미국변호사 시험 -Trusts

Trusts 미국변호사 시험 outline

 

Trusts의 경우 wills와 연계하여 시험문제가 자주 출제되는 경향이 높습니다. Trusts 자체 문제인 경우에는 charitable trusts와 constructive trust가 가능성이 높습니다.

 

 

 

<TRUSTS>

A. Creation of trust (valid trust?)

- (i)a settlor who, (ii)intending to create a trust (iii)for a valid trust purpose, (iv)delivers the trust property to the trustee to hold (v)for the benefit of one or more beneficiaries.

1. Settlor must have capacity to convey and must convey property to trustee (“funding”)

 - conveyance of real property by deed or personal property by physical delivery.

2. Intent to create a trust

- manifested by words, writing, or conduct (delivery of deed) to take effect immediately

- precatory expression is not intention (merely expresses a hope, wish, or suggestion).

- any split of title so long as the sole trustee is not the sole beneficiary is sufficient.

3. Valid trust purpose-Trusts may be created for any purpose that is not deemed illegal, contrary to public policy, or impossible to achieve: encourage immorality, or limit religious freedom.

4. delivers the trust property to trustee

- settlor may transfer any type (real, personal, tangible, or intangible). But an interest that has not yet come into legal existence cannot be held in trust (e.g. expected future income not supported by a valid contract, or expectancy to inherit)

   - if there are not trust assets when the trust instrument is executed, a trust arises in the future only if the settlor manifests a new a n intention to create the trust. This remanifestation is not required if the promise is supported by a valid consideration.

5. Ascertainable beneficiary

  - ascertained beneficiaries: beneficiary need not be identified at the time a trust is created, but they must be susceptible of identification by the time their interests come into enjoyment.

  - class gifts: if the trust beneficiaries are class, at common law, the class must be sufficiently definite. As long as the class is a reasonably definite one, it is permissible that the members of the class are to be selected by the trustee in his direction. (“discretionary trust”)

 

B. Express Trust

1. Inter Vivos Trusts: created while settlor is alive

(1) Declaration of trust (settlor=trustee) or Conveyance trust

(2) Pour-over gift: At common law, to create a valid pour-over gift, the trust must be in existence or must be excecuted at the time of the will’s execution. However, most states, a will may devise property to a trustee of a trust to be established during the testator’s lifetime. (e.g. trust may be established after the will is executed but before the testator’s death)

(ex)settlor announced he intended to create a trust for family. In about three years, I expect to sell some stock to create the trust – it is not valid trust if there is not re-manifestation to create a trust. Five years ago, Settlor’s sister-in-law, executed a will leaving her entire estate to the Settlor’s trust. – pour-over gift is valid because during her life time, the trust is created. Four years ago, Settlor sold some stock and deposited the $100,000 sale proceeds into an account at the First bank in the name of “Settlor. As Trustee of the Trust. – this conduct is re-manifestation of intending to create a trust.

 

2. Testamentary Trust: to create a trust by a valid will.

 (1) Testamentary secret trust: settlor agrees with beneficiary of will that beneficiary will hold property in trust for someone else but the will does not state the trust nature of the gift – alleged beneficiary seeks constructive trust to remedy against will beneficiary

  (2) Testamentary semi-secret trust: testamentary gift is in trust, but does not mention beneficiary – no valid trust.

 

3. Honorary Trust (trusts for pets)

 

4. Charitable Trust (MEE)

-(i)must be for charitable purposes (benefit the public): general accepted standard, such as charitable or humanitarian causes; (ii)beneficiaries must be indefinite; (iii)property; (iv)settlor with intent to create the trust; and (v)trustee

- Rule against Perpetuities does not apply to charitable trusts.

- “Cy pres doctrine”: when (i)a specific charitable purpose indicated by the settlor is impossible, and (ii)the settlor manifested a general charitable intent, (iii)the court can direct the trust property be applied to another charitable purpose as close as possible to the original one, rather than permit the trust to fail.

 

5. Spendthrift Trust (MEE)

- Beneficiary may not transfer his interest in the trust and she cannot sell her right to income or corpus and his creditors are unable to collect or attach beneficiary’s trust interest.

- But a settlor is not allowed to create a spendthrift trust: (a)if the settlor is a beneficiary and attempts to protect his own retained interest from the claims of his creditors; (b)if there are claims by beneficiary’s child, spouse, or former spouse, or (3)if there are claims by government.  (but in 16 states allows settlor to create spendthrift trust from creditor’s claim to invest money in its state)

- if no spendthrift provision or statute, the creditors of beneficiary has a right to reach the interest of the beneficiary and not the trust property itself.

 

6. Discretionary trusts: the trustee has discretion whether to apply or withhold payment of income of principal to a beneficiary. (MEE)

- The beneficiary does not have any right to the income until the trustee exercises the power. The beneficiary cannot interfere with the exercise of the trustee’s discretion unless trustee abuses his power. (abuse power is proved by dishonest or bad faith- breach of fiduciary duty)

 

7. Support trusts

- the trustee is required to pay as much as necessary to support the beneficiary, such as beneficiary’s health, education, maintenance and support. Standard of support, if instrument silent, based on beneficiary’s custom standard of living.

