TRUSTS & FIDUCIARY RESPONSIBILITIES
· District and Statutory Probate courts have concurrent jurisdiction over trusts.
· Courts may:
construe a trust instrument
determine the law applicable to a trust
decide how to administer/distribute a trust and trust duration
appoint/remove a trustee
determine/limit powers, responsibilities, duties, and liability of a trustee
require an accounting by trustee
surcharge a trustee
· Any interested person may bring an action against a trust.
· A court order is binding on the trustee and the beneficiaries.
· To revoke a trust, the trustee must show that it’s in the beneficiaries’ best interests.
· 2 types of express trusts:
(1) private express trusts (must comply w/ RAP)
(2) charitable trusts (can be perpetual).
· 2 types of private express trusts:
(1) inter vivos trust (created during the life of the settlor)
(2) testamentary trust (a trust that comes into being upon the sellor’s death).
· 2 types of resulting trusts:
(1) purchase money resulting trust (where X buys land and puts it in Y’s name but Y is not a relative, Y is holding legal title to X’s equitable interest in the property)
(2) resulting trust by reversion (occurs when an express trust fails or terminates and the trust property goes back to the settlor).
· Required for a trust:
1. Settlor (<18 yrs. old, of sound mind & has capacity to convey title)
2. Delivers the
3. Trust property to a
4. Trustee w/ the
5. Intent to create a trust for
6. Identifiable beneficiaries’ benefit
7. Made for a lawful purpose.
· All trusts are revocable unless expressly made irrevocable.
· Common trust fund = where a bank or trust company pools assets of sever trusts into one large fund; benefits: more diversified portfolio & lower administration costs.
· 3 ways a trust can terminate:
(1) automatically (upon expiration of time period or when a specified event happens)
(2) judicial termination (Cy Pres Doctrine)
(a) trust purpose has been fulfilled, becomes illegal, or impossible to fulfill.
(b) b/c of circumstances unknown to or not anticipated by the settlor.
(c) if compliance w/ the trust terms would defeat or substantially impair the trust’s purpose.
(3) doctrine of merger (when legal & equitable titles vest in the same person).
· The trustee or a beneficiary may petition the court to terminate a trust.
· The trustee’s duties continue after termination of the trust long enough to finish up all of the things necessary to distribute the trust property.
I. The Creation of Trusts
A. Trust intent
· Trust = a fiduciary relationship in which one person holds a property interest, subject to an equitable obligation to keep or use that interest for the benefit of another.
· Settlor’s intent is the most important aspect of a trust.
· There is a fiduciary responsibility whether it’s a revocable trust of not.
· The fiduciary responsibility ends when the trust is revoked.
· The owner of property can make himself a trustee of it for another by conduct alone, w/o words, w/o a writing, w/o a delivery of the prop., w/o receiving consideration, w/o the beneficiary’s knowledge of the trust, and w/o communicating anything to any person.
· Principle is liable for acts of his agent w/in the scope of agency.
· Beneficiary is NOT liable for acts of trustee.
· If no duty is imposed on the trusteeà NO trust is created.
· Courts will NOT imply a trust; donor must show some intent to create the trust.
· Bailment is NOT a fiduciary/trust relationship; legal title is not transferred in bailment as it is in trust relationship.
· An equitable charge does NOT create a trust.
· Precatory words (I wish, I want, I desire, etc.) have NO legal significance.
· Intent must exist at the time the “trust” is created, not after the fact.
· Totten Trust = savings account set up as donor/trustee for beneficiaries to collect upon death of the donor; donor has complete control over $ in accounts and can w/draw or deposit $; donor/trustee has no fiduciary responsibilities. (also called a “tentative trust”)
B. Trust property
· No trust propertyà NO trust.
· Future profits can’t be the res of a trust.
· IOU from trustee can’t be the res of a trust b/c trustee wouldn’t be obligated to pay.
· You can’t commingle trust property w/ non-trust property.
· Deposited $ must be specified as trust property; can’t just assume the bank knows.
· A trust will not fail for want of a trustee; the court will appoint one.
· A trustee must be of legal age, competent, and have capacity to enter into a contract.
