Final Exam Review Session

transcript

1. Identify type of alleged trustA. Time when trust takes effect

1. Inter Vivos or Living Trust = while Settlor alive▪ Declaration: Trustee = Settlor▪ Conveyance or Transfer: Trustee ≠ Settlor

2. Testamentary = when Settlor dies▪ Will validity is condition precedent of

trust validity

1. Identify type of alleged trustB. Type of beneficiary

1. Private trust (individual)

2. Charitable trust (charity)

2. Determine validity of trustA. Trust intent

Split of title into legal and equitable interests,

Settlor imposed enforceable duties on the holder of legal title (trustee).

2. Determine validity of trustB. Consideration

Consideration is not needed.

A “non” element.

2. Determine validity of trustC. Statute of Frauds compliance

General Rule:▪ Written evidence of trust’s terms which

is▪ Signed by the settlor (or the settlor’s

agent).

Personal property exceptions:▪ Oral trust:▪ Settlor transfers title to a trustee who is

neither the settlor nor a beneficiary, and▪ Settlor expresses simultaneously with or prior

to the transfer the intention to create a trust.

▪ Self-declaration of trust with insufficient writing

Part performance exception▪ If trustee acts as if he/she is a trustee,

trustee will be estopped from raising Statute of Frauds defense.

Changes to written trust▪ Changes to a written trust must be in

writing even if settlor could originally have created the trust orally.

2. Determine validity of trustD. No violation of Rule Against

Perpetuities Private trust = An interest is not

good unless it must vest, if at all, not later than 21 years after some life in being at the time of the creation of the interest, plus a period of gestation.

Mandatory reformation, including use of cy pres, if RAP violated.

Charitable trust = RAP does not apply.

2. Determine validity of trustE. Legal purpose

Not illegal. Not against public policy.

2. Determine validity of trustF. Settlor had capacity

Inter vivos trust = capacity to make an inter vivos gift.

Testamentary trust = testamentary capacity

2. Determine validity of trustG. Property

Settlor must transfer property:

▪ Property must be transferable, and▪ Settlor must actually transfer the

property.

2. Determine validity of trustH. Trustee

Acceptance▪ Conclusive = sign trust or separate

written acceptance▪ Presumption = exercise power or

perform duty

2. Determine validity of trustH. Trustee

Bond required unless:▪ Settlor waives in trust instrument▪ Corporate trustee

2. Determine validity of trust I. Beneficiary

Private trust = clearly ascertainable

Charitable trust = benefit society/community

3. Determine traits of trustA. Revocable by settlor?

Presumed

Irrevocable if:▪ Settlor provided for irrevocability in the

trust.▪ Settlor is dead.

3. Determine traits of trustB. Limits on beneficiary’s

interest?

Spendthrift▪ Beneficiary cannot transfer interest.▪ Beneficiary’s creditors cannot attach

interest.▪ Exceptions:▪ Settlor = Beneficiary▪ Child support▪ Federal taxes

3. Determine traits of trustB. Limits on beneficiary’s

interest?

Mandatory or discretionary distribution?

Limited by a purpose or standard?▪ Health▪ Education▪ Maintenance▪ Support

4. Has trust been changed since creation?A. By Parties

Settlor (presumed amendable) Beneficiaries (with court consent via

deviation) Settlor plus beneficiaries Trustee (trust permission,

divide/combine, non-judicial cy pres)

Trustee plus beneficiaries (merger)

4. Has trust been changed since creation? B. By Court

Deviation▪ Purposes of trust fulfilled▪ Purposes of trust have become illegal▪ Purposes of trust are impossible to fulfill▪ Change will further the purposes of trust

because of circumstances the settlor did not know and could not anticipate▪ Necessary or appropriate to achieve

settlor’s tax objectives and is not contrary to settlor’s intent

4. Has trust been changed since creation?B. By Court

Deviation (continued)▪ Modification of administrative provision is

necessary or appropriate to prevent waste or avoid impairment of trust’s administration

▪ Continuance of the trust is not necessary to achieve any material purpose of trust, and all beneficiaries consent (directly, by virtual representation, or through guardian ad litem)

▪ Change is not inconsistent with material purpose of trust, and all beneficiaries consent (directly, by virtual representation, or through guardian ad litem)

4. Has trust been changed since creation?B. By Court

Cy pres▪ Charitable trust▪ Substitute equitably equivalent charity▪ Settlor had general charitable intent

