ESTATES & TRUSTS TRUSTS INTRO & CREATION

BELIAN

Michigan law comports with both the common law and the Uniform Trust Code with regard to everything discussed in this outline. A. Definition A trust is a relationship. A trust is created when a property owner transfers legal title to the property to someone who is charged with holding and managing that property for the benefit of someone else (who is then said to hold beneficial title or equitable title). Parties 1. Three parties required a. Settlor (Grantor, Trustor) The original property o ner !. Trustee The person to ho" legal title is transferred #. Benefi#iary The person for hose !enefit the Trustee holds and "anages the property. $. But you don%t ne#essarily need three different people. a. There "ust !e suffi#ient di&ersity a"ong the parties to i. Pre&ent "erger ( hi#h happens if !oth legal and equita!le title are entirely held !y the sa"e person) ii. '"pose enfor#ea!le duties on so"eone to a#t as fidu#iary !. (estated as Belian%s )a * So"e!ody has to !e a!le to sue so"e!ody. i. Settlor #an also !e Trustee and a !enefi#iary, B+T ii. There "ust also !e at least one other !enefi#iary ho #an sue the Settlor ,( iii. There "ust also !e at least one other Trustee ho" Settlor-!enefi#iary #an sue. .reation 1. 'ntent a. /ust !e an intent to create a trust and not anything less or different. The ords - titles - #aptions - headers don%t "atter, nor does the language #hosen !y the drafter (although, of #ourse, su#h things #an !e indi#ati&e of intent). !. Distinguished fro" gift, agen#y, !ail"ent, de!t, equita!le #harge. #. Duties "ust !e i"posed on trustee. d. Best e0a"ple of this tension 1 Nye v. Hebrew University Did /rs. 2ahuda "a3e a gratuitous (and therefore unenfor#ea!le) pro"ise to "a3e a gift and then fail to #o"plete deli&ery4 ,r did she de#lare a trust of hi#h she as trustee, hi#h i"posed on her (and her estate) a duty to finish getting the !oo3s to the li!rary4 ,r, 1

B.

..

ESTATES & TRUSTS

BELIAN

D.

as the #ourt finally held, did she "a3e a #o"pleted gift by instrument, in hi#h deli&ery as #onstru#ti&e4 $. 5e#essity of Trust Property a. .reation of a &alid trust requires so"e property to !e the su!6e#t of the trust (i.e., legal title has transferred to the trustee as trustee, su!6e#t to stated duties). Present legal rights to property e&en if it%s a future estate #ertainly #an !e the property used to esta!lish a trust, !ut the question then is (a) hether there is a present right, and (!) hether that right is hat has !een allegedly pla#ed in trust. !. Best e0a"ple of this tension 1 Speelman v. Pascal on the one hand, Unthan v. !ipstein on the other 'n Uv.!, it "ight ha&e !een the #ase that an enfor#ea!le right as granted to the plaintiff, !ut it as in the nature of a de!t paya!le no , not a trust upon his entire estate until the de!t as dis#harged. 'n SvP, !y #ontrast, e see that a present transfer of a present right e&en if it is a right to a future estate is not pro!le"ati# (and, although the #ase didn%t in&ol&e a trust, that future interest #ould ha&e !een the su!6e#t of a trust). 7. 5e#essity of Proper Benefi#iaries a. Benefi#iaries of pri&ate, e0press trusts "ust !e spe#ifi# either na"ed or identified ith enough spe#ifi#ity so that Trustee 3no s to ho" the fidu#iary duty is o ed. !. Best e0a"ple of this !eing done rong 1 "lar v. "ampbell The !enefi#iary does not ha&e to !e spe#ifi#ally na"ed, !ut does ha&e to !e identified ith legal #ertainty, hi#h nor"ally requires a legally defined #ategory (su#h as issue or des#endants). 8. 5e#essity of a 9ritten 'nstru"ent a. ,ral trusts for land are al ays in&alid under the Statute of :rauds, unless a So: e0#eption applies. !. ,ral trusts for personalty are, in theory, a##epta!le, B+T #. 'f the trust is "eant to !e esta!lished only at death, then the trust "ay fail for la#3 of any #learly identifia!le, enfor#ea!le duties upon the Trustee ( ith no trust instru"ent, and the Settlor de#eased, ho ould anyone 3no hether the Trustee as ad"inistering the trust properly4) d. The pra#ti#alities of enfor#ing Trustee duties "a3es it AT );AST strongly ad&isa!le for the ter"s to !e in riting. Types of trusts Remember, these are all mix and match 1 'nter <i&os- Testa"entary #his has to do with how and when the trust is established a. 'nter &i&os1 esta!lished !y a De#laration of Trust or Trust Agree"ent during the Settlor%s lifeti"e. $

