Trust

• Inter vivos trust is a type of private trust. 
• To be valid: 
• settlor must intended to create a trust in her lifetime
• for proper purpose
• provide res
• deliver the res to the trustee
• and name ascertainable beneficiaries.

• Any presently existing interest in property that can be transferred can be corpus of a trust. 
• ie fee simple, future interest, life insurance (but not illusory interests)

• any ascertainable person or group of people can be the beneficiary. 
• Including a corporation, or unincorporated ass'n (Modern Law only)
• Watch out for RAP

• A trust must have a trustee, but the court will not allow the trust to fail solely b/c there is no trustee. 
• When necessary, the court will appoint a trustee.

• Maj: settlor is not permitted to revoke an inter vivos trust unless the power is expressly reserved in the trust instrument
• min: settlor is permitted to revoke an inter vivos trust unless the trust instrument is made expressly irrevocable.

• Settlor must manifest an intention to create a trust. 
• Must use mandatory words, rather than word of mere hope or desire (precatory words+parol evidence may=trust)
• But if precatory words+parol evid. are insufficient transferee owns property in fee simple.
• Oral trust okay for personal property, but writing required if res is land (SOF)

• 3rd party as trustee
• Trust in real property: S must execute and deliver a deed transferring tittle to the trustee. 
• Trust of personal property: S must deliver trust property to the trustee.

• S as trustee
• Trust in real property: there must be a writing satisfying the SOF which indicates the S is also the trustee
• Trust in personal property: look for present manifestation of intent

• Trust must have VALID PURPOSE not contrary to public policy or illegal. if illegality at creation-try to excise the illict condition. if you can, the trust will stand, if not the court will either
• 1) invalidate the trust at its inception or
• 2) all the trustee to keep the property for himself. 

If illegality after creation, a resulting trust is decreed (trustee must transfer the property back to the S if alive, if not to the S's estate).

• Trust created for the public benefit (ie relief of poverty, advancement of religion, education, etc)
• Charitable purpose required-look to the effect of the gift to determine charitable purpose, not the motive of the S (if dual purpose, not a charitable trust unless provides for split)
• Note: no ascertainable group/person as society is the B and RAP does not apply.

• If S manifest a general charitable intent, but the mechanism for effecting that intent is not possible or practicable, the court acting in equity may modify the mechanism cy pres, as nearly as possible, to effectuate S's general charitable intent. 
• Court will admit both intrinsic evidence (trust instrument) and extrinsic evidence to ascertain S intent. 
• If specific charitable intent then no cy pres=resulting trust.

• A trust which has no ascertainable B and confers no substantial benefit on society. ie a trust to further fox hunting or a trust to take care of S's pet. 
• Trustee is not required to carry out S's goal but has the power to carry it out. 
• If trustee refuses to carry out S's intent, the trust fails (court will not appoint a new T). 
• RAP applies: these trusts often fail b/c there is no measuring life. Some courts strike at its inception=resulting trust. Others allow the honorary trust to endure for 21 years then=resulting trust

• A tentative bank account, whereby the name B take whatever is left in the bank account at the death of the owner of the account. 
• If the depositor/trustee owns the the account during his lifetime, and owes the name B no fiduciary duties whatsoever. 
• May be elevated to a private express trust if S manifests an intent to create a trust.

a trust which, by its terms, prevents the B from transferring his right to future payments of income or pricipal, and creditors cannot attach the B's right to future payment.

• Generally, B cannot voluntarily transfer his rights to future payments as it would defeat the terms of the trust, but sometime courts will recognize the assignment on the gronds that the B merely has given the trustee a direction or order to pay the B's agent or representitive ie the assignee. 
• Prior to payment, the B would have the right to revoke the order or direction.

