Trusts and Estates Vocabulary

Conflict of Interest and Trusts

• Conflict of interest:
  • Arises when a trustee or beneficiary has a conflicting interest.
  • Example: A trustee who is also a family member of the beneficiary.

Purpose of Trusts

• Trusts are created when someone (the settlor) wants to provide assets but retain some control.
• Example: A rich family member puts money in trust, allowing someone to receive interest without unrestricted access to the principal.

Role of the Trustee

• Trustees manage the assets according to the settlor's instructions.
• They may be used when the settlor wants expert financial management.
  • Trustee companies provide financial expertise.

Real-World Example: Donald Trump and His Businesses

• Scenario: Donald Trump's companies owned properties where dignitaries stayed, generating profits.
• Conflict: He was not allowed to receive those profits directly due to his position.
• Solution: A trust was created for his children, who then received the money.

Types of Trusts

• Living Trust:
  • Created during the settlor's lifetime.
• Testamentary Trust:
  • Created through a will.

Trustee Requirements

• Trustees must be mentally sound.
• If a trustee becomes mentally unstable, a replacement is needed to avoid the trust failing.
• If there is no trustee, there is no trust.

Statute of Frauds

• Concerns the enforceability of agreements.
• Deals with a specific time frame, has to come about, but its not forever.
• Example: Can you abort after a heartbeat? After six months its called induction of labor, not abortion.

Importance of Written Agreements

• Trust agreements involving money should be in writing to prevent disputes.
• Written agreements ensure clarity and prevent changes of mind by the grantor.
• It avoids a 'one word against another' situation.

Merger Concept

• Merger: Occurs when legal title and beneficiary (equitable) title merge.
• If there is no split between legal and equitable title, there is no trust.
• The sender can reclaim both legal and equitable title, which terminates the trust.

Example Scenario

• Steven transfers legal title to Tyres.