TRUST.

A trust is a fiduciary relationship in which a trustee holds legal title to specific property to manage, invest, safeguard, and
administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title.
A. TYPES OF TRUSTS -- Trusts are classified according to the method of their creation:
1. express trusts, which arise from the expressed intention of the owner of property to create the relationship with respect
to the property;
2. resulting trusts, which arise from the presumed intention of the owner of property; and
3. constructive trusts, which do not depend on intention but rather constitute a useful equitable remedy in cases involving
wrongful conduct and unjust enrichment.

B. CATEGORIES OF EXPRESS TRUSTS -- Express trusts fall into two categories:

1. private trust - created for the benefit of certain ascertainable persons, e.g., “to T in trust for my husband, and at his
death to my children.”
2. charitable trust - created for the benefit of an indefinite class of persons or the public in general, e.g., trust providing
scholarship funds for needy students at a named university.

II. EXPRESS PRIVATE TRUSTS

A. CHARACTERISTIC OF AN EXPRESS TRUST. A trust is a fiduciary relationship with respect to property in which
at least one person (trustee) manages and holds the legal title to the trust property (res), subject to enforceable equitable
rights in another (beneficiary). The trust must have a valid trust purpose and the testator or grantor (i.e., trustor/settlor)
who creates an express trust must have intended to create the trust. Consideration is not required for the creation of a
trust.
1. Intention to Create a Trust
a. Manifested by Words, Writing, or Conduct – Settlor must manifest his intent to create a trust, except as limited
by requirements of the Statute of Wills or Statute of Frauds, this intention may be manifested by written or
spoken words or by conduct. An oral trust of personal property is valid in almost all Jxs.
1) Delivery of Deed May Manifest Intent – the settlor doesn’t have to communicate his intention to the
beneficiaries that he is creating a trust unless he is also the trustee. Giving the deed to the trustee is
enough to create a trust.
1. If Settlor Is Also Trustee – if the settlor is also the trustee and does not notify anyone of the trust, the
trust may fail for lack of intent to create a trust. When the beneficiaries are not notified, evidence
that the settlor-trustee segregated the property and kept separate account books for it is relevant in
establishing that a trust was intended.
b. Must Be Manifested While Settlor Owns Property -- The intention to create a trust must have been manifested
by the settlor at a time when he owned the trust property and prior to its conveyance to another. One cannot
convey property outright and later execute a trust instrument declaring that the transfer was one in trust. You
must manifest intent before conveyance. The settlor must have intended the trust to take effect immediately
and not at some future time.
1. Exception - Future Interest. A presently declared trust can have as the trust res a future interest in
property (e.g., A can convey “to B for life and then to C as trustee for D”; C has present duties to
protect D’s equitable future interest).
2. Effect of Promise to Create Trust -- If the settlor promises gratuitously to create a trust in the future,
a trust arises in the future only if, at that time, the settlor manifests anew his intention to create the
trust, unless the promise is supported by consideration, the trust can arise in the future, when the
property is acquired, without any further manifestation of intent.
c. Precatory Expressions. A direction such as “to B with the hope that B will use the property to provide for the
support of C” is precatory language and with precatory language no trust was intended. This inference may be
overcome if:
1. The directions are definite and precise, not vague;
2. The directions are addressed by a decedent to his executor or administrator, or to one who occupies the
position of a fiduciary under the will;
3. Failure to impose a trust results in an “unnatural” disposition by a testator (e.g., a close relative takes no
interest under the will); or
4. Extrinsic evidence shows that the transferor had been supporting the alleged beneficiary prior to
executing the instrument, and the “beneficiary” would not have sufficient means of support absent a
finding that a trust was created (e.g., A gives property to B with what appears to be precatory directions to
use the property for C’s benefit, but evidence shows that A had always supported C, suggesting that A
intended to impose enforceable trust obligations on B).

