studicata trusts one sheet

title division in trusts

A trust is a fiduciary relationship between the trustee(s) and the trust beneficiaries. When a trust is created, title to property is divided between legal and equitable title

legal title

1. The trustee holds legal title to the property and becomes the owner of record for the property.

equitable title

1. The beneficiary holds equitable title to the property and is entitled to the financial benefits of the property.

settlor

1. The settlor is the person who creates the trust (usually the person who places the original assets into the trust).

trustee

1. The trustee is the person who holds the assets of the trust for the benefit of the beneficiaries. The trustee manages the trust and its assets under the terms of the trust.

beneficiary

The beneficiary is the person who is entitled to the assets or profits of the trust.

A valid express trust is created if the following five elements are met:

1. The settlor has intent to create the trust;

2. There is trust property (i.e., the res);

3. An ascertainable beneficiary exists;

4. The trust has a trustee; AND

5. All parties comply with the requisite formalities.

revocable/irrevocable trusts

Under the common law (majority view), a trust is irrevocable unless the settlor expressly retains the right to revoke or amend the trust.

Under the Uniform Trust Code (minority view), a trust is revocable unless the trust expressly provides otherwise.

testamentary trusts

A testamentary trust is created through provisions of the settlor's will and does not come into existence until the settlor dies (must meet the same formalities as the will).

rights of crediots

he creditors of the beneficiary of a trust have no greater rights in the trust property than the rights of the beneficiary. If the trust prevents a beneficiary from receiving the trust principal, then his creditors have no right to reach the trust principal either. While creditors cannot go after the principal, they may go after the interest income if there are no spendthrift provisions. Moreover, once trust income is paid to the beneficiary, a creditor may initiate appropriate proceedings to reach that income in order to satisfy a claim.

modification of trusts, deviation

Generally, a court will permit a deviation if the purposes of the trust:

1. Have been satisfied;

2. Have become unlawful; OR

3. Are impossible to carry out.

cy pres doctrine

: If it becomes unlawful, impossible, or impracticable to carry out the purpose of a charitable trust, the Cy Pres doctrine allows the court to modify the terms of the charitable trust “as near as possible” to the original intention of the settlor to prevent the trust from failing.

modification by the parties

Generally, a trust is irrevocable and cannot be modified unless the settlor retained the right to do so in the terms of the trust instrument. However, in a minority of jurisdictions, thesettlor is free to modify or revoke the trust instrument without express authorization to do so.

Generally, a trust may be terminated if:

1. The trust is revoked or expires pursuant to its terms;

2. The material purpose of the trust has been satisfied or becomes unlawful, contrary to public policy, or impossible to carry out;

3. The settlor and all of the beneficiaries unanimously agree to terminate;

4. All of the beneficiaries agree AND no material purposes for the trust remain;

5. Termination will further the purpose of the trust due to circumstances that were not foreseen by the settlor; OR

6. The court or trustee determines that the value of the trust property is too low to justify the cost of administration.

as a fiduciary the trusee must

1. Manage the trust property exclusively for the benefit

of all the trust’s beneficiaries; AND

2. Administer the trust in good faith pursuant to the terms and purposes of the trust.

duty of care

The trustee possesses a duty to exercise the degree of care and skill as a person of ordinary prudence would exercise in dealing with his own property. In making this determination, the focus is on the trustee's conduct, not the results of such conduct. Under the majority view, the settlor may limit the potential liability of a trustee by including an exculpatory clause in the trust instrument.

However, exculpatory clauses do not excuse the trustee for acts done in bad faith.

duty of loyalty

The trustee owes a duty of loyalty to the beneficiaries where the trustee may not obtain any personal gain from administering the trust, except for fees. The settlor may expressly waive the trustee's duty of loyalty in the trust instrument. However, a waiver will not excuse the trustee for acts done in bad faith.