- the trustee does not have discretion to refuse to pay bills necessary for the beneficiary’s support. But the trustee can argue that the payment is not necessary such as large cost increase out of line with industry.

 

8. Resulting Trust

 - if settlor attempts to create trust but fails because of unascertainable beneficiaries or remainder beneficiary is not available, by implication of law from settlor’s conduct creates resulting trust.

 - if it is resulting trust, benefits go back to settlor, if settlor is deceased, settlor’s successors.

Purchase-money resulting trust: one pays the consideration for a transfer of property but has the title taken in the name of another. - if payor has close relative relationship: gift / but not it could be resulting trust unless payor expects to be repaid. Seller ($)↗   ↘ (legal title) Supplier(money)      Recipient

 

9. Constructive Trust (equitable remedy, not trust)

- to prevent unjust enrichment.

  - as a remedy, it must be requested in a court action. (plea constructive trust and prove it via clear and convincing evidence)

 

C. Modification and termination of the trust

1. By the settlor:

- if trust is revocable, settlor has power to terminate or amend the trust. No particular formality is not required to amend a trust, unless it is SOF: require only a wiring by singed by the settlor.

 - even if trust is irrevocable, the trust may be terminated upon (i)the consent of the settlor; and (ii)the consent of all beneficiaries, regardless of the termination conflicts with a material purpose of trust.  

2. By the beneficiary (MEE):

- can be terminated or modified if (i)all beneficiaries consent; and (ii)not interfere with material purpose of the trust.

(1) common law: all beneficiary includes all future interest, no matter how uncertain or contingent. (2) UTC: a representative can be appointed to represent the interests of minor, unborn, or unascertained beneficiaries.

3. By the court: a court will permit termination of a trust if circumstance unanticipated by the settlor threaten the purpose of the trust.

  (e.g., trust requires trustee keeps the A stock, but the stock has been in a sharp decline)

4. By the trustee: can terminate a trust if the trust property is less than $50,000 and the amount is insufficient to justify the cost of administration.

 

D. Trust administration

- trustee has mandatory power or discretionary powers. The court will intervene where a trustee has completely failed to exercise judgment with regard to a discretionary power.

1. Duty to administer trust: the trustee has a duty to administer the trust in good faith and in a prudent manner.

2. Duty to loyalty (not self-dealing): a trustee cannot enter into any transaction in which she is dealing with the trust in her individual capacity. Trustee’s good faith or the fairness is not relevant.

(1) Direct self-dealing: Trustee cannot buy or sell trust assets; cannot sell assets from one trust to another trust, cannot borrow trust funds or make loans to trust; cannot use trust assets to secure personal loan; cannot personally gain through position in trustee; or self-employment (but extraordinary services to the trust may entitle the trustee to additional compensation such as legal services)

(2) Indirect self-dealing: if it is entered into by the trustee with her spouse, her descendants, or her agent or attorney.

→if violation of self-dealing, a transaction is voidable by the beneficiary unless: (i)the transaction was authorized by the term of the trust or approved by the court; (ii)the beneficiary failed to bring a suit within the prescribed time period; (iii)the beneficiary consented to the trustee’s conduct, ratified the transaction, or released the trustee; or (iv)the transaction involves a contract entered into before she became trustee.

3. Duty to separate trust property and keep records (do not commingling)

4. Investment standard of care: “prudent investor standard”

- trustee has a basic duty to preserve and protect the trust corpus. This includes the duty to make trust property productive, which includes the duty to invest. Uniform Prudent Investor Act(UPIA):

(1) a trustee must invest and manage trust assets as a prudent investor would: basic factors to be considered- trust purposes, trust terms distribution requirements, and other circumstances of the trust, plus overcall portfolio and diversification.

(i)Overall portfolio: as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust: economic conditions, inflation or deflation, tax consequences, overall trust portfolio, and total return from income.

(ii)Diversification: diversify the investments of the trust unless the trustee reasonably determines that because of special circumstances, the purposes of the trust are better served without diversification.

5. Duty of loyalty

- trustee must invest and manage the trust solely in the interest of beneficiary. SO “social investment” may be problematic.

6. Delegation of trustee’s duties

- the trustee may delegate investment and management functions. The trustee must use reasonable care in selecting the agent, establishing the scope and terms of the delegation, and periodically review the agent’s actions.

7. Remedies of breach of trustee’s duty

- (i)money damages or (ii)removal of trustee(beneficiary needs to go to court to remove a trustee if there is serious breach of duty, serious conflict of interest, insolvency, unfit, etc.)

8. Trustee’s liability to a third party

 (1)Contract: trustee is personally liable for the contract unless provision excluding trustee’s personal liability.

  - singed “as trustee” is a prima facie evidence of intent to exclude personal liability

(2)Tort liability:

 - Common law: the trustee is liable for own acts and acts of agents via respondeat superior.

 - Majority(UPC): the trustee is liable only if personally at fault.

 

 

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