2. Trustee. A successor trustee will be appointed to carry out the testator’s intention if the trustee dies (before the
testator), incapacity, resignation, or removal unless it clearly appears that the trust is to continue only as long as the
originally designated trustee continues to serve.
 a. Absence of Trustee—Testamentary vs. Inter Vivos Trusts – a testamentary trust is still valid regardless of
the trustee’s status (e.g., available or named in will). However, the absence of a trustee may result in an
attempted inter vivos trust failing for want of delivery of the deed. Such a trust fails because there has been no
transfer—not because there was no trustee.
b. Trustee Must Have Duties -- An “active trust” exists when the trustee has duties. A “passive trust,” one
where the trustee has no duties at all, will fail and the beneficiaries will take legal title immediately. If the
duties are not spelled out in the trust instrument, the Ct will imply the trustee’s duties if there is (i) an
intention to create a trust, (ii) a res, and (iii) an identified beneficiary.
c. Qualifications of Trustee
1) Anyone who has capacity to acquire or hold title to property for his own benefit has capacity to
take property as a trustee. Unincorporated associations can be trustees only where they can hold title
to property for their own benefit. If a partnership cannot hold title to property, a purported transfer to
the partnership in trust may be deemed to be a transfer to the partners individually as trustees.
2) Administrative Capacity --Although a party may have capacity to take and hold property as a trustee,
he may not have the capacity to administer it, e.g., minors/insane persons may take title to property,
but because their contracts or acts are usually voidable, they are held to lack capacity to administer the
trust and will be removed by the Ct and replaced with a qualified trustee.
3) Statutes sometimes limit the right of some persons or corporations to serve as trustees. Foreign
corporations are often denied the right to conduct trust business in states other than their state of
incorporation. E.g., a Chicago bank cannot be trustee for a Cali (T) creating a testamentary trust for
her son in Cali.
d. A Ct has the power to remove a trustee or to refuse judicial confirmation of the appointment of a
trustee in a will. Denial of confirmation will be ordered when the named trustee is incompetent or declines
to serve.
1. Grounds for Removal of Trustee -- A Ct may remove a trustee if his continuation in office
would be detrimental to the trust. The following grounds are ways a trustee may be removed:
a. Commission of a serious breach of trust; incapacity to administer the trust; Unfitness for
the position; a significant conflict of interest; The trustee’s insolvency; and extreme
friction or hostility between the trustee and the beneficiaries that interfere with
administration.
2) A settlor can know that the trustee may have grounds for removal before she created the
trust, but that knowledge doesn’t mean removal is conclusive. Only in extreme cases a Ct may
proceed to remove the trustee.
3) Absent grounds for removal, the beneficiaries cannot compel the removal of a trustee, unless
this power is granted to them by the trust instrument. The power to remove a trustee without
grounds may also be reserved by the settlor.
e. A trustee who has not accepted the trust can disclaim and refuse appointment arbitrarily. However, he
cannot accept a trust in part and disclaim it in part. After having accepted the trust, the trustee cannot
thereafter disclaim; the problem then becomes one of resignation.
1. The trustee’s acceptance of a testamentary trust “relates back” to the settlor’s death,
because the trust is treated as having been in existence from that date. Thus, it is possible for the
trustee, by accepting, to become liable (in his fiduciary capacity) on tort claims arising prior to
the time he accepted.
2. Once a trustee has accepted appointment, he cannot resign without permission from the
Ct, unless (i) authorized to do so by the terms of the trust, or (ii) consent is given by all of the
beneficiaries, all of whom have capacity to give this consent. The acceptance of a trustee’s
resignation is within the discretion of the Ct.
f. Legal and equitable titles merge if the sole trustee and the sole beneficiary, are one and the same person.
This merger terminates the trust, creating a fee simple absolute in the trustee-beneficiary. If the trustee does
not hold the same interests, both legal and equitable, there is no merger and the trust continues. The existence
of either multiple trustees or multiple beneficiaries will preclude merger.

3. Trust Property - Res

a. Where there is no trust property, the trust fails because the trustee has no property to manage.
b. Property May Be of Any Type -- real or personal, tangible or intangible, legal or equitable, and it may be
either a present interest or a future interest, whether vested or contingent. E.g., you can transfer your
contingent (future) interest to a trustee.
c. Trust Property Must Be an Existing Interest in Existing Property -- An interest that has not yet come
into legal existence cannot be held in trust (e.g., a son’s hope of inheriting his father’s property). If there is
no trust res when the trust instrument is executed, the trust will not come into effect when the res comes into
existence unless the settlor at that time manifests a new intention to create a trust.
 1) Future earnings from an existing contract or employment can be the res of a trust.
2) Future Crops, Unborn Animals -- Under the mortgage doctrine of potential possession (which can’t
be applied to trusts), a person has a present interest in a thing to be produced if he has the means of
producing the thing. Thus, future crops or unborn animals might constitute a res if the settlor owns the
land or the mother animal.
d. The trust res must be existing property that the settlor has the power to convey. The res need not be tangible
property, but the settlor must have an assignable interest. E.g., promissory note, a contract, a patent or royalty
interest, and a future interest can be the subject matter of a trust.
e. The requirement that the trust property be identifiable and segregated means that the property is described
with such certainty that it can be ascertained from existing facts. A person cannot declare himself trustee of “the
bulk of my estate,” because the description is too indefinite. But a conveyance of “all of my real property except
Blackacre” is effective because the identity of the trust estate can be established.
1) A trust res may be, or may include, fractional or undivided interests in specific property. Because of the
possibility of holding undivided interests in trust, it is probable that the requirement of identification and
segregation is satisfied where one declares himself trustee or otherwise purports to create a trust of a
particular quantum or portion of fungible goods.
f. A person cannot be a trustee of his own debt to another. Thus, if A owes money to B, A’s declaration (even with
B’s consent or B’s direction to A) that A shall hold the amount owed in trust for B’s children would not make A the
trustee for B’s children. A can declare himself trustee of his particular property from which the debt is to be paid.
Thus, A could declare himself trustee of his bank account for the purpose of paying B. Note that A’s debt can be
held in trust by another person. Because A’s debt to B is an asset of B, B can transfer the debt to C to hold in trust
for B’s children.
g. Unenforceable Gratuitous Promise Cannot Be Trust Res