ESTATES & TRUSTS !.

BELIAN

7.

Testa"entary 1 Testator%s ill de&ises property to a na"ed party as #rustee and then sets forth the ter"s that ill go&ern the Trust. i. 5ote that testa"entary trusts are always part of a ill and are therefore always su!6e#t to #ourt super&ision at least until the pro!ate ad"inistration is #o"plete. ii. 5ote also that !e#ause the trust is part of a ill, and !e#ause ills do not =ta3e effe#t> until the testator%s death, the trust does not a#tually e0ist until death. iii. $f a hypo describes a trust as testamentary% be very clear& #here is no 'trust( to receive or hold property if the testator is still alive)) *i ewise% there is no 'trustee( or 'beneficiary( with any duties or rights if the testator is still alive)) (e&o#a!le - 'rre&o#a!le #his has to do with the Settlor+s retained rights to alter or revo e the trust a. !evocable 1 Settlor has retained the right to re&o3e the trust entirely as ell as to a"end the ter"s of the trust agree"ent. Note that very often the Settlor+s right to alter the terms of the agreement might be made contingent on #rustee approval. #his doesn+t change its essential character% because Settlor can still revo e the entire thing and start over. !. $rrevocable 1 Settlor has relinquished the right to #hange the ter"s of the trust agree"ent, in#luding the right to re&o3e the trust entirely. #. All testa"entary trusts are irre&o#a!le that is, the Settlor #annot #hange or re&o3e the Trust on#e it is esta!lished (&ia pro!ate of the ill). #his should be obvious insofar as the #rust does not e,ist until the testator-Settlor is dead% and dead men not only don+t wear plaid% they cannot amend their trusts% either. d. 'nter &i&os trusts "ay !e either re&o#a!le or irre&o#a!le so long as the Settlor is still alive. /ost of the ti"e, the trust agree"ent ill state #learly hi#h it is. i.. Traditional rule 1 all trusts irre&o#a!le unless the Settlor e0pressly reser&es the right to a"end or re&o3e. ii. +nifor" Trust .ode 1 all inter &i&os trusts re&o#a!le unless the Settlor e0pressly relinquishes the right to a"end or re&o3e. Note that the U#" has so far been enacted in ./ states and is clearly the 'modern trend.( e. All inter &i&os trusts !e#o"e irre&o#a!le upon the death of the Settlor (o!&iously). /andatory - Dis#retionary #his has to do with what inds of distribution re0uirements are written into the trust terms% and applies to individual provisions within the trust rather than to the trust as a whole. 7

ESTATES & TRUSTS a. !.

BELIAN

#.

/andatory 1 Any trust pro&ision that re0uires the Trustee to "a3e distri!utions Dis#retionary 1 Any trust pro&ision that permits the Trustee to "a3e distri!utions !ut does not require it the Trustee has dis#retion to "a3e the distri!ution or not. Any trust "ay !e "andatory or dis#retionary ith regard to the prin#ipal and-or the in#o"e and ith regard to any or all !enefi#iaries. A trust "ight i. re0uire or permit distri!ution of ii. principal (corpus) or income to or for the !enefit of iii. any (or all) of the !enefi#iaries