls trust until incompetant, then successor T will take over (prevents need for guardians)

E.g., Banks know how to handle money than most normal people

Trusts execute according to their own terms––even after S's death.

Prop. in trust is not subject to probate.

NB: Doesn't apply to testamentary trusts

• Can reduce:
• 1. Income
• 2. Gift; and
• 3. Estate taxes

• 1. Split of legal and equitable title
• 2. Imposition of fiduciary duties
• NB: Intent to create trust is required!

• 1. "Trust language" not needed (S needn't know or understand technical trust language)
• 2. Ct.s will push envelope to find trust intent
• 3. "Trust language" usage is not dispositive!
• 4. Must be fiduciary duties imposed!
• 5. Present intent not needed (future trusts okay)

T is also B. Trust ends.

Impossible. BUT, if S gives a little title to someone else, trust can be formed.

Sole B cannot be sole T. Everything else is okay.

• S creates trust whil alive
• Methods:
• 1. Declaration (or self-declaration) of trust (S = T)
• 2. Transfer or conveyance trust (S ≠ T, but may retain some or all equitable title)

S creates trust in will

NB: Will validity is a precondition!

Not required to creat valid trust

NB: Trusts are conveyances, not Ks

Consideration is needed.

If trust prop. is a promise, it must be supported by consideration to have value

E.g., "I promise to give $1K to trust." Not a trust. BUT, if $1K was to be given in exchange for a comp, there'd be a K and a trust created.

In some sitches, trusts must be in writing

Protects against false claims that a trust doesn't exist (so T couldn't bring suit to declare trust invalid, thus creating merger)

• 1. Written ev. of trust terms
• 2. Signed by S (or S's agent)

NB: SoF violation doesn't make trust voided––only voidable––If T carries out trust, estoppel occurs from denying existence.

• Oral trusts allowed if:
• 1. Personal prop.
• 2. T is not S
• 3. T is not B
• 4. S expresses trust intent prior to or simultanesouly w/ transfer

• Self-declaration if:
• 1. Personal prop.
• 2. S states in writing that S hold holds prop. in trust, even though the writing doesn't comply w/ normal req's

• Part-performance:
• If alleged T acts like a T––estoppel

All changes must be in writing (even if it could have been oral originally)

• 1. Alleged T can carry out a trust voluntarily (e.g., trust for land)
• 2. T in bankruptcy––can use SoF to say prop. T says is in trust is not valid because there's no writing

Prevents the remote vesting of contingent future interests

• 1. Ascertain lives in being
• 2. Give each life in being a child who is born after date of trust creation
• 3. Everyone dies except new children
• 4. Determine if beneficial interest in trust must vest/not vest w/in 21 years

• Approaches
• 1. Common law: trust invalid (even if crazy hypothesis)
• 2. Wait and see
• 3. Expand period (e.g., 1000 years)
• 4. Cy pres [Tex.]
• 5. Uniform Statutory RAP act (90 years from date of grant, wait and see, reform if needed)

Ct. must reform or construe interests that violate RAP by ascertaining S's intent

NB: Ct. must liberally construe statute and can use cy pres when reforming/construing

Clause to have backup in the even of RAP violation

Trusts can be made for any non-illegal purpose

• Committing a:
• 1. crime
• 2. tort
• 3. act contrary to public policy

• 1. Intent and effect [Tex.]
• 2. Use

Look at S's intent, not how prop. is used––if will induce someone to commit a crime or go against public policy = invalid

Look at how trust prop. is used

Hot button issue––no regulation

If S puts prop. into trust to keep from Cs, Cs may set aside original transfer or invalidate trust from beginning

Remedy: Set aside conveyance (e.g., Trust worth $60K, S owes $40K, trust is made w/ $20K)

• 1. Resulting trust (S gets prop. back)
• 2. Permit T to retain prop (merger––unjust enrichment, but prevents S from doing illegal things)

How to decide: Look at moral culpability of S

Splitter of title and creator of duties by making a trust through manifesting trust intent

• Same capacity to make other transfers:
• 1. Inter vivos trust = capacity to make inter vivos gift
• 2. Testamentary trust = capacity to make will

• Understand:
• 1. What you're doing
• 2. Who you're doing it for
• 3. What you're doing it to
• 4. The effect of what you're doing

• S may retain:
• 1. legal title;
• 2. life interest;
• 3. power to amend, modify, revoke;
• 4. power to change B;
• 5. control over trust admin;
• 6. ability to add prop. to trust

Redux: All that matters is that someone else holds *some* equitable titel––no matter how small

Called "Dacey" trusts

Trusts must have prop.

