TRUSTS

REVIEW

Trust Formation

Formation of a valid trust requires

1. a beneficiary

2. a settlor

3. an intent to create a trust

4. a trustee

5. a valid purpose

6. res

7. compliance with any state formalities.

The trust need not have a named trustee at formation (the court may assign) and the trustee may not be the sole beneficiary

Trust Formation Aconym

SPIRIT B - Settlor, Purpose, Intent, Res, Trustee, Beneficiary

Trust Types

Most trusts tested on the bar exam are intro vivios trusts. Look to see if provisions to create a trust are contained in a will, then this would ba testamentary trust.

In general trusts are revokable during the settllor’s life time, however, upon death, the trust is irrevocable.

Inter Vivos Trust

An inter vivos trust is one where the settlor transfers property into a trust during the settlor’s life.

The trustee manages and controls the trust

The beneficiaries receive the benefits

and it requires a present intent to transfer.

Delivery of an inter vivos trust is required unless the settlor is the trusee.

If the trust if for real property, the statute of frauds will apply.

Testamentary Trust

A testamentary trust is one thatis created by a will which must contain the material proviisions of the trust.

The trust is affectuated at trestator’s death, according to the terms of the will.

Resulting Trust

When a trust fails or there is incomplete dispositoin of trust property

a court may create a resulting trust to return property to the settlor

This grust’s goal is to avoid unjust enrichment and is appropriate when a beneficiary is not using the money as the trust dictates

Discretionary Trust

When a trusee has authority to distribute the trust assets at their own discretion, as long as done so in good faith.

Charitable Trust

A trust is deemed charitable when it has a stated charigable purpose and exits for the benefit of the community at large,

or a class of person with continually changing membership

Cy Pres

A charitable trust’s beneficiary may be designated by a court in situations where the original beneificary ceases to exist.

The court will attempt to assign a chartiable beneficairy whose gols are so close to the original beneficiary as possible -

if none, the trust res returns to the estate.

Trustee Standard of Care

If the trustee has spcial skills that are applicable to trust administration, they will be required to use such skills and will be held to the higher standard.

Trustee Duty of Care

The trustee must exercise that degree of care, skill and caustion exercised by a reasonably prudent person in managing their own affairs.

This duty requires the trustee to be

1. prudent with investment assets

2. including diversifying assets

3. making real property productive

4. making informal investment decisions

Trustee Duty of Loyalty

A trustee is required to remain loyal to the beneficiaries,

• refrain from self dealing the trust assets

• to administer the trust in the best interest of the beneficiaries,

• to act impartially towards each beneficiary

Duty to Diversify Assets

A trustee is required to invest trust assests in varying classes of investments to minimize risk.

Duty to Distribute IAW the Trust Instrument

A trustee has a duty to invest and expend trust resources only in accordance with the trust instrument

Making Property Productive

A trustee is required to invest trust assets to produce income related to the assets invested

Make informed Decisions

A trustee must perform responsibilites with the dure dilgence required to invest trust assets only after developing the requisite knowledge of the investment landscape

Duty to Inform and Account

A trustee must annually report to the beneficiaries regarding the value, employment and usage of the trust assets. Additionally, beneficiaries are entitled to an accounting upon request.

Modification of a Trust

A settlor may modify their trust only if the reserve the power to do so.

• A trust can be modified due to unforeseen circumstances, if all beneficiaries of the trust agree to the modification in WRITING and as long as the MODIFICATION is not contrary to the stated prupose.

CA Trst Modification

In CA, a trust may be modified on PETITION by a trusee,

1. or a court may modify a trust if the trust will be subtaintially impaired due to unknown or unatiscipated circumstance of the settlor

Trust Termination

An irrevocable trust may be terminated if the settlor and the benefinciaries agree with settlor is still ALIVE

• All the beneficiaries agree

• and it doesn’t frustrate the PURPOSE of the trust

• of if the trust ends as stipulated in the trust formation writing

• A revocable trust can be TERMINATED in any WAY SPECIFIED in the Trust, or if it doesn’t state so, in any writting agreemend signed by the settlor.

Creditor Access to Trust Assets

Until the death of a settlor, a creditor may attack REVOCABLE trust assests.

• Creditors typically cannot attack IRREVOCABLE trust assests

• A rust that is revocable inter vivos becomes irrevocable upon death of the settlor.

Remedies Against a Trustee

A trustee may be removed and can be held liable for any loss or depreciation of the value of the trust

• additonally the trustee must be may be disgorged of any profit made by the trustee due to personal use of trust assets

• and may also be liable for any missed profits caused by breach of fiduciary duties to the trust