TRUSTS

I. INTRODUCTION

A. Trust - Means of property ownership where ownership is divided between two or more parties.

1. Trustee - Person in control of property

2. Beneficiary - Has right to enjoyment of property pursuant to terms of grantor (Equitable Ownership)

3. Grantor/Trustor/Settlor - Had property originally

*** All three parties must be involved in trust. Parties can be same person. However, there has to be at least one other party.

B. History

1. Problems inspiring creation of Trusts

a. England didn't allow land to be devised -- Primogenitor laws

b. Feudal incidence was death tax in England

2. "Use" created to avoid problems [O -> A+Heirs -> For use of B+Heirs]

a. Problem - Common Law Courts didn't enforce conveyance. (ie "A" could sell to "Y" and B had no rights)

b. Equity courts began to recognize B's rights

3. Statute of Uses (1536)

a. Good - Validated Transfer

b. Bad - Executed the first use (ie taxes)

c. Ways Around Statute

(1) Didn't apply to personal property

(2) If first person ["A"] had active responsibilities the statute didn't execute "A's" use.

(3) Statute didn't operate for transfer of less than a fee simple.

(4) Only operated on first use -- Avoided statute by inserting one more person.

[O -> A -> Use of B -> For use of C]

C. Purposes for Trusts

1. Avoid Probate [Overrated -- unless property is owned in multiple states]

2. Provides Professional Management of Assets (ie Stock Profolio).

3. Preserves Assets for Successive Beneficiaries -- less cumbersome than life est. with remainder.

4. Saves Taxes

a. Income Tax (ie Higher tax bracket to Lower bracket)

b. Avoids Estate and Gift Tax

5. Business Purposes of Trust (ie Pension Funds)

D. Types of Trusts

1. Intervivos - Trust established during lifetime of grantor

2. Testamentary - Trust established in Will of grantor (Doesn't exist until grantor dies)

3. Methods of creation

a. Express - Grantor has expressly stated prop. is to be held in trust [DOESN'T HAVE TO BE IN WRITING]

b. Resulting - Trust even though grantor didn't make an express statement.

c. Constructive - Not really a trust, but a means to carry out justice.

II. INTENT

A. DeLeul - Grantor must express intention to commit property into trust.

1. Father could use income and stocks were never endorsed to D.

2. Court determined that trust held by bank was created for benefit of daughter.

a. Retention of life estate and the right to revoke the trust DID NOT DESTROY the intent to create a trust.

b. Facts were significant (key with note, envelope, etc.) in determining intent.

B. Ponzelino - Dispute between former spouses over 4 lots.

1. H. had made document declaring himself trustee of 4 lots.

2. Divorce court ordered distribution of 4 lots

a. H. argued lots shouldn't be distributed because they were in trust.

b. Argument correct if in trust.

3. Court examined written terms creating trust

a. Terms imposed no restrictions on H.

b. No other person had interest in property

4. No trust created because terms created no interest in property.

C. DeLeul and Ponzelino

1. DeLeul - Could take prop. out at anytime [Trust]

2. Ponzelino - H. could do anything he wanted with prop. [No Trust]

3. Reasons for different holdings

a. Point in Time

(1) D. = Death has occurred

(2) P. = H. was still alive

b. Transfer of Interest

(1) D. - Interest created when prop. was placed in box

(2) P. - H. created no interest unless he decided he would give something to W. and children.

4. When is trust created?

a. Intention to create an interest in beneficiary must be present.

b. Ponzelino had words BUT there was no intention to create an interest.

D. Young v. Young - Two bonds in two envelopes

1. Envelope stated "But the instrument to become due thereon is owned and reserved by me for so long as I shall live, at my death they belong absolutely and entirely to them and their heirs"

2. Question -- Were the bonds prop. of named person or were they prop. of grantor and now part of estate?

a. Analysis

(1) Not Gift - No delivery of property

(2) Not Trust

(a) Wording on envelope created a legal life estate w/ a remainder in personal prop. [BUT CAN'T CREATE A LEGAL REMAINDER IN PER. PROP. -- Policy reason is real prop. remainder can be delivered BUT per. prop. remainder can't be delivered]

(b) Can't convert an IMPERFECT TRANSACTION into a trust even if it was the obvious intention of Grantor.

3. In this case Heirs/Legatees will receive property

E. Thompson v. Whitaker - Seller sold bad iron to buyer

1. Buyer said seller could leave bad iron on lot until seller gets it or B uses it.

2. 12 yrs. later seller wanted iron back and it was gone.

3. Question - Has the Stat. of Limits. run?

a. If it was a trust no stat. of limits. problem.

b. If B. held iron under contract then S. couldn't show when breach occurred and therefor it would be presumed that stat of limit had run.

4. Holding - There was no transfer of ownership of title, therefore there was no transfer of prop. and therefore NO TRUST.

a. Court said it was a BAILMENT

b. Bailee doesn't have title to property; Trustee ALWAYS has title to prop.

F. Merton v. O'Brien - Son gets real prop. subject to obligation of paying proceeds to sister and lien on prop. to assure payment.

1. Sister died and money had not been paid -- Admin. of estate sues B. for unpaid amount.

2. Question - If Trust no Stat of Limit problem; if not trust stat has run on obligation to pay.

3. Held - No evidence a trust was formed

4. Analysis of "Debt v. Trust"

a. Amount due sister was fixed sum -- Trustees not normally obligated to transfer a fixed sum due. [ie Usually interest collected, property, etc.]

b. Another factor was whether prop. had to be sold to pay obligation. ?????

G. Comfort v. Cantrell - Wife's Absolute estate forever, then prop. was to go to H's brother and sister.

1. Wife's will gave prop. to somebody else.

2. H's bro and sis said prop. was in trust and now prop should go to them.

3. Holding - Grant in fee simple with language of suggestion is GRANT IN FEE SIMPLE

a. Other inconsistent language is ignored

b. Wife's will governed

H. Coleman v. Coleman - Transfer of stock from Uncle to Nephew in Feb. Didn't originally do transaction in best way. Later, in Sep., said Nephew had received stock in Feb. pursuant to trust agreement but really hadn't.

1. No trust created

a. Uncle had already transferred prop. in Feb. therefore U. had no prop in Sep. to form a trust.

b. Nephew could have been settlor in Sep. BUT he would have had to have the intention to create a trust (his intention was only to be the beneficiary).

I. First Fed. v. Baugh

1. Totten Trust (Tentative Trust) - Depositor of account names themselves trustee for benefit of others.

a. No obligation to account by Trustor/Trustee (ie can withdraw and use funds)

b. Beneficiary can't withdraw and use funds

c. If Ben. dies 1st settlor gets money and trust is dissolved.

d. If Settlor dies 1st Ben. gets trust w/o probate

2. Totten Trust recognized in almost all jurisdictions

3. Totten Trust is BIG EXCEPTION to Intention Requirement to create a trust.

4. Trust is "officially" created upon the death of settlor.III. PROPERTY REQUIREMENT

A. Must have property at time trust is created.

1. Brainard - Man tried to est. trust. Wanted money earned from investments to be in the name of his wife and children because they were in a lower tax bracket.

a. Government argued that not a valid trust because no prop. (ie no current profits at time of trust)

b. Rationale -- Father states in Dec. profits then non existing were in trust for W. and Children. Later, in April F. changes mind. Children couldn't sue.

** Beneficiary of purported trust couldn't force stock be placed in trust unless consideration had been given for the promise.

c. Trust exists when ...

(1) Profits were realized and

(2) Acts/statements confer the intention to create trust

2. Hypo. -- Promise to transfer $1,000 in trust after game. Transfer doesn't occur.

a. This is only a promise to make a gift in future -- not supported by expectation.

b. Can't create a trust out of an expectation

** Few exceptions p.31 n.5 (Right to produce theatrical production of My Fair Lady, trust conveyance of prop. by future heirs was held valid because "an expectation may be conveyed")

B. Debtor/Creditor Relationship verses Trustee/Beneficiary

1. McKee v. Paradise -- Company withheld employee pension monies but didn't transfer money to pension holding association. Comp. went bankrupt and association wants to est. that a trustee relationship existed with them as beneficiary.

a. Court held that association couldn't do this because the money was only a debt.

b. Factor - No specific property because it had all been comingled and a specific fund had never been set up to create a trust.

2. Penn Central -- Penn went bankrupt. Had agreement to sell tickets, collect money and then send proceeds to Greyhound. Penn owed $37k and money was in a general account.

a. Court held that money owed Greyhound was NOT held in trust because it was comingled and could be used as Penn's own (ie property wasn't "separate and identifiable").

b. If there is no intent to create a trust there is no trust property either.

** However, intent to create trust doesn't eliminate property requirement.

Ex. Wording "it being the intention of this agreement that the Agent shall at all times be in the position of trustee and fiduciary" for the company -- Still not enough if the funds are not SEGREGATED and company is aware and did not object to the commingling of the funds. Result is "no certain res exists" and hence no trust.

c. RATIONALE - If found trust in debt owed -> Trustee would be trustee of own debt. Obligation would be that if it didn't perform it would have to sue itself.????

3. Busher v. Fulton -- Guardian Trust Bank went bankrupt. Gun club had $70k in bank. Wants preferential treatment because it claims money was kept in trust.

a. Bank Accounts

(1) General Deposit - Funds are comingled

(2) Special Deposit - Bailor/Bailee relationship. Bailor(depositor) keeps title. Title never belongs to bank.

(3) Deposit for Specific Purpose - Early cases didn't allow commingling of funds. Now funds can be comingled. (Status is between general and specific account)

b. In present case clerk never said specifically that funds were being deposited for a special purpose.

** There is a PRESUMPTION that a general deposit has been formed. Depositor bares the burden of overcoming the presumption and showing there was a SPECIAL PURPOSE.

c. Court held in this case it was a debtor/creditor relationship -- No Trust.

4. Pierowich v. Metro. Life Ins. Co. -- Father died and there was a question who should get the proceeds of his insurance policy. Ins. Co. held onto money. Guardian of mother wanted ins. co. to give her proceeds now.

a. Issues

(1) Ins. Co. said it was a contract and that it must be performed according to terms (ie children receive proceeds when they reach majority)

(2) Mother said it was a trust (ie equitable instrument) and therefore identifiable beneficiaries w/ vested interest could receive proceeds earlier.

b. Court held K not Trust because . . .

(1) No intention of grantor to create trust in insurance policy.

(2) No separation of funds (ie proceeds of insurance policy weren't separated from other assets of ins. co.)

** Many states now have statutes that allow ins. co. to commingle proceeds and yet to still be holding them in trust.

(3) Insurance Co. was paying interest which is similar to DEBT.IV. TRUSTEE

A. Must Have Trustee -- But don't need to name trustee in document that creates the trust for trust to be valid.

* Estate of McCray - Will said for "10 years the Real Prop. should be held in trust". Will was silent regarding the rest of the interest in prop. With real prop. one can give less than the fee and in this case will transferred real prop. for 10 yr term. Person died intestate w/ respect to real prop. beyond the 10yr term. Sons received prop. as heirs.

a. No trustee named but trust still valid

** In will cases where no trustee is named the executor is usually the proper person to be named as trustee.

b. Question - Does trustee have fee title or title for 10 years?