· The trustee can be the beneficiary or the settlor or neither (but NOT all 3).
· Legal title is held by trustee; equitable title is held by beneficiary.
· Trustee’s acceptance/consent is not required to create a valid trust. (The named trustee can refuse; if so, the court will appoint a trustee).
· Trustee is entitled to reasonable compensation.
· When trustee & beneficiary are the same person, at death of settlor legal & equitable title merge and beneficiary gets trust property b/c there’s no one to enforce the obligation. (Does not apply when there’s more than one trustee.)
· Each trustee is obligated to all beneficiaries.
· Beneficiaries can only remove a trustee if he violates a fiduciary duty or becomes incompetent, not just b/c they don’t like him. (Must show good cause.)
· A trustee may resign as long as it doesn’t detriment the trust; however, trustee has a duty to make sure a new trustee is assigned to the trust.
· Trust Code 113.081
· Trust Code 113.082
· Advisors are trustees w/ limited duties; they do not hold title to trust property; court has jurisdiction over advisors.
· Trustee may exercise any powers that are necessary or appropriate to carry out the purposes of the trust.
· The court can’t supply a beneficiary for a private trust.
· Must have a beneficiary to enforce the trust intent.
· Beneficiary must be specific; can’t just be “friends”.
· Honorary trust = bequest to promote an activity, such as fox hunting; TX recognizes; most of U.S. doesn’t recognize.
· Beneficiary can renounce interest in the trust; rejection relates back to the date of the trust as if no trust was created. (Must renounce before he has exercised dominion or control over his interest or accepted any benefits from the trust.)
E. Powers of Appointment
· Must specify the relationship b/w the parties, duties, responsibilities, etc.
· Person appointed is a “donee”.
· Donee has the right to designate where the property/$ goes.
· General power of appointment = donee can keep or give away trust property, whatever he wants.
· If donee does nothing, takers in default will get it.
· Languageà “to my executor, who shall dispose of same as he shall best
on and intelligence would make in the management of their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of their capital.”
· The fact that a portfolio shows substantial overall increase in total value during the accounting period does not insulate the trustee from responsibility for imprudence w/ respect to individual investments for which it would otherwise be surcharged. (The test is one of conduct rather than performance.)
· Trustee is under a duty to the beneficiary to distribute the risk of loss by reasonable diversification of investment, unless under the circumstances it is prudent not to do so.
· Ordinarily, second or other junior mortgages are not proper trust investments (unless settling a claim or preparing for a sale of the property.)
· Trustee cannot properly lend on a mortgage upon real property more than a reasonable proportion of the value of the mortgage property.
· Even a trustee w/ “absolute discretion” may not neglect its trust or abdicate its judgment or show reckless indifference to the interests of the beneficiary.
· The “absolute discretion” is specifically limited by the requirement that the trustee is subject always to the discharge of its fiduciary obligations.
· Trustee can’t disregard specific terms of trust even if beneficiary wants to.
· The court can try to balance trust intent w/ what the beneficiary wants.
· 2 intents: (1) w/ respect to the investment (2) w/ respect to the beneficiary.
· Trustee can deviate from trust terms ONLY if the trust would be defeated or substantially impaired by abiding by the trust terms.
· (In an irrevocable trust, the settlor has relinquished legal & equitable title and has no say in what is done.)
· Courts look at the settlor’s intent at the time the trust was created.
· Courts are not likely to just let the trust die.
· Trustee should make a yearly accounting for the beneficiaries.
· Trustee has a duty to diversify new investments, but does not have to diversify investments already existing as original trust property.
C. Trustee powers and distributions
· The trustee does NOT have the power to sell the trust corpus unless the trust instrument provides for it. (Some states have statutes that allow it.)
· Trustee should check w/ the beneficiaries first to see what they want to do.
· Does discretionary power pass to new trustee?
1. If personalà NO.
2. If not personalà YES.
· If trustee does not act in good faith w/ his discretion, the court may step in and use its discretion.
If trustee has expertise in a field, he is held to the higher standard in dealing in that field. Otherwise, trustee is held to the reasonable, ord