• May come from any source, unless:
• 1. Prohibited by trust instrument;
• 2. Prop. unacceptable to T (10 horses)

Real and personal

• Prop. S cannot immediately transfer
• E.g., non-assignable K right; spouse's share of CP; future acquired prop.; expectancy interest from still-living indiv

• Real prop: Deed
• Personal prop: Possession, deed of gift, title registration

Holds legal title and must follow fiduciary duties

NB: Title can't be reached by his creditors and is not in his estate at death

• 1. Take title
• 2. Hold title; and
• 3. Transfer title to trust prop.

• 1. 18 (or ct. removal of minority/disabilities); and
• 2. Competent

NB: T may be S or a B (so long as not sole B)

• Power to acts as T
• 1. Financial inst: no sep. charter needed
• 2. Trust co.s: separate charter needed
• 3. Foreign co.s: allowed if comply w/ prob. code (reciprocity, essentially)

• Don't *have* to accept position
• No liability until you do

• 1. Signature
• 2. Presumption (estoppel)

• NB: PErson can act as T and not accept when:
• 1. Preserving (w/ notice)
• 2. Inspecting (look at prop. before accepting it)

• 1. Familial bond
• 2. Compensation

• 1. Submit self to substantial responsibility/liability
• 2. Could make familial conflict

• 1. Trust instrument
• 2. If nothing, ct must appoint a T upon pet. of interested person

NB: Trusts don't fail due to lack of T

• Protects B
• E.g., distrust of T

NB: Some trusts only require bond for non-S-named Ts

Surety co.s––require 1% or less down

• [Tex.]
• Bond rquired unless waived by S or T is a corp that has ins.

• "Two heads to chop are better than one"
• (Also, divides duties––e.g., family member provides compassion, bank provides expertise)

More possiblities of breach, expensive. Even T number may lead to deadlocked bvotes

NB: Majority may act

• 1. Trust instrument instructions
• 2. Otherwise, pet. ct. to resign (expensive and trust pays)

• If no T remains:
• 1. Successor name by S
• 2. Trust instrument
• 3. Ct. may appoint on its own motion; or
• 4. Ct. must appoint on pet. of interested person

• If ≥1 T remain:
• 1. Successor named by S; or
• 2. Trust instrument

NB: If charitable trust, remaining Ts can fill vacancy by majority vote

• Same as original, unless:
• 1. trust provides otherwise; or
• 2. ct. order provides otherwise

When one corp. eats another corp., new corp. can serve as T

NB: To avoid this, put clause in trust (e.g., small hometown bank eaten by Wells)

Holds equitable title and enforces duties vs. T

Ability to take and hold prop.

Clearly ascertainable (multiple allowed)

• 1. Concurrent
• 2. Successive

Lacks a human B or charitable purpose

Traditionally invalid but allowed under Uniform Trust Code (and Tex.)

E.g., posthumous pet care

No equitable title, but still benefits frmo trust (e.g., house increasing/decreasing surrounding prop.values)

NB: Typically no standing unless can show they're "intersted person" or "affected by"

Cannot exert dominion, control, or accept benefits

Allowed (partial disclaimer)

Not. Irrevocable and unconditional

• 1. In writing
• 2. Notarized
• 3. Delivered to T <9 mos. after the later ofL date of trust creation, B reaching age 21 (if future interest: date indefeasible vests)

• Under trust terms; or
• Under terms of trust as if B predeaced the creation

• Issues of marriage––assume trust is not created by one or both spouses;
• 1. Principal dist: Bs sep prop.
• 2. Undist. trust income: unclassifiable
• 3. Discretionary income dist: Bs sep. prop.
• 4. Mandatory income dist: Disagreement; case law not definitive

