Florida Trusts - Chapter Review

FLORIDA TRUSTS - DEAN ZACHARY A. KRAMER

ELON UNIVERSITY SCHOOL OF LAW

CHAPTER 1: INTRODUCTION

Editorial Note 1

  • As of March 2023, the Florida bar examiners will primarily test trusts in a multiple-choice format rather than in essay.

A. What’s What?

  • Definition of a Trust:

    • A trust is a legal device designed to hold and manage property for the benefit of someone else.

  • Key Feature:

    • A trust involves a bifurcated transfer, which is a transfer that separates legal and equitable interests.

  • Trustee's Role:

    • The trustee owns legal title and manages the property for the benefit of the beneficiaries.

  • Example 1:

    • T-Bone Taylor transfers his stock portfolio to Hank Mardukas in trust for the benefit of T-Bone’s children, Bonnie and Clyde.

    • This illustrates a bifurcated transfer where Hank, as trustee, owns the legal interest while Bonnie and Clyde, as beneficiaries, own the equitable interest.

  • Trust Property (Res):

    • Res (Original Trust Property): Original trust property and any increase in its value.

    • Investment by the Trust: Money invested by the trust.

  • Revocable Trust:

    • Can be revoked at any time during the settlor’s life.

    • Settlor: The person who creates the trust.

  • Irrevocable Trust:

    • Cannot be revoked by the settlor. In Florida, a trust is presumed to be revocable unless stated otherwise in the trust documents.

  • Types of Trusts:

    • Mandatory Trust: Trustee must make distributions from the trust.

    • Discretionary Trust: Trustee may make distributions at their discretion.

    • Remedial Trust: A passive trust created by operation of law where the trustee only has one power – to transfer the property.

  • Rule Against Perpetuities (RAP):

    • Applies to trusts, with a majority applying a “wait and see” approach.

    • Wait to see if interests vest within the vesting period to determine validity.

  • Florida Vesting Period:

    • 1,000-year vesting period for trusts created on or after July 1, 2022.

    • For trusts created between December 31, 2000, and June 30, 2022, a 360-year vesting period applied.

B. Who’s Who?

  • Settlor: The person who creates the trust is the settlor.

  • Trustee: The individual managing the trust is the trustee.

    • Holds legal title to the property.

    • Has power to manage the property (sell, transfer, invest).

    • Can be an individual, a bank, or a trust company.

    • A trust cannot fail for lack of a trustee.

  • Beneficiary: The person receiving the benefit of the trust is the beneficiary.

    • Holds equitable title to the property.

    • Has power to enforce the trust instrument.

    • Can involve multiple classes of beneficiaries.

  • Example 2:

    • Husband devises property in trust “to Wife for life, then to Husband’s children.”

    • Wife is both trustee and income beneficiary, valid as she is not the sole beneficiary, with Husband's children having a remainder interest which grants them standing to enforce.

  • Example 3:

    • T-Bone Taylor creates a trust for his Cockapoo, Robert Downey Jr., Jr., is a valid pet trust in Florida.

  • Example 4:

    • T-Bone transfers money to Hank in trust for Hank’s children with mandatory distributions for educational support until graduation, making this a mandatory trust.

    • Settlor: T-Bone Taylor.

    • Trustee: Hank Mardukas.

    • Beneficiaries: Hank’s children.

CHAPTER 2: EXPRESS TRUSTS

A. Express Trusts

  • Creation and Intent: The owner indicates intent to create a trust, which can be private or charitable.

B. Private Express Trusts

  1. Threshold Matter

  • Requires a settlor with legal capacity.

  • Legal Capacity Definition:

    • Focused on the time of the trust:

    • Revocable Trust: 18 years old and of sound mind (same as making a will in Florida).

    • Irrevocable Trust: Same capacity as making a will.

  1. Intent

  • Settlor must have intent to create the trust.

    • Use of “trust words” forms a presumption of a trust (e.g., “in trust,” “for the benefit of”).

    • Oral trusts are enforceable.

  • Example 5:

    • T-Bone Taylor verbally declares, “I am giving my savings to my wife, Charlene, in trust for the benefit of my best friend, Hank Mardukas.” This statement is sufficient to create a trust without written documentation.

  • Exceptions:

    • Statute of Frauds require written trust for conveying real property or trusts created in a will.

