Trust Law and Guidelines

Transfer of property from settlor to trustee (legal title) with beneficiaries receiving equitable title.

Trust created upon settlor's death through a will.

Trusts do not require consideration for their validity.

Promises to create a trust in the future need consideration for enforceability.

Promissory trust property must be enforceable contracts, supported by consideration.

A certificate of deposit can serve as valid trust property: financial institution's binding obligation to repay borrowed funds.

A friend's promise to pay money isn't valid trust property; without consideration, it's just a gratuitous promise and lacks legal force.

Settlor retains legal title, imposing fiduciary duties; Trustee holds legal title; Settlor is NOT the trustee.

A law requiring written evidence for certain types of agreements, including trusts, to be enforceable.

A trust lacking the required written evidence, making it unable to be legally enforced.

Texas law mandates written evidence to prove trust terms (beneficiaries, property, use) and the settlor's signature.

A signature, for a trust, encompasses signatures of the settlor or an authorized agent, defined by relevant Code.

Any changes or cancellations to a written trust must also be in writing.

In some cases, the requirements for proving personal property trusts may be less strict than those for real property trusts.

Oral trusts in personal property are valid under certain conditions (settlor not trustee/beneficiary, intent stated pre-transfer).

Notarization is not required but recommended for recording, proving trust validity especially for real property trusts.

Allows a subsidiary company to replace an affiliated bank as trustee in certain situations (e.g., mergers, acquisitions).

Person or entity who has a right to trust assets or income.

Beneficiary entitled to immediate trust distributions.

Beneficiary who inherits trust assets/income after another beneficiary's entitlement ends (e.g., a deceased beneficiary).

The legal ability of an entity to own and manage trust property.

Beneficiaries clearly identifiable from the trust document.

Trust lacking a human or charitable beneficiary-trustee must act in good faith, without legal enforcement.

Invalid trusts that lack a human beneficiary and a charitable purpose.

A trust designed to benefit society or a specific group for a charitable purpose.

An altruistic or philanthropic motive benefiting the community, not personal gain.

Statutes that restrict gifts to charities under specific circumstances.

The court uses a 'generally accepted' standard to determine if a trust's purpose is charitable.

Trusts that promote personal whims, not the general welfare or community.

Religious trusts are usually considered charitable, unless illegal or against public policy.

Meeting IRS rules allows trusts to receive tax advantages (income, gift, estate taxes).

The settlor can broadly define a charitable trust's recipients; but it must be limited.

A trustee's agreement to manage a trust's assets and fulfill its obligations.

A trustee is often required to post a bond to guarantee responsibility and fidelity in handling trust assets; exceptions exist (e.g., corporation trustee).

The trustee's right and duty to take control and manage the trust's assets.

Identifying and separating trust assets from a trustee's personal assets to prevent commingling.

The trustee's responsibility to locate and verify the identities of beneficiaries.

The trust document's instructions take precedence over general law; Unless prohibited by law.

Trustees must comply with state trust laws and regulations.

The mixing of trust funds with the trustee's personal funds or others, increasing the potential for liability.

A clause in a trust agreement that aims to excuse a trustee's potential breaches of duty, but only in specific circumstances.

An exculpatory clause is unenforceable if a breach of trust involves bad faith, intent, recklessness, or if the trustee profits from the breach.

An exculpatory clause can potentially protect against trustee negligence, but not against intentional wrongs.

Attorneys cannot use exculpatory clauses to protect themselves from malpractice.

A designated individual who monitors and guides the trustee's actions within the trust’s framework.

Trust protectors are expected to act in good faith regarding the trust's goals and beneficiaries.

The trustee generally must follow trust protector instructions unless deviating from the trust terms would be demonstrably inappropriate or create an error.

Exculpatory clauses in trust documents are interpreted and applied strictly in a fashion that limits what the clause protects from.

The settlor's clear intention to create a trust relationship, transferring property to a trustee for the benefit of beneficiaries.

The legal ability of the person creating the trust to understand the nature and consequences of their actions.

Requirement for certain types of trusts, including real estate, to be in written form with the settlor's signature.

A trust must have a legal purpose that doesn't violate public policy or any laws.

The settlor must actually transfer ownership of the property to the trustee.

The trustee has the legal ownership of the trust property, managing it on behalf of the beneficiaries.

The beneficiary has the right to benefit from the trust property, even though they don't own it legally.

A settlor who uses a trust to defraud creditors can have the conveyance to the trust set aside to the amount of the creditor's claim.

If a trust is created for an improper purpose, it may be invalidated, leading to either a resulting trust (property goes back to settlor) or the trustee retaining the property free of the trust.

A resulting trust arises when a trust fails or has an improper purpose, returning property ownership to the settlor or their heirs.

The person who creates a trust by transferring property to a trustee for the benefit of beneficiaries.

A revocable trust where the settlor is also the trustee and beneficiary during their lifetime, passing to a remainder beneficiary upon death.