4. Beneficiaries -- a trust cannot exist without someone to enforce it. A beneficiary is necessary to the validity of every trust
except charitable trusts (which can be enforced by the state attorney general) and honorary trusts (e.g., trusts for animals
or to maintain graves). A private trust requires that there be definite beneficiaries (or at least that the beneficiaries will be
ascertainable within the period when all interests must vest under the Rule Against Perpetuities).
a. Capacity -- Any person capable of taking and holding title to property can be a beneficiary of a private trust.
An unincorporated association have no capacity to take title, cannot be a trustee, and it cannot be a
beneficiary of a trust.
b. Incidental and Indirect Beneficiaries -- Not every person who stands to benefit from the operation of a
trust is to be regarded as a “beneficiary.” If the trust operates only incidentally to benefit a person, that person
is not a beneficiary and cannot enforce rights thereunder.
1) Named Attorney Not Deemed Beneficiary -- Where a trust requires the trustee to employ a named
attorney for the trust, the attorney is not deemed a beneficiary and has no right to enforce a provision
for his appointment. The trustee can refuse to employ the attorney when he feels that the best interests
of the trust will not be served by the appointment. But if a term in the trust is to have an attorney for
the beneficiaries benefit and that doesn’t happen the failure to make the appointment would be
actionable by the beneficiaries if it resulted in a loss to the trust.
c. Notice to and Acceptance by Beneficiary -- Notice to the beneficiary that a trust is being created for his
benefit is not essential to the validity of the trust. However, the beneficiary must accept his rights under the
trust. A trust cannot be forced on the beneficiary without his acceptance.
a) Acceptance May Be Express or Implied -- Acceptance may be express or implied, even by silence or
inaction, and the acceptance of a beneficial interest is normally presumed. The acceptance, whether
express or implied, relates back to the date the trust was created.
d. Disclaimer -- No one can be compelled to accept an interest in a trust against her will. A beneficiary may
disclaim an interest by filing a written instrument with the trustee (or probate Ct if the trust is created by a
will). If a valid disclaimer is made, the trust is read as though the disclaimant was deceased as of the
relevant date.
1. Time for Making Disclaimer -- Uniform Probate Code (“UPC”): no specified time limit for
making a disclaimer. Majority: concerning all types of trust, a disclaimer must be made within
nine months of the interest’s creation, and that is the relevant period for federal gift tax purposes.
A disclaimer that is not made within the nine-month period is treated as an assignment and may
have gift tax consequences.
• Disclaimer by Beneficiary Under Age 21 -- A disclaimer is timely if made
within nine months after the beneficiary attains age 21.
2) Estoppel - - A beneficiary may be estopped from making a disclaimer if she has exercised any
dominion or control over the interest or accepted any benefits under the trust.
3) Disclaimant’s Creditors -- a disclaimer relates back to the date of the transfer for all purposes. A
disclaimer by an insolvent beneficiary can be used to defeat creditors’ claims. However, a disclaimer
 will not defeat a federal tax lien.
e. Anti-Lapse Statutes -- apply only to wills and come into play only if a will beneficiary within a certain
degree of relationship predeceases the testator. Read facts to see if anti-lapse statute is applicable. If it is then
gift goes to dead man’s kids. If not, then gift goes to whoever is alive at first level or to some other
person/business named in will.
f. Divorce -- a divorce or annulment revokes all beneficial gifts and fiduciary appointments in favor of a former
spouse including relatives of the former spouse. The UPC extended the “divorce revokes” rule to all revocable
dispositions, including revocable trusts and the designation of a former spouse as agent under a durable power
of attorney. The governing instrument is read as though the former spouse and his relatives are deceased.
g. Definiteness of Beneficiaries Under Private Trust -- To have a private trust, there must be definite
beneficiaries.
1. Unascertained Beneficiaries -- Beneficiaries need not be identified at the time a trust is created, but
they must be susceptible of identification by the time their interests are to come into enjoyment.
1. Unborn Beneficiaries -- An unborn beneficiary may be described in the instrument, and the
trust will be valid even as to his interest. Thus, if A conveys to T in trust for B for life, remainder
to B’s children, the beneficiaries are “definite” even though B had no children at the time of the
trust conveyance. It is sufficient that B’s children would be susceptible of identification at the time
their interests were to come into enjoyment (i.e., on B’s death).
2) Class Gifts -- A private trust may exist for the benefit of members of a class, provided the class is one
that is reasonably definite. It is permissible that the members of the class are to be selected by the
trustee in his discretion, or that the property is to be held for such members of the class as the trustee
finds meet certain requirements. If the class is too broad the trust may be unenforceable; instead the
instrument could be construed as an outright gift to the trustee or as a power of appointment.
h. If an express trust fails for lack of a beneficiary, a resulting trust in favor of the settlor or his successors is
presumed.
i. The requirement of definite beneficiaries does not apply to charitable trusts, where the charitable purpose
may be quite broad and the beneficiaries left for the determination of the trustee (e.g., “scholarships for needy
students”).

5. Trust Purposes. Trusts may be created for any purpose that is not deemed contrary to public policy. An intended trust
or a provision in the terms of a trust is invalid if:
i. Its illegal; performance by trustee would be criminal or tortious act; or its contrary to public policy (i.e., purpose of
a trust is to: induce others to engage in criminal or tortious acts; encourage immorality; or induce a person to neglect
parental, familial, or civic duties).
a. Where a condition is attached to an interest and the condition is held to violate public policy, the consequences of
the condition’s invalidity depend upon a number of circumstances.
1) If the settlor provides what happens if a condition is held invalid, that will control.
2) If the settlor has made no alternative provision AND the condition is a condition subsequent to the interest
to which it pertains, the condition is invalidated, the trust remains valid and the interest is relieved of the
condition. E.g., if a person’s right to certain benefits would be divested upon a condition subsequent that is
invalid, the benefits would continue absolutely and free of the condition.
3) Invalid Condition Precedent Stricken -- If the invalid condition is a condition precedent to a certain
interest, upon striking out that condition the Ct may:
(i) Hold that the interest fails altogether, regardless of whether the condition occurs; or
(ii) Hold that the interest is valid, regardless of what happens in regard to the condition.
b. Rule Against Perpetuities -- Pursuant to the common law Rule, a nonvested property interest (e.g., the interest of a
beneficiary under a trust) is invalid unless it is certain to vest or fail no later than 21 years after the death of a
person who is alive when it is created. However, most states have adopted a wait-and-see approach or an alternative
90-year vesting period that would save the interest.
B. CREATION OF EXPRESS TRUSTS. A trust is created in 1 of 3 ways:
(i) An inter vivos trust created by a declaration of trust by a property owner, stating that he holds the property as trustee in
trust;
(ii) An inter vivos trust created by transfer of property by the settlor during his lifetime; and
(iii) A testamentary trust is created by will.

