Creation of Trusts

Four Basic Elements, PLUS Three Extra

requirements.

(1) Intent to Create
Specific intent for beneficial
ownership.
Note: Promise to make a
trust unenforcable, here.
benefit of equitable title holder
Three Intents, All Re'q. Likewise, mere trust termlgy INSUFFICIENT
Magic Words -> None.
(1) Split legal and equitable absent intent for beneficial ownership.
Trust must simply
title; (2) Impose fiduciary Precatory Language Problem: Must use
express the intention for
duties on the holder of legal AFFIRMATIVE, enforc'bl terms. Cannot " hope."
the divided, beneficial
title; and (3) do so for the (ie O to A in sincere hope it is useful for B).
ownership.
INVALID.
Note: Failed Gifts. B/c trust only needs intent to create fiduciary relationship (whereas gift needs delivery AND
acceptance), people try to recharachterize failed giftts as a trust. NOT PERMITTED. -> No fiduciary intent.

(2) Res Qualifying Prop: Any valid Valids: Leasehold interests, choses in action, rolaties, life insurance policeis.
A trust needs property, even if property interest which (1) exists
$1. @ trusts creation; (2) has
Note: Pour-Over Wills do count, however, they are an exception to "sufficiently
properties of transferability
identifiable prong"
(capable of ownership and
alienation); (3) sufficiently
identifiable AND identified. Not Property: Expectancies. Unenforceable promises. Future profits, alone.

(3) Beneficiary
Trust req one or more definite,
ascertainable beneficiaries, to
whom fiduciary duties are
owed and who may enforce
the trust obligations.
"AscertainaBLE" Does
NOT need to be presently
ascertainED. Rather, if the
class is identifiable, then
fine. (ie If T should have a
wife, then to her).
Class Trusts: Rule, so
long as class of
beneficiaries is described
such that a person could
reasonably fit the
description, VALID.
Exception: CHARITABLE TRUSTS. Do not need beneficiary
in this sense.
Failure: CLass gift FAILS if beneficiaries are too indefinite.
(Ie to my friends).
FAILURE: Semi-Secret Trust: Cleary makes a trust but no
ascertainable beneficiary failure, no constructive trust.

Required For:
(1) Testamentary
(4) [SOMETIMES] Writing Trust [wills act
"Requirement" formalities apply!!!];
On face, written conveyance/ testmentary disposition appears to be
(2) IF Trust includes
Real Property
(Stature of Frautes
req writing for
conveyance).
NOT Re'q For:
Application: Secret Trust. [Testmtary w/o writing] (Oral Trusts)
(1) Inter vivos trust
of personal
outright gift; however, recipient has EXTERNAL promise/K to hold property; (ONLY
property for the benefit of another. REQ clear and
convincing
External Promise ENFORCEABLE as a Constructive Trust. But
evidence)
there is NO valid traditional trust--needs the equitable remedy.
[Fewer Jur: Also cnstrc Trst for oral IV real prop]

In addition to the elements of a trust, a trust May NOT (a) be made w/o capacity; (b) for illegal purpose; or (c) violate the RAP.

(a) Legal Capcity Requirement

Settlor must have capacity to
contract. (Greater than Test.
Capacity)
If you don't have this: Make a Will. If
Background: K Capacity Understand and appreciate (1) you don't have Test. Cap -> Get
rights and duties created; (2) probable consequences of married. If you can't 'get married ->
decision; and (3) risks, benefits, and altrs to the plan.
ADOPT. (Adoptions just require consent
in most adult situations).

(b) Legally Allowable Purpose. Purpose vs. Use. Majority: Intent Approach. A trust is Illegal Purposes:
considered illegal if its existence COULD induce a -Merely to defraud creditors;
Trust for illegal purpose is person to commit a crime (/socially unwanted -Facilitate criminal activity;
unenforceable. thing)--even if the trustee/benef. would not do so. -Encouraching divorce (just like wills)
Minority Rule: USE. Actual illegal use invalidates trust

Prof says only worry about

(c) Rule Against Perpetutites
Theres a chart. knowing how perpetuties reform
Compliance.
would impact the given interest.

Modification and Clafin Doctrine: Beneficiaries may modify or terminate so long as such does not violate a MATERIAL
Termination of PURPOSE of the trust.
(non-charitable) Trusts. Note: Presumption that termination is against the material purpose.

Modification of Trusts. UTC Reformation Equitable Deviation Doct: Changed circumstances not anticipated by settlor that would
General Rule: If all beneficiaries Provisions. itself defeat or substantially impair accomplisment of the trust's purp. [Now in UTC]
AND settlor consent, an
irrevocable trust may be
Trust Decanting: No court order, merely use discretionary distrb to put trust res into new trust w/ dif rules.
MODIFIED or TERMINATED.