• When divorce stat. applies:
• 1. Trust created on or after Sept. 1, 2005;
• 2. Trust is written;
• 3. Trust is revocable;
• 4. S named spouse as B
• 5. S later divorces spouse (finalized)
• 6. Trust is silent as to impact of divorce

• Revocation of:
• 1. Ex-spouse as B and T
• 2. Other ex-relatives as Bs and Ts

As is ex-spouse/relative disclaimed

Fiduciary designations as though ex-spouse died before marriage terminated

• English view––first to notice
• American (Tex.)––first assignee

B can't transfer right ot future payments of income or principal

Cs can't get B's prop. before its distributed to him

• 1. Protects B
• 2. Allows S to have trust prop. used as he intended

NB: There is not req that B "needs" protection

Only as long as in trust––once it's in B's possession, no more protection

Do it.

No language specified––intent just must be clear

S = B, can't protect own prop. from creditors

• Ct. can break provision to provide for child
• If dist. mandator, up to mandatory amt.
• If dist. disc, up to entire income of trust

NB: Include provision, "if any child falls behind on child support, he is no longer a B until he becomes current."

Chuck Norris of leins. Nothing can stop it––not even a spendthrift provision

Agreement is binding––can' back out because of spendthrift provisions

No law in Tex.––some states allow corpus to be reached

Ts have disc. re: which Bs to pay and how much to pay

T can do what he sees fit (w/in reason)

Chicken or feathers––the T decised

B gets no principal or income until T exercises disc.

Good faith decision w/in the terms of the trust and always w/ B's best interst in mind

NB: Never complete disc, otherwise a ct. couldn't review and there'd be not enforceable duties (title would vest completely in B)

Okay, so long according to trust terms (e.g., HEMS) (and some title vested elsewhere)

• Use of trust funds limited to HEMS
• Mandatory or discretionary trusts

Default level of support = waht B is used to before becoming B

Presumed support of B's dependents = they get it, to

First or last dollars?

• Health
• Education
• Maintenance
• Support

Governed by same rules as private trusts w/ a few differences

• 1. Relieft of poverty
• 2. Advancement of educ.
• 3. Advancement of religion
• 4. Promotion of health
• 5. Gov't or municipal purpose

PHERG

Sufficiently large or indefinite class of Bs so community is interested in enforcement of trust

Helping one person is sometimes allowed (e.g., educating one doctor [but prolly not one actress])

Award for doing something good (e.g., Nobel prize)

Help for common disaster

None in Tex.

• Ct. determines if trust is charitable
• Standard: "Generally accepted" standard––would community accept trust as charitable

• Income tax (contributions to are tax deductible; charities are exempt from income tax)
• Gift and estate taxes (savings can be huge)

Majority can appoint

AG

Ct. can appoint an equitably equivalent charity

Exempt

Charitable remainder OR a charitable lead trust

See wills discussion on pours-over

B of a life ins. policy can be a trust rather than the person policy holder wanted to get the prop.

• 1. Inter vivos trust: already set up when dead, money will be there instantly, ensures S intent for longer time, easier to modify BUT there are fees for creation and maintaning
• Application: Married w/ minor kids: Primary B is spouse but kids' remainder goes to inter vivos trust
• 2. Testamentary trust: easy to creat; BUT prop. has to go thru probate, can't modify, etc.

• 1. Funded: T would pay premium for life ins. BUT T's fee would be higher
• 2. Unfunded: don't have large sums of money up front

• Recovable: Change anything at anytime (e.g., mean kids) but all proceeds will be estate taxable
• Irrevocable: Tax benefits

Inter vivos, funded, irrevocable

Inter vivos, unfunded, revocable

• Signature (conclusive ev.) OR
• Excercise power or duty = prsumption

Req'd unless waived or T is a corp.

T becomes title-holder of prop.