    • Watch for ambiguous language:

    • Language that suggests donor’s wish or desire for property use but does not create a trust, e.g., “I hope he will use the money for education.”

    • Example 6:

    • T-Bone transfers $10,000 to Hank with the wish he uses it to support children's education; this likely does not create a trust, due to ambiguous intent.

  1. Trust Property (Res)

  • A trust cannot exist without property involved (trust res).

  • A Trust without Property:

    • Exceptions:

    • Life Insurance Trust: Contains terms to distribute death benefits without requiring immediate property transfer at the time of trust execution.

  • Understanding Trust vs. Debt:

    • Unlike debt (an obligation to pay), a trust involves a segregated source of funds assigned for designated beneficiaries.

  1. Valid Purpose of Trust

  • Must not be illegal or contrary to public policy.

  1. Trustee Role

  • Holds legal title to trust property.

    • Can there be multiple trustees? Yes.

    • Can a named trustee decline? Yes.

    • A trustee can resign with 30 days’ notice.

    • Will the trust fail without a trustee? No.

    • Best way to replace?

    • Settlor names a successor.

    • Beneficiaries unanimously agree on a replacement.

    • Court appoints a successor if needed.

C. Creation of Express Trusts

  • Inter vivos transfer: Created during the settlor's life via:

    • Declaration of Trust: Settlor declares themselves holder of property in trust for beneficiaries.

    • Deed of Trust: Settlor conveys property to a trustee but is not the trustee.

    • Exercise of Power of Appointment: In favor of the trustee.

  • Testamentary Transfer: Created by a will.

CHAPTER 3: CHARITABLE TRUSTS & REMEDIAL TRUSTS

A. Charitable Trusts

  • Must possess a charitable purpose, such as:

    • Relief of Poverty

    • Advancement of arts, sciences, education, or religion

    • Promotion of health, governmental or municipal purposes.

  • Example 9:

    • Richie Rich conveys estate to Cure Tay-Sachs Foundation in trust, highlighting charitable purpose despite rarity of the condition.

  • Rule Against Perpetuities (RAP):

    • The RAP applies here, except in circumstances of initial gifts to charity followed by noncharitable gifts.

  • Example 10:

    • Saul conveys property for charitable use and provides for a subsequent interest to a non-charity, making RAP applicable to the second gift.

  • Indefinite Beneficiaries: If non-charitable, intended beneficiaries must be the community at large or a class of unidentifiable members.

  • Cy Pres Doctrine:

    • Courts can modify a trust when its purpose is no longer achievable to adhere closely to the original intent.

    • Example 12:

    • A trust set for a pottery program can be modified to support graphic design due to practical changes.

  • Standing to Enforce:

    • Settler, beneficiary, or state attorney general's office holds standing.

B. Remedial Trusts

  1. In General:

  • Not driven by intent, these are remedial mechanisms created by law.

  • Key characteristic: Remedial trusts are passive.

  • Types:

    • Resulting Trusts

    • Constructive Trusts

  1. Resulting Trusts

  • Created when a trust ends or is not executed.

  • Trustee transfers property back to settlor or settlor’s estate.

    • Example 14:

    • Archer dies without children, resulting in a resulting trust where property goes back to Oliver’s estate.

    • The goal is to avoid resulting benefits.

  1. Constructive Trusts

  • Courts impose these to prevent unjust enrichment.

  • Conduct such as fraud or undue influence must be proven with clear and convincing evidence.

    • Example 16:

    • A greedy attorney convinces a settlor to disinherit their children resulting in a constructive trust to avoid the attorney’s undue advantage.

CHAPTER 4: BENEFICIARY'S INTEREST

A. Forfeiture

  • Killer's Interest:

    • An individual who intentionally kills the settlor forfeits interest in the trust.

  • Divorce/Annulment:

    • In a divorce trust, any provision in favor of an ex-spouse becomes void upon divorce or annulment.

B. Anti-Lapse

  • Baseline: To take a future interest, a beneficiary must survive at the distribution date.

    • Example 17:

    • Beatrice has a future interest that depends on surviving her mother Tina.

  • Florida's Anti-Lapse Statute:

    • Applicable to trusts, including gifts to grandparents or their descendants. When a named beneficiary predeceases the settlor but leaves a descendant, the gift does not lapse.

  • Example 19:

    • The gift to Beatrice lapses under specific language, indicating she must survive Tina for her interest.