(1) Probate Court - Transfer real prop. in fee to bank as trustee for 10 yrs than to sons.

** This would allow the bank to sell the land and hold the proceeds for the sons.

(2) Appellate Court - Real Prop. was transferred to sons subject to 10 yr. trust.

c. Appellate Court was correct -> Sons receive the prop. subject to 10 yr. trust and nothing can be done w/ land w/o sons consent during the 10 yr. period.

?? What is the difference between (1) & (2)?

B. Ineligible Trustee

* Wittmeier v. Heiligenstein - W. gave prop. to church. Church had to give proceeds to H. and provide his burial. It was an intervivos transfer of prop. subject to terms of trust.

a. Church could not be trustee by law and is therefore an ineligible trustee -- But trust does not fail.

b. Result - Prop. goes back to the estate and either beneficiaries (?devicees) or heirs will get prop. subject to the trust. They will be the "created" trustee.

C. Refusal of Trustee to be Trustee

* Shaw v. Johnson - Trust dealt with proceeds of life insurance policy. [Note - Being deemed beneficiary of life ins. policy doesn't qualify as prop. Settlor could have made policy the prop. to be held in trust but proceeds of life ins. policy while settlor is still alive are not property. In this case there was a small amount of money paid for holding the death proceeds in trust.] Settlor changed the beneficiary of the policy (ie trustee of trust) from one bank to the other. Other bank hadn't approved/accepted the trust/agreement when settlor died.

1. Issue - The fact that trustee refused to be trustee does NOT invalidate the trust.

2. Trust had been created . . .

a. Intent was there

b. Res was the small amount of money for holding death proceeds ???

c. Settlor was trustee up until the time named trustee accepts position

** When settlor died the Personal Rep. would probably be named trustee.

D. Merger

* Alabama Bank v. Webb - Grantor named 5 children as trustees and beneficiaries.

a. Merger occurs when Trustee is the Beneficiary

** Legal Title and Equitable Title are held by same person (ie they have everything)

b. Court Webb said that merger DOESN'T apply when there are multiple beneficiaries and trustees.

RATIONALE

(1) Leg. Title [Trustees] -> Held in Joint Tenancy (ie get full ownership upon death of other -- Right of Survivorship)

(2) Equit. Title [Benef] -> Held as Ten. in Common (ie "undivided" interest in property)

E. Removal of Trustee

* In Re White - Trustee was making highly speculative investments. Beneficiaries brought action to remove this trustee and other trustee wanted to resign [investments weren't being made unilaterally - usually need all trustees to agree or at least a majority].

a. Trustees can resign subject to the court's approval

(1) Trust document was silent as to when a trustee could resign

(2) Usual Conditions for resignation

(a) No damage to trust

(b) Duties of Trustee have been fulfilled up to that point in time

(3) Court granted approval in this case

** Factor in this case is that there were a number of trustees (ie there were other trustees that could keep the "bad" trustee in check). If only two bank might not have been permitted to resign.

b. Removal of Trustee is difficult to obtain

(1) Trust document did not provide for when a trustee could be removed.

(2) Court looked to state law

(3) Even though state law said removal was permitted if trust was "likely to be jeopardized" court didn't grant removal

(4) Court said other trustees were there to put in check the bad trustee.

(5) COURT CONSIDERS REMOVAL OF TRUSTEE AS VERY DRASTIC MEASURE -- ESPECIALLY SINCE GRANTOR HAD NAMED THE TRUSTEE AND HAD NOT PROVIDED METHOD FOR REMOVAL.

F. Advisors

1. Gathright's Trustee v. Gaut - Grantor in will stated that executor has no authority to do anything w/o the consent of one of two parties. Also, if neither of these could authorize a transaction a judge from a certain circuit must grant permission.

a. These were not really trustees (ie they were Advisors) but the advisor's authorization was necessary for trustee to do anything.

b. Court allowed naming a substitute advisor after the judges said no.V. BENEFICIARY

A. Must Have Beneficiary Capable of Supervising the Administration of the Trust.

1. Morsman v. Commissioner - Morsman named himself trustee and successor trustee was a trust co. of which he was pres. Beneficiaries were Morsman's widow and issue. After 5 yrs proceeds were transferred to successor trustee and the question was whether proceeds should be taxed.

a. Court held there was no trust until the successor trustee took prop. -- Previous there was no beneficiary to guard the trust (technically Morsman was trustee and the beneficiary)

b. Document said "widow" so technically when/if Morsman married there is still no beneficiary

c. This could only be a testamentary trust (ie could only take effect upon his death) which didn't meet testamentary requirements.

2. Dormant Trust [not really a trust] -> Occurs when named beneficiary doesn't yet exist. When named person does come into existence then trust becomes a valid trust.

** Distinguished from no property (No Ben. v. No Prop.) -> No prop. no trust and later a new trust must again be executed.

B. Charitable Beneficiary

1. Kain v. Gibbony - Women left trust w/ Bishop as trustee for benefit of community that she belongs to when she dies.

a. Held that there was no beneficiary

(1) Community was unincorporated religious organization NOT recognized in state AND

(2) Individual members were not named in instrument

b. If Charitable purpose it would be permissible [Attorney General enforces the trust and NO beneficiary is needed]

** Not charitable because "Charity" wasn't named

c. Possible Solution -- Name members individually as beneficiaries

(1) Issue - Rule Against Perpetuities

(2) Cure against the RAP --> Give prop. to be distributed to members of community that are members of community at time of grantor's death.

??? Not quite sure how the RAP works in this case.

2. Morice v. Bishop of Durham - Prop. given to Bishop for "Benevolence and Liberality".

a. Court held it wasn't a charitable trust because "liberality" is broader than "charitable".

b. No definite beneficiary and not "charitable" therefor the trust is invalid.

C. Power of Appointment v. Trust/Trustee

1. Clark v. Cambell - Women asked trustee to give undistributed prop. to friends.

a. Problem - No way to determine who friends are.

b. There is no definite class named as beneficiary

(1) Heirs or Relatives identifiable

(2) Employees identifiable

(3) Friends not acceptable in trust

c. Power of Appointment -- Power given to person to make choices about the distribution of prop.

(1) Don't need beneficiaries

(2) Power of Appointment can be given to trustee

(3) Those w/ this power can't be sued because they can perform or not perform

(4) Not a holder of title (unless trustee also) -- has power but not title

(5) If power is not exercised then prop. is distributed to those that were to get remainder of prop.

2. Power of Appointment v. Trust/Trustee

a. If person MUST exercise power than person is deemed a Trustee

b. If no clause mentioning takers in default -- then Trust/Trustee

c. Irony of Power of Appointment

(1) If grantor says person MUST distribute to friends -> Trustee and NOT VALID because no identifiable class of beneficiaries

(2) If grantor says MAY distribute to friends -> Power of Appointment created and prop. can be distributed to unidentifiable class of beneficiaries.

D. Honorary Trust

1. In Re Thompson -- Gift was left to friend to further fox hunting. Friend had ultimate discretion.

a. No body can enforce trust (although if friend didn't do anything residuary legatees could enforce)

b. Recognized in England and in limited situations in the U.S.

(1) Monuments

(2) Performance of Masses

(3) Care of Animals

2. GENERAL RULE - Have to have a Beneficiary and has to be identifiable unless Charitable Trust or Honorary Trust.

E. Disclaiming Interest as Beneficiary

* Stoehr v. Miller - German people owned prop. in U.S. and they were transferring prop. to US family members and vice versa. U.S. relatives held in trust certain prop. for German Relatives.

a. U.S. Government wants prop. that American family members hold in trust for German relatives.

b. When German Relatives found out they were beneficiaries they filed a disclaimer.

c. There had been a valid trust but once beneficiary disclaimed there is no longer a beneficiary nor trust.

** Once beneficiary disclaims it is RETROACTIVE and thus they never had any interest in the property.

d. A few states have statutes prohibiting disclaimers were beneficiary is trying to prohibit creditors from making a claim

** If no statute it can be done

??? Could the government go after an equitable interest? What would be obtained?

F. Incidental Beneficiary

* Town of Sharon v. Simons -- Mother left prop. in trust to son/brother for benefit of Azuba provided city allows Azuba to live w/ friends.

a. Azuba was insane and town was caring for her

b. Town wanted to bring an action against the trustee (Azuba nor her guardian sued)

c. Court Held -- Town although benefitted from the trust is not a beneficiary

** Town was only incidentally benefitted from trust but was not a beneficiary.VI. NATURE OF BENEFICIARY'S INTEREST

A. Owner of Beneficial Interest is to Pay Taxes

* Blair v. Commissioner - Father assigned his beneficiary interest to his children. IRS wanted to tax father for the income because he was in a higher tax bracket.

a. Father was allowed to transfer his beneficiary trust interest

b. Those who receive beneficiary interest through assignment now have rights of beneficiary to enforce the trust and THEY pay the taxes

c. A beneficiary may transfer part of interest or all of it

d. Beneficiary interest to receive income is an irrevocable right

e. Beneficiary interest is in property -- Its more than just a legal right against trustee

B. Parol Agreement Insufficient to Transfer Beneficial Interest in Real Property

* Coleman v. Coleman - Father transferred real property to son until he (father) wanted it back. Trust agreement was clear that father could get prop. back on demand (ie could claim is beneficiary interest). Son claimed that father ORALLY relinquished this right.

a. Court held that father's equitable right was a right in real property and that the statute of frauds required written evidence of transfer.

b. p. 106 n.4 Categorizes the states into four groups regarding the formality required for the transfer or surrender of interest of a trust beneficiary.

(1) Those where there is no statute specifically applying to trusts but the statute requiring transfer or surrender of interest in land to be manifested by writing is deemed to apply to equitable interest under trusts. (Coleman)

(2) Those expressly demanding a writing for transfer of a beneficiary's interest under a real property trust

(3) Those requiring written evidence of transfer of beneficiary's interest in any trust whether realty or personalty

(4) Those having no requirement of formality applicable to this subject

C. Delivery Requirement in Transferring Beneficial Interest

* Curriden v. Chandler - Father wanted to transfer to wife and son his beneficial interest in trust. Problem was the lack of delivery to wife and son.

a. Court held that, even though it was a transfer of personal property, delivery wasn't necessary because trustees held actual possession of property. (ie father could not transfer actual property -- he had done all he could)

b. If one uses a deed of conveyance it will take the place of a physical transfer of property.

D. Notice Regarding Assignment of Beneficiary Interest

* Moorestown Trust Company v. Buzby

a. Followed rule that order of assignment creates priority.

* When beneficiary assigns interest to Assignee #1 she transfers ALL the property rights she had. She therefore has no interest to transfer to Assignee #2.

b. In 1/2 U.S. jurisdictions and England Assignee #1 has to give notice to trustee

* Rationale - Giving notice to Trustee helps protect assignee #2 because #2 may ask trustee if beneficiary has assignable interest.

c. If Assign #1 helps or participates in defrauding Assign #2 EQUITABLE ESTOPPEL will prevent #1 from asserting his rights over #2.

