This is a draft cheat sheet. It is a work in progress and is not finished yet.
Definitions
Trust |
Management devise |
Bifurcated Transfer |
Trustee owns legal title but not equitable |
Principal |
Original trust property and any increase in value |
Income |
Money invested by the trust |
Revocable |
Majority presumes irrevocable; UTC presumes revocable |
Mandatory Trust |
Trustee must make distributions from the trust |
Discretionary Trust |
Trustee makes distributions in her discretion |
Remedial Trust |
Remedy created by operation of law |
People
Settlor |
Person who creates trust |
Trustee |
Person who manages the trust, has legal title to the property |
Beneficiary |
Receives the benefit of the trust; has equitable title to property |
Trust Distributions
Mandatory Trust |
Trustee has no discretion as to whether she will make a distribution |
Discretionary Trust |
Trustee has complete discretion as to whether she will make a distribution |
Support Trusts |
Trustee makes distributions to support the beneficiary |
Asset Protection Trust
Goal |
Shield beneficiaries from creditor's claims |
Support Trusts |
Creditors can reach only when trustee has made a support payment |
Discretionary Trust |
Creditors can only reach when trustee has made a payment |
Spendthrift Trust |
Trust expressly restricts the beneficiary's power to alienate her interest; creditors can only reach when trustee makes a payment |
Exceptions |
spousal or child support; provision of basic necessities; federal or state tax liens |
Principal v. Income
Old Rule |
life beneficiary entitled to income; remainder interest entitled to principal |
Modern Approach (UPAIA) |
Trustee can re-characterize and reallocate as necessary to fulfill trust purpose; allocations must be reasonable |
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Express Trusts
Express Trust |
Owner expressly indicates intent to create truts |
Private Express Trusts- Intent |
"trust words" create presumption of trust (look out for precatory language); oral trusts are valid unless conveying real property or devise |
Private Express Trusts- Trust Res |
must be property in the trust (unless pour-over trust- trust my be in writing at time will is executed) |
Private Express Trusts- Purpose |
valid if not illegal or contrary to public policy |
Private Express Trusts- Beneficiaries |
Must be ascertained beneficiary- specific person or criteria |
Charitable Trust |
Must have charitable purpose; Rule Against Perpetuities does not apply; Cy Pres doctrin |
Cy Pres Doctrine |
Court can modify a trust if the trusts charitable purpose is not longer possible; must have had a general charitable purpose (if not goes to resulting trust); goal is to make as close to original purpose as possible |
Charitable Trust- Standing |
Attorney General's office has standing to enforce; UTC givers Settlor standing as well |
Creation of Express Trust- Inter Vivos |
during Settlor's life- declaration of trust (Settlor declares herself the holder of property in trust and is trustee); deed of trust (settlor conveys property to a trustee) |
Creation of Express Trust- Testamentary Transfer |
Created according to terms of a will |
Creditor's Ability to Reach
Rule 1 |
Beneficiary's equitable interest in trust property is freely alienable unless statute or trust instrument limit this right |
Rule 2 |
Creditor cannot reach trust principal or income until such amount becomes payable to the beneficiary or the beneficiary can demand it |
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Remedial Trusts
Equitable Remedy |
created by operation of law; passive in nature (trustee's only duty is to convey property back to settlor) |
Resulting trusts |
used when a trust fails; property returned to settlor or estate; avoid unjust enrichment |
Purchase-Money Resulting Trust |
person one buys property but title is taken in person two's name (person two is not the natural object of person one's bounty) |
Avoiding a Resulting Trust |
Create a gift-over clause |
Constructive Trusts |
Remedy used to prevent unjust enrichment if third party takes advantage of settlor; look for wrongful conduct directed toward settlor that caused settlor to create trust |
Termination
Expiration |
Express trust can expire at the end of a stated term |
Material purpose |
Automatically terminates when the trust purpose is satisfied |
Claflin Doctrine |
Unfulfilled material purpose; trustee can block premature termination if the trust is still serving some material purpose |
Settlor's power |
Unilateral termination if expressly reserved the right; settlor and beneficiaries must consent if right to terminate was not expressly reserved |
Modification
Settlor alive |
Unilaterally modify if reserved right; otherwise, all beneficiaries must consent and proposed change must not interfere with primary purpose of trust |
Settlor dead |
All beneficiaries agree to modification consistent with material purpose or unforeseen event frustrated purpose of trust |
Trustee |
cannot modify or terminate through unilateral action |
Trustee Removal
Remedy |
Trustee breached a fiduciary duty or grossly mismanaged the property |
Resignation |
Written notice, if settlor is alive, to co-trustees and beneficiaries |
Trustee's Power
Trust Documents |
Look for powers here first- if silent, look to statutory and common law |
Modern Trend |
Grant trustee all those powers necessary to act as a reasonably prudent person |
Trustee's Duties
Loyalty |
Did trustee act reasonably?; Self-dealing is a breach (always per se breach) |
Care |
Did trustee act in good faith?; duty of ordinary prudence |
Delegation |
common law- never allowed to delegate; modern law permits delegation |
Investments |
old rule- limited to specific list of investments; modern- prudent investor rule (expected to diversify assets and spread risk of loss) |
Impartiality |
balance competing interests of present and future beneficiaries |
Administrative duties |
Inform beneficiaries about nature of trust property; duty to account for actions taken on behalf of trust |
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