5. Has trust been terminated?Express terms of trustSettlor (presumed revocable)Exhaust propertyCourt-ordered termination

(deviation)MergerNo beneficiaryUneconomic (< $50,000)

6. Has trustee acted properly?A. What powers did trustee have

and did trustee exceed them? Trust instrument Trust Code Implied or granted by equity Court order No such thing as “absolute discretion”

– trustee must always act honestly and in good faith

6. Has trustee acted properly?B. Effect of grant of “discretion”

No such thing as “absolute discretion” – trustee must always act honestly and in good faith

6. Has trustee acted properly? C. Delegation

Generally = allowed if reasonable Investment and management = allowed if a

prudent trustee of comparable skills could properly delegate

If delegation proper, trustee not liable to beneficiaries for agent’s acts – trustee’s due diligence in▪ Selecting▪ Establishing scope and terms of delegation▪ Reviewing agent’s actions

6. Has trustee acted properly?C. Delegation (continued)

Exceptions:▪ Agent is an affiliate of the trustee▪ Trustee or beneficiary is required to

arbitrate▪ Statute of limitations is shortened

6. Has trustee acted properly?D. Prudently invest

Prudent investor Portfolio approach – view investments

collectively, not individually Factors (e.g., income, safety,

appreciation, tax, need for income/liquidity, property preservation, etc.).

Diversify

6. Has trustee acted properly?D. Prudently invest (continued)

Review investments Follow settlor’s instructions▪ Lower standard▪ Exculpate negligent breaches

6. Has trustee acted properly?E. Did trustee properly respond

to requests for accountings? Within 90 days of beneficiary’s

request Meeting statutory requirements

6. Has trustee acted properly? F. Maintain loyalty

Earmark trust property Avoid commingling Support trust Make no profit Not buy/sell trust assets to self or affiliate Not loan trust assets to self or affiliate

(except for expressly authorized loans and certain corporate deposits)

6. Has trustee acted properly? F. Maintain loyalty (continued)

Not purchase own securities for trust Not sell from one trust to another Deal fairly with beneficiary on non-

trust business Be leery about hiring self to perform

other services for trust Exculpatory clauses are strictly

construed

6. Has trustee acted properly? G. Liability to third parties

Contract, unless▪ Contract expressly excludes personal liability▪ Trustee signed , “as trustee” (rebuttal presumption)

Tort, reimbursement/direct suit allowed only if▪ Common incident▪ Strict liability▪ Conversion

Contract and tort plaintiffs have duty to notify beneficiaries

6. Has trustee acted properly?H. Allocation between principal

and income Be prepared on:▪ Basic allocation of receipts rules▪ How adjustment power operates▪ Basic allocation of expenditures rules▪ Unitrusts

6. Has trustee acted properly? I. Compensation

Trustee entitled to reasonable compensation unless trust provides otherwise.

7. What remedies are available? A. Procedural Matters

Plaintiff must having standing (interested person)

Jurisdiction▪ District court▪ Statutory probate court

Venue – multiple venues possible Virtual representation

7. What remedies are available? B. Against trustee

Money damages▪ Lost value to trust▪ Profit made by trustee▪ Lost profits▪ Punitive damages for intentional breach

Removal of trustee▪ Enumerated grounds or for other

cause▪ No statute of limitations

7. What remedies are available? B. Against trustee (continued)

Decree to carry out trust Injunction Receivership Require or increase bond Declaratory judgment Criminal sanctions

7. What remedies are available? C. Against beneficiary D. Against trust property

Tracing Subrogation Marshaling BFP and similar protections for

people dealing with trustee E. Against third parties

7. What remedies are available? F. Are remedies barred?

Settlor’s approval in trust Beneficiary release or ratification Court decree Statute of limitations (4 years from

discovery) Laches

8. Are other “trust like” relationships involved? A. Trust bank accounts

“A in trust for B” Not a true trust, just an account

with financial institution B only receives funds if B outlives A No split of title and no fiduciary

duties; A may withdraw money at any time for any (or no) reason

8. Are other “trust like” relationships involved? B. Resulting trusts

Express trust property excessive and instrument is silent

Failure of express trust Purchase-money resulting trust

8. Are other “trust like” relationships involved? C. Constructive trust

Equitable remedy to prevent unjust enrichment▪ Fraud▪ Abuse of confidential relationship▪ Promise in contemplation of death

Final Exam Review Session

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