E. "Purchase Money Resulting Trust" (Constructive Trust)

* Hillsborough v. Dickenson - County Clerk embezzled over $30k in excess fees. Clerk gave money to daughter to purchase property. County sued clerk but he had no money. County seeks to establish that clerk was beneficiary of trust held by daughter.

a. County sought and was granted a constructive trust

(1) Constructive trust is an action in equity so legal remedies must be exhausted

(2) Court analogized a "creditor's bill" to a constructive trust (ie judgment is obtained and all legal remedies are exhausted but debt is still not satisfied)

* Creditor's bill is method to obtain relief in equity

b. The county was allowed to sue the daughter who had legal title of the property.

c. Rule - If the trust is not a spendthrift the interest of beneficiary may be used to satisfy her debt.

d. ??? CASE WAS BASED ON PRESUMPTIONS -- IF SPOUSES THE PRESUMPTION GOES THE OTHER WAY ??

F. Passive Trust (Trustee does not do anything with property -- ie only holds title which is to be transferred immediately)

1. The Statute of Uses

a. Followed by most states e&+* by statute or common law

b. Statute of Uses EXECUTES (prohibits passive trusts)

c. Exceptions within statute

(1) Statute only applies to trusts that are "seized" and therefore does not apply to personal property. (Although personal property exception is generally outdated because most courts now execute passive trusts of personal property)

(2) If trust is active it is not executed by the statute of uses

2. Duncanson v. Lill -- Trustee held title to real property and was to transfer it immediately. This was technically a passive trust because trustee was not really doing anything.

a. PROBLEM - In this case wording of trust stated. That beneficiary has ONLY "Personal Property" interest.

b. Court said that a suit by the beneficiary for specific performance was not a real property dispute (ie in this case the court did not have jurisdiction)

c. IN ILLINOIS THE WORDING OF THE TRUST INSTRUMENT CAN CHANGE THE RELATIONSHIP -- SO THAT BENEFICIARY ONLY HOLDS PERSONAL PROPERTY INTEREST. (Called an Illinois Land Trust -- A few other states have adopted statutes to allow these types of trusts)

3. Chicago Title v. Mercantile Bank -- This was an Illinois Land Trust. The beneficiary had only a personal property interest. Creditor of beneficiary attempted to place a lien on the real property. Shortly after creditor's attempt Shrader told the trustee to take out a mgt. on property. The holder of the mgt. wanted to foreclose on property ahead of the creditor's lien.

a. Court held that creditor did not have immediate lien and that beneficiary did not have Real Property interest. Lien was treated as a lien on personal property.

b. Hypo./Inconsistency -- Taxes

* If taxes exceed the value of real property the gov't seeks to collect a deficiency. In normal jurisdictions the party with beneficial interest would have to pay. In Ill. in would seem that beneficiary wouldn't have to pay real prop. taxes because he only has personal prop. interest. NOT SO -- Treated the same for prop. tax purposes.VII. INTER VIVOS TRUSTS

A. Creating Inter Vivos Trust through Declaration or Conveyance

1. Declaration - Grantor simply makes an explicit declaration that he holds certain property as trustee for another.

2. Conveyance - Grantor appoints someone else as trustee and CONVEYS the property to the trustee

B. Consideration

* Leeper v. Taylor

a. Issue - Was there consideration?

b. Court said consideration wasn't necessary to establish a trust

c. Consideration is only necessary . . .

(1) For a promise to create a trust

(2) If only property of the trust is a promise.

d. Sometimes stated that consideration will induce a court of equity to complete an imperfectly created trust.

C. Transfer and Delivery

1. Hinton's Ex'r v. Hinton's Committee -- Grantor traveled to county seat drew up deed, recorded deed, and kept deed himself. Grantor also created will in which he recognized the trust. Trust was suppose to have a trustee who wasn't grantor (ie technically conveyance not declaration).

a. Court held that there was delivery even though grantor never gave deed to trustee because the court found sufficient intent.

(1) INTENT - Intent to divest oneself of ownership of property and give title to another

(2) Actual physical transfer of deed is best evidence of intent -- but not the only method.

b. Can't impose trustee obligations w/o notice and assent from potential trustee

* With an imperfect transfer -- Resulting trust occurs and grantor becomes the trustee

c. Side Issue -- Grantor required beneficiary and trustee to give him a quit claim deed.

(1) Could have argued that Merger Doctrine should have been applied -- but court didn't look at this.

(2) When trustee executed quit claim deed he was in effect resigning as trustee. However this doesn't destroy the trust because there were already beneficiaries established.

2. Whitehead v. Bishop -- Father wanted to give personal property to trustee to be held for Library. But, father held on to property.

a. Analysis

(1) Must ask what type of property is subject of trust.

* Various property have different laws of conveyance.

(2) What type of transfer

* Declaration of Trust (grantor changes hats from grantor to trustee) or Conveyance (property going to 3rd party and rules of conveyance must be complied with)

b. Held that donor can't keep control of property when there needs to be a conveyance (ie 3rd party trustee)

c. Grantor could have perfected conveyance

(1) Through physical transfer

(2) Use a delivery of a "Deed of Gift"

d. ARGUMENT -- Could argue that (??trust) document was sufficient to convey property

(1) But grantor kept interest

(2) Could argue that grantor only kept an interest for life.

3. Farmers v. Winthrop -- Grantor wanted to transfer property owed her as beneficiary from one trust company to another. Property from old trust company was never completely delivered to new trustee and grantor died.

a. Three documents in transaction

(1) Power of Att. to New Trust Co. to collect money and property

(2) Power of Att. to New Trust Co. to sell and transfer stocks

(3) Letter of instruction to trust co. stating grantor's desire to have all proceeds from former trust co. collected and transferred to new trust co. as trustee.

* $800k was ready and transferred but $1,400k wasn't ready and grantor died.

b. Issue -- Was there delivery of $1.4 million?

(1) Power of Att. is usually considered as evidence of delivery BUT HERE although there was intent it was not effectuated AND grantor could have revoked the power of att. at anytime.

* Result - There was only an intent to create a transfer/gift at some time in the future.

(2) Solutions

(a) Grantor could have made themselves trustee through a declaration of trust (no conveyance would have been necessary) OR

(b) Grantor could have made first trust co. (ie the co. that held the funds) trustee of the newly created trust.

VIII. STATUTE OF FRAUDS

A. Trust Property Interests are Separable

1. Chase v. Gardner - Property in trust was land and trust was oral. But trust also provided that for proceeds from sale of land to be held in trust.

a. Stat. of Frauds requires a trust in land be in writing except for resulting or constructive trusts.

b. Court concluded that there was one agreement with two parts

(1) land

(2) proceeds (personal property)

c. Court avoided the stat. of frauds by recognizing that "where land has been conveyed on parol trust to hold the proceeds for a certain purpose, if that event has taken place and the land is converted into money, the stat. of frauds is not a defense."

d. Most jurisdictions follow this case BUT some jurisdictions look at the original property to see if stat. of frauds applies.

2. Hypos [followed in almost all jurisdictions]

a. Use personal prop. to purchase real prop -- Stat of Frauds doesn't apply.

b. Oral trust in land than proceeds -- And person acknowledges they're holding proceeds in trust -- TRUST DOES EXIST.

B. Writing May be Signed by Grantor or Trustee

* Holmes v. Holmes - Bro #1 gave prop. in trust to Bro #2 to hold in trust for Bro #1 with the ORAL condition that B#1 could revoke the trust at anytime.

a. B#1 argues that he could get prop. back based on two premises

(1) There was the oral condition that he could demand that the land be given back to him.

* Problem - This could not be valid due to the statute of frauds.

(2) There was lack of consideration and therefor it was a resulting trust

* Problem - B#2 argued that it was an express trust in writing and courts hold express trusts irrevocable and that consideration was his promise to hold the property in trust.

* States vary but some hold an express trust that is silent re revocability are irrevocable.

b. Court held that the trust was an Express Trust and that it could not be revoked

* Court concluded that there didn't need to be a writing from grantor only needed signed writing from trustee to prove the trust and satisfy the statute of frauds.

c. Resulting Trust - Arises in two situations

(1) Grantor fails to make sufficient transfer

(2) Grantor provides all the consideration for property and places it in name of other party. [Purchase Money Resulting Trust]

C. Part Performance

* McKinley v. Hessen

a. Trust appeared to be a Purchase Money Resulting Trust but this state didn't recognize such trusts (only recognized in 1/3 states).

b. Couldn't rely on oral agreement alone because it was a land transfer

c. Party relied on part performance and had to prove

(1) Existence of oral agreement AND

(2) Part Performance was done based solely on agreement

D. Stat of Frauds Makes Trust VOIDABLE

* Hayes v. Reger - Grantor made an oral trust in real property for benefit of wife. Trustee had a judgment issued against him and lien was placed on property.

a. Men with judgment lien argued that property couldn't be transferred to wife because it violated stat. of frauds

b. Court held that stat of frauds made trust unenforceable but not void

(1) Court held that only the trustee could use the stat of frauds to void the trust.

(2) Trustee did convey the property even though he didn't have to

c. If creditors had RELIED on the apparent ownership of property by trustee then they might have a claim.

* Rationale - Grantor would be more at fault because he didn't have in writing that there was a trust and that the trustee really wasn't the owner of property.IX. WILLS ACT

A. How Trusts Relate to Formalities of Wills

1. Distributions at death have to be executed with certain formalities

* Rationale - Grantor is dead and can't testify about or validate the transaction.

2. If trusts only purpose is testamentary then it must comply with Wills Act

B. Transfer and Intent are Requirements for Non Testamentary Trust

1. Monell v. College of Physicians - Grantor authorized his attorney to pay bills and provided orally that money left in "bill paying" account should go to his fiancee when he died. Attorney had to have approval of either grantor or fiancee before he could pay any of the bills.

a. Court held that trust was a testamentary trust because there was no interest to transfer anything to fiancee until the grantor's death.

b. Analysis (Transfer and Intent)

(1) Issue isn't whether beneficiary can be divested of interest -- Issue is whether some interest has been transferred to beneficiary.

(2) Issue is whether property was transferred

* Court held in this case that the attorney/trustee was only an agent of grantor (ie he didn't have any independent judgment with regard to payment of bills) and that when the grantor/principal died the agency was terminated. IF PROPERTY NEVER TRANSFERRED THERE COULD BE NO TRANSFER OF INTEREST IN FIANCEE.

(3) Fiancee's ability to validate payments was only an authority to approve transactions -- no interest in property itself.

* Only interest fiancee had in property was testamentary.

