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Trusts - Coggle Diagram

- - - - an inter vivos transfer, or
      - a testamentary trust (testator can direct the executor of his will to distribute property to a trustee)
  - - - Private express trusts - comprise most of the trusts established by individuals
      - Charitable trusts - resemble private express trusts but have some significant, distinguishing characteristics
      - Express trusts may be created by:
        
        An inter vivos trust created by transfer of property during settlor's lifetime
        
        A testamentary trust created by a will. In addition, "pour over" provisions in a will are allowed. Pour over provisions direct the transfer of property into a trust established either by the testator during his lifetime or by another person rather than creating a brand new trust
        
        An inter vivos trust created by a declaration of trust by the property owner, stating the trustee holds the property as trustee in trust
    - - Resulting trusts - places property in the hands of rightful owners when circumstances require it, even though there has not been any wrongdoing on anyone's part
      - Constructive trusts - deprive a wrongdoer from retaining improperly obtained property
- - - - Indefinite beneficiaries
        
        But - trust cannot be restricted to a small group of people even if the benefits are payable for charitable purposes like education or health
      - Charitable purpose
        
        Categories:
        
        Relief of poverty
        
        Advancement of education
        
        Advancement of religion
        
        Promotion of health
        
        Performance of governmental and municipal purposes (parks and recreation)
        
        Other purposes beneficial to the community
        
        Purpose can be broad
        
        Objective must be to benefit the public, although settlor can have a selfish reason such as reducing personal tax burden
      - Rule Against Perpetuities (RAP) - limited application to charitable trusts
        
        Trust may have a perpetual existence
        
        If preceded by a noncharitable estate, the charitable interest must vest within the period of time proscribed by the RAP
      - Cy pres doctrine applies - when designated charity is not in existence at settlor's death, the court may redirect the trust to a purpose as near as possible to the charitable endeavor designated by the settlor
      - Termination - If the charitable trust cannot be performed as intended and the requirements for cy pres are not met, the charitable trust terminates and a resulting trust in favor of the settlor's estate results
- - - - A trustee has specific fiduciary duties
        
        Duty of loyalty and good faith to the beneficiaries
        
        No personal benefit other than official compensation
        
        No apparent conflict of interest
        
        No self-dealing unless trust permits specific acts
        
        Keep trust assets segregated from personal assets
        
        Duty to preserve trust property and make it productive
        
        Objective standard of care unless superior skills warrant a higher standard of care
        
        Prudent investor rule governs
        
        Trustee must seek to diversify the investments
        
        Standard is reasonable care, skill, and caution
        
        Only a few states maintain a "legal list" approach of approved type of investments
        
        Trustee is permitted to invest trust assets as would a prudent investor, considering both the interests of life beneficiaries and remaindermen. Thus, the trustee must consider both the investment's ability to produce a reasonable rate of income and the safety of the principal
        
        Duty to dispose of wasting or non-productive assets
        
        Duty to earmark assets (separate trust assets from trustee's own property)
        
        Duty to collect/protect trust property
        
        Duty to maintain accounting of transactions
        
        Duty to enforce claims and defend trust from attack
        
        Duty not to delegate, but reasonable use of professional advisors is permitted
    - - When addressing an issue of whether a trustee violated a duty, ask first whether the trustee was authorized to perform the act. Then, ask whether the trustee performed to the required standard of care. Remedies available include compelling the trustee to convey property back to the trust, recovering profits made by the trustee, returning appreciation of profits from commingled funds, punitive damages, and removal as trustee
      - Trustees may incur liability to third parties through performance of their duties. In certain situations, a trustee can obtain indemnification from the trust. The trustee cannot then be personally at fault
        
        A trustee is entitled to indemnification where the tort was a normal incident to an activity in which the trustee was properly engaged on behalf of the trust, the tort is based on strict liability, or liability is based upon respondeat superior principles and the trustee did not make an improper delegation of discretionary functions to an agent or violate his duty to exercise reasonable care in the selection and supervision of the agent
        
        A trustee is not personally liable on a contract properly entered into in the trustee's fiduciary capacity in the course of administering the trust if the trustee in the contract disclosed the fiduciary capacity
- - - - The trust could have been modified if all beneficiaries had consented, and
      - the interests of any nonconsenting beneficiaries will be adequately protected