An essential component of a trust, representing the assets held in trust.

The settlor must validly transfer ownership of the trust property to the trustee.

A settlor can retain various powers in a trust, including serving as trustee, holding a life interest, amendment, beneficiary change, and administration control.

A trust violates the Rule Against Perpetuities (RAP) if it could potentially vest (become certain) beyond the allowed time period, typically 'lives in being plus 21 years'.

A legal approach to RAP where the court observes the actual events and circumstances rather than hypotheticals to determine if the trust vests within the allowed time.

A court-ordered reform or reinterpretation of a trust that violates RAP, aiming to uphold the settlor's intended purpose while complying with the law.

A law that provides a 90-year period from trust creation for vesting, instead of 'lives in being plus 21 years', with 'wait and see' consideration.

Some states have abolished the Rule Against Perpetuities (RAP), allowing for the creation of 'dynasty trusts' that can last generations.

A hypothetical scenario used to test if a trust violates RAP, assuming the worst-case scenario where beneficiaries could die shortly after its creation.

A trust created during the settlor's life, as opposed to a testamentary trust created by a will.

The beneficiary's right to receive benefits from the trust property.

A beneficiary's right to receive trust property after the initial beneficiary's interest ends.

Direct blood relatives, typically children, grandchildren, and so on, who can inherit from a trust.

A trustee, even though they hold legal title to trust property, has no personal beneficial interest in it. This means that the trustee's creditors cannot claim the trust property, and when the trustee dies, the trust property does not pass through their will.

To serve as a trustee, an individual must be at least 18 years old, legally competent, and able to take, hold, and transfer title to the trust property.

Corporations must be authorized to act as trustees under Texas law. Financial institutions usually have this power, while trust companies require a separate charter. Foreign corporations can act as trustees if Texas has a reciprocal trust agreement with their home jurisdiction.

A settlor can't force someone to be a trustee; they must accept the role voluntarily. This acceptance is critical because it signifies that the trustee is taking on fiduciary responsibilities.

A trustee's acceptance is usually made through a signature on the trust instrument or a separate acceptance document.

If a trust instrument isn't endorsed, it means the legal title to the trust property hasn't been transferred to the trustee. This results in the trust failing because the essential element of transferring property to a trustee is missing.

When a trustee dies, the trust property does not pass through their will or inheritance. The trust continues with a new trustee appointed as per the trust's provisions or by the court.

A custodian holds property for a minor beneficiary, but doesn't have legal title; the beneficiary holds full title, including the right to use and manage the property when they reach legal age.

A debt agreement involves a borrower who receives money and promises to repay it with interest. The borrower has full legal and equitable title to the money, meaning they can use it as they wish.

When a donor gives property subject to a payment obligation to a third party, the third party has an equitable right to receive payment but not title to the property.

A guardian has fiduciary duties but doesn't own the property. They manage it for a minor or incompetent person.

A personal representative manages an estate after death and has no legal title; the deceased's heirs inherit full ownership upon probate.

When someone has the power to decide who receives property, it doesn't create a trust. No fiduciary duties or ownership are involved.

A loan secured by property, such as a mortgage, doesn't create a trust. It's a contractual lien on property but title remains with the borrower.

When the settlor declares themselves the trustee, they hold both legal title and manage the property for the beneficiarys.

A legal presumption that a director acted in good faith and with best interests of the corporation in mind, unless proven otherwise.

Situations where the BJR presumption doesn't apply, such as fraud, illegality, conflict of interest, or gross negligence.

The amount by which a corporation's net assets (equity) exceed its stated capital.

The total par value of all shares issued by a corporation.

A voting method where shareholders can concentrate their votes on a few directors, increasing their chances of getting their preferred candidates elected.

A legal doctrine protecting directors from personal liability for decisions made in good faith, with due care, and in the best interest of the corporation, even if those decisions result in business losses.

A high degree of negligence, showing a reckless disregard for the safety or rights of others, often involving a conscious and voluntary disregard of a substantial and unjustifiable risk.

A director's recorded disagreement with a corporate action, which protects them from liability for that action.

An opportunity that arises in connection with a corporation's business and that a director or officer should present to the corporation instead of taking for themselves.

A situation where a director or officer's personal interests might conflict with the interests of the corporation.

A director who has no financial interest in a particular transaction and is not related to anyone who does, which makes the director's opinion impartial.

The principle that a director's self-dealing transaction must be fair to the corporation, not favoring the director's personal interests.

When a corporation's shareholders approve a self-dealing transaction, validating it and making it less likely to be voided.

A claim alleging that a director or officer had a conflict of interest when setting their own executive compensation in a closely held corporation.

A claim asserting that a board failed to follow proper procedures or consider sufficient information when setting executive compensation in a closely held corporation.

A claim alleging that a board of directors committed waste by setting executive compensation at an unreasonable level in a closely held corporation.

A legal principle that allows someone to be compensated for services they provided, even without a formal contract, if it's clear they expected to be paid.