2. Farkus v. Williams -- In written instrument the grantor declared himself trustee for benefit of beneficiary. Grantor retained many/all rights over trust stocks.

a. Court holds the trust valid and nontestamentary even though Beneficiary really doesn't have any rights during the time of grantor's life.

b. Court held that beneficiary's interest was his right to make grantor/trustee comply with his fiduciary duty (ie keep an accounting -- Grantor couldn't just give property away. Although, he could revoke the trust)

c. Farkus has a different outcome from Monell because it was a written trust as compared to oral. (ie oral has a higher standard of proof)

C. Nature of Property in Trust

* Gurnett v. Mutual Life -- The property in trust was a life insurance policy. Trustee was given the actual policy but no rights over the policy. Trustee would receive proceeds of policy (ie he is the beneficiary of the POLICY). Proceeds for Beneficiaries of TRUST would only occur when grantor dies.

a. There was no property at the time because the policy was unfounded [Unfounded Life Insurance Policy]

(1) Many states now have statutes validating unfounded life insurance policies as trust property

(2) Other states hold that if only founding comes from life insurance policy a trust is not valid unless it complies with the Wills Act (ie prop. doesn't exist until person dies)

b. Court in present case held that the trust was valid

(1) Held that the property/subject matter of trust was the policy itself and even though grantor retained all control he had transferred physical possession of the policy to trustee

(2) Additionally trust was held valid because the trustee maintained the right to receive the proceeds from the policy - Even though the grantor retained the right to designate another beneficiary of the policy.

c. Note - Trustee really didn't do anything with the trust property. He held the policy and then as beneficiary of the policy he received and held the proceeds to be transferred to the beneficiaries of the trust. (ie PASSIVE TRUST) Statute of Uses executes passive trusts BUT this was personal property and the Stat only applies to real prop.

D. Validation By Reference/Merger of Documents

1. Montegomery v. Blankenship -- $800k of stock was never delivered during lifetime of grantor. Will and trust were executed at the same time and the will said property would be distributed according to trust.

* Trust was valid because it was in existence at time the will was validly executed and the will mentions the trust [Validated/Incorporation Through Reference -- Using this method court overcame problem of whether delivery requirement of an intervivos trust was meet].

2. Second Bank v. Pinion -- Grantor executed a will in 1955 that provided that residue goes to trustees of a valid inter vivos trust dated 1945. Later the trust was amended

a. Doctrine of Incorporation by Reference was inapplicable with respect to the subsequent amendment

b. Held that the will "Pours Over" into the trust.

c. Trust was amended later after the will was executed but court held that the property should still be distributed according to the trust.

(1) Court stated "There seems to be no greater objection to (the pour-over" trust) than the whole doctrine which permits a testator originally to make a disposition by reference to a living trust, the terms of which are not stated in the will."

(2) Court looked at the facts and determined that the amended trust had other purposes aside from solely being a testamentary transfer.

3. Uniform Testamentary Additions to Trusts Act

a. Validates Pour-Over Trusts

(1) Even if the trust isn't valid during lifetime -- It becomes valid.

(2) Can be . . .

(a) Founded or Unfounded

(b) Revocable or Unrevocable

(c) Amendable or Unamendable

(3) Requirement -- Written trust document is in existence prior to or concurrent with the execution of the will.X. SPENDTHRIFT AND RELATED TRUSTS

A. Characteristics - It is a trust which restricts the alienability of Beneficiary's interest. It provides that trust property can't be attacked by creditors and/or used by beneficiary.

B. Not An Invalid Restriction on Alienation

* Broadway v. Adams - Language of trust stated "Use of income should not be assignable -- ie Creditors can't expect this income".

a. Creditors wanted money from trust because he had an unsatisfied judgment against the beneficiary.

b. Court held that creditors could not get at the trust property.

* Rationale

(a) Beneficiary didn't really own the property.

(b) It was intention of grantor to protect the income of trust and he had a right to dispose of prop. the way he wanted

c. Not a restriction on alienation because trustee had legal title and could sell the prop. and/or do what he wants w/ prop. (ie could put it into the stream of commerce).

* Additionally - Spendthrift trust doesn't deceive the creditors because they should investigate and determine whether the trust is a spendthrift.

d. NOTE - Creditors were only restricted from attaching a lien on property held by trustee -- Creditors can get an attachment when payments are made to beneficiary.

C. Restraint Not Honored

1. Mackason's Appeal -- Grantor was attempting to create a spendthrift trust in such a way that he could shield his wealth from creditors.

G --> Trustee (bank) --> G for Life --> Heirs

a. It was a spendthrift trust but the restraint wasn't honored

b. "The policy of the law will not permit property to be so limited as to remain in the grantor for life, free from the incidents of property, and not subject to his debts."

c. NOTE - Similar result when Husband tries to create a spendthrift trust for wife and wife does the same for husband. This is called a Reciprocal Trust and spendthrift provisions aren't recognized.

2. Sherrow v. Brookover [Ohio -- Doesn't recognize Spendthrift Trusts] Judgment creditor of beneficiary wanted to go after money held by trustee. Ohio court allowed this even though it was a spendthrift trust.

a. Court distinguished cases were the trustee has some discretion to dispose of prop. as compared to this case where there was a "Continuing and Enforceable Right" of beneficiary to obtain some direct tangible benefit.

b. Court stated that they were NOT deciding whether beneficiary could or could not get at trust property BUT that creditors COULD get at property.

c. Reasons to not recognize spendthrifts

(1) Creditors have a right to collect judgment not only from prop. that debtor had at time they extended credit to beneficiary but also from any property which bene. may have even if acquired later.

(2) There are many limitations on grantors' dispositions of property

* ie owner of prop. may not create for himself a spendthrift trust that will be valid against his creditors.

3. NOTE -- Can't avoid claims of creditors that provide services that support the trust (ie creditors that are providing for support or education, etc.)

D. Variations on Validity of Spendthrift Trusts (183-88)

1. Voluntary v. Involuntary Alienation

* Usually both a restraint on voluntary alienation by beneficiary and involuntary alienation by a creditor must be included in a spendthrift trust. If only one is mentioned the courts often will assume the other.

2. Income v. Corpus

* Some contend that restraints regarding alienation of corpus should not be as great as restraints on alienation of income. However, recently the courts haven't made any distinction.

3. Dollar limitations on maximum restraint

* Some states have dollar limits for spendthrift trusts.

4. Relationship between settlor and beneficiaries

* Some statutes only allow spendthrift trusts when the settlor is providing for support of designated family members.

5. Needs of Beneficiary

* Some statutes state that if the income is in excess of amount necessary for purpose of trust than creditors can attach a claim.

6. Identity of Claimant

* Some claimants/creditors are exempt from spendthrift restraints. Now statutes and courts (in the absence of statute) increasingly allow claims against the beneficiary's interest for spouse and child support. Also, claims for torts are usually permitted since claimants had no chance to choose the debtor and claims for taxes are always permitted.

E. Support Trust

1. Keelers Estate - Grandmother set up trust to pay to granddaughter for her support and education. No spendthrift restriction in trust.

a. Granddaughter assigned her interest in trust

b. After 30 yrs granddaughter sues trustee claiming that it was a spendthrift trust and that payments to assignees over last 30 yrs should not have been made.

c. Court held that it was a Support Trust not a Spendthrift because of the language used.

d. Characteristics of Support Trust

(1) Trustee may honor order to pay BUT WOULD NOT HAVE TO.

(2) Assignee is agent of beneficiary for receiving payments

(3) If Beneficiary revoked the "agency" then trustee would be in breach if he made payments.

2. Lineback v. Stout - Trustee was given complete discretion to w/h payments. Beneficiary was confined to rest home. State welfare payments were discontinued because trust income would greatly defer health costs.

a. Discretionary Trust v. Mandatory Trust -- Which turns on language used.

* Frequent use of the word "discretion" indicates that trust should be discretionary

* Trustee doesn't have absolute discretion because a suit could be brought for an abuse of discretion

b. Trust where trustee has Discretion to Provide Support or not is similar to Spendthrift because it makes interest of beneficiary protected from creditors.

* If only support trust, a state institution could reach trust to provide necessary care. But, when words of support are used with words of discretion then a "hybrid" trust is formed which will probably act as a spendthrift depending on whether settlor intended to establish a trust for support even if the beneficiary is in a public institute or whether grantor intended merely to supplement state benefits.XI. CHARITABLE TRUSTS

A. Generally

1. Way to find a normally invalid trust valid

2. Advantageous because

a. Don't need specific beneficiary

b. Rule Against Perpetuities doesn't apply

3. Requirements

a. Must have charitable purpose [see 201-02]

b. Must have benefit to public at large or specifically large group of public.

4. Enforcement

a. Normally Attorney General

b. Other more practical possibilities

(1) Co-Trustee

(2) Other charitable organizations

(3) Sometimes Fed. Leg. permits Fed. Agencies to enforce trusts.

B. Public Benefit Requirement

1. Huebner's Estate - Money was to be held in trust to educate "some girl or boy" in music or arts.

a. Indefinite Beneficiary - Therefore nobody to enforce the trust.

Analysis

(1) Is there a power of appointment (ie don't need specific beneficiary)

(a) Problem in that language of instrument indicates its a trust

(b) No clause providing takers in default

(2) If not power of appointment must determine if it is a charitable trust.

Requirements

* Charitable purpose must benefit the public.

b. In present case court determined that trust didn't benefit the public at large

(1) Could argue that trust was perpetual and that many students could be benefitted. (problem was the amount wasn't large enough).

(2) Could argue that "some girl or boy" is the conduit to benefit a greater portion of public through their art work. (might work for doctor in small community - but not in this case)

* Indefiniteness doesn't mean that number of beneficiaries must be large but that benefit flows to large section of public.

2. Byrne's Estate - Trust entailed the erection of a suitable tomb.

a. Court held erection of tomb or monument wasn't charitable but was for engrandizing person or individual's family

* Maybe an exception if the person was a national or regional hero

b. Care of a person's plot in cemetery is a charitable benefit.

c. Statutes usually grant executor power to use funds of estate to provide a burial (but probably not a tomb/monument).

C. Sufficient Indefiniteness

1. Henderson's Estate - Old folks home received a testamentary gift. Members of home were limited to members of a specific order and to be a member one had to assign everything to home.

a. Court held that there was sufficient indefiniteness even though one could lo 0( olls of order to determine possible members of home.

* Court determined that the membership in the order is constantly changing.

b. Court also determined that although members assigned assets to home the home's services were charitable

(1) Home was still nonprofit

(2) Don't have to be benefitting the poor to be a charitable trust

(3) Caring for old people benefits society as a whole and has a charitable purpose.

2. Hardage v. Hardage - Single man set up trust to defray medical costs of blood relative and/or to pay money for education of blood relative.

a. Ineffective because no named beneficiary [? couldn't one argue that this is different from "friends" case and that beneficiary is specific enough]

b. No Power of Attorney

c. Not Charitable Trust

(1) Purpose was good

(2) But NO public benefit

* More for family than the public

d. Method is to give family members "preference"

* Giving family members preference with respect to charitable trust is a way to maintain the intent of grantor.

D. Mortmain Statute

1. Invalidates charitable device or real property in a will that was made 30 days before the trustee's death.

* Rationale

(1) State wanted to protect family from the deceased being scared into giving property to charity during last days of life. [ie person might be trying to buy his way into heaven]

(2) Additionally there was concern that former beneficiaries of will would now have to go on welfare.

2. Cavill's Estate - Court concluded that Mortmain Statute violated equal protection.

a. There was not a relationship between the problem to be cured and the legislative solution.

b. Statute could be overinclusive (ie good health person gets hit by car) and/or underinclusive (sick person lives 31 days).

E. Political Purposes

* Register of Wills v. Cook - Donation was made to a branch of National Women's Party. It was made for educating people about women's rights and for the passage of the Equal Rights law.

a. Court held that changing the law through peaceful means was a charitable purpose.

b. Issue was whether there was an underlying charitable purpose NOT whether purpose is to influence legislature.

c. Present case - Purpose was to help relieve discrimination. The fact that they hoped to change legislation didn't disqualify the bequest from being charitable.