(i) Trad Modificaiton: Material Purpose
Rule (Traditional Clafin Doctrine)
Trust can be modified if not contrary to
material purpose + beneficiary consent.
Stuctural Material Purposes (ie NO
revocation per Clafin)
(a) Spendthrift clause; [Flux UTC says
no]; (b) Beneficiary gets no pricnipal
until specified age; (c) Discretionary
trust; (d) Support trust.
(e) ANY liftetime distribution of income =
mat purp.
EXCEPTION: Will Compromise. Maj: If
beneficiaries and heirs enter a
compromise shortly after Test's death
(note: for Testry Trust) the trust MAY
BE terminated even if contrary to mat
purp.
NOTE [eq. dev.]: Traditional law only permitted
MEANS OF
note
maintenance of prop); but modern maj also allows
REVOCATION.
(ii) UTC Term & Revoc. 410 &412 (iii) Trust Decanting *****
Reformation/Termination [looking to fulfil ACTUAL Trustee w/ discretionary distrb. power may distrubte prop
intent at time of trust creation] allowed if to new trust for beneficiary, with less cumbersome terms
(1) Purpose of trust have ben fulfilled; [Theory: Implied Power of Appointment in legal title].
(2) purposes of trust have become illegal; NO court order. Gen: May exlclude non-mand benefic.
(3) purposes have become impossible to achieve;
OR
(4) [Equitable Deviation Doctrine] due to 25 States: Statutes. No Stat? Better Lawyer
UTDA principles.
unknown/unofrseen circs, NOT known by settlor, Wins in "Ben. Exclsn. Issue"
compliance w/ terms would be (wasteful ,defaeat/ (1a) § 11 - If no standard,
may decant freely except,
substantially impar trustees ability to acomplish Trustee: Argue: Power Incld.
a) no new beneficiaries;
prupsoes of trust) [Necessity: Modification must be in Discrn.: "Unmarried
and b) no fixed-right
necessary to further purp. . person prop rights" +
reduction; OR
discretionry distrib. incld.
Example of CHange Circs: Special Needs (1b) §12 - If discrtn limited
ability to make new trust at
Conversion. Trust for kids, for life, remainder to their by "rsnbly asctnbl" or
complete excluision of one
kids. One child develops special needs. (1) "definite" distrib standard
new rights must be
or more discret. benefic.
Changed circ in way of accomplisment [ie go'vt is
"substantially similar;"
going to SEIZE]; (2) ALteration to special needs Benefic: Argue: Fiduciary
(2) [§13 -> 12 doesn't apply
trust will SAVE THE PURPOSE. Breach. Even if occsnl
for special needs
decanting]; disrtib is discrtnry, status as
(3) §7 Must give advanced beneficiary is mat purp and
administrative deviations (provisions governing notive to all interested exclusion is act in bad faith
parties against a beneficiary
dispositive alterations.

(2) [utc 411] Termination by Minority 1: [No (3) Revocation by Settlor: [Trad REVOCABLE TRUSTS [Big Note]
(1) Express Beneficiaries: Three req. (1) All ONLY]
clafin] -> Ben can UTC 411(a):
Terms of beneficiaries agree; (2) no terminate even IF Presumption of Revocability: Flux. Now:
Trust: If beneficiary under legal Revocable Trust: Can be
settlor alive and Trad: Inter vivos created by Says
provision for disability [ie capacity]; and (3) amended or revoked in any
objecting AND written instrument presumed Irrevocable
removal/ COMPLIANT WITH CLAFIN manner clearly manifesting
material purpose irrevocable w/o express or Trust. may be
termination DOCTRINE. settlro's intent to do so,
unfulfilled [English implied intent of settlro to do terminated by
is fullfiled. (ie UNLESS the trust instrument
View -- Beneficiary otherwise; SET. + ben.
Terminates Flux: R3Trst says If court both (1) specifies a means of
is owner[ Modern: Preumped revocable, consent; even
at 21 with determines reasons for amendment; AND (2) makes
principal absent express or implied intent if against mat
term./modif. OUTWEIGH the such method exclusive.
Minority 2: No early of settlor to do otherwise. purp.
payout). material purpose --> termination at all.
TERMINATE w/ bene cosent. Note: Does a valid will alter/revoke a Trad: No impact.
revocable trust (ie as will substitute, will UTC: YES.
mirror provisions revoke trust?

(4) Merger Doctrine: When single person (5) Lack of Property.