**NOTE: S creates spendthrift trust for himself, split authority in VA.

• Generally, creditors cannot attach B's rights to future payments. 
• CL: preferred creditors can attach the B's right to future payments (ie gov creditors like the IRS, those who provide necessities-food/shelter/clothing/medical care, child support, spousal support, alimony or a tort judgement creditor.)
• Rule in many juridictions that any creditor (even not preferred) has a right to attach "surplus" as measured by the B's station in life
• **NOTE: S creates spendthrift trust for himself, trust is valid but spendthrift provisions are not recognized (no insulation from creditors)

• A trust, which by its terms, allows the trustee to pay only so much income or principal as necessary for B's health, support, maintenance or education. 
• VA: B cannot voluntarily transfer his right to future payments
• InvA: creditors cannot attach the B's right to future payments but there are some preferred creditors who can attach (same as spendthrift)

a trust, which by its terms gives the trustee sole and absolute discretion in determining how much to pay the B if anything, and when to pay the B if ever.

• On the one hand B cannot voluntarily transfer his right to future payments b/c the B may not get anything.
• Yet, if in fact there was an assignment, then the assignee steps into the shoes of the the B, and if the trustee decides to pay, he must pay the assignee or be held personally liable.

• Creditors cannot attach the B's right to future payments bc there may be nothing to attach. 
• Yet, if the trustee has notice of the debt and the creditor's judgement against the B, if he decided to pay, he must pay the creditors or be held personally liable.

• An implied in fact trust based upon the presumed intent of the parites. 
• Arises when: 1) inter vivo trust ends by its own terms, and no provisions for what happens to the corpus thereafter 2) trust fails b/c there is not B 3) a charitable trust ends b/c of impossibly or impracticability and cy pres wont work 4) trust fails because illegality 5) excess corpus 6) purchase money resulting trust 7) semi-secret trust 
• Results: if a resulting trust is decreed by the court, the resulting trustee will transfer the property to the S if alive, if death then to S estate.

• An equitable remedy to prevent fraud or unjust enrichment. 
• The wrongdoer will be deemed a constructive trustee and must transfer the property to the intended B. 

Arises: (1) a trustee of a PET or charitable trust makes a profit b/c of self-dealing, (2) there is fraud in the inducement or undue influence re a will, (3) there is a secret trust (the will on its face makes a gift outright to A, but the gift is given on the basis of an oral promise by A to use the property for the benefit of B – parol evidence is admissible to show that B was the intended B), (4) oral real estate trusts.

Trustee has those powers expressly conferred by the trust instrument, state law, and court decree, and all powers implied as necessary to accomplish the trust purpose.

• Trustee may sell trust property, incur expenses, lease, and borrow money as necessary to carry out the trust purpose. Power subject to review for abuse of discretion
• Trustee may not borrow money, mortgage or otherwise encumber trust property
• Trustee may sue third parties who damage the trust property.Joint trustees must exercise their power by unanimous agreement

• The trustee must administer the trust for the benefit of the beneficiaries, having no other consideration in mind.
• No self-dealing. 
• Must turn over ill-gotten profits to the intended B (constructive trust).

trustee must act as a reasonably prudent person dealing with his own affairs.

Duty to diversify so if there is a loss, the entire portfolio is not destroyed.

discuss splits of State Lists, Common Law prudent test, Uniform Prudent Investor Act. 

If breach of duty, trustee must make good on the loss. If there is a profit, the B will affirm the transaction. But no netting

In certain jurisdictions, in the absence of directions in the trust, the trustee must follow a list of good investments.

• Good investments include: (1) federal gov’t bonds, (2) federally insured certificates of deposit, (3) first deeds of trust in real estate, (4) sometimes stocks of publicly traded corps (depends on the jx.).
• Never invest in a new business or second deeds of trust,

• The duty to invest requires the trustee to act as a reasonably prudent person investing his own property, trying to maximize income while preserving corpus. If the greater skill – higher standard.
• Key: each investment is scrutinized.
• Good investments include: (1) federal gov’t bonds, (2) first deed of trust on real estate, (3) federally insured certificates of deposit, (4) blue chip stocks, (5) mutual funds may be ok (depending on jx.).
• Never invest in a new business or second deeds of trust.