Find people, monitor them (if needed), carry out duties to Bs

• In re:
• 1. Investments
• 2. Mgmt
• 3. Distribution

• In re:
• 1. Mgmt
• 2. Investments
• 3. Distribution

• 1. Avoid Self-dealing
• 2. Avoid conflicts of interest

• 1. Civil
• 2. Criminal

Exercise reasonable care, skill, and caution

E.g., insure, record deeds, assess prop. lose toxic assets, keep property safe

Labels trust prop. (helps keep separate)

• Common law = strict
• Modern = liable only if failure to earmark causes losses

To aid in, for e.g., security trading, broker can trade more easily because account has trust name on it but the stock he owns doesn't have to be individually earmarked

• Prohibited:
• 1. W/ T's own assets (strict)
• 2. W/ assets of other trusts (must get authorization––helps increase investing power, etc.)

Can do by corp Ts

• Ts for more than one S can get permission in trust instrument; OR
• T uses an investment vehile like mutual fund, or other fund

T must defend trust from attacks (atty fees/reasonable defense fees come from trust, even if T loses)

T has duty to appeal

T is personally liable if he doesn't invest w/ appropriat level of care

NB: T is not an insurer––only responsible for losses from breaches

• Prudent person w/ respect to own prop
• Prudent person w/ respect to others' prop
• Prudent investor [Tex./majority]

Each investment view as a prudent person would dispose of prop.

Consider: income, appreciation, safety

Ts could only invest in things on those lists

• Tex. BUT
• S can trump

• S says so in trust instrument; OR
• Exculpatory clause (limited, though––doesn't cover bad faith, intentional, reckless breaches or when T profits from trust, or if clause inserted because of an abuse of relationship w/ S––essentially, only covers negligence)

Watches over T to ensure he's being prudent––T must follow protector's directive unless manifestly contrary to terms of trust or would seriously breach protector's duties

Must exercise that special skill––held to that higher std.

NB: If you don't possess the special skill but you hold yourself out as such, you're held to higher std.

• 1. Must act w/ trust purpose;
• 2. Must act in accord w/ trust terms;
• 3. Dist. req's
• 4. Circumstances generally

View investments collectively, not individually as in prudent person rule

NB: T must take reasonable risk (scary)

• 1. general economic conditions
• 2. possible effect of inflation or deflation
• 3. tax consequences
• 4. role of each investment w/in the portfolio
• 5. income expected
• 6. B's other resources
• 7. Need for liquidity
• 8. Importance of preserving trust prop.
• 9. Importance of appreciation
• 10. Spec. relation or value of an asset tot he purposes of the trust or B

Generally: required

Exception: Spec. circumstances dictate it (e.g., entire trust is a family farm)

T must bring assets into compliance w/ Prudent Investor Rule (can't keep as-is as in former law)

Review investments, ditch bad ones, sue former T

T can only work in B's interest

T cannot favor one B over another

• 1. Trust instrument
• 2. Trust code (look at powers)
• 3. Granted by Equity (implied powers)
• 4. Ct. order (may expand or limit)

• 1. Permitted delegation––ministerial duties
• 2. Prohibited delegation––discretionary duties

Modern rule: If "reasonably necessary"––T's hate this rule for vaguery and uncertainty

• Common law––not allowed
• Tex. 1999-2003––delegate to investment agent, could escape personal liabliity if steps were followed
• Tex. Jan. 1, 2004––Uniform Prudent Investment Act

• Stds for delegation:
• 1. Would a "prudent T of comparable skills" delegate?
• 2. No notice needed to B

NB: Essentially, T knows he is not a prudent investor and delgates accordingly

• "Due diligence"
• Use reasonable care, skill, caution in:
• 1. selecting agents
• 2. establishing scope and terms of delegation
• 3. periodically review agent's axns
• Benefit: Escape liability

Reasonable care to comply w/ terms of delegation

T not liable so long as T used due diligence

• Allowed unless trust req's joint exercise
• NB: If delegator takes proper steps, only delegee T is liable

T must go after agent on behalf of trust

• Exceptions where T is liable:
• 1. Agent is affiliate (e.g., relative, partner, employee)
• 2. T or B is req'd to arbitrat (your'e taking away ability to go to ct.)
• 3. Shortening of SoL against agent

Not req'd. Majority may act.