Trusts can also be created by the exercise of a power of appointment or by a promise enforceable under contract law.

1. Inter Vivos Trust

a. Present Declaration or Present Transfer of Trust Required
1) A person can create a trust by declaring himself trustee for another. No delivery is required because the
settlor is the trustee. When the trustee is another person, the property must be delivered to the trustee in
 order to transfer it in trust.
2) A trust can be created by the transfer of property to another as trustee. The trustee takes legal title upon
delivery of a deed or other document of title, or upon actual delivery of manually transferable property.
3) Delivery means an act that places the trust property out of the settlor’s control (unless the settlor is to serve
as trustee). A settlor may also deliver to a third person with instructions to that person to deliver to the
trustee. Failure to name a trustee or a promise to name one in the future may indicate a lack of present
intention and may prevent a delivery of the trust res.
4) Must Manifest Intent When Trust Res Exists -- If a trust is not established because there is no trust res,
AND the trust res later comes into the settlor’s hands, a trust arises at the subsequent time if the settlor
manifests an intention then to create a trust.

b. Formal Requirements—Statute of Frauds

1) A writing not required for a trust of personal property, but an inter vivos trust that is for land, a written
instrument is required under the Statute of Frauds to make the trust effective. The writing must be signed by
the person entitled to impress the trust upon the property. Note that an otherwise invalid oral trust of land may
be enforced by way of a constructive trust (an equitable remedy).
2) Evidence outside the written agreement is permitted for the purpose of showing the intent of the parties
only, but where the writing is ambiguous on its face.

2. Testamentary Trust
a. To create a trust by will, the intention to create a trust and the other essentials of the trust (identification of the
beneficiaries, the trust property, and the trust purposes) must be ascertainable in one of the following ways
permissible under the applicable Statute of Wills:
1. The terms of the will itself.
2. An existing writing properly incorporated by reference into the will (where incorporation by reference is
recognized). NOTE – trust instrument needs to be in existence before will execution.
3. The exercise of a power of appointment created by the will.

b. “Secret” and “Semi-Secret” Trusts

1) secret trust - the will makes a gift to a named beneficiary, but the gift was made in reliance upon the
beneficiary’s promise to hold the gift property in trust for another. To prevent the unjust enrichment of the
named beneficiary (secret trustee), Cts will allow the intended trust beneficiary to present extrinsic
evidence of the agreement. If the agreement can be proved by clear and convincing evidence, a
constructive trust will be imposed on the named beneficiary. The Statute of Frauds is not a bar because the
suit is not to compel enforcement of the trust, but rather to impose a constructive trust to prevent unjust
enrichment. The Statute of Wills is not a bar because the constructive trust does not operate on the will itself,
but rather on the property, once it comes into the hands of the named beneficiary.
a) Promise Enforceable Whether Made Before or After Will’s Execution -- Unlike the rule applicable
to lifetime conveyances, in the case of wills, relief is given whether the agreement to hold in trust is
made before or after the will is executed. In either situation there is induced reliance—if the promise is
made after the will’s execution, the testator is induced not to change her will. Also, it does not matter
whether the person intended to perform the agreement at the time he made his promise. All that
matters is that the testator executed her will in reliance on the promise.
b) Attempted Modification of Gift Outside Will -- If a testator executes a will making an absolute
devise, then writes a note telling the legatee that she wants the legatee to hold the property in trust for
certain enumerated purposes, the Statute of Wills prevents enforcement of the trust. No constructive
trust is raised because there is no induced reliance and no unconscionable conduct on the part of the
legatee. He cannot be compelled to execute the trust because no trust was created by the will.

2) Gift “In Trust” Without Beneficiary (“Semi-Secret Trust”)—Resulting Trust Implied -- In the case of a
semi-secret trust, the will makes a gift to a person in trust, but does not name the beneficiary. The testator
may have communicated the terms to the “trustee.” The majority of Cts have taken the position that the trust
is unenforceable because of the Statute of Wills. The will does not identify the intended beneficiary, and it
would violate the policy of the wills statute to permit identification by parol testimony. The gift fails for want
of identification of the beneficiary. The named trustee holds the property on a resulting trust for the
testator’s heirs.
3) Different Result in “Secret Trust” and “Semi-Secret Trust” Cases Explained -- Why is it that in the
secret trust cases (will purports to make absolute disposition) the trust can be proved, but in the semi-secret
trust cases it cannot? The answer lies in who the litigants are in the two cases. In the secret trust case, the
issue is between the legatee and the beneficiaries of the alleged oral promise; to prohibit proof of the legatee’s
promise would lead to unjust enrichment. But in the semi-secret situation, the one thing that is clear is that
 the legatee himself was not intended to take beneficial enjoyment; the disposition to him was “in trust.” Thus,
the dispute is between the intended but unidentified beneficiaries and the heirs; the “induced reliance-unjust
enrichment” element is not present.

