# How to Ace FYLSE/Trusts Outline
## Creation of Trust

A valid trust requires a trustee, a settlor, an ascertainable beneficiary, trust res (property), trust purpose and intent to create the trust. A valid trust may be created by one of the following methods:
* A declaration by a property owner that he holds the property as trustee.
* A transfer of property during the owner’s lifetime to another as trustee.
* transfer of property by means of a will taking effect upon the owner’s death (testamentary)
* An exercise of power of appointment to another person as trustee
* An enforceable promise to create a trust

## Validity of Trust

   1. A declaration stating his intention to create the "Troy Library" for the use of the inhabitants of the city, designating three persons as the first "Troy Library Board of Governors (Board)" and providing for the selection of successor members of Board in the event of death or resignation of a member or members;
   2. A deed conveying a block of land Troy owned near the city center to Board "in perpetuity" for the purpose stated in his declaration;
   3. A check payable to Board in the sum of $100,000 as an initial contribution for the library; and
   4. A document containing an itemized list of certain of Troy's stocks and bonds having a market value of two million dollars and a statement that those stocks and bonds were to be delivered to Board in specified installments over a two-year period.
   (a) All net income is to be paid to Bill, Sam’s nephew, for life; (b) Tom may invade principal for Bill in such amounts as Tom, in his sole and absolute discretion, determines;
   (c) The trust terminates on Bill’s death and any remaining principal is to be distributed to Alma Mater University; (d) The interests of the beneficiaries are inalienable and not subject to the claims of creditors.
   Richard conveyed all of his separate property to the trust. The trust instrument named Alicia as trustee with full authority to manage the trust and invest its assets. By the terms of the trust, Richard was to receive all of the income during his life. Upon his death, his child by a former marriage, Brian, and Alicia’s daughter by a former marriage, Celia, would receive for their lives whatever amounts the trustee in her discretion thought appropriate, whether from income or principal. Whatever remained of the principal on the death of the last income beneficiary was to be divided equally among the then-living heirs of Brian and Celia. Celia was included as a trust beneficiary only after Alicia convinced Richard that this was necessary to avoid a possible legal action by Celia, although Alicia knew there was no legal basis for any claim by Celia.

### Trustee

A trustee is a fiduciary relationship with respect to property where a settlor transfers property to a trustee who holds the property for the benefit of named beneficiaries, for a valid trust purpose.

#### Discretionary Trust Provision

Trustee has all express powers as set out in the trust and all implied powers required to exercise the express powers. As a fiduciary, Trustee has an obligation to exercise his discretion in good faith.
   Bill (the beneficiary) wants Tom (the trustee) to invade the trust principal so Bill can promote a newly-formed rock band, but Tom has refused. Bill now requests a court order directing Tom to invade the trust principal.

### Purpose

The trust must have a valid purpose not contrary to public policy or illegal.

### Intent

The settlor must manifest an intention to create a trust.

### Beneficiary

The trustee must be able to identify the recipients of the trust. Under common law, beneficiaries of a trust is prohibited from drafting the trust unless they are related and live in the same house.

## Validity of Trust

A testamentary disposition is void if it was the result of duress, menace, fraud, or undue influence.

## Types of Trust
### Charitable Trust

A charitable trust is a trust for a public charitable purpose, such as health care, education, or religion. A charitable trust may be of perpetual duration and need not identify ascertainable beneficiaries.

#### Cy Pres Doctrine

A court acting in equity may modify the provisions of a charitable trust where necessary, so that rather than its purpose being frustrated by circumstances the settlor did not anticipate, the settlor's overall purpose may be carried out as nearly as possible. Cy press requires general charitable intent.
   The 2003 will by Tom stated “I give $100,000 to my niece, Nan. And, because Happy Home does such important work for the aged who are disabled, I give the residue of my estate in trust to Happy Home for the continued care of the disabled elderly. Lilly to act as Trustee.” (...)Happy Home went out of business. Sunnyside, also a charitable convalescent hospital, provides care for disabled persons of all ages. Sunnyside has petitioned the court to substitute Sunnyside as the beneficiary of Tom’s estate.
   In 2001, Hank completely gave up skiing because of a serious injury to his leg and took up fishing instead. He went on numerous fishing trips over the next two years with a fellow avid fisherman, Fred.
   Fred claims that the court should apply the doctrine of cy pres to make him the beneficiary of the trust.