Remaining T may act alone

NB: Instrument tells how to fill vacancy (charitable trusts can fill vacancy absent instrument instructions)

• Usu. co-T's must participate
• Exceptions:
• Co-T is unavailable (e.g., he's on vacation and a stock is tanking); or
• Co-T has properly delegated

• 1. Preventing another T from committing a serious breach; and
• 2. Compel breaching T to redress a serious breach

Fact question

Co-Ts are usu. joint and severally liable

• Exception:
• 1. T doesn't join; OR
• 2. Express dissent, even if you join (e.g., selling land)
• - Exercise reasonable care;
• - Dissent in writing;
• - Give dissent to any T;
• - At or before time of axn (never after)

T has an absolute duty to pay correct B (even good faith mistakes using reasonable care is not an excuse)

• T not liable for mistake of fact before T had actual knowledge or written notice
• NB: T must still seek return of impropertly distributed property

A S directed in trust

• 1. Competent adult B––to B unless instrument says otherwise
• 2. Reduced capacity B (e.g., minors, persons adjudged by T as incapacitated (no judicial or med. determination needed))

• 1. B
• 2. B's or estate's guardian (ct. appointed, S can change)
• 3. Custodian (also a fiduciary of a minor)
• 4. Reimburse person caring for B
• 5. Manage as sep. fund on B's behalf subj. to B's right to w/draw (e.g., B is incompetent now, but there's a mandatory dist––put in a sep. fund and manage that fund)

No. BUT, some exceptional circumstances allow it w/ ct. permission

T owes Bs undivided loyalty (i.e., no self-dealing, no profit, no conflicts)

NB: This can be waived by S

• Strict liability for breach (regardless of good faith, fairnes, or T didn't personally benefit)

• 1. Buy assets from trust or sell T's assets to trust
• 2. Lending––T cannont lend trust funds to T
• Exceptions––authorized; corp. T can deposit under certain circumstances
• - Can put in bank as precursor to dist.

If T owns stock in a co, can't purchase stock for the trust (but can retain stock already in trust if reasonable)

Can't be both buyer and seller

In non-trust transactions––not arms-length––full disclosure of all applicable facts and laws req'd

Keep detailed records ot everything you do; get informed consent

S can waive, but ct. will strictly construe (usu. done for unsophisticated T)

Don't sue a trust––you must sue T in his rep. capacity

Allowed if K was w/in T's capacity to make (not a breach of trust for T to make K)

• Generally allowed.
• BUT, express provision in K (not trust) excluding T from personal liability; T signing K "as T" = prima facie ev. of intent to exclude personal liability

• If representing T: Make sure they sign "as T" and get no-liability term in K
• If representing other K-ing party: Try to increase the number of "people" liable (T in rep. and personal capactiy)

Alert Bs taht T is breaching K––Bs may intervent

• Notice:
• 1. W/in 30 days of filing and 31 days before jgmt
• NB: P's written request requires T to provide names and addresses of Bs w/in 10 days (notice to this list is deemed sufficient)

• T is liable for his and his agent's torst
• T may get reimbursement or exoneration in certain cases

• 1. Common incident tort
• 2. Strict liability
• 3. Concerstion (increased the value of trust; trust may pay back)

Same as in K disputes (30 days w/in filing; 31 days before jgmt; list w/in 10 days)

Abolished in Tex. (mostly, still available occasionally)

Recomend ins. policy that covers the entire trust

Income and remainder Bs are in conflict

• 1. S instructions (followin Uniform Principal and Income Act is deemed reasonable to all Bs)
• 2. Trust code rules
• 3. If no S instruction, or Trust Code rule, allocate to principal

Principal

Income

Income

Principal

Principal

• Cash dividends: Income
• Stock dividends: Principal
• Sotck splits: Principal

Determined according to GAAP (Generally Accepted Acct-ing Principals)

• Income: 10%
• Principal: 90%

(e.g., patent in betamax tapes)

• Prior law (1/1/2004–may use if established before this date)
• Income: 72.5%
• Principal: 27.5%

• Tex. now:
• Divided equitably––IRS depletion allowancase presumed equitable

• Timber that doesn't exceed growth: Income
• Timber that does exceed growth: Principal

Principal

Allows T to ignore basic rules under certain circumstances

(Controversial)

• 1. Nature/purpose/duration of trust
• 2. S's intent (e.g., daughter inc.or g-daughter principal)
• 3. ID and circumstances of Bs
• 4. Liquitidy need
• 5. Asset from S, used by B, or investment
• 6. Terms of trust re: principal and income
• 7. Tax consequences