III. CHARITABLE AND HONORARY TRUSTS

A. Charitable trusts are granted some special exemptions from the rules that apply to private trusts. The rules governing
charitable trusts differ from those applicable to private express trusts in three important particulars.
1. Charitable trust must be for a large class of indefinite beneficiaries if the trust is not for a specified charitable agency. A private trust
must be for definite and ascertainable beneficiaries.
2. Cy Pres Doctrine Applicable -- when it is impossible to give the settlor’s intention effect (e.g., the designated charity goes
out of existence), the Ct may redirect the trust to a purpose “as near as possible” to the charitable endeavor initially
designated by the settlor.
3. May Be Perpetual -- A charitable trust may last forever; it is not subject to the Rule Against Perpetuities. By contrast,
all interests in a private trust must “vest” within the period of the Rule Against Perpetuities.

B. The purpose of a charitable trust must be one that is considered to benefit the public. A purpose that limits the benefits of the
trust to a particular class of the public (e.g., Chicago orphans) may be charitable, but the class can’t be so narrowly defined that
it designates only a few individuals upon whom the settlor wishes to confer private benefits. A trust for the dissemination of
ideas may be charitable even though the ultimate purpose may be to accomplish a change in present law (e.g., a trust to promote
the abolition of discrimination against women, tariffs, or capital punishment).
1. General Terms Acceptable -- The charitable purpose may be expressed in very general terms. Thus, a direction to a
trustee to apply funds for such “charitable” or “humanitarian” causes as he selects is sufficient. Many Cts now interpret
the words “charitable” and “benevolent” to be synonymous, so that a trust for “benevolent purposes” will be limited to
charitable objectives and be upheld. Note that if benevolence is not construed to mean charitable, the trust will fail.
2. Effect of Gift Controlling Factor -- It is the effect of the gift to the public or a portion thereof, not the motive of the
settlor, that controls. Thus, if S establishes a trust to build public tennis Cts on land adjacent to his home, it is irrelevant
that his motive was so he could use them OR that a school, park, etc., created through a trust is required to be named after
the donor (e.g., John Jones Memorial Park).
3. Mixed Trust -- Where the beneficiaries of a single trust are both charitable and noncharitable, the trust is a “mixed
trust,” and the special rules for charitable trusts do not apply. However, two separate trusts will be found if there is
some indication as to (i) how much of the corpus the settlor intended to be applied towards charitable purposes, or (ii)
how long the settlor intended the corpus to be applied towards charitable purposes.
4. Charitable Trust Implied When Charitable Purpose Clear -- A gift “for the needy” implies that a trustee should be
appointed to carry out the purpose. A gift “to the Red Cross” implies that the organization takes the property as trustee to
apply it to the charitable purposes of the Red Cross. If the charitable organization is an unincorporated association unable
to take title, a trustee will be appointed to administer the funds for the benefit of the organization. Of course, the trustee
itself need not be a charitable organization (e.g., “to Bank of America as trustee for indigent widows”).

C. INDEFINITE BENEFICIARIES -- Beneficiaries of a charitable trust must be indefinite (e.g., unnamed and changing
class). Note that the indefinite class can be quite small. This indefinite beneficiary requirement does not mean that the trust
cannot name a specific charitable entity (e.g., the Red Cross) as beneficiary. In that case, the ultimate beneficiaries (the
individuals the specified charity serves) are indefinite, even though the entity is specific.

D. ENFORCING CHARITABLE TRUSTS

1. Settlor and Potential Beneficiaries Have No Standing to Sue Charitable Trustee (common law) – because the
courts consider the community at large the beneficiary of a charitable trust, not a particular individual who happen to
receive benefits from it. Under the UTC, settlor and qualified beneficiaries (i.e., current beneficiaries and first-line
remaindermen) have standing to bring suit to enforce a charitable trust.
2. Charitable Trusts Enforceable by State Attorney General -- The duty to enforce charitable trusts is placed upon the
state’s attorney general. E.g., if a settlor or particular individual want enforcement of the trust then they would have to
persuade the attorney general to look into the matter.

E. RULE AGAINST PERPETUITIES -- The Rule Against Perpetuities does not apply to charitable trusts, unless there’s a
limitation shifting the interest from charity to private use (e.g., to Jon then to Charity, Charity interest is struck giving the interest
fee simple determinable to Jon with possibility of reverter to grantor).

F. CY PRES (“as near as possible”) – if the settlor had a general (not specific) charitable intent, but for some reason the
charitable purpose became impracticable or was accomplished, a court won’t let the charitable trust fail to become a resulting
trust. Instead it will use the doctrine of cy pres to transfer the trust property interest to a similar type of charity.
1. Finding of General Charitable Intent Required by court -- If a specified charitable use is no longer possible or
 practical, the Ct must decide whether the settlor intended the trust to fail or would have wished the property devoted to a
similar use. Where the settlor has provided for such a contingency, her direction controls. The fact that a gift is given “on
condition” that it be used for a specific charitable purpose has not precluded a finding of general charitable intent. Where
a specific intent alone is found, the trust fails and passes as a resulting trust to the settlor’s successors in title.
a. Uniform Trust Code—General Charitable Intent Presumed in All Cases -- This means that in every case in
which a particular charitable use becomes impossible or impracticable, the Ct will modify the trust terms by
diverting the trust property to another charitable purpose—unless the settlor has specified what was to be done if
this problem were to arise.
2. Equitable Deviation -- Even if the Ct refuses to apply cy pres—because the purpose of the trust can still be carried out
—it can, by exercising its equitable power, authorize equitable deviation from an administrative term of the trust. E.g.,
trust created for city school, but city high school merged with county school. Equitable deviation may be applied,
extending benefits to students in all high schools in the county.
3. Cy Pres Also Applies to Outright Gift to a Charitable Organization -- Thus, if a will makes a disposition to a
charitable organization and the organization no longer exists at the testator’s death, a Ct could apply the cy pres doctrine
to award the disposition to another similar organization.