F. Deciding if Purpose is Charitable or Not

1. Beatty v. London Spiritualists - Grantor bequeathed money to organization for training of mediums.

a. Court held that donor doesn't get to decide what is good for society.

b. Judge should not impose, however, his personal feelings.

2. Thornton v. Howe - Grantor gave money for the publishing of "sacred" writings.

a. Court held that writings could be considered charitable

b. If writings had been subversive to all religions and morality than transfer wouldn't be charitable (ie destruction of religion isn't valuable to society).

3. Religion v. Non Religion

a. Christian Science Church practices health care w/o medical approaches. BUT trust to organization was held valid as a benefit to society.

b. Homeopathic Care - Trust to promote this non medical healing was held non charitable.

G. Use of Charitable Funds

* St. Josephs Hospital v. Bennett - Donor said money should be used for the "ordinary use" of maintaining hospital. Hospital wanted to use money to pay off mgt.

a. Court determined that charitable corporation had to use funds for the purpose stated

b. Cy-Pres - Allows that money be used for different purposes if it becomes impossible/impractical to carry out the original purpose.XII. RESULTING TRUSTS

* Resulting Trust is based on presumed intention of GRANTOR.

A. Classifications of Resulting Trust

1. Trust Res is Excessive

a. Ex.-> A transfers money (principal and income) in trust for maintenance of B and B dies before money is used up. Resulting trust is created and excess is given back to A.

b. Ex.-> A to B for time period and period expires. Prop. is given back to A.

2. Failure to Create Express Trust

a. Ex.-> A to T for friends of A.

b. Ex.-> A to T to teachers employed at particular school. If school was later closed, result would be a resulting trust in grantor.

3. Purchase Money Resulting Trust

* One pays money for property but directs the seller to convey property to another person.

B. Examples/Aspects of Purchase Money Resulting Trusts

1. Mims v. Mims - H bought property but put in name of both H and W. H says prop. should be all his.

a. A -$-> Grantor -Deed-> B

(1) Normally resulting trust would exist

(2) Exception if A and B are spouses

b. Previously some states had mixed presumptions

(1) If A=Hus. then there was a presumption of transaction being a gift.

(2) If A=Wife there was a presumption that a resulting trust in favor of W would exist.

c. Different rules for H and W shouldn't exist

d. If either spouse is "A" the presumption is it was a gift to other spouse and not a resulting trust

(1) Presumption of gift is rebuttable

(2) Burden of proof to show it wasn't a gift is on the party that paid consideration.

2. Fox v. Shanley - H and W bought prop. for $5,500 ($3,000 cash and $2,500 note). H paid both cash and payments on the note. W signed note and prop. was in her name. W died and H claims an interest in the prop.

a. Resulting trust is based on PRESUMED INTENTION that a trust was to be created.

b. W's heirs/devicees argued that H didn't ever think he would have an interest

(1) Argued that the portion was NOT aliquot (ie interest was 39/55 rather than a regular fraction 1/2, 1/3, etc.)

(2) If there was really an intention to have an interest the amount would have been aliquot.

(3) This court didn't follow this thinking

c. W's heirs/devicees also argued that payments on note shouldn't be applied because interest must be established at time prop. was transferred.

(1) H. argued that H and W had a deal worked out at the time of transfer.

(2) Payments made on note, subsequent to transfer, are permissible if one can prove there was an agreement to pay even though the note is in name of other.

(a) Only need a presumed intention

(b) Don't need actual proof of agreement because this would be an express trust.

3. Armstrong v. Blalack - H and W purchased property. Prop. deeded to W as separate estate. W died and H sued based on resulting trust for 2/11 interest (ie amount of price he paid).

a. H won at trial level because he didn't intend a gift

b. PROBLEM is H had intended his amount to be a loan.

(1) If loan H could recover amount loaned.

(2) If resulting trust H could get 2/11 of properties value (more than amount loaned if prop. has increased)

c. Hypothetical (NON Spouses)

(1) A -$-> B -pays-> C (grantor) -deeds-> B

* No Resulting Trust ["A" is unsecured creditor of "B"]

(2) A -$-> C (grantor) -deed-> B

* Purchase money resulting trust

(3) A -$-> C -Deed-> A [fee simple absolute]

A lets B have prop. and make payments.

* "A" has a secured loan

4. Larisey v. Larisey - Grantor purchased prop. and instructed grantee to give prop. to nephew. Grantor maintained life interest. Spouse of Grantor didn't want to give up prop.

a. Intent was only for Grantor to get a life estate.

b. There was no evidence in writing of intent therefore resulting trust (ie trust giving prop to grantor) could exist and spouse of grantor would get prop.

c. Court allowed intention (although oral) to be considered

(1) Stat. of Frauds didn't prevent transfer of interest in land because it was resulting trust

* Stat. of Frauds doesn't apply to interests that arise by operation of law.

(2) Problem is that there was an intention.

(a) Some courts hold that can't have resulting trust if intention existed

(b) Resulting trust in this case is probably not best cure because intention did exist.XIII.CONSTRUCTIVE TRUSTS

A. Overview

1. Doesn't rely on intention of Grantor to create trust

* Only intent at issue is intent of Grantee.

2. Court fashions remedy to prevent unjust enrichment.

3. Broad Types

a. Wills/Testamentary - "Rubs" against Wills Stat.

b. Deeds - "Rubs" against Stat. of Frauds

4. Specific Categories

a. Fraudulent Act - Promise made by grantee but she really didn't intend to complete the promise.

* Failure of promisor to act, by itself, isn't enough -- Must show some intent.

* May be able to have a "presumed intent" See Lipp

b. Confidential Relationship - Don't need intent in these cases. Relationship is sufficient.

c. Secure a Debt

WILLS CASES

B. Church v. Ruland [Wills Case]

1. It was a Testamentary, Outright transfer (no indication of any limitation)

2. Transfer was based on reliance that prop. would later be transferred to someone else.

3. Benes were KNOWN

4. Prop. was not later transferred to the known benes but person who received prop. based on promise to later convey tried to devise the prop to someone else.

5. Court "ejected" the devisee (who would now be holding prop. as the trustee) imposing a constructive trust for known bene.

C. In Re Boyes [Wills Case]

1. Outright gift based on promise that prop would later be given to another

* Intended Beneficiary was UNKNOWN

2. There were two later letters that indicated who should receive prop

* Problem - Letters weren't executed with testamentary formalities.

(1) Look to see if holographic

(2) Maybe argue incorporation by reference

3. Court held that RESULTING Trust existed for benefit of Next of Kin.

a. Rationale - Wanted to avoid unjust enrichment AND

b. Couldn't be CONSTRUCTIVE Trust because there was no intention of devisee at time of transfer to not convey prop to the beneficiaries (ie He DID NOT know who benes were).

* Stat. of wills prevents this [constructive trust?] when benes are unknown ???

* Benes were ineligible because they weren't identified at time.

=> Cf. "Friends" ineligible because unidentifiable class. Get same result. (ie Resulting trust with Grantor/Testator becoming the bene.)

D. Oliffe v. Wells [Wills Case]

1. Not an outright gift -- It was a conditioned gift.

* Gets gift on condition that he'll do what he had been told by testator to do.

2. He knew conditions -- He knew the charities to who Testator wanted prop. to go.

* Problem - Will didn't state charitable purposes and therefore it couldn't be a charitable trust.

3. Court held that it was a RESULTING trust and prop. should go the next of kin of Testator.

4. COMPARE . . .

Oliffe [Gift in Trust => Resulting Trust] Church [Outright Gift => Constructive Trust for Known Beneficiaries]

a. REASON

(1) Semi Secret Trust -> Don't need any evidence to prevent unjust enrichment because it is clear that devisee wasn't suppose to get prop. (ie was an imperfect testamentary transfer -- Resulting trust because there was a failure to complete an express trust)

* Oliffe was Semi Secret

(2) Secret Trust -> Permits evidence sufficient to avoid unjust enrichment.

* Church was Secret (ie No indication in writing that there was a trust)

b. In England - Semi Secret Trust is held to be a Constructive Trust.

DEEDS CASES

E. Horsley v. Hrenchir [Deed] - Mother received Daughter's share on promise mother would give prop back to both daughters. But, instead mother transferred prop. to other daughter.

1. Court held that there was no remedy for disappointed daughter.

2. Constructive Trusts in Deed Cases

a. Fraud at time of transaction [Fraud must be relied on]

b. Confidential Relationship

c. Transfer Made to Secure a Debt

3. Court found none of the exceptions (Why not #2 ??)

4. ISSUE is state of mind of person at time they make the promise. If didn't intend fraud at time of promise then no Constructive Trust.

* Solely failing to fulfill promise isn't enough.

F. Lipp v. Lipp [Deed] Mother transferred prop. based on son's promise that he would hold prop. for her. Court held that son held in constructive trust for mother.

1. Son breaking promise by ITSELF isn't enough -- But under the circumstances his breaking the promise and evicting mother was so egregious that the court presumed the necessary INTENT at the time of transfer.

G. Sinclair v. Purdy [Deed] Bro. conveyed land to sister based on idea that she would convey it back. There was no promise by the sister. Later when bro. died an heir claimed that sister held prop. as a constructive trustee.

* Court imposed a constructive trust (even though no oral promise) based on CONFIDENTIAL RELATIONSHIP.

H. Orella v. Johnson [Deed] Pl. conveyed property to stepdaughter. There was an oral promise to reconvey prop.

1. Court held that there was no fraud because at the time promise was made there was no intent to not keep the promise.

2. Court found no confidential relationship ???

3. No constructive trust -- However, Court imposed specific performance of promise.

* Even though this was an oral promise dealing with real property.

* CA Court called this remedy SPECIFIC RESTITUTION [ie Same effect as Constructive Trust].

* Remedy isn't normally used. Usually, if court can't find grounds for constructive trust there is no remedy if dealing with real property.

XIV. ILLEGAL TRUSTS

A. General Rule -- If purpose of trust is illegal itself or it induces people to commit crime than it is illegal.

* Rationale - Violates Public Policy

B. Robbin's Estate -- G. put prop. in funds to be used for children of people who committed political crimes.

1. Could argue that trust is invalid because it induced people to commit crimes.

2. Supreme Court of CA held that LIKELIHOOD of encouraging people to commit crime is very attenuated.

C. MacRae v. MacRae -- H thought he was going to be liable for partner's debt. Conveyed prop. to W. in FSA -- Based on promise that she would reconvey.

1. Prop. was then transferred to a third party. They now don't know to who they should transfer the prop. to.

2. Analysis

a. Maybe first transfer was constructive trust.

* Have confidential relationship (ie therefore don't need to consider W's intention at the time of her promise).

b. Problem is that in this case the transfer was motivated by the desire to deceive the creditors.

* H argued that no creditors were harmed therefore the motive to evade creditors is irrelevant.

c. Court held that H's intent to deceive creditors was relevant. (ie H doesn't have "clean hands")

* Rationale - It discourages transfers for illegal purposes regardless of whether creditors have been harmed.

d. Court held that W didn't have "clean hands" either so there was no constructive trust imposed on third party.

* Result - Third party gets to keep prop. if they want.