• 1. Prohibited by S
• 2. T is a B
• 3. T would benefit from adjustment
• 4. Adverse tax consequences

None needed

• Ct. can reverse T's decision (abust of disc.)
• T may seek ct. approval of adjustment if Bs may object

50/50 P/I

50/50 P/I

Income

Principal

• Interest = income
• Principal = principal

Income

• Receipts allocated to income = income
• Reciepts allocated to principal = principal

Income

T's disc. to allocate to principal to make up for depreciation

• Current B gets fixed percentage of trust's FMV each year
• NB: Determining %-age is hard––look to some other rate (e.g., GDP rate, etc)

Duty to disclose upon B's request or T about to take a material axn

• Limited when:
• 1. Trust is revocable;
• 2. B is under 25;
• 3. B is not eligible for current dist.or dist if trust were to terminate now

Allows B to obtain info to see if T is breaching duties (not req'd in Tex., only available)

B or interested person

• 1. Writeen
• 2. 90 days for T to provide
• 3. If T does not, any B may sue
• 4. Ct. may give B atty fees and ct. costs against trust or T personally
• 5. Only allowed once a year

File suit––ct. will order if interested person's reasoning warrents it

S may require––but total waiver not allowed

• NB: Limitations allowed under Trust Code:
• 1. Trust is revocable
• 2. B of irrevocabe trust is remote

Keep good records

• If trust is silent:
• 1. Ct. determination (T pet's for approval)
• 2. T determination (most common)
• 3. Schedule or scale (e.g., based on value of trust, etc.)

NB: Presumption = resonablecompensation (unless S provides otherwise or ct. denies compensation)

• T is already receiving from trust
• T's compensation is taxed––B's is not
• BUT, if you're paid, you might to a better job

Doesn't change for inflation and bears no relation to amount of work

S should do it.

FIAT RECS

• Fidelity
• Income
• Appreciation
• Time

• Responsibility
• Estimate
• Community custom
• Skills (special or did it require skills)

Ct. can do what S would have done had he had hindsight

Change trust terms

T or B

Ct. has discretion––can refuse to authorize, even for "good" reason

Std. of Rev.: Abuse of Discretion

• 1. Fulfilled
• 2. Ilegal
• 3. Impossible
• 4. Impracticable
• 5. Purposes are served by achieveing S's tax objectives and not contrary o his intent
• 7. Purposes no longer served (all Bs must consent directly, virtually, or thru guardian)
• 8. Purposes mot materially inconsistent w/ the purposes (all Bs consent directly, virtually, or thru guardian)

• 1. Change T
• 2. Modify trust terms
• 3. Allow T to do acts not auth'd by S (e.g., "do not invest in stock" from depression-era trust)
• 4. Prohibit T from performing acts req'd by trust
• 5. Terminate trust, in whole or in part

Saves charitable trust––S must have general charitable intent

Presumption: S may revoke, mod., amend, etc.

Revocation: must be in writing if trust was created in writing––or follow trust specified method

• Generally: Can't.
• Exceptions:
• 1. S said T could
• 2. Divions or combo of trusts on same terms (e.g., tax reasons––tax elections for diff. types of prop.)
• 3. Non-judicial cy pres (T can do this)

Causes merger (no merger if spendthrift trust)

• US rule: allowed if material purposes are fulfilled
• Tex: allowed if all purposes are fulfilled (get ct. approval, change not inconsisten w/ material purpose and all Bs agree)

If S is alive and all Bs of irrevocavle spendthrift trust consent, trust can be modified or terminated

DANGEROUS

Favored––Controversy must be genuine

• 1. Trust terms (most common)
• 2. S revokes
• 3. Prop. exhausted
• 4. Uneconomical (running trust cost > benefit)
• 5. Ct. order
• 6. Merger
• 7. All Bs die

Wind up trust business in a reasonable time and dist prop. to remainder Bs

Intersted person (B, T, others affected by trust [S?], AG)

• 1. B of trust on whose act or obligation the axn is predicated
• 2. B designated by name in trust (unless trust prop. exhaused)
• 3. Person receiving current dist (even if not named, e.g., class gift)
• NB: Bs merely designated by class are not necessary parties, but you want to bind them

• 1. W/ stat. prob. ct. and dist. ct.––concurrent jx., no priority
• 2. W/o stat. prob. ct.––dist. ct.