G. HONORARY TRUSTS are not enforceable -- An “honorary” trust is a trust that is not for charitable purposes and has no
private beneficiaries. E.g., trusts for maintenance of a cemetery plot and trusts for pets. “honorary” trusts have no beneficiary
who can enforce the trust by bringing an action against the trustee; the trustee is on her honor to carry out the trust. Honorary
trusts are upheld in the sense that if the named trustee is willing to carry out the terms of the trust, she will be permitted to do
so. If she fails or refuses to do so, a resulting trust will be imposed for the settlor or the testator’s estate. UTC, honorary trusts
are enforceable up to 21 years by someone named in the trust instrument or appointed by the Ct. A trust for the care of an
animal alive during the settlor’s lifetime is valid; it terminates when the animal dies.
1. Void If It May Continue Beyond Perpetuities Period -- Many Cts hold that an honorary trust is void if it may continue
beyond lives in being plus 21 years. Because the “measuring lives” that can be used for Rule Against Perpetuities
purposes must be human lives, absent special drafting to avoid the problem, a trust for the care of the settlor’s dog may be
held invalid. Under the “what might happen” remote possibilities test of the Rule Against Perpetuities, the dog might
outlive anyone now alive by more than 21 years. Because the named trustee cannot be compelled to carry out the terms of
the trust, she is treated as having a power of appointment, which might be exercisable beyond the period of the Rule
Against Perpetuities.
2. Constructional Outs Taken to Avoid Perpetuities Problem -- To uphold an honorary trust, some Cts have taken these
constructional “outs” to save the gift:
a. the trust was personal to trustee and only that particular trustee could serve as trustee so when that trustee dies the
trust terminates, and because of that stipulation the trustee can be used as the “measuring life” for purposes of the
Rule Against Perpetuities.
b. Money bequeathed to trustee will be exhausted within the period of perpetuities; therefore, the trust will not
last beyond the life of trustee plus 21 years.

IV. TRANSFER OF THE BENEFICIARY’S INTEREST

A. ALIENABILITY IN GENERAL
1. Voluntary Alienation -- In the absence of some provision in a statute or trust instrument to the contrary (e.g., restriction
on alienation of contingent interest), the equitable interest of a trust beneficiary is freely alienable to the extent the
beneficiary can transfer other property. The transferee takes the interest subject to all conditions and limitations that
would have applied but for the assignment.
2. Involuntary Alienation -- Except as otherwise provided by statute or as validly restricted by the terms of the trust
instrument, the interest of an insolvent trust beneficiary can be reached in appropriate proceedings (such as a
creditor’s bill in equity) to satisfy the claims of his creditors. However, unless the debtor is the sole beneficiary and can
presently demand conveyance of the trust property, the creditor reaches only the interest of the beneficiary and not the
trust property itself. A Ct of equity may refuse to order sale of an income interest and will instead require the trustee to
pay the beneficiary’s income to the creditor until the debt is satisfied if the creditor will be paid by this method within a
reasonable time.

B. RESTRAINTS ON ALIENATION—SPENDTHRIFT TRUSTS -- A spendthrift trust is one in which, by statute or terms of

the trust, the beneficiary is unable voluntarily or involuntarily transfer his interest in the trust. He cannot sell or give away
his right to future income or capital, and his creditors are unable to collect or attach to such rights until the distribution of funds
or property are in the beneficiary’s control.
1. A restraint that prohibits creditors from reaching a beneficiary’s interest, but does not prohibit the beneficiary from
voluntarily alienating his interest, violates public policy. Therefore, if beneficiary can alienate his interest then
creditors can attach to his alieniable rights. Otherwise, there is no spendthrift trust.
2. There is an exception to spendthrifts trust, a beneficiary can assign his income interest to someone else, but the trustee
doesn’t have to honor that assignment. What the beneficiary did was nothing more than an authorization to the trustee
 to send his interest to some other person. Trustee can either refuse or pay it without violating the spendthrift trust.
Beneficiary or the other person can’t compel the trustee to pay, but if trustee does start paying the beneficiary can
repudiate that authorization at anytime.
3. Exception. How creditors can attach to spendthrift trust—Settlor as Beneficiary -- Settlor cannot protect his own
retained interests from his creditors by the inclusion of a spendthrift provision in his will or inter vivos trust. Meaning he
cannot benefit from the spendthrift rule that blocks creditors attaching to trust res. If he tries that the courts will rule as if the
spendthrift clause was never included in the transfer instrument.
a. Test for Determining Whether Beneficiary Is Also Settlor -- Sometimes it is not clear whether the beneficiary is
also the settlor. If a person furnishes the consideration for the creation of a trust, he is the settlor , even though
the trust is created by another person.
4. Exceptions for Special Classes of Creditors -- Even where spendthrift restrictions are valid, in a number of states the
beneficiary’s interest is subject to certain types of claims such as the claims of dependents, the government, and persons
supplying necessities (e.g., a divorced wife can usually reach the husband’s interest to satisfy a claim for alimony; and the
government can reach the interest to pay taxes owing).