3. Hypo. - What if third party knew transfer to them was to avoid creditors?

* Probably still get to keep prop. because they had the "cleanest hands" of the group.

D. Montgomery v. Michaels

1. No evidence that W. created Totten trust to defeat H's stat. share.

* If W had intentionally done this it would be invalid.

2. BUT in this jurisdiction even w/o intent spouse's stat. share was preserved because W. in forming a Totten trust account hadn't really given up anything.

* W. could have given prop. away during her lifetime and thus H. would not have had a stat. share.

3. Hypos.

a. Irrevocable trust created during lifetime and W is life bene = Gave up interest and S can't get statutory share ??

b. Revocable Trust [Bank=Trustee and W=Life Bene] = Probably gave up enough interest.

c. Revocable Trust and W. is Trustee w/ control of prop. [Similar to Totten Trust] = Spouse didn't give up enough interest and H could claim stat. share.

4. Tests [To determine if a Totten Trust is sufficiently testamentary in nature that by analogy the surviving spouse can renounce and share in the proceeds]

a. Intent - Only allow Spouse to claim testamentary share when it was INTENT of other spouse to prevent this right.

* Factors

(a) Secretive nature

(b) Comments to others

(c) Proximity in time between transfer and death

(d) Size of estate and amount otherwise left to surviving spouse.

(e) All factors that indicate intent to defraud surviving spouse of share.

b. Real/Illusory Test - Better test. Tries to determine if spouse really gave up anything or not.

* U.P.C. [agrees w/ case] - Bank accounts where grantor is owner for life are not protected from creditors.

E. Certain Scholarship Funds -- Trustee was public entity and trust had discriminatory language.

1. Wanted discriminatory provisions eliminated (ie "protestant boy").

2. Administration of trusts with discrimintory provisions are in violation of 14th Adm.

3. Two ways to get at discriminatory language

a. Could remove language -- Could do this based on Doctrine of Cy Pres (Modifies stated purpose)

b. Could change trustee making it a private trustee. Thus eliminating "state action".

4. Court used Cy Pres to fix problem.

* Determined that grantor wouldn't have minded the different provisions if he knew they were going to be held illegal.

5. Court didn't use second method due to policy reasons.

* Determined that appointing a private trustee through the courts was in itself "state action".XV. TRUSTEES DUTIES

* List of Duties

1. Tee needs to post bond

2. UPC requires Tee to register the trust in court

3. Tee needs to locate and transfer prop. to herself.

a. Real Prop - Deed

b. Personal Prop - Name changed to Tee

4. Tee must get an accounting from proper fiduciaries

* Ex. Executor to Trustee

5. Tee needs to give regular accountings to Benes

6. Tee has responsibility to keep prop safe

a. Insure prop.

b. Earmark prop. (ie make clear its trust prop. and not personal prop. of trustee).

* If prop. isn't earmarked any loss is personal responsibility of Tee.

7. Tee may no commingle

8. Tee has obligation to defend trust (ie illegality, etc.)

* Doesn't have to defend a meritless case.

XVI. STANDARD OF CARE AND INVESTMENTS

A. Generally

1. There is a conflict of interest between INCOME BENES and REMAINDER BENES

* This puts Tee in a difficult situation

2. Tee can't make "risky" investments

a. Rule = Prudent Invest Standard

* "Person using ordinary prudence would act in similar way in dealing with own property".

b. Higher Standard = "Person using ordinary prudence would act in similar way in dealing with other person's prop."

3. Historically - Maintaining principle was first priority.

B. Killey - Trustee was a bank (ie professional Tee)

1. When Tee has higher skill than ordinary person then the person must act with higher skill

2. Court in this case held that - When Tee represents itself as having higher skill then they must perform at that level.

C. Morgan Guaranty Trust

1. Common Trust Fund - Bank is trustee of many trusts.

a. In this type of trust the funds can be commingled

b. Trust benes own a fraction of a huge fund.

* Benefit is that investments can be more diversified

2. Rather than having many benes complaining guardian ad litems are appointed

a. For Principal and

b. For Income Benes.

3. In present case both prin. and inc. guardians were complaining about investments.

a. W/I portfolio gains were 15x greater than losses

b. However need to look to see if ...

(1) Procedures were adequate and

(2) Minority of investments that were bad.

4. TEST = Conduct not Results

a. Was conduct "prudent"

b. Rationale

(1) Declining mkt. Tee would always be liable if just going by results. OR

(2) Inflationary mkt. always gains even if not good investments.

5. Must look at wisdom of each individual investment

BUT MUST CONSIDER

a. Diversification

b. Tax Planning

6. In present case court held that securities complained of had already been approved in prior accounting.

* Once approved even if in earlier accounting the benes can't later complain.

D. Mutual Funds

1. Investor of funds isn't Tee he's a fund manager

2. Some courts don't allow Tee to invest in mutual fund because . . .

a. Tee is taking fee for managing the fund and so is the manager of the mutual fund. AND/OR

b. Tee seems to have surrendered control of prop. because manager is making the individual decisions.

3. Majority of states now have stats that allow Tees to invest in mutual funds.

E. State Street Trust

1. Tees loaned money for someone to buy a house and they took mtg.

a. Prudent investment at the time because house was worth more than mtg.

b. Later house fell into a declining mkt.

2. Mtg. became due but the Tees didn't try to collect.

3. Later new Tee (State Street) is appointed.

a. They have prop. appraised and determine that the existing mtg is now too high.

b. State Street tries to collect but foreclosure sale doesn't get much.

4. Benes sue Tees and question is who is liable for what.

a. Court holds

(1) 1st Tees' decision was prudent

(2) But when mtg. came due and security for mtg. was in declining area -> Tees became liable.

(3) State Street became liable for losses even before they became Tee.

* Rationale - If they had acted they could have reduced the loss.

F. Collins - Tees were lawyer and bus. partner of decedent. Trust Document gave them absolute discretion.

1. Benes complained about investment of Tees.

2. Lawyer/Tee had used trust proceeds to give a loan secured by a 2nd mtg. and 20% stock interest of his clients business to his lawyer's client.

3. Court held that even though Tees had absolute discretion Ts must still use prudence in making investments (ie have fiduciary duty).

* Breach of Duty Because . . .

(1) No Diversification

(2) 2nd mtg (usually these are always too risky)

(3) Didn't have land appraised

(4) Didn't take out back up security.

G. Absolute Discretion v. Exculpatory Clauses [ie clause purporting to exonerate Tee from personal liability for certain conduct]

1. Both are ineffective if Tee acted as fiduciary to grantor at time of creation of the trust and abused that relationship.

2. Exculpatory Clause relieving the Tee except for willful default has usually been held to prevent surcharging for errors of judgment.

H. Mayo - Tees were required to invest in certain investments and couldn't invest in Real Est. or Corp. Stocks.

1. Benes wanted Tees to be allowed to invest in corp. stocks because inflation was eroding real value of trust.

2. Court ignored grantor's express prohibition and decided to allow Tee to make investments in Corp. stock.

a. Necessary to protect Testator's interest ...

(1) Maintain Res of the Trust

(2) Provide for family

b. Foreseeability is an issue

(1) Did G. foresee the possible future events

(2) Unforeseeable occurrence is big factor in allowing Tee to deviate from expressed provisions of trust.

I. Non Economic Considerations

* Sometimes investments are made for social benefit. This may conflict with Tee's obligation to invest for the purpose of the bene's best interest.XVII.TRUSTEE POWERS AND DISTRIBUTIONS

A. Wellman's Will -- Tee sold the stock when widow died and the benes complained that the sale was improper because it incurred Capital Gain Taxes.

1. Trust Doct. was silent with regard to Tee's power to sell stock.

STEPS

a. If silent then Tee has no power to sell stocks w/o stat. authorization.

b. Tee does need to be given the power to carry out the purpose of the trust.

(1) Trust prop. was stocks and bonds -- Impractical to not give Tee power to sell.

(2) Tee also had right to use income and principal to support the widow/bene

* Means Tee could sell prop for bene's support.

2. Court determined there was an inference that Tee had the power to sell the prop.

3. Court then determined whether the sale was appropriate.

a. Neither (1) or (2) above were reasons to justify sell in present circumstances.

b. Tee said reason for sale was to have prop. ready for distribution.

4. Issue - Should prop. be distributed in cash or kind?

FACTORS

a. Number of distributees

b. What distributees want (ie Cash or Kind)

c. Real prop. or Divisible prop.

5. Court determined they couldn't make a decision w/o more facts and REMANDED.

B. Watling -- Grantor left est. in trust for D. for her life. Trust Doct. gave Tee discretion to at anytime transfer prop. to D. [this wasn't based on a condition or event]. D was in mental hospital at time trust was formed.

1. Tee gave up position and now bank is Tee

2. D. got out of mental hospital and wants all trust prop.

3. Arguments for why D. should not get prop.

a. Bank argues that the discretionary power enumerated in the trust was PERSONAL and it didn't pass to them (ie G. trusted son but didn't trust bank).

* LAW - Discretionary powers do pass to successive Tees

b. Remaindermen argue that D shouldn't get everything NOW because distributions to her should only be made to make her comfortable.

* Problem - They don't cite any language in the trust for this idea. Court holds that such an intent of G. was not indicated in the Doct.

c. Last argument is that power is discretionary in Tee and Court shouldn't interfere.

* Only Rule is that Tees must act in GOOD FAITH in exercising their discretionary distribution powers.

4. Court held that Tee did have discretion and that they didn't have to distribute as long as their withholding distribution wasn't done in bad faith.

* An example of Bad Faith would be if there was collusion between the bank and on of the remaindermen.

C. Allard v. Pacific Nat. Bank - Tee[bank] had full power over prop. Tee sold the prop. which was within their power.

1. Benes complain that they didn't get notice of the sale.

a. Often a Tee doesn't have to give notice of a sale BUT in this situation the real prop. sold was the only prop. of the trust.

(1) This was a non-routine transaction

(2) Notice must be given for such transactions.

b. Benes had stated they didn't want prop. sold.

2. Additionally Tee did not get an appraisal or test the mkt.

* Tee argued that this wouldn't have been helpful because a credit union had a Right of First Refusal.

PROBLEM - Right of First Refusal doesn't mean that the prop. had to be sold to c.u. but rather they had a right to out bid others.

3. Court held that Tee was responsible for damages because he breached his fiduciary duty.

D. Est. of Strauss -- Tee wanted to get out of first sale. The sale still had to be approved by the court. Although first sale would have been above the appraisal, there was second offer even higher.

1. Trial court rejected first sale and allowed an auction.

2. Auction sale was overturned by higher court

a. Determined that for Public Policy reasons first sale shouldn't have been displaced

REASONS

(1) Stability of Ks

(2) Such sales would discourage purchasers and therefore drive prices down

* Therefore in the long run it is better for benes.

b. Can have contingency that court must approve the sale but the court should only overturn the sale if there is evidence of

(1) Mistake or

(2) Fraud or

(3) Inadvertence

E. Russell v. Russell - Subject of trust was real prop. and Tee had power to manage prop. Clear that Tee can lease the prop. but can Tee lease prop. for period greater then duration of trust?

1. Often a lease needs to run longer than the trust duration to be profitable.

* Problem - Benes would rather take prop at end of trust w/o any encumbrances. (ie don't want to take prop subject to the leases).

