Final Exam Review Session

1. Final Exam Review Session

2. 1. Identify type of alleged trust • A. Time when trust takes effect • 1. Inter Vivos or Living Trust = while Settlor alive • Declaration: Trustee = Settlor • Conveyance or Transfer: Trustee ≠ Settlor • 2. Testamentary = when Settlor dies • Will validity is condition precedent of trust validity

3. 1. Identify type of alleged trust • B. Type of beneficiary • 1. Private trust (individual) • 2. Charitable trust (charity)

4. 2. Determine validity of trust • A. Trust intent • Split of title into legal and equitable interests, and • Settlor imposed enforceable duties on the holder of legal title (trustee).

5. 2. Determine validity of trust • B. Consideration • Consideration is not needed. • A “non” element.

6. 2. Determine validity of trust • C. Statute of Frauds compliance • General Rule: • Written evidence of trust’s terms which is • Signed by the settlor (or the settlor’s agent).

7. 2. Determine validity of trust • C. Statute of Frauds compliance • Personal property exceptions: • Oral trust: • Settlor transfers title to a trustee who is neither the settlor nor a beneficiary, and • Settlor expresses simultaneously with or prior to the transfer the intention to create a trust. • Self-declaration of trust with insufficient writing

8. 2. Determine validity of trust • C. Statute of Frauds compliance • Part performance exception • If trustee acts as if he/she is a trustee, trustee will be estopped from raising Statute of Frauds defense.

9. 2. Determine validity of trust • C. Statute of Frauds compliance • Changes to written trust • Changes to a written trust must be in writing even if settlor could originally have created the trust orally.

10. 2. Determine validity of trust • D. No violation of Rule Against Perpetuities • Private trust = An interest is not good unless it must vest, if at all, not later than 21 years after some life in being at the time of the creation of the interest, plus a period of gestation. • Mandatory reformation, including use of cy pres, if RAP violated. • Charitable trust = RAP does not apply.

11. 2. Determine validity of trust • E. Legal purpose • Not illegal. • Not against public policy.

12. 2. Determine validity of trust • F. Settlor had capacity • Inter vivos trust = capacity to make an inter vivos gift. • Testamentary trust = testamentary capacity

13. 2. Determine validity of trust • G. Property • Settlor must transfer property: • Property must be transferable, and • Settlor must actually transfer the property.

14. 2. Determine validity of trust • H. Trustee • Acceptance • Conclusive = sign trust or separate written acceptance • Presumption = exercise power or perform duty

15. 2. Determine validity of trust • H. Trustee • Bond required unless: • Settlor waives in trust instrument • Corporate trustee

16. 2. Determine validity of trust • I. Beneficiary • Private trust = clearly ascertainable • Charitable trust = benefit society/community

17. 3. Determine traits of trust • A. Revocable by settlor? • Presumed • Irrevocable if: • Settlor provided for irrevocability in the trust. • Settlor is dead.

18. 3. Determine traits of trust • B. Limits on beneficiary’s interest? • Spendthrift • Beneficiary cannot transfer interest. • Beneficiary’s creditors cannot attach interest. • Exceptions: • Settlor = Beneficiary • Child support • Federal taxes

19. 3. Determine traits of trust • B. Limits on beneficiary’s interest? • Mandatory or discretionary distribution? • Limited by a purpose or standard? • Health • Education • Maintenance • Support

20. 4. Has trust been changed since creation? • A. By Parties • Settlor (presumed amendable) • Beneficiaries (with court consent via deviation) • Settlor plus beneficiaries • Trustee (trust permission, divide/combine, non-judicial cy pres) • Trustee plus beneficiaries (merger)

21. 4. Has trust been changed since creation? • B. By Court • Deviation • Purposes of trust fulfilled • Purposes of trust have become illegal • Purposes of trust are impossible to fulfill • Change will further the purposes of trust because of circumstances the settlor did not know and could not anticipate • Necessary or appropriate to achieve settlor’s tax objectives and is not contrary to settlor’s intent

22. 4. Has trust been changed since creation? • B. By Court • Deviation (continued) • Modification of administrative provision is necessary or appropriate to prevent waste or avoid impairment of trust’s administration • Continuance of the trust is not necessary to achieve any material purpose of trust, and all beneficiaries consent (directly, by virtual representation, or through guardian ad litem) • Change is not inconsistent with material purpose of trust, and all beneficiaries consent (directly, by virtual representation, or through guardian ad litem)

23. 4. Has trust been changed since creation? • B. By Court • Cy pres • Charitable trust • Substitute equitably equivalent charity • Settlor had general charitable intent

