CAB Trusts

  1. Private Express Trust Defined
    Fiduciary relationship with respect to property whereby one person holds legal title for the benefit of another and which arises out of a manifestation of intent to create it for a legal purpose
  2. Corpus of private express trust can be
    • Fee simple
    • Future interest
    • Life insurance policy
    • Bonds
    • Stocks
    • Cannot be illusory interests (debt owed or expected profits)
  3. Who can be the beneficiary of a private express trust?
    • Any legal person
    • Class, even unascertained individuals
    • Unincorporated entity
    • - common law:not allowable beneficiary
    • - Modern: allowable beneficiary
  4. Rules for Manifestation of Trust Intent
    • Present manifestationof trust intent made by settlor (not be expression of future intent)
    • Pecatory words are not enough (hope, wish, desire)
    • Precatory rules + parole evidence may = trust
    • SOF does not apply
  5. Creation of private express trust to take effect upon death
    • Must comply with Statute of Wills (local probate code)
    • I.e., appears in T's will
  6. Creation of private express trust to take effect during lifetime - Transfer in Trust
    • 3rd person is trustee
    • Real Propery:
    • - SOF applies
    • - Deed must be executed
    • Personal Property
    • - required delivery of property to trustee at the time intent is manifested
  7. Creation of private express trust to take effect during lifetime - Declaration in Trust
    • Settlor is trustee
    • Real Property:
    • - SOF applies
    • - Some writing required (cannot deed property to one's self)
    • Personal Property:
    • - Only intent is examined
    • - Delivery is not necessary
  8. Effects of Illegality of Trust at Creation
    • Excise the illegal portion/counter to public policy portion, if possible
    • Otherwise Crt will:
    • - invalidate the trust, reverts to settlor
    • - allow trustee to keep corpus
  9. Effects of Illegality of Trust after Creation
    • Resulting trust is decreed
    • Resulting trustee devises to settlor or settlor's estate
  10. Definition of Charitable Trust
    • Common law: Trusts for education, alleviation of poverty or sickness, to help orphans
    • Restatement:Any trust which confers a substantial benefit upon society
  11. Creation of Charitable Trust
    • Manifestation of trust intent
    • at settlor's death by will or during settlor's lifetime by declaration of trust/transfer in trust
    • of a presently existing property that can be transferred
    • for a legal charitable purpose
  12. Allowable beneficiary of a Charitable Trust
    • No ascertainable beneficiary is allowed
    • While a few people are receiving an incidental benefit, the focus is on society
    • RAP does not apply
    • Cy Pres does
  13. Cy Pres
    • "As near as possible"
    • If settlor manifests a general charitable intent, but the mechanism for effectuating that intent is not possible or practicable, the court can modify the mechanism to effectuate S's general charitable intent
    • Intent is determined using intrinsic and extrinsic evidence
  14. Honorary trust
    • e.g. for pets
    • A trust with no ascertainable beneficiary and confers no substantial benefit upon society
    • Goal of the settlor - trustee is not required to carry out the intent, but is authorized to do so
    • failure to find trustee causes failure of trust
    • RAP applies
  15. Totten Trust
    • Not really a trust - more an account
    • The named beneficiary takes what is in the bank account
    • Some type of savings account w/ right of suvivorship
    • No fiduciary duties are owed
    • - unless depositor's intention is manifested somehow
  16. Spendthrift Trust Definition
    Beneficiary cannot transfer rights to future payments of income or principal and creditors cannot attach those rights
  17. Spendthrift Trust Definition - creditors attaching
    • Common law: generally no
    • Exceptions:
    • - Gov't
    • - Those providing necessities to B
    • - Child support
    • - Spousal support
    • - Alimony
    • - Tort judgment creditor
    • Surplus Concept: difference b/twn station in life and amount of income including STT is attachable
    • Self-settled Spendthrift Trust: Trust is valid, but spendthrift provision is not
  18. Support Trust
    • Trustee is required to use only so much of income/principal as is necessary for the beneficiary's:
    • health,
    • support,
    • maintenance, or
    • education
  19. Support Trust - involuntary alienation
    Common law: generally noExceptions:- Gov't- Those providing necessities to B- Child support- Spousal support- Alimony- Tort judgment creditor
  20. Discretionary Trust definition
    • Trustee is given sole and absolute discretion in determining:
    • how much to pay the beneficiary, if anything, and
    • when to pay the beneficiary, if ever
  21. Discretionary Trust - voluntary alienation
    • On one hand, beneficiary cannot voluntarily transfer rights b/c may not get anything
    • If there was an assignment, then asignee steps into beneficiary's shoes;
    • however - if trustee has notice he must make payments to assignee or risk being held liable
  22. Discretionary Trust - involuntary alienation
    • If there was an creditor, then creditor steps into beneficiary's shoes;however
    • - if trustee has notice he must make payments to creditor or risk being held liable
  23. Resulting Trust
    • Created by court - transfers property to settlor, or settlor's estate
    • Examples:
    • - end of private express trust
    • - No beneficiary in private express trust
    • - Charitable trust ends b/c impossibility or impracticability and Cy Pres cannot be used
    • - If private express trusts becomes illegal after creation
    • - Excess corpus in a private express trust
    • - Semi-section trust
    • - Purchase money resulting trust
  24. Purchase money resulting trust
    • When A pays consideration to B to have title to property to be transferred to C
    • If A and C are not related, rebuttable assumption that C is holding for benefit of A
    • If A and C are related, rebuttable presumption of a gift
  25. Semi-Secret Trust