C. Transfers and Creditor Access

  • Rule 1: Alienability = Accessibility

    • A beneficiary’s equitable interest is typically alienable unless restricted by trust or statute.

    • If freely alienable, creditors can reach beneficiary's equitable interest.

  • Rule 2: Limited Beneficiary = Limited Creditor

    • Creditors cannot access trust principal until amounts become payable to the beneficiary.

  • Spendthrift Provision:

    • Prevents a beneficiary from transferring their interest, protecting trust assets from creditors until payment is made.

    • Exceptions:

    • Claims for spousal/child support, judgments from protection services, claims from the government.

  • Discretionary Trust:

    • Under discretionary provisions, if a beneficiary cannot control distributions, creditors face limited risk until payments are made.

CHAPTER 5: TRUST MODIFICATION AND TERMINATION

A. What’s What?

  • Terminate: End a trust.

  • Modify: Change or redirect trust terms.

B. General Rules

  • A trust can terminate by:

    • Expiration: At the end of a specified term.

    • Example 23:

      • A trust for Clyde ends at the age of 25.

    • Revocation: Revoked by the settlor.

    • Satisfaction: The purpose of the trust has been achieved.

    • Example 24:

      • A trust supporting educational expenses terminates upon completion of school.

C. Revocable Trust

  • A settlor may revoke a revocable trust.

  1. Methods:

  • Compliance with methods outlined in the trust documents; or,

  • If the trust is testamentary, refers to the trust or passes trust property in later documents.

  1. Multiple Settlors:

  • In trusts with multiple settlors, a revocation or amendment only applies to the revoking settlor’s portion.

D. Irrevocable Trust

  • Settlor cannot cancel after creation, but beneficiaries & settlor can agree if it doesn’t contravene the original purpose.

E. Judicial Modification/Termination

  • Beneficiary or trustee may petition for modification if the purpose is:

    • Inconsistent with intent or if material purpose no longer exists.

    • Example 27: Tia seeks to modify a trust to support her niece's new goals post-graduation, which conflicts with the trust’s initial intent.

CHAPTER 6: THE TRUSTEE

A. Baseline

  • References the trust documents to outline expectations and authority.

  • The trustee has legal title and acts as the property owner.

B. Types of Powers

  • Mandatory Powers: Required actions, such as paying specific bills.

  • Discretionary Powers: Allow the trustee to decide on distributions.

C. Duties

  • A trustee acts as a fiduciary.

  • Duties Include:

    • Good Faith: Must act responsibly.

    • Loyalty: Act solely for the beneficiaries' interests. Seeks to avoid self-dealing or conflicts of interest.

    • Impartiality: Balances interests between current and future beneficiaries, as preferences may differ.

    • Care and Prudence: Administer the trust as a prudent person would and utilize any specialized skills appropriately.

D. Liabilities

  1. To Beneficiary:

  • Liable for breach of duty enforced by beneficiaries.

  1. To Third Parties:

  • Contract liabilities belong to the trust, while in torts the trustee can be liable if their actions directly caused harm.

CHAPTER 7: WILL SUBSTITUTES AND POWER OF ATTORNEY

A. Will Substitutes

  • Avoid probate complexities and formalities of a will through:

  • Revocable Trust: Avoids probate as it is a ramped transfer upon death.

  • Pour-Over Trust: A trust created in a will, assets transfer into it at the testator's death.

  • Life Insurance Trust: Facilitates access to death benefits directly for beneficiaries.

  • Uniform Transfers to Minors Account (UTMA): Designated custodian manages funds for minor beneficiaries, terminating when the minor reaches adulthood.

  • Totten Trust: Bank account payable upon the owner's death to named beneficiaries without establishing a formal trust.

B. Power of Attorney

  • Grants authority for one individual to act on another's behalf.

  • Requires proper execution and witnessing to be effective.

  • Agent Requirements: At least 18 years older; can be individual or institution.

  • Authority and Duties: The agent can only exercise granted authority, bound to fiduciary duties, including responsible management of the principal’s estate.

  • Termination: Can result from various causes including incapacitation, dissolution of relationships, or completion of the power's purpose.

Conclusion

  • Trust law incorporates essential principles of fiduciary duties, beneficiary rights, and the dynamic nature of property management in order to ensure compliance with the settlor's intents while promoting equity and justice among beneficiaries.