24. 5. Has trust been terminated? • Express terms of trust • Settlor (presumed revocable) • Exhaust property • Court-ordered termination (deviation) • Merger • No beneficiary • Uneconomic (< $50,000)

25. 6. Has trustee acted properly? • A. What powers did trustee have and did trustee exceed them? • Trust instrument • Trust Code • Implied or granted by equity • Court order • No such thing as “absolute discretion” – trustee must always act honestly and in good faith

26. 6. Has trustee acted properly? • B. Effect of grant of “discretion” • No such thing as “absolute discretion” – trustee must always act honestly and in good faith

27. 6. Has trustee acted properly? • C. Delegation • Generally = allowed if reasonable • Investment and management = allowed if a prudent trustee of comparable skills could properly delegate • If delegation proper, trustee not liable to beneficiaries for agent’s acts – trustee’s due diligence in • Selecting • Establishing scope and terms of delegation • Reviewing agent’s actions

28. 6. Has trustee acted properly? • C. Delegation (continued) • Exceptions: • Agent is an affiliate of the trustee • Trustee or beneficiary is required to arbitrate • Statute of limitations is shortened

29. 6. Has trustee acted properly? • D. Prudently invest • Prudent investor • Portfolio approach – view investments collectively, not individually • Factors (e.g., income, safety, appreciation, tax, need for income/liquidity, property preservation, etc.). • Diversify

30. 6. Has trustee acted properly? • D. Prudently invest (continued) • Review investments • Follow settlor’s instructions • Lower standard • Exculpate negligent breaches

31. 6. Has trustee acted properly? • E. Did trustee properly respond to requests for accountings? • Within 90 days of beneficiary’s request • Meeting statutory requirements

32. 6. Has trustee acted properly? • F. Maintain loyalty • Earmark trust property • Avoid commingling • Support trust • Make no profit • Not buy/sell trust assets to self or affiliate • Not loan trust assets to self or affiliate (except for expressly authorized loans and certain corporate deposits)

33. 6. Has trustee acted properly? • F. Maintain loyalty (continued) • Not purchase own securities for trust • Not sell from one trust to another • Deal fairly with beneficiary on non-trust business • Be leery about hiring self to perform other services for trust • Exculpatory clauses are strictly construed

34. 6. Has trustee acted properly? • G. Liability to third parties • Contract, unless • Contract expressly excludes personal liability • Trustee signed , “as trustee” (rebuttal presumption) • Tort, reimbursement/direct suit allowed only if • Common incident • Strict liability • Conversion • Contract and tort plaintiffs have duty to notify beneficiaries

35. 6. Has trustee acted properly? • H. Allocation between principal and income • Be prepared on: • Basic allocation of receipts rules • How adjustment power operates • Basic allocation of expenditures rules • Unitrusts

36. 6. Has trustee acted properly? • I. Compensation • Trustee entitled to reasonable compensation unless trust provides otherwise.

37. 7. What remedies are available? • A. Procedural Matters • Plaintiff must having standing (interested person) • Jurisdiction • District court • Statutory probate court • Venue – multiple venues possible • Virtual representation

38. 7. What remedies are available? • B. Against trustee • Money damages • Lost value to trust • Profit made by trustee • Lost profits • Punitive damages for intentional breach • Removal of trustee • Enumerated grounds or for other cause • No statute of limitations

39. 7. What remedies are available? • B. Against trustee (continued) • Decree to carry out trust • Injunction • Receivership • Require or increase bond • Declaratory judgment • Criminal sanctions

40. 7. What remedies are available? • C. Against beneficiary • D. Against trust property • Tracing • Subrogation • Marshaling • BFP and similar protections for people dealing with trustee • E. Against third parties

41. 7. What remedies are available? • F. Are remedies barred? • Settlor’s approval in trust • Beneficiary release or ratification • Court decree • Statute of limitations (4 years from discovery) • Laches

42. 8. Are other “trust like” relationships involved? • A. Trust bank accounts • “A in trust for B” • Not a true trust, just an account with financial institution • B only receives funds if B outlives A • No split of title and no fiduciary duties; A may withdraw money at any time for any (or no) reason

43. 8. Are other “trust like” relationships involved? • B. Resulting trusts • Express trust property excessive and instrument is silent • Failure of express trust • Purchase-money resulting trust

44. 8. Are other “trust like” relationships involved? • C. Constructive trust • Equitable remedy to prevent unjust enrichment • Fraud • Abuse of confidential relationship • Promise in contemplation of death