PA: Trusts

  1. Trust
    • GEN: Written arrangement under which the trustee holds legal title to property for the benefit of the beneficiaries.
    • KEY: Subject matter of the trust must be certain AND identifiable.
    • >> Pour-in trusts (life insurance policy or pension plan death benefits) okay.

    NOTE: If trust assets not used, they return to the settlor if alive, or his estate if dead.

    TRUSTEE: subject to fiduciary standards.
  2. Beneficiaries
    • Private Trusts: Must be ascertainable.
    • Charitable Trusts: need not be ascertainable.
  3. Trustee
    • KEY: Trust must have one or more trustees, BUT no trust fails for want of a trustee.
    • >> If clear manifestation to create a trust, or named trustee dies/resigns, w/ no provision for a successor, the court will appoint a suitable trustee to execute the trust.
  4. Trusts as Valid Will Substitutes
    • GEN: Okay if --
    • (1) trust identified in T's will; AND
    • (2) its terms are set out in a written instrument.

    NOTE: Instrument may be executed before, concurrently with, or after the will.

    NOTE: Devised property added to the trust as it exists at the time of the settlor's death.
  5. Charitable Trusts
    • RULES:
    • (1) Not subject to RAP;
    • (2) Must be for charitable purposes; AND
    • (3) When specific charitable purposes can no longer be accomplished, may be reformed under the doctrine of cy pres (as near as possible to settlor's intent).
  6. Spendthrift Trusts
    • GEN: a creditor does not have a right to get actual trust assets, but it can get an order directing the flow of capital to it...
    • UNLESS:
    • >> Spendthrift Clause -- No interest of any beneficiary can he assignable by such beneficiary nor shall it be subject to the claims of the beneficiary's creditors.
    • >>>> With a STC, can't divert income, except for (1) alimony, (2) child support, (3) claims by creditors who have provided necessities, OR claims by the state or fed govt (taxes).

    • KEY: If Settlor sets up a trust for his own benefit with a STC, the clause is UNENFORCEABLE.
    • >> Settlor's creditors can get to the assets of a trust if held to be revocable.
  7. Trust-Administration (self-dealing)
    GEN: If self-dealing, beneficiaries can attempt to trace and recover stock for their benefit, and seek the replacement of the trustee.

    • Cannot borrow, sell/buy assets, ect.
    • Corp. Trustee cannot purchase its own stock.
  8. Trust Administration (Investments)
    GEN: Prudent Investor Rule: manage property as a PI, considering the purposes, terms, distrib reqs and other circumstances.

    STANDARDS: reasonable care, skill and caution.

    REQ: No commingling, must diversify investments.
  9. Trust Administration (Liability for Breach)
    • When a Fiduciary Duty is Breached:>> Ratify transaction and waive the breach.
    • >> Surcharge: Sue for the resulting loss.
    • >> Trace: In cases of self-dealing, trace funds, recover them + proceeds.
  10. Modification, Termination and Reformation
    • Settlor, acting alone, can revoke, terminate, or modify a trust IF --
    • (1) Instrument does NOT explicitly state that the trust is irrevocable; AND
    • (2) Settlor substantially complies with all provisions in the trust instrument pertaining to the form that the proposed action must take (in writing, delivered to trustee, ect.).

    • Can terminate a trust IF --
    • (1) all (current AND future) beneficiaries consent; AND
    • (2) There is no further trust purpose to be served.
    • NOTE: A spendthrift provision in a trust usually makes it INDESTRUCTIBLE.
    • >> BUT: If settlor AND all beneficiaries agree, spendthrift trust can be terminated.
  11. Power of Appointment
    • GEN: Donor (one giving the power of appointment) gives donee (taker) the power to appoint the beneficiaries of an existing trust.
    • >> General Power of Appointment: donee can appoint property to himself, his estate or the creditors of either.
    • >> Special Power of Appointment: donee limited in power to appoint (specified group/class).
    • >> Donor can also assign takers in default -- situation where donee fails to exercise appointment power.

    NOTE: holder of a power of appointment differs from the trustee of a trust in that the former has no obligation to manage the property for the generation of income, but need only distribute it.
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PA: Trusts