• Adopted by most states, provides that the trustee must invest as a prudent investor.
• Key: Unlike the rules above, each individual investment is not scrutinized, but, rather, performance is measured in the context of the entire trust portfolio.
• Thus, any investment is not per se invalid.

• Requires the trustee to label trust property as trust property. If breach of duty, and there is a loss 
• 1. At common law: the trustee is held personally liable regardless of whether there is a causal relationship between the failure to earmark and the loss.
• 2. Modern approach: the trustee is held personally liable only if the loss was caused by the failure to earmark.

the trustee cannot commingle his own personal funds with trust funds. If breach, the trustee can be removed and be held personally liable for any loss.

The trustee can rely on professional advisors in reaching a decision, but the trustee cannot delegate decision-making authority to these advisors.

Modernly: the trustee can delegate the duty to invest in a professional money manager.

requires the trustee to give the B a statement of trust income and expenses on a regular basis.

• (1) damages,
• (2) constructive trust,
• (3) tracing and equitable lien on property, (4) ratify the transaction if good to the B,
• (5) remove trustee.

• CL: trustee is sued in her personal capacity, so her personal assets are at stake. But trustee can get indemnification from trust assets if acting w/in her powers and was not personally at fault.
• ML: If the other person to the K knows that the trustee is entering into the K in her representative capacity, the trustee must be sued in her representative capacity, and her personal assets are not at stake.

• CL: the trustee is sued in her personal capacity. If w/out fault, may seek indemnification.
• ML: trustee is sued in his individual capacity and is personally liable for torts only if the trustee is personally at fault. Otherwise sued in rep. capacity.

• S can modify the trust if the S expressly reserves the power to modify the trust.
• S also has power to modify if the S has power to revoke.

• There can be modification by the court regarding charitable trusts and the cy pres powers, changing the mechanism to further settlor’s general charitable intent.
• Court may also modify pursuant to its deviation power to change the administrative or management provisions of the trust. Requires:
• Unforeseen circumstances on the part of the settlor
• Necessity (deviation needed to preserve the trust).

• 1. Settlor and all the beneficiaries (including remaindermen) agree to terminate
• 2. All the beneficiaries agree to terminate and all the material purposes have been accomplished (the court will make certain that sufficient assets are set aside to accomplish any minor purposes).
• 3. By operation of law: passive trusts and the statue of uses

passive trusts and the statue of uses

1. Where there is a private express trust of real property, and the trustee has only passive duties (just holds bard legal title to the res), the trust terminates under the Statute of Uses, and the B gets legal title by operation of law.

2. Not recognized in all jurisdictions

3. Generally only applies to a trust of real property. But, should apply by analogy to the trusts of persona property because equity should not see a useless act done.

Gets: (1) cash dividends, (2) interest income, (3) net business income

Pays: (1) interest on loan indebtedness, (2) taxes, (3) minor repairs

Gets: (1) stock dividends, (2) stock splits, (3) net proceeds on the sale of trust assets

Pays: (1) principal part on loan indebtedness, (2) major repairs or improvements

trustee can disregard above stated rules regarding allocation of income to life tenant and remainderman if different allocation is necessary to administer the trust fairly.

• results when a gift is made in reliance upon the b promise to hold the gift property in trust for another. 
• To prevent unjust enrichment of the named B, courts will allow the intended trust B to offer extrinsic evidence of the agreement. 
• If the agreement can be proven by clear and convincing evidence, a constructive trust will be imposed on the named beneficiary.

Testator devises all or part of estate to trustee of an inter vivos trust. Courts admitted trust instrument into probate and thus effectuated its terms under 3 theories

• 1. acts of independant significance
• 2. incorporation by reference 
• 3. uniform testamentary additions to trust-under UTATA, a pour over trust may be entered into probate by statue if 1) trust valid 2) trust was executed before or same time with the trust instrument

Trustee named but bene are secret, unenforceable.