• 1. W/ stat. prob. ct. and dist. ct.––concurrent jx., priority w/ stat prob ct.
• 2. W/o stat. prob. ct.––dist. ct.

If estate pending in cty. ct. at law, this ct. has jx.

Enormous list––pretty much anything needed to be done

• Any or all:
• 1. Cty. of T's residence (now or in past 4 years)
• 2. Cty. of situs of trust admin (now or in past 4 years)

• Any or all:
• 1. Cty. of situs of trust admin (nor or in past 4 years)
• NB: If corp. t is D, cty. in which T maintains its principal ofice in Tex.

Proper in cty. where estate is pending

• Just and reasonable cause
• NB: Venue may be changed thru consent of all parties

Generally, TRCP

• Usu. S
• Binds all
• E.g., revocable trust

• Binds ward
• Minor or incapacitated person

Binds B in proceeding to review acts of prior T and axns involving creditors

E.g., new T sues old T for breach, B is bound

Parent may rep child

• If.
• 1. Interest was adequately rep'd by another party; and with
• 2. substantially identical interest

• Discretionary: Minor, unborn, incapacitated, unascertained, unelectable, etc.
• Mandatory: If trust sued by a tort P and there is a minor or incompetent

• Any profit thru or arising out of trust admin (sans compensation)

• 1. Lost value to trust (cause req'd, no benefit req)
• 2. Profit made by T (cause req'd, no req trust lost, only that T gained)
• 3. Lost profits (cause req'd––difficult to ascertain)
• 4. Punitive damages (intentional breach)

• Discretionary:
• 1. T has materially violated trust (or attempted); and
• 2. Trust suffered a material financial loss
• NB: Material loss is fact Q

• 1. T becomes incompetent or insolvent
• 2. Discrtionary for the ct. for any other cause (ct.s are reluctant to remove T that S chose)

Does not run when seeking removal rather than recovery (the latter's SoL is 4 years)

"Do your job!"

Prevent T from going through w/ threatened breach

Extraordinary remedy––when T disobeys injunction

Remedy against T

Ct.s may determine any Q arising during the admin of a trust

• Award may be against any party (P or D)
• Std: Equitable and just

Always request fees

Misapplication by Fiduciary

• Elements:
• 1. Intenionally, knowingly, or recklessly committed an
• 2. Evil act
• - mis-apply trust prop. (violate trust instrument or trust code)
• - substantia risk of loss to B

>$200K = life

• Req's:
• 1. Knowledge (subjective or objective)
• 2. Improper conduct
• - allows bad conduct to continue;
• - fails to make reasonable effort to compel T to deliver trust prop.
• - fails to make reasonable effor to compel redress of breach

NB: To escape liability, you must do the opposite of ALL of those things

B has misappropriated or otherwise wrongfully dealt w/ trust prop. (e.g., taking watch in trust)

• The B:
• 1. Consented to breach;
• 2. Participated in breach;
• 3. Agreed to be liable for T's breach

Sue for payment

E.g., mistaken payments

E.g., B promises to add prop. to trust and then fails to do so

T may offset, even if trust has a spendthrift provision

Recover actual trust prop. from T or non-BFP

No double recovery, though

• B can:
• 1. Get exact prop. that was in trust above all other creditors;
• 2. Subrogate and get creditor's superior rights

• There is an unrealistic presumption of honesty––T takes from his funds first, then the trust funds
• Trust $ in T's acct. only increases by embezzling from trust acct.

B gets same rights as secured creditors if T uses trust prop. to pay creditor (e.g., T pays off house w/ embezzled trust funds, Bs get to foreclose on house)

Creditor w/ right ot recover from several funds must first go for funds not subject ot the rights of another creditor who has accessto only one of the funds

Purchaser who can keep embezzled prop. when he meets only one Tex. protection.