2. Trust Doct. was silent as to whether Tee could enter such leases -- So court looked to see if there was implied permission.

FACTORS

a. Accomplishment of purposes of trust

b. Preservation of trust prop.

3. Additional problem with extending the lease beyond trust period

* Life v. Remainder Benes

=> The life benes would get the earlier more valuable payments of the extended lease [ie problem of time value of money]. Maybe courts should make life benes account for this.

F. Young v. Young - Trust prop. was a hotel. Hotel burned down and insurance wasn't enough to rebuild. Tee couldn't sell or Mtg. due to the terms of the trust.

* To ignore trust language need . . .

a. Unforseen event (ie unforseen to grantor when she included restrictive wording)

b. There is a need to ignore the restriction to preserve the purpose of the trust and to preserve the trust property.

G. Bennett v. Nashville Trust -- Trust required that income of trust be retained until bene reached age 25.

1. Court allowed modification of terms of trust and allowed bene to take income before she was 25.

ANALYSIS

a. Unforseen Exigency (to the Grantor) and

b. Better to alter trust to achieve what the G would have wanted.

2. Court allowed the "invasion" because it was an invasion of income and not principal.

* Remainder and Life Beneficiaries were the same.

* In cases where G. w/h the income to a later date -- it would be harder to show that "purpose of G" would be advanced by early payments of principal.

H. VanDeusan's Est. - Life benes were sisters and Remainder benes were children of sisters.

1. Sisters didn't think enough income was flowing from trust -- Claimed that G thought and wanted income to be more.

2. Court didn't allow change because . . .

a. G could have changed trust but she hadn't

b. REMAINDER BENES EXISTED and that they would be getting less.

3. Hypo. -- Remainder benes give permission for life benes to access principal.

* This is PERMISSIBLE but there could be possible problems.

* Benes that are minors or not yet born.

* This problem can usually be overcome by appointing Guardian Ad Litem (Jurisdictions are split as to whether GADs can be appointed for unborn children/minors or both).

I. THERE IS AN ABSOLUTE OBLIGATION PLACED ON TRUSTEE TO PAY THE CORRECT BENEFICIARYXVIII.DELEGATION TO AGENTS AND COTRUSTEES

A. Coxe v. Kriebel -- Trust prop. was a mtg. Coxe and Caveney were cotrustees. Caveney was an attorney and held all the mtg. papers and was authorized to receive the mtg. payments.

1. Kriebel refinanced and paid off mtg.

a. Paid money to Caveney and got a release of the mtg.

b. There was a forged power of attorney to get the release from Coxe.

* Coxe really doesn't know about the release and Caveney continues to make monthly payments to the benes until he dies.

2. Issues

a. 1st - Cotrustees need to act in unison and they didn't in this case.

* Caveney had authority to receive installment payments but receipt of lump sum had to be to BOTH trustees. (ie Caveney didn't have authority)

* Bank (who refinanced Kriebel) should have protected themselves by issuing the release check in the name of both cotrustees.

b. 2nd - Did Coxe have a duty to prevent the fraud perpetrated by other trustee?

* Standard is whether cotrustee acted reasonably. In this case there was nothing to "tip" Coxe of misdoing.

B. Meck v. Behrens -- Executors, Named trustees, and all but one beneficiary agreed to hire a trust company to manage trust.

1. One bene sued the Tees

2. Issue - Had Tees breached their duties and what was proper amount of damages?

a. Court held that Tees had breached their duties by unlawfully delegating discretionary power.

b. Result was the Tees became GUARANTORS for ANY LOSS.

* Fact that Tee becomes a Guarantor usually isn't that relevant because usually the loss can be traced to the improper delegation (ie the improper delegation is the cause of the loss).

3. Note - If a Tee PROPERLY delegates the performance of an act to an agent, the beneficiary rather than the Tee will bear the loss if the agent embezzles the prop. or damages it through negligence or other wrongful act.

C. Herr v. U.S. Casualty Co. - A cotrustee (Kurtz) had fraudulently embezzled money.

1. 1st Issue - Had the other cotrustees improperly delegated duties (ie Collecting and Depositing Money) to Kurtz which eventually lead to his embezzling?

* These were MINISTERIAL DUTIES so there was no improper delegation.

2. 2nd Issue - Was there proper supervision by other cotrustees over the duties delegated to Kurtz?

* Court held that cotrustees acted reasonably even though the period of embezzlement spanned two years.

* Maybe court was too lenient -- Cotrustees should have been responsible for at least an annual audit.

D. In re Will of Axe - Testamentary trust which placed prop with experienced Tees. These Tees died and other Tees weren't experienced investors.

1. Inexperienced Tees got and paid for advice.

2. Payment for advice was taken out of the Trust fund

a. Could argue that Tees should have to use their own money if they feel the need to get advice.

* COTRUSTEES CAN DELEGATE MINISTERIAL DUTIES BUT THEY CAN'T DELEGATE DUTIES DEALING WITH DISCRETION.XIX. DUTY OF LOYALTY - SELF DEALING

A. Macgruder v. Drury

1. Tee was a member of investment firm.

2. Tee bought good securities from the investment firm

3. Action for self-dealing was sustained

a. Remedy for Self Dealing = No Further Inquiry

b. If self-dealing exists benes can require disgorement of profits made EVEN if no harm to benes can be shown.

4. Ways to avoid harshness of self dealing rule

a. Trust document could authorize self dealing

b. Could go to court and explain reason and get approval from court.

B. Rothko's Est

1. Three executors of est. and many valuable paintings.

2. Execs. sold paintings to musuem with which two had an interest.

3. Not self dealing --> Rather "Conflict of Interest"

* Parties weren't directly benefited because one was only a member of the board of musuem. But, they did have an interest.

4. Conflict of Interest

a. Must look to see if Benes were damaged (cf Self Dealing where there is no further inquiry only disgorging of profits)

b. Clear damages occurred in this case (ie paintings sold undervalue)

* Question - How to measure damages

(a) Didn't measure damages at date of sale but rather date of trial. (This increased time increased the damages significantly -- Court did this because there had been an injunction but tees/execs kept selling)

(b) Damages for uninterested exec. were measured from time of sale. (ie less than others but still liable because he knew about others interest but did nothing)

c. Analysis of Conflict of Interest

(1) Must find interest of both sides (BUT NOT PERSONAL INTEREST BECAUSE THEN IT WOULD BE SELF-DEALING)

(2) Then must find harm

(3) Measure damages either by date of sale or date of trial.

C. Darrow

1. Tee contracted w. agents who incurred liability for trust

2. There was K where agents could transfer sec. for themselves and/or for the trust

a. Problem - Sometimes they bought secs for themselves somtimes for trust. (sometimes they bought and then sold to trust for a profit)

b. The Tee never lost money BUT is Tee liable for profits earned by agents

(1) Tee was clearly liable for profits from transactions in which agents bought and then sold to tee/trust for profit (breach of agent's duty and tee should have known about the violation)

(2) Tee was also liable for agents selling to third party

* Rationale - Tee put agents in position to make profit and he then didn't supervise agents properly.

EXCEPTIONS TO DUTY OF LOYALTY

D. First Nat. Bank v. Basham

1. Bank dealt between its departments. Transferred securities from one dept. for money that the Bashum Trust needed to invest.

2. Iss: Was this self dealing?

a. Held not self dealing because there are special rules for bank

(1) Bank diclosed all investments and sole beneficiaries were parties.

(2) Bank received no benefit and even though they were on both sides of transaction all they were doing is facilitating the trust.

b. When Tee acts for two trusts -- Tee must show that transaction is fair on each side.

E. Norris v. Bishop

1. Tee who was also att. defended the trust in a law suit.

2. Iss: Should Tee/Att be able to retain a fee for defending trust?

(1) This court held yes (others go other way)

(2) Possible Problems

(a) Tee/Att might be biased in hiring himself rather than better att.

(b) Tee could claim ignorance and get professional legal services from himself.

3. This is another example in some jurisdictions to Self-Dealing.

F. Prueter v. Bork

1. Father wa

&+ (

asked son to transfer benef. interest in one trust to another.

2. Other trust was revocable and no life beneficial interest.

3. Court held that son should win for breach of Tee's duties

4. Tee's duty is very high -- Transaction between Tee and Bene

a. Presumption that transaction is fraudulent

b. Rebutable BUT must be clear and convincing that transaction was fair.

(1) Could show that bene. received independant counsel

(2) There was full disclosure

(3) Adequate consideration is given

XX. CONTRACT AND TORT LIABILITY

A. Contract

1. Common Law - Tee was personally liable for Ks between trust and 3rd party.

a. Trust wasn't an entitiy and Tee was not an agent of Trust

b. Smith v. Chambers

* Case held that Tee was liable for K between party and trust but that Tee could be reimbursed by trust assets.

2. Sometimes there is K language that excludes Tee from being personally liable.

a. James Stewart v. Bank

(1) There was no language in K that excluded Tee from liability

(2) BUT there was language referring to trust document which was a public record and provided NO personal liability for Tee.

(3) Held that 3rd party couldn't collect from Tee because they should have looked at document.

3. Statutes

a. Many states have stats permitting contract creditor to sue a trustee in fiduciary capacity and levy directly on trust prop.

b. Other stats are all over the board as far as Tee liability

(1) Some enhance Tee liability above common law

(2) Others eliminate comm. law -- thus Tee is not liable.

c. p. 444 U.P.C. provides that the trust/estate should be like a quasi-corporation for purposes of liability. The personal representative would be personally liable only if an agent for a corporation would be under the same circumstances.

4. Dirivitive Right Theory

* Where Tee is judgment proof 3rd party can go directly at the trust.

B. Tort Liability

1. Tee is personally liable and 3rd party can't go directly after trust.

2. Tee can then go after trust if . . .

a. Not personally at fault OR

b. If engaged in normal functions (ie trust is apartment complex and Tee was engaged in managing complex which gave rise to tort) OR

c. Increases value of trust

3. Tee is liable if . . .

a. For acts of agents (based on Respondent Superior)

b. When Tee is at fault--> Liable even when trust prop. isn't eneogh to reimburse

4. Dirivitive Right Theory also applies to Tort

5. Smith v. Rizzuto

a. Victim had to recover from Tee not Trust

b. Trust wasn't eneogh to reimburse Tee -- And Tee wasn't at fault.

c. Court held that Def. was limited to amount of Trust prop. to cover damages.

6. Jessup v. Smith

XXI. PRINCIPAL OR INCOME

A. Allocation of Receipts and Expenses between Principal and Income Beneficiaries

1. Trust can specify how receipts and expenses should be allocated

2. Generally specifics aren't included in Trust Doct.

B. Examples of Allocations

1. Saving Bonds (Payment of i should go to income benes.)

2. Bonds Purchased at a Premium (ie Current i = 8% and Bond = 10%)

a. Bond is worth more than face value

b. Money (ie i) should be paid to principal benes equal to premium paid (ie the amount paid above face value due to the higher i)

3. Net Rents = Income

4. Stocks

a. Cash Dividends=Income

b. Stock Split or Stock Dividend in Issuing Corp.