##### General Charitable Intent

   1. A declaration stating his intention to create the "Troy Library" for the use of the inhabitants of the city, designating three persons as the first "Troy Library Board of Governors (Board)" and providing for the selection of successor members of Board in the event of death or resignation of a member or members; <omitted> The funds now in possession of Board are not sufficient to construct a building for and to maintain a library. If the specified stocks and bonds are transferred to Board, a library building can be constructed and the library can be maintained.
   If Board fails to receive funds sufficient for the library, it proposes to use the block of land as a public park to be named "Troy Memorial Park." The funds now in Board's possession are sufficient to maintain the land as a public park.

##### Doctrine of Equitable Deviation

A court acting in equity may order a deviation in an administrative term of a trust.

### Pour Over Trust

A pour-over trust is one that is structured to receive and dispose of assets at the settlor’s death. A pour-over trust is often established through the settlor’s will.

### Spendthrift Trust

A spendthrift clause is designed to protect the beneficiary from their spendthrift ways by prohibiting both voluntary and involuntary alienation of the beneficiary’s right to future payments.
   (d) The interests of the beneficiaries are inalienable and not subject to the claims of creditors.

### Exceptions
#### Necessaries

However, the courts recognize exceptions to the protection provided by spendthrift provisions including where a creditor has provided necessaries to the beneficiary. Necessaries include items such as food, clothing, shelter and medical care.

#### Surplus

The concept of surplus allows a creditor to attach to future payments to the beneficiary despite a spendthrift caluse where the income to be paid exceeds the beneficiaries' station in life, thus resulting in a surplus.

#### Preferred creditors

A court will disregard a spendthrift clause and allow a preferred creditor to attach to the beneficiary’s future income payments from the trust. Preferred creditors include government debt and outstanding child and spousal support and alimony payments.
   Bill (the beneficiary of a spendthrift trust) is delinquent in making child support payments to Kate, his former spouse, for their child. Kate now requests a court order directing Tom to pay all future installments of trust income to her rather than Bill until the arrearages are eliminated.

### Resulting Trust

A resulting trust is an implied-in-fact trust based upon the presumed intent of the parties and will transfer the property back to the settlor or his estate.

## Powers of Trustee

Under the common law, a trustee was entitled to buy or sell trust assets, but was not entitled to borrow for the trust or loan funds from the trust. However, under the modern trend, the trustee is entitled to loan or borrow funds for the benefit of the trust under certain circumstances.

## Trust Administration
### Duty not to encumber from or borrow from trust

Carol redeemed the bond and put it in her personal checking account with her husband.

### Duty to exercise care, skill and prudence in managing trust

A trustee must exercise the same skill and prudence a reasonably prudent person would in managing his own property, and has a duty to sell unproductive property.
   The 100 shares of Delta stock (trust res) increased in value and, in 1976, Carol exchanged the shares for shares of ABC Corp., worth $5,000 at the time of the exchange. The value of the ABC Corp. shares steadily declined and is now approximately $250.
   After creation of the trust, and while Richard was still alive, Alicia invested one-half of the trust assets in a newly-formed genetic engineering company, Genco. She lent the other one-half of the trust’s assets at the prevailing market rate of interest to the law firm of which she was a partner.

### Duty to avoid self-dealing

As a trustee, he owed a duty of loyalty to the beneficiaries and cannot act to benefit his personal interest at the expense of the beneficiaries.

### Duty to diversify trust assets

   After creation of the trust, and while Richard was still alive, Alicia invested one-half of the trust assets in a newly-formed genetic engineering company, Genco. She lent the other one-half of the trust’s assets at the prevailing market rate of interest to the law firm of which she was a partner.
   At the end of 2001, Tom sold the vacant lot for $50,000, the fair market value. He also sold some stocks for $35,000, realizing a $10,000 gain. Tom used this money along with $25,000 of accumulated rental income to build an addition to the apartment house.

### Duty to Avoid Speculation

   After creation of the trust, and while Richard was still alive, Alicia invested one-half of the trust assets in a newly-formed genetic engineering company, Genco. She lent the other one-half of the trust’s assets at the prevailing market rate of interest to the law firm of which she was a partner.

### Duty of Loyalty to Residuary Beneficiaries
## Revocation of Trust

Majority rule: A settlor can modify or revoke the trust only if the power is expressly reserved in the trust Minority rule, including California: Trusts are revocable unless stated otherwise.

## Termination of Trust

A court will not order a termination of a trust even with the consent of all beneficiaries where such termination would be in violation of the trust purposes and would be contrary to the testator’s intent.

## Rule Against Perpetuity

Under the Rule Against Perpetuities a gift will fail if it need not vest within the time of a life in being plus 21 years. The charity-to-charity exception does not apply because the grandchildren are not a charity.