Podcast
Questions and Answers
What role does the settlor retain after transferring equitable title to beneficiaries, in a self-declaration trust?
What role does the settlor retain after transferring equitable title to beneficiaries, in a self-declaration trust?
What must a testamentary trust include to take effect upon the settlor's death?
What must a testamentary trust include to take effect upon the settlor's death?
Which of the following is true regarding consideration in the context of a trust?
Which of the following is true regarding consideration in the context of a trust?
What happens to the testamentary trust if a will fails?
What happens to the testamentary trust if a will fails?
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What is true about promises made to create a future trust?
What is true about promises made to create a future trust?
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Which of the following would likely be considered trust property?
Which of the following would likely be considered trust property?
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Why would a promise to give money not qualify as trust property?
Why would a promise to give money not qualify as trust property?
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What is necessary for a promise to be considered enforceable as trust property?
What is necessary for a promise to be considered enforceable as trust property?
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What does the Substitute Fiduciary Act allow a corporation to do without court permission?
What does the Substitute Fiduciary Act allow a corporation to do without court permission?
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Which statement best describes the role of a beneficiary according to the provided content?
Which statement best describes the role of a beneficiary according to the provided content?
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What is a requirement for beneficiaries under a trust as mentioned in the content?
What is a requirement for beneficiaries under a trust as mentioned in the content?
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In the context of honorary trusts, which of the following statements is true?
In the context of honorary trusts, which of the following statements is true?
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Which of the following entities has the capacity to hold property as mentioned in the content?
Which of the following entities has the capacity to hold property as mentioned in the content?
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What happens if a settlor fails to adequately describe beneficiaries in a trust?
What happens if a settlor fails to adequately describe beneficiaries in a trust?
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Which of the following statements about pets being designated in trusts is accurate?
Which of the following statements about pets being designated in trusts is accurate?
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What is one advantage of an inter vivos trust over a testamentary trust?
What is one advantage of an inter vivos trust over a testamentary trust?
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What could be a disadvantage of an inter vivos trust?
What could be a disadvantage of an inter vivos trust?
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Which characteristic indicates a funded trust?
Which characteristic indicates a funded trust?
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What does a revocable trust allow the settlor to do?
What does a revocable trust allow the settlor to do?
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What happens if a testamentary trust's will is deemed invalid?
What happens if a testamentary trust's will is deemed invalid?
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What is the main risk associated with an unfunded trust?
What is the main risk associated with an unfunded trust?
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Which factor must be considered when selecting a trustee?
Which factor must be considered when selecting a trustee?
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What benefit does an irrevocable life insurance trust (ILIT) provide regarding taxes?
What benefit does an irrevocable life insurance trust (ILIT) provide regarding taxes?
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What is a trustee's primary duty regarding trust property?
What is a trustee's primary duty regarding trust property?
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What can result from a trustee's failure to comply with trust administration duties?
What can result from a trustee's failure to comply with trust administration duties?
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Under what circumstances can a trustee face personal liability?
Under what circumstances can a trustee face personal liability?
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What must a trustee do if the validity of the trust is challenged?
What must a trustee do if the validity of the trust is challenged?
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Which of the following is NOT a responsibility of the trustee regarding trust property?
Which of the following is NOT a responsibility of the trustee regarding trust property?
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What does the prudent investor rule emphasize for a trustee?
What does the prudent investor rule emphasize for a trustee?
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What does the trustee’s duty to appeal a legal challenge to the trust depend on?
What does the trustee’s duty to appeal a legal challenge to the trust depend on?
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What type of powers may a court grant to a trustee that exceed those provided by the settlor or statute?
What type of powers may a court grant to a trustee that exceed those provided by the settlor or statute?
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Under the modern rule, when is delegation of powers permissible for a trustee?
Under the modern rule, when is delegation of powers permissible for a trustee?
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What was deemed a discretionary act preventing a trustee from delegating it under the traditional rule?
What was deemed a discretionary act preventing a trustee from delegating it under the traditional rule?
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What must a trustee do before delegating investment decisions to an investment agent according to the 1999 Rule?
What must a trustee do before delegating investment decisions to an investment agent according to the 1999 Rule?
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What is the main function of powers granted by equity according to the content?
What is the main function of powers granted by equity according to the content?
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What is true regarding the delegation of mere ministerial duties according to the common law?
What is true regarding the delegation of mere ministerial duties according to the common law?
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Which of the following best describes the implied powers granted under the law?
Which of the following best describes the implied powers granted under the law?
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What does the 2004 rule state regarding the delegation of investment or management decisions?
What does the 2004 rule state regarding the delegation of investment or management decisions?
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What happens if a court finds that a trust violates the Rule Against Perpetuities (RAP)?
What happens if a court finds that a trust violates the Rule Against Perpetuities (RAP)?
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Which of the following is NOT a valid reason for a trust to be declared invalid based on public policy?
Which of the following is NOT a valid reason for a trust to be declared invalid based on public policy?
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What is a key characteristic of an inter vivos trust?
What is a key characteristic of an inter vivos trust?
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What constitutes prohibited trustee conduct under the outlined regulations?
What constitutes prohibited trustee conduct under the outlined regulations?
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What standard do courts generally apply to determine public policy regarding trusts?
What standard do courts generally apply to determine public policy regarding trusts?
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Which of the following actions might allow a creditor to set aside a trust transfer under the Uniform Fraudulent Transfer Act?
Which of the following actions might allow a creditor to set aside a trust transfer under the Uniform Fraudulent Transfer Act?
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In which scenario would a trust likely violate public policy according to the content?
In which scenario would a trust likely violate public policy according to the content?