• 1. BFP (good faith, fair val)
• 2. Dealings w/ T (not a B, good faith, obtain a copy of trust or trust cert.––no duty to inquire about T's powers)
• 3. Delivery of $ or other prop. to T (good faith, no duty to make sure T properly deals w/ prop.)
• 4. Dealing / T of terminated trust (not a B, good faith, w/o knowledge of trust termination, protected as if former T were still T)
• 5. Conveyances from trust which don't
• - ID the trust; or
• - Disclose the names of the Bs
• - Purchaser not subject to B's claims

• Party who breaches K
• Tortfeasor who dmgs trust prop

Anyone who would rec. prop. if trust were invalidated (e.g., heirs, will Bs)

• 1. S (but only if he qualifies as interested person)
• 2. AG
• 3. Charitable B
• 4. Anyone who can qual as interested person

2 & 3 most commonly––3 most common

Application to "charitable trusts"

• 1. Charities, even if not a trust
• 2. Trust to benefit charities
• 3. Inter vivos outright gifts to charities
• 4. Testamentary outright gifts to charities

Nearly always

• E.g.,
• 1. Axn to terminate trust
• 2. Distributeto non-charitable donees
• 3. Cy pres
• 4. Construe instrument
• 5. Will contest if will makes charitable gift
• 6. Obtain declaratory jgmt

• 1. Given by party initiating axn
• 2. Certified or registered mail
• 3. Include pleadings
• 4. W/in 30 days of filing
• 5. At elast 25 days before hearing
• 6. Submit affidavit swearing compliance w/ notice duty w/ return receipts from the mail scv

May set aside as voidable

Rarely

• S may waive anything but:
• 1. Req valid trust purpose
• 2. Limitations on exculpatory clause
• 3. SoL
• 4. Accounting for irrevocable trust if B is entitled to receive current dist. or would take if trust ended now
• 5. T's duty to act in good faith
• 6. T's duty to inform Bs (unless B<25 or B is remote)
• 7. Ability of ct. to take axn (deviatoin, remove T, exercise jgmt. over trust, bond, compensation, etc.)
• 8. Terrorum provisions

• Req's
• 1. Legal capacity
• 2. Fully informed
• 3. Written
• 4. Delivered to T

Anything––even forgive past conduct or give permission for future conduct

• 1. Binding on B who can revoke (usu. S)
• 2. Minor bound
• - parent signs (no conflict of interest; and no ct.-appointed guardian)
• 3. Unborn or unascertained B bound if:
• - B is lineal of consenting B; and
• - Substantially identical interst
• 4. Less comprehensive than VR in a ct. proceeding

NB: Can't use VR to modify or terminate trust

The "escape" clause––ct. can bar anything

4 years––runs from date breach was/should have been discovered

Equitable remedy, even before SoL runs

Not a true trust––just an acct. at a bank, credit union, or other financial inst.

• Totten trust
• Savings acct. trust
• Tentative trust

T (depositor) maintains all rights, no imposition of dutes

If more than one T, they each own in proportion to net contributions

B gets prop. in acct. when all Ts die and B survives all Ts

• Avoids probate
• Cheap
• No control need be given up
• Effective to make small gifts (e.g., to gardener)

• No pro mgmt
• No tax benefits
• Confusing to clients (go w/ POD acct.)

Not a true trust

S or S's heirs

• 1. Express trust prop. is excessive and trust instrument doesn't provide instructions. (e.g., "Money in trust for HEMS of B" B dies. No remainder B.)
• 2. Failure of an express trust (e.g., "Trust to open a bar in Anytown, USA" Bars are illegalized in Anytown, USA. )
• 3. Purchase-money resulting trust (PMRT) (e.g., I'm moving to Dallas so I order furniture online and have it sent to Dallas friend so I don't have to move it––a PMRT is presumed)
• NB: if parent, child, or spouse, gift presumed.
• Other relationships: Gift or creditor/debtor

Equitable remedy to prevent unjust enrichment

Person seeking must request it

Bad conduct must have nexus to prop. (e.g., the prop. of the estate if an heir murders intestate)

• 1. Fraud
• 2. Confidential relationships are abused
• 3. Promises made in contemplationof death
• 4. Any other evil conduct which the ct. finds merits the remedy