    • Will makes a gift to a person to hold as trustee without naming a beneficiary
    • Violative of statute of wills - parole evidence is not allowed
  26. Constructive Trust
    • A remedy to prevent fraud or unjust enrichment
    • A means to disgorge a wrongdoer or ill gotten gains
    • Examples:
    • - trustee of private express/charitable trust makes a profit b/c of self-dealing
    • - there is fraud in inducement or undue influence
    • - Secret trusts in the Law of Wills
    • - Oral Real Estate Trust - breach of promise
  27. Secret trusts
    • Will provides gift to A but is based on promise to use money for B
    • Parole evidence can be used to show that beneficiary was B
    • Constructive Trust is remedy
  28. Oral Real Estate Trusts - Definition & when will constructive trust be imposed
    • Trusts where deed is transferred upon promise that property will be used to benefit 3rdP
    • Exceptions to statute of frauds:
    • Fiduciary relationship between Grantor and recipient
    • Fraud in inducement (by making someone rely on your promise to deed property to you)
    • Detrimental reliance by the intended beneficiary
  29. Two types of trustee powers
    • Enumerated: as listed in trust
    • Implied: helpful and appropriate to carry out the trust purpose
    • - to sell trust property
    • - to incur expenses
    • - to lease
    • - to borrow (modern)
  30. Trustee Duties Owed to Beneficiary - Loyalty
    • Trustee must administer trust for the benefit of the beneficiaries (must be impartial), having no other consideration in mind
    • No self-dealing by the trustee
    • consequences: 
    • - trustee is surcharged for loss
    • - personal profit is transferred via constr. trust
  31. Trustee duties to beneficiaries - duty to invest - three alternative rules
    • State lists
    • Prudent person (common law)
    • As a "prudent investor" (Uniform Prudent Investor Act)
    • Notes: always a duty to diversify
  32. Trustee duties to beneficiaries - duty to invest - Prudent person (common law)
    • Trustee must act reasonably prudent person investing his own property, trying to maximize income while preserving corpus.
    • If trustee holds himself to have greater care, then higher standard applies
    • Each investment is individually scrutinized
  33. Trustee duties to beneficiaries - duty to invest - "Prudent investor"
    • Trustee must act as a prudent investor
    • If trustee holds himself to have greater care, then higher standard applies
    • Performance of entire portfolio matters, not individual
    • -
  34. Duty to Earmark
    • Trustee must label trust property as trust property
    • Common law: trustee is held personally liable for any loss, even without causality
    • Modern: trustee is held personally liable only if loss was caused by failure to label (e.g. trustee's creditor attaches to trust funds)
  35. Duty to Segregate
    • Trustee cannot co-mingle personal funds with trust funds or between trusts
    • Trustee can be held liable for any loss
  36. Duty not to delegate
    • Trustee can rely on competent advice
    • Trustee must make decisions
    • Cannot delegate to another trustee
    • Common law:
    • - could not delegate duty to invest
    • - trustees must act unanimously
    • Modern: 
    • - Can delegate duty to invest
    • - majority of trustees can decide to act
  37. Duty to Account
    Trustee must give beneficiaries of income and expenses of trust on a regular basis
  38. Duty of Due Care
    • Trustee must act as a reasonably prudent person dealing with his own affairs
    • - note: discuss when there is any breach of duty
    • Remedies: damages, constructive trust, tracing and equitable lien on property, ratification, removal of trustee
  39. Liability of contract of Trustee
    • Common law: Trustee is sued in personal capacity
    • - can be indemnified by trust if acted w/in powers and not personally at fault
    • - K could provide that trustee
    • Modern rule: If other person to K knows trustee is entering into K as representative, the must be sued as representative
  40. Liability of Torts for Trustees
    • Common law: trustee was sued in personal capacity
    • - if w/out personal fault - trustee can be indemnified by trust
    • - thus, if agent committed tort, trustee was indemnified
    • Modern: Trustee is personally liable only if he is at fault
    • - with agent torts or strict liability, representative is sued in representative capacity
  41. Modification of Trust by Settlor
    • Settlor can modify trust if:
    • - expressly reserved, or
    • - has power to revoke
  42. Modification of Trust by Court & elements
    • Cy Pres - charitable trust
    • Doctrine of Changed Circumstances:
    • - Changes administrative or mgmt powers of trust
    • - Does not change beneficiaries
    • 2 Elements:
    • - unforeseen circumstances at time of settlement
    • - deviation is necessary to preserve trust
  43. Termination of Revocable Trust
    • Majority Rule: to retain power to revoke, settlor must expressly reserve power in trust instrument
    • Minority: Settlor has the power to revoke unless expressly does not
  44. Termination of Irrevocable Trust
    • Settlor and all beneficiaries agree
    • All the beneficiaries agree to terminate and all material purposes have been accomplished
    • Passive trusts and statute of uses
  45. Passive trusts and statute of uses
    • private express trusts w/ corpus of real property but trustee is passively holding title
    • property passes to beneficiaries
  46. Income and Expenses Allocated to Life Tenant
    • Income:
    • Cash dividends
    • Interest income
    • Net business income
    • Expenses:
    • interest on loan indebtedness
    • taxes
    • minor repairs
  47. Income and Expenses Allocated to Remaindermen
    • Income:
    • - Stock dividends
    • - stock splits
    • - net proceeds on sale of trust assets
    • Expenses:
    • - principal part of loan indebtedness
    • - major repairs
  48. Adjustment Power of Trustees
    Trustees may disregard general rules of allocating income and expenses if necessary to administer the trust fairly
Card Set
CAB Trusts
CAB Trusts