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What is the predominant view regarding the enforcement of discriminatory terms in a trust?
What is the predominant view regarding the enforcement of discriminatory terms in a trust?
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Study Notes
Introduction to Trusts
- A trust is created when a property owner divides ownership into legal and equitable interests.
- The settlor (trustor/grantor) creates the trust, transferring legal title to a trustee for the benefit of a beneficiary.
- This is often used when a gift is being made to a worthy recipient, but the owner wants to control the distribution.
- Trusts help manage assets for minors, incompetents, spendthrifts, or to avoid probate.
Texas Trust Legislation
- Texas Trust Code governs trusts created after January 1, 1984, and transactions relating to older trusts.
- Prior to 1943, trust law relied on case law.
Purposes and Uses of Trusts
- Protect beneficiaries (minors, incompetents, spendthrifts).
- Flexible asset distribution.
- Protection against incapacity of settlor.
- Professional management of assets.
- Avoidance of probate.
- Tax benefits (lower tax brackets for beneficiaries).
Elements of a Valid Trust
- Trust intent (settlor's desire to create a trust).
- Settlor with capacity (must be legally able to create a trust).
- Compliance with the statute of frauds requirement (some trusts need to be in writing to be enforceable).
- Legal purpose (cannot violate public policy).
- Transfer of property (transfer of title).
- Trustee holding legal title.
- Beneficiary holding equitable title.
- Compliance with RAP (Rule Against Perpetuities).
Trust Creation
- Trust intent is the crucial element in trust creation. Courts will not create a trust if no intent is shown.
- Specific trust language is not required to establish trust intent, but general language may be sufficient.
- Trust must be for a specific purpose or intent.
- A trust is created only if the settlor manifests intention to create a trust.
Combination of Parties
- Settlor, Trustee, and Beneficiary can combine in many ways.
- Sole trustee cannot be the sole beneficiary.
- Split of legal and equitable title is a key characteristic of trust.
Trust Creation (continued)
- The trust does not have to specify the current or future beneficiary.
- The trustee does not have to inform the beneficiary that they are a beneficiary of the trust.
- The settlor and trustee do not have to explain the purpose of the trust to the beneficiary.
- The trustee is required to act prudently in the reasonable care, skill, and caution.
- Trusts are not enforceable if trustee does not accept the fiduciary duties.
Trust Creation During Settlor's Lifetime
- Inter vivos trusts are created while the settlor is alive.
- Self-declaration of trust (settlor is the trustee and transfers equitable title to beneficiary).
- Transfer-in-trust (settlor transfers legal title to a trustee).
Trust Creation Upon Settlor's Death
- Testamentary trusts are created in a will
- The beneficiary does not have to be aware of the trust and be able to recognize valid conditions/directions
Statute of Frauds
- Trusts of real property must usually be evidenced by a written instrument.
- Trusts of personal property may not require a writing.
- Oral trusts of real property are unenforceable in Texas.
Rule Against Perpetuities
- Future interests must vest within 21 years after the death of a person alive when the interest was created.
- This rule applies generally to trusts other than charitable trusts.
During Settlor's Lifetime (continued)
- Inter vivos trusts are generally used for estate planning purposes.
- Beneficiaries during the life of the settlor can be identified or unidentified.
- The trust property can be transferred
Trusts During Settlor's Lifetime (continued)
- Inter vivos trust property is not part of the probate process upon the settlor's death.
- Some inter vivos trusts allow the settlor the right to revoke or amend during his lifetime until the settlor's death
- Can be created for many purposes, but some are not allowed (tax evasion)
- There are tax benefits for certain conditions of inter vivos trust
Trust Administration - Overview
- Trustees are legally required to accept the office and undertake the duties associated with it.
- Trust administration relies on the trust document and the Trust Code of Texas.
- Statutory trustee powers can be modified.
Trust Administration - Additional Points
- Trustees should have a basic degree of skill and prudence.
- Trustee's duty is to serve the beneficiaries
- Trustees must act in a prudent fashion when handling a trust or risk personal liability.
Trustee's Responsibilities and Duties
- Duties of Loyalty, Prudence, and Confidentiality
- Duties to Inform Beneficiaries
- Accountings (reporting)
- Handling Tort issues
- Handling Contract issues
Trustee Compensation
- Trustees may receive reasonable fees.
- Many factors go into what a reasonable fee is.
Court Alterations
- Deviation from trust provisions is possible if the settlor had an “equitable argument” that would have considered the same circumstances.
Party Alterations by Settlor
- Settlor can revoke, modify, or amend a trust, unless trust is specifically written as irrevocable
- Revocation is often a valid action.
- Settlors and beneficiaries can work together to change terms of irrevocable trusts
Party Alterations by Trustee
- Trustee can modify or amend a trust with court approval of beneficiaries
- If no court approval, then a trustee is not permitted
- Trustee's powers are delegated.
Trust Termination
- Trust will end when trust document terminates it
- Trust will end when all applicable terms are completed
- Trust will terminate via explicit written directions
- Trust will end if settlors and all parties agree in writing
- Trust can be terminated by the court if there's a worthy reason
Trust Enforcement
- How to ensure the trust is run correctly and by who.
- How to approach the courts
- How those courts will evaluate evidence and actions for breach of trust.
Remedies
- Trustee has legal responsibility.
- Personal recovery for beneficiaries
- Trust property recovery.
- Parties are personally liable
Other Trust Issues
- Trusts of real property, personal property, life insurance, and bank accounts.
- Resulting Trusts - when trust fails
- Constructive Trusts - when improper conduct leads to trust creation.
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