C. DISCRETIONARY TRUSTS -- the trustee is given discretion whether to apply or withhold payments of income or principal
(or both) to a beneficiary. This discretion relates to more than just the time and manner of payment; it actually limits the extent
of the beneficiary’s rights to the amounts the trustee decides to give him, with the rest going over to others eventually.
1. Creditors’ Rights
a. Before Trustee Exercises Discretion—Interest Cannot Be Reached by creditors, creditors can attach to interest
but not compel trustee to make a distribution.
b. After Trustee Exercises Discretion—payments are to be made to creditors first (unless) beneficary’s interest are
protected by a spendthrift restriction.
c. Creditors can reach a discretionary interest created for Settlor – self dealing prinicle applies
2. Beneficiary’s Rights -- beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses
his power.

D. SUPPORT TRUSTS – are when the trustee is required to pay or apply only so much of the income or principal (or both) as is
necessary for the support of the beneficiary. There must be limitation language for it to be a support trust.
1. All Income for Support – if you see language that gives the beneficary all of the interest without no limitation then it is
not a support trust, and the words “for his support” merely state the motive for the transfer.
2. Interest are not Assignable and creditors cannot reach it - Even without a spendthrift clause.
3. Effect of Other Resources Available to Beneficiary -- Whether the beneficiary of a support trust who has other income
or resources that can be used for his support is entitled to support out of the trust fund without taking into account such
other resources is a question of the settlor’s intention.

V. MODIFICATION AND TERMINATION OF TRUSTS

A. TERMINATION OF TRUST BY ITS OWN TERMS -- A trust terminates when the duration of the trust as specified by the
settlor has expired, or if the instrument specifies no termination time, when the settlor’s purposes have been accomplished.
Thereafter, the trustee must wind up the affairs of the trust with reasonable promptness, retaining only such powers as are
necessary to preserve the property and to distribute it to the beneficiaries.

B. POWER OF SETTLOR TO REVOKE OR MODIFY

1. A settlor must expressly resever the right to revoke or modify the trust, otherwise he doesn’t have that power.
Under UTC, a trust is presumed revocable unless the trust instrument expressly provides that it is irrevocable.
2. If a settlor has the power to revoke, then he has the power to amend. If the method of revocation is specified in the trust
instrument, it must be followed. If no method is specified, any instrument showing the settlor’s intent will suffice. NOTE,
an inter vivos trust cannot be revoked by will, unless the trust expressly so provides.

C. MODIFICATION OR TERMINATION of Trust BY AGREEMENT OF BENEFICIARIES

Modification or termination is permitted only if:
i. All beneficiaries consent; AND the modification or termination will not impair a material purpose of the trust.
1. Consent of All Beneficiaries includes existing and potential beneficiaries of all present and future interests, no matter
how uncertain or contingent (e.g., an unborn beneficiary can preclude termination. Note the UTC permit the appointment
of a representative or guardian ad litem to represent the interests of minor, unborn, or unascertained beneficiaries.
2. Determining Material Purpose -- The settlor’s purpose in creating a trust is not always clear from the trust language.
You will need to think it through as if you are in the shoes of the settlor and what his intentions are. If his intention is to
keep property out of the beneficiary’s hands then its likely the beneficiary cannot terminate the trust. If its still unclear then
check for spendthrift clause to stop the termination, otherwise they likely can terminate the trust.
a. Spendthrift Provision -- precludes early termination of a trust even if all beneficiaries consent to the termination.
 The Cts have concluded that a material purpose of the trust was to protect the beneficiaries from creditors’ claims,
and an early termination would defeat that purpose. The UTC was revised to make its presumption regarding
spendthrift clauses optional.
3. Liability of Trustee -- If all beneficiaries consent AND if the trustee is willing to comply with their request for
termination, a termination of the trust and a distribution of the corpus in the agreed fashion among the beneficiaries will
leave the trustee without any liability. Even though the termination of the trust violates an essential purpose of the
settlor, because there is no one to hold the trustee liable for his act. NOTE, trustee may remain liable to the
beneficiaries in such a case if a spendthrift trust were involved.
4. Role of Settlor in Terminating Inter Vivos Trust
a. Settlor’s Objections Can’t Preclude Termination -- If the beneficiaries have a right to terminate under the above
rules, the settlor’s objections will not preclude their terminating the trust. Unless, it goes against the material
purpose the trust was created for.
b. Joinder of Settlor Waives Material Purpose -- If under the above rules, all beneficiaries request the termination
and termination is precluded only by a material purpose of the settlor, the Cts agree that the joinder of the settlor in
the request for termination will have the effect of waiving that purpose and permitting the beneficiaries to compel
termination.

D. JUDICIAL POWER TO TERMINATE OR MODIFY TRUST

1. A Ct may terminate a trust prior to the time fixed in the trust instrument where: (i) the trust purposes are accomplished
early; or (ii) the trust purposes become illegal or impossible to carry out.
2. A Ct may authorize or direct a trustee to deviate from the administrative terms of a trust (including permitting acts that
are not authorized or are forbidden by trust provisions) if: (i) compliance with the terms of the trust would defeat or
substantially impair the accomplishment of the trust purposes; and (ii) the settlor did not know or anticipate the new
circumstances.
a. Doctrine Cannot Change Beneficial Rights of Beneficiaries -- A Ct cannot permit invasion of principal for the
income beneficiary where this has not been provided for expressly or by implication in the terms of the trust
instrument for no reason To avoid this result, many states have enacted statutes that allow invasion of the principal if
it furthers the primary purpose of the trust.
b. Uniform Trust Code -- Under the UTC, a Ct may modify a trust or terminate a trust if, because of circumstances
not anticipated by the settlor, the modification or termination will further the purposes of the trust.

