Summary
Summary UBE - Trusts
- Module
- New York Bar Exam
- Institution
- New York Bar Exam
Formalities Type of trusts Alienation Protective trusts Modification/Termination Trustee's Duties Trustee's Liabilities Principal & Income
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TRUSTS1) Formalities (UTC)
Under the Uniform Trust Code (UTC), a trust may be created if the following are met.
Firstly, a settlor must have a present intent to immediately create a trust, as well as capacity to do
so.
Secondly, the settlor must have intended to entrust his property (the res) to a trustee, who will hold
legal title to the res until the trust is terminated. The trustee does not have to be ascertained, as a
general trustee may be appointed by the court.
Third, the settlor must have intent that the trustee gives the res to a beneficiary when the trust is
terminated. This may include any remaindermen who will take the principal in the property from
the beneficiary after his estate terminates, and the beneficiaries in contrast take the income derived
from the property. Until then, the beneficiary only holds equitable title to the res, rather than legal
title. However, the beneficiaries must be ascertained in the trust, unlike a trustee. Otherwise, the
settlor is entitled to the res. Another issue that arises in trusts is where the trustee is also the
beneficiary. In this case, both interests merged which abolishes the trust. Where the beneficiary is
also the settlor, the trust may become a resulting trust in which a trustee holds the res for the settlor
or his successors. However, this only applies to a sole beneficiary. If there are more beneficiaries,
the settlor can still entrust the res to the trustee for the benefit of the other beneficiaries. A
beneficiary can also disclaim his interest in the res by giving a written disclaimer to the trustee
within 9 months after the trust is created, like for wills. As a result, the disclaiming beneficiary will
be treated as a predeceased beneficiary, in which the res will then return to the settlor or pass to any
ascertained remaindermen. Alternatively, the trustee can hold the res to accumulate income, which
may be preserved for the future remaindermen or distribute in small amounts to any ascertained
remaindermen until all are fully ascertained.
Fourth, the trust must be made for a valid purpose. Such purpose must not be contrary to public
policy, not illegal, and should meet the rule against perpetuities period, unless the ‘wait-and-see’
approach or cy pres doctrine is applicable. Otherwise, the trust must meet this period depending on
the type of trust created; testamentary or inter vivos trust.
Lastly, the res must be ascertainable at the time the trust was created. However, future property may
also be included where its identity is ascertained once the property comes into existence, because
Settlor’s intent to create the trust will re-manifest.
Consideration is not required in a trust because it is not a contractual transaction.
2) Types of Trusts (UTATA)
There are two types of trusts. An inter vivos trust transfers property during the settlor’s lifetime. An
inter vivos trust must meet the formalities of a trust under the UTC. An inter vivos trust also should
be made in writing if it concerns transfer of land, under the Statute of Frauds. The trust must not be
ambiguous, otherwise parol evidence may be introduced to clarify the trust’s terms.
Testamentary trusts are created by a settlor who intends to transfer his property to the beneficiary at
the time of his death. It must meet the formalities of a will under the UPC. Even if there is wrongful
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