Controlling shareholders in a corporation have a legal duty to be transparent and fair when dealing with the minority shareholders.

Factors that indicate a buyer might be trying to exploit a corporation's assets for personal gain after acquiring controlling stock.

When a corporation pays expenses for its employees, directors, or officers, especially in legal matters where they're successful in defending themselves.

Under Texas law, corporations must indemnify governing persons (board members) for legal expenses when they win their cases plus the corporation can choose to indemnify other employees.

A proprietor has a duty to protect customers from being deceived by apparent salesmen, even if they aren't actual employees.

Several factors help determine if someone is an employee, with control being the most important. Other factors include distinct occupation, lack of supervision, skill level, tools provided, duration of work, payment method, and integration into the regular business.

A principal can be held liable for an agent's misconduct, but the principal can also seek indemnification from the agent to cover any damages.

The employer who has the greatest control over the employee's actions at the time of the injury is liable for any harm caused to a third party.

If an employee combines their own business with their employer's business, the employer can be held liable, especially if the employee's misconduct was related to their job. However, if the misconduct involves force, it must be directly tied to their job duties.

Principals are usually not responsible for the torts of independent contractors, but exceptions exist. The principal might be liable if they knew about the contractor's misconduct.

An agent owes three primary duties to their principal: loyalty (no personal gain without approval), care (no negligent harm), and obedience.

If an agent receives a benefit outside what the principal provided, the agent must give that benefit to the principal.

All partners in a partnership are personally liable for the debts of the partnership. If the partnership goes bankrupt, the partners' personal assets can be used to pay off the debts.

A partnership is a separate legal entity from its partners. This means that the partnership's debts are its own, not the partners' individual debts.

Decisions regarding ordinary business matters within a partnership require a majority vote of the partners based on their ownership interest.

Decisions outside the ordinary course of business within a partnership require unanimous approval from all partners.

Each partner in a partnership has a capital account that reflects their equity stake in the partnership.

If a partner learns of a business opportunity that would benefit the partnership, they have a fiduciary duty to disclose it to their partners.

The board of directors of a corporation has the ultimate authority to make decisions on behalf of the corporation, including managing the business and affairs.

Officers of a corporation are responsible for running the day-to-day operations of the corporation, but they must act under the authority delegated by the board of directors.

A promoter can be held liable for contracts made before a corporation is formed, even if the corporation later adopts the contract.

When a newly formed corporation formally accepts a contract made by a promoter before its creation.

A corporation must demonstrate acceptance of the contract's benefits, knowing the significant terms, in order to effectively adopt a pre-incorporation contract.

A legal process where the corporation is substituted as a party to the contract in place of the promoter, requiring all parties' agreement.

Ratification applies to actions by an agent, while adoption applies to actions of a promoter before the corporation existed.

An activity inherently dangerous and posing a high risk of harm unless special precautions are taken.

Confidential business information that holds value and is protected, providing a competitive advantage.

A partner is generally only entitled to reasonable compensation for winding up the partnership business.

A limited partner isn't responsible for the partnership's debts unless they're also a general partner or actively control the business. Even with control, liability is only to those they directly dealt with who reasonably thought they were a general partner.

An LLP registration with the Secretary of State only lasts one year. After that, it automatically reverts to a general partnership, where all partners are fully liable.

Shareholders can remove a director or the entire board, with or without justification, at a special meeting called for this purpose. A majority shareholder vote is needed.

The first board of directors meeting focuses on key actions like approving stock issuance, finalizing bylaws, selecting officers, and authorizing business transactions.

In a corporation's contract, using "By" before the signature means the individual is acting on behalf of the company. Without it, they may be personally liable for the contract.

Signing twice, once for the corporation and again under "By", indicates the individual assumes personal liability along with the corporation for the contract.

Courts can ignore the separate legal entity of a corporation and hold its owners personally liable if: 1) There's a complete blending of ownership and corporate interests, and 2) Ignoring the corporation's separate existence would result in unfairness or fraud.

When a corporation doesn't have enough funds to operate sustainably, potentially leading to an inability to pay creditors. This can increase the risk of piercing the corporate veil.

Shareholder agreements must be included in a corporation's bylaws or its certificate of incorporation to be legally enforceable.

A court can overturn a shareholder agreement that excessively restricts the board's authority and decision-making.

A super majority in a closely held corporation usually requires 55% of the votes to approve a decision.

Closely held corporations can impose limitations on the transferability of shares, provided they are reasonable.

A buy-sell agreement can be triggered by various events, including death, disability, divorce, termination of employment, deadlock, sale or transfer of stock, or pledging or lien on stock.

Share transferability can be restricted by including provisions in the corporation's certificate of formation, bylaws, shareholder agreements, or agreements between a shareholder and the corporation.

Courts may ignore the separate legal identity of a closely held corporation and hold its shareholders personally liable if certain factors are present.

Controlling shareholders have disclosure obligations when dealing with the corporation and its minority shareholders.