(6) Court Order (Legal term, Req' (7) Operation of Law
obtains both equitable and legal title, trust Maj: Trust terminates
Hearing). (Legal term. automatic).
destroyed. when extinguished of
(1) Continuing trusts thwarts
MAJ: Conspiracy allowed (trustee and corpus.
If purposes deemed fulfiled or purpose;
beneficaires may coordinate and conspire to
settlros' intent would become (2) Purpose impossible;
merge title to terminate. Minority: Trust pauses,
unnecessarily impaired, the (3) Purposes illegal;
[Note: Minority, no merger if material purpose revies when new property
court may termiante as remedy. (4) Expiriation of term.
exists] added.

Traditionally removal only for (2) Valid Greivance:

cause. (1) Serious breach of trust;
Trustee (2) lack of cooperation among co-trustees--leading ot substantial impairment
Removal: (1) Standing:
MODERN: UTC 706. of admin;
Settlor,
Alternative to For cause AND qualified co-trustee, or
(3) due to unfitness, unwillingness, or PERSISTENT FAILURE of trustee to
Modification/ beneficiary consent Under adminster trust [plus removal is BEST interst of benficiaries]; OR
beneficiary
new rule, some courts use this (4) (a) substantial change in cir plus (b) all beneficiaries consent plus (c)
Deviaitio removal is not incosnistent with mateirjal purpose plus (d) suitable replacement
as alt. to modification if there is
lacksadasical administration. available plus (e) court agrees it is in beneficiar's best interest.

(1) Does RAP apply? Yes

The Rule Against C/L
(2) Determine Compliance.
Perpetuties Only applies to contingent
No interest is good unless remainders. (Vested sub to
Measuring Lives. " Invalidation" / Abstract
itmust vest, if at all, opne., executory interests, Invalidation
within 21 years of some and powers of appointment Background Assupmtions:
life in being at the are not subject) -Any person can have kids at any age (Fertile Try to come up with a
creation of the interest. Octo & Precocious toddler [mod trend against situation to invalidate.
Yes this] ie) Endless war; magic
reformed -Unborn Widow Excptn: Gen. treated as alive gravel pit
@ creation.
(2) Enacted. Perpetities Reform. Note: The interest is not
good; not the conveyance. If
(1) Identify when the interest vests: In there are alterative,
Self-Help: Savings Wait-and-See. non-perpetual
Cy Pres / Perpetual possesion or in interest?
Clauses. Flux. remainders--TAKE.
Reform. Trusts Allowed
R2Prp: Actly (abolition of (2) Consider who alive @ time of execution.
Terminates @ end wait and see Execution times by Conveyance Type:
Either statute RAP) Fertile Octo Issue:
of perpetutites if the interest (a) Deed -> delivery; (b) WIll -> death; (c)
or judicial Several Future interests in
period which would fails to vest Irrevocable trust -> when funded; (d)
descion in Approaches: female's grandkids.
otherwise invalidate or not. Revocable trust -> death of settlor OR
most states. If T -> life estate in trust
interest -- provides (1) Complete becomes irrevocable) to S, then to T's children,
distribution USRAP
Modifies trust abolition. (3) Identify a valid measuring life. then to distribute assets
standard for res. §1(a)(2): All
language to (2) Effective -> You just have to fucking think through this. to T's issue.
[Note: Failure to interests are
carry out Abolition [300 - Look at all the lives who can take, must
include may be valid for 90
purpose 1,000 yr perp. they be alive w/n 21 years of vesting? B/c she can "have" kids
malpractice, liable years after periods].
within perp at 80 y/o, permissible
to failed creation.
period. (3) Odd. Default that after-born child
beneficiary]. §3: After 90 (4) Savings Clause: Even if trust would
Usually: rule, subject to could wait twenty one
yrs, any otherwise violate RAP, may include a clause
Celebrity Simple mod. (RAP is years and then have
non-vested which kills trust at the RaP date.
Validation: To inclusion of default, unless "own" kid for the issue.
interest is
extend slightly savings Settlor says
reformed to
further, use young clause. carry out
otherwise).
famous people as (5) Interest Failure: If interest fails for an
validiating individual gift strike gift for that person;
reference. Slothful
ENTIRE TRUST DOES NOT FAIL. (unless
FLUX: Attempted Perpetuties Reform. Executor thing.
"infectious error")
Benefits: (1) Can R3Prop: Recent perpetuties reform is ill-advised. Has
extend a bit more; made a modified cy pres / "wait-and-see" approach If interest fails to some members of class gift
(2) deaths of these which is yet to be adopted anywhere FAILS for whole class. But trust may survice
people are easily
§ 271
tracked.
(a) Trust whose property is in actual violation of
(new) RaP subject to modification by judge;
(b) NEW Perpetuties Period: Interest may vest no
later than two generations from the transferor.

Rule Against Perp

and Powers of
APpointment on
page 919.