* Principal because value is still same (ie added shares don't add value)

c. Stock Dividend of Other Company = Income

C. Natural Resources

1. Wasting Assets (ie Using up all oil, gold, etc.)

* Iss. if nothing going to be left should some proceeds go to principal benes?

2. Kimbark - G. entered lease w/ oil and gas company. Will gave interest to W for life remainder to children. G died and oil found.

a. Children want royalties to be invested and i in investments to go to wife.

b. Wife wanted the proceeds that the G. would be receiving if he were alive.

c. "Open Mine Doctrine" - Doct. that provided if a source of natural resources was open, and G was receiving proceeds and then died, life benes step into his shoes and continue to receive proceeds

* Kimbark extended Doct. Although well wasn't "open" when G. died there was a lease already in place. Life bene got the proceeds.

3. New Legislation

* 27.5% to Income Bene and rest to Principal/Remainder Bene.XXII. RECORDS, ACCOUNTING AND FEES

A. Tee must maintain records and books and give info. to benes.

1. If info not there any disputes will be construed against Tee

2. Tee usually gets release from benes when he gives report

* However - There is high degree of fiduciary duty so release must be fair or it won't be effective.

B. Tee usually gets Fee

1. Amount

a. Set out in trust

b. Provided through legislation OR

c. Court can specify

2. Legislation (present in most states)

a. Tee gets % of income or corpus annually OR

b. Reasonable compensation (U.P.C.)

c. Stat just says fees will be provided by court.

XXIII. CY PRES

A. Howard Saving Institution - Trust to Amherst for Protestant, Gentile boy.

1. Amherst had provision that they wouldn't discriminate based on religion

2. Tee wanted Court to strike discriminatory language

3. Trust was Private so no problem w/ 14th adm. (ie state not involved in discrimination)

* But See p.41 Certain Scholarship Funds

4. Analysis of Cy Pres

a. Must be Charitable AND

b. Impossible, Impractical, or Illegal AND

c. G. has manifested intent to allocate funds to more general charitable purpose (ie rather than the specific purpose)

* Objective - Want to effectuate desires of G. now that it is known provisions of trust are Imp, Imprac, or Ill.

5. Administrative Deviation - Give to other Tee that will carry out the trust.

a. Applies to Charitable or Private trust (cf Cy Pres only charitable)

b. Preferred to Cy Pres because purpose stays same only the method changes

6. In this case amherst wouldn't cooperate in anyway (wouldn't give lists or anything) so court couldn't use Administrative Deviation.

* Court used Cy Pres

B. In Re Buck - S left A LOT of money to wealthy CA county.

1. Tee wanted court to alter through Cy Pres to allow $ to be used over larger geographical area.

2. Tee had restricted what they would consider charitable purposes (ie therefore restricting what the trust would be used for)

3. Court would not use Cy Pres when it was Tee's acts that were creating "Impossibility"

* Action of Tee can't be raised to invoke impossibility.

C. Duncan G ->T(income)->Aline(life)->Charles if living

-> C. dead then Church

1. Church merged w/ other church

2. Then Charles Died during lifetime of Aline

3. Sole heir of Charles sues for prop.

4. Result - Heir of Chuck gets $ even though didn't outlive Ailine.

5. Court DIDN'T allow Cy Pres to substitute first church for "other" church.

* Reason - Gift was outright to church it wasn't for charitable purpose.

Hypo. - If this had ben gift to church for a charitable purpose (ie Homeless shelter) and "other" church continued the shelter then Cy Pres would apply.XXIV. ALTERATION, REVOCATION OR TERMINATION BY THE PARTIES

A. Overview

1. Amendment v. Revocation

a. Revocation - Prop is returned to Grantor

* Unless prop is returned to Grantor there is no Revocation.

b. Amendment - Change in Bene

* Can use power to amend to add a Revocation Clause and then revoke.

2. Termination - With passage of time trust ends according to terms of trust.

B. Harshaw - Father created trust for purpose of getting his son to stop bad habits. F. recorded deeds but doesn't deliver prop. to Tee or Bene. Son dies.

1. Delivery - Doesn't require actual physical delivery

* If there were acts that were intended to create an interest -- Court found acts with intent in this case.

2. General Presumption - Trusts are irrevocable except where power to revoke has been retained.

3. Held - F. couldn't revoke

4. Hypos.

a. What if lawyer told F. it was revocable and then secretary didn't type paragraph w/ revocation clause?

* OK - Court would allow paragraph to be added

b. What if lawyer told F. this juris. allows revocation if nothing stated when it really doesn't?

* Mistake of Law - Court won't cure

C. Avery v. Bender

1. Power to amend retained but not to revoke

* Settlor changed bene from A to B

2. "A" claimed that change was in effect revoking trust.

3. Held - Power to amend means bene can be changed.

Hypo. - Power to revoke trust in trust and provision that Tee must acquiesce before being replaced. Consent of Tee not received. Power to revoke entails power to amend and then amendment to "acquiesce" provision can be accomplished.

D. Fowler v. Lampher - Two trusts created. Children and Fanney want to revoke the trusts.

#1 Homer -> T(bank) -> W. Fanney (monthly income) -> children(remainder)

#2 Fanney -> T(bank) -> Fanney (life income) -> Children and their heirs

1. Claflin Doct.

a. All benes consent

b. None of benes under disability

c. No Material Purpose of Grantor is unsatisfied w/ Revocation

* Spendthrift would be valid provision prohibiting termination

2. Homer Trust - Can't be terminated by consent of all benes.

* Purpose of trust was to give Fanney $400 a month. Revoking would defeat this purpose.

3. Fanney Trust - Can be terminated because Settlor joined w/ benes. Therefore trust was allowed to be revoked.

* Iss: Children's heirs didn't join (ie they're benes).

(1) Court resolved by applying Rule in Shelly's case (ie if one has life interest and then to heirs one really has full fee)

(2) Court would have been better off using Doct. of Worthier Title (ie Grantor may not limit a remainder to the grantor's own heirs. Thus, reversion in grantor is preferred to remainder in grantor's heirs)

E. Bixby

Bixby -> Tee -> Bixby(inc. for life) -> Heirs

* Settlor CAN terminate trust with Spendthrift clause. There was no interest in heirs because Bixby retained control.

F. Redwine 1/6 Income -> 2 Grandchildren

1/6 Income -> Somebody Else

Balance -> 4 Children

1. One of Children contests the will

2. All children come to agreement

3. Is it fair for family to change scheme created by Grantor?

a. Held - Yes. Court will change if whole family agrees and it protects all family's interest

b. Child had valid grounds to contest and if prevails then Grand Children would get nothing.

* Therefore, better to approve family settlement.

G. Bank of New York - Damages against Tee

1. Gains and Losses

a. Proper Investments Gains Bene Gets

b. Improper Invest. Losses Tee Takes Loss

c. Proper Invest. Losses Bene Gets

d. Improper Invest. Gains Bene Gets

2. Tee can't offset losses of improper investments from gains of either proper or improper investments

3. Rule even though gains overall Tee is obligated to make prudent investments

* These were VERTICAL investments because the corpus of trust was divided in invested in separate investments.

H. Baker - Trust required investment in Bond, Mtg. or other good securities.

1. Tee started with $4,200

2. Made series of improper investments but made gains (ie see G.1.d. above).

3. At time of last improper investment trust corpus equaled $14,000. This investment went bad.

a. Bene could argue that gains from improper investments were the benes and that the loss from the last improper investment should be suffered by Tee (see G.1.b. above)

b. Problem - This was a HORIZONTAL investment.

* Horizontal = The hole corpus of trust goes through a series of investments.

4. Remedies for improper Horizontal investment. Bene has choice . . .

a. End Result (ie $14,000 - losses) OR

b. Original Amount plus interest ($4,200 plus i)

I. Nasar's Est. - Trust provided that the corpus could be invaded for the benefit of life bene. There were also remainder benes.

1. Problems developed between Tee and Life Bene because Tee wouldn't invade the principal.

2. Tee Resigned BUT Life Bene contends that the new Tee is too closely connected with the old Tee.

3. When can Bene remove Tee

a. First - Court will give deference to intentions of grantor (ie grantor picked the Tee)

b. Must prove more then dissatisfaction, disharmony, etc.

c. Bene must prove that level of hostility is sufficient to hinder the accomplishment of grantor's intention.

4. In this case court held that Bene would have satisfied the requirement for removal for first Tee and since second Tee was "closely connected" Bene could remove him.

* Courts can assist in interpreting trust provisions -- like giving directions to Tee as to when invasion of trust principal is appropriate.

XXV. REMEDIES INVOLVING TRUST PROPERTY

A. Gibbs - Trust was an escrow account and money was improperly taken out of account by Tee. Money was contributed by different parties. They want there money back but there isn't enough in account.

1. Transactions

a. Gibbs $10k IN

b. Tee $3k OUT (improp)

c. Harris $7K IN

d. Tee $4k OUT (improp)

e. Hewett $10K IN

f. Tee $4k OUT (improp)

TOTAL $16K left $27K is owed

2. Iss: Who gets what - How should the $16k be divided?

* Parties could hold the Tee personally liable but has no money.

3. Methods

a. First in First Out [parties first to invest are first to lose money]

(1) Gibbs gets $0 ($10k loss)

(2) Harris gets $6k ($1k loss)

(3) Hewett $10k

b. ProRata - Share money and losses equally

(1) Gibbs - 10/27 * 16k = $5,926

(2) Harris 7/27 * 16k = 4,148

(3) Hewett 10/27 * 16k = 5,926

c. Losses shared according to amount party still has invested at time of loss

(1) First loss of $3k (see 1.b. above) - Gibbs takes all loss

(2) Second loss of $4k

(a) Gibbs 50% (ie $2k)

(b) Harris 50% ($2k)

(3) Third loss of $4k

(a) Gibbs 25% ($1k)

(b) Harris " "

(c) Hewett 50% ($2k)

d. Between parties in trust pool there is no preference - court can use different rules. This case court used #c method.

B. Bolton - Sale of Bus. Assets were transferred to Tee. Tee placed money in personal account.

1. Tee wrote checks on money in his personal account until there was only $25 left (ie even though there were trust funds COMMINGLED)

2. Later added money to this COMMINGLED account (ie $358 now in the account)

3. Tee died and there were creditors that wanted $358 in account.

4. Iss: Who gets money in account?

5. Court Held

a. Bene gets $25 free and clear and is considered a general creditor with respect to the remaining $333.

b. Rationale/Analysis

(1) Payments from commingled account are presumed to be personal (ie favors Bene)

(2) After personal funds are gone money spent from account must come from trust.

(3) Deposits

(a) If PERSONAL account deposits are NOT deemed to be replacing trust money (favors creditors)

(b) If TRUST account deposits deemed to first replace trust

XXVI. BARRING REMEDIES

A. White v. Sterman - Tee had cash that could be invested. Tee wanted to invest in stock. Not all benes came to approve Tee's plan. One bene there said use best judgment others didn't say anything.

1. Tee gave annual accounting BUT

a. Didn't tell Tees that stocks were losing money

2. Tee died and new Tee sues est. of first

a. First Tee's est. claims Acquiescence (ie Benes gave consent)

3. Court held NO because

a. Said use "best judgment" so still had traditional duties

b. Not everyone was there to approve