VI. TRUST ADMINISTRATION

A. POWERS OF THE TRUSTEE

1. Sources of Trustee’s Power -- The trustee can exercise only such powers as are expressly or impliedly conferred upon
her. These include:
(i) Powers expressly conferred upon her by the terms of the trust;
(ii) Powers conferred upon her by the terms of a statute or by Ct decree;
(iii) Those powers that are “necessary or appropriate to carry out the purposes of the trust and are not forbidden by the
terms of the trust” Note: The UTC confers broad powers on the trustee, including all powers that an unmarried
individual has over her own property.
2. Joint Powers -- Where there are two or more trustees, all trust powers had to be exercised by unanimous agreement.
UTC and the Uniform Trustees’ Powers Act position: any power vested in 3 or more trustees may be exercised by a
majority of them. If there are only 2 trustees, they must act unanimously. Note that any action taken in contravention of
the Jx’s rule is voidable.
3. Personal Powers -- usually pass to successor trustees. However, powers may be personal to a particular trustee and
therefore can’t pass to a successor trustee. This may be implied from the terms of the instrument and the surrounding
circumstances. The fact that a power is discretionary is not a sufficient basis to treat it as one personal to the particular
trustee named in the instrument.
4. Imperative and Discretionary Powers
a. Imperative Powers -- A power is “imperative” (“mandatory” power) where the trust terms require the performance
of a particular act. If a trustee fails or refuses to perform under an imperative power, a Ct will, upon petition, order
the trustee to exercise the power as required by the trust instrument.
b. Discretionary Powers -- Most powers are discretionary in the sense that the trustee may or can’t perform a
particular act, as she determines in her judgment to be most appropriate. Exercise of a discretionary power is subject
to judicial review to prevent abuse of the trustee’s discretion. To the extent that the exercise of such a power involves
a business judgment rather than a question of law or of interpretation, a Ct will refuse to interfere.
1) Effect of Giving Trustee Absolute Discretion -- Where the terms of the trust provide that the trustee shall
have “sole” or “uncontrolled” discretion, the trustee’s power is still not wholly immune from review. A Ct
will also intervene where a trustee has completely failed to exercise judgment with regard to a discretionary
power.
5. Implied Powers. The following powers may be impliedly conferred upon the trustee at common law, but are expressly
 conferred by the UTC.
a. Power of Sale – inferred power. Where the trust terms neither confer nor withhold the power to sell trust property,
a power of sale is quite readily inferred by the Cts. A power of sale may be more readily inferred in cases involving
personal property than in cases involving real property.
1) Directive Not to Sell -- the settlor can direct the trustee not to sell certain property transferred into the trust.
This directive is valid, and the trustee cannot sell the property without a Ct order permitting the sale on the
grounds that circumstances have changed so much that not selling would put the trust corpus in jeopardy.
b. Power to Incur Expenses
1) Necessary and Ordinary Expenses -- It is implied that a trustee can incur expenses that are appropriate to
carry out the trust purposes. She can incur such expenses as are necessary and ordinary in the management of
the trust property and in keeping the property in repair, and she can employ agents and advisors where this is
prudent or where she cannot reasonably be expected to personally perform certain duties.
2) Improvements on Trust Property -- Cts are less willing to infer the power to make improvements on trust
property, but improvements can be made.
c. Power to Lease -- a trustee has an implied power to lease trust property on such terms and for such periods as are
reasonable under the circumstances.
d. No Implied Power to Borrow Money -- the trustee has no implied power to borrow money on the credit of the
trust estate; nor has she power to mortgage or otherwise encumber the trust property, unless expressly stated in the
trust instrument.

B. DUTIES OF THE TRUSTEE. revocable trust, a trustee’s duties are owed exclusively to the settlor. Irrevocable trust, a trustee
owes duties to all of the trust beneficiaries.
1. In administering the trust, the trustee must exercise that degree of care, skill, and caution that would be exercised by a
reasonably prudent person in managing her own property.
2. Duty of Loyalty—No Self-Dealing -- Absent Ct approval or contrary trust provision, a trustee cannot enter into any
transaction in which she is dealing with the trust in her individual capacity. A trustee cannot “wear two hats,” and in the
same transaction represent both her personal interest and the interests of the trust estate. A trustee owes a duty of
undivided loyalty to the trust and its beneficiaries.
a. Specific Self-Dealing Rules. A trustee -
1) can’t purchase any property owned by the trust or sell assets to the trust.
2) can’t sell property to another trust of which she is also trustee.
3) can’t borrow trust funds or loan her personal funds to the trust.
4) can’t use trust assets to secure a personal loan, and the lender does not obtain a valid security interest if she
knew or had reason to know that the assets belonged to a trust.
5) can’t gain any personal advantage from her position (other than compensation for serving as trustee).
6) Can’t invest in its own stock as a trust investment. But it can retain its own stock if such stock was a part of
the original trust res when the trust was established, provided that retention of the stock meets the prudent
investor standard.
7) Can’t self-employ because it is a form of prohibited self-dealing, but extraordinary services to the trust on the
part of the trustee may entitle the trustee to additional compensation (e.g., rendering legal services to trust that
are outside of scope of trustee duties).
b. Indirect Self-Dealing is prohibited. Self-dealing rules apply to sales or loans to a trustee’s relative or business
associate, and to a corporation of which the trustee is a director, officer, or principal shareholder.
c. The duty to keep and render accounts, and to furnish info to the beneficiary or his agent at the beneficiary’s
request, is one way of insuring that the trustee is meeting