Summary
Summary UBE - Trusts (Notes)
- Module
- New York Bar Exam
- Institution
- New York Bar Exam
Formalities Types of Trusts Alienation Protective Trusts Modification/Termination Trustee's Duties Trustee's Liabilities Principal/Income
[Show more]
Seller
Follow
Content preview
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
conduct involved in the creation of a testamentary trust, the courts may still save the trust for the
, benefit of the beneficiaries or the settlor. For instance, a secret trust concerns a testator who devises
his property to a beneficiary in a will, but the beneficiary holds the property in trust for the benefit of
another existing beneficiary in a trust. In this case, the courts will not terminate the will, but instead
create a constructive trust. Although the testator did not properly create a trust, the courts still intend
to impose a trust for the benefit of the beneficiaries in order to avoid unjust enrichment on the
testator’s part. Constructive trusts may still be imposed where the settlor made wrongful conduct,
such as duress, breach of his fiduciary duties, fraud or homicide. Whereas a semi-secret trust concerns
a settlor who creates a trust for the benefit of beneficiaries who are not ascertained. In such case, the
courts will create a resulting trust for property to revert back to the settlor or to his successors.
Under the Uniform Testamentary Additions to Trust Act (UTATA), property specified in a will may
be transferred into a trust from a ‘pour-over’ will. This requires two elements. Firstly, the will must
have clearly specified the trust. Secondly, the trust must have existed before or at the time the will
was created, as recognised by traditional law. However, modern law has now extended the existence
of a pour-over will where the trust existed at least before the testator died, even if executed after the
will’s creation.
Charitable trusts require three elements. Firstly, the trust must be made for indefinite beneficiaries.
These may include specified charitable organisations. This is in contrast to deeds, which require
definite beneficiaries. Secondly, the trust must be made for a perpetual duration. If not, the trust must
ensure it does not violate the Rule against Perpetuities. For example, a trust that includes a condition
diverting the res from a charitable organisation to a private person, and vice versa, will likely violate
the RAP. However, diversion between charitable organisations will not violate the RAP because
charitable trusts are presumed to last forever. Lastly, the trust must be made for a charitable purpose,
whether in relation to religion, science, government, research or health. However, if the purpose
cannot meet the RAP requirements because of impracticability or impossibility, the courts may
reform the purpose to meet the RAP requirements under the ‘Cy Pres’ doctrine. But this is limited to
general purposes, not specific purposes.
3) Alienation
Beneficiaries may assign their interests in a trust either voluntarily or involuntarily. Beneficiaries can
assign to other parties voluntarily without the settlor or trustee’s consent. However, the assignee will
be subject to the same terms in the original trust. Beneficiaries must assign to creditors for failure to
pay borrowed debts. But the trust terms may prevent such assignment or the court may request that
the trustee pays off the debt by using the property’s income and pay directly to the creditor instead,
rather than the creditor acquiring an interest in the trust.
Assignments will be limited where a spendthrift provision is included in the trust, which protects the
beneficiary from his own improvidence. This means creditors cannot require the beneficiary to
transfer his interest to them. But the modern law recognises some exceptions in which the spendthrift
provision will not apply. For instance, creditors can reach a beneficiary’s interest to pay off
necessaries under public policy, such as federal taxes, hospital expenses (unless specialist) or
governmental claims. Also, creditors can acquire beneficiaries’ interests to pay off outstanding child
(unless the other parent could pay) or spousal support if ordered by the courts. However, personal
debts cannot be paid off by the trust. Instead the creditor could foreclose on the beneficiary’s collateral
(if any), unless other creditors have priority. Furthermore, if the settlor is the beneficiary, the creditors
can acquire the beneficiaries’ interests as well in case the settlor attempts to revoke the trust and avoid
his liabilities. Lastly, a trustee may be required to pay the creditor if he failed to pay income to the
beneficiary within reasonable time.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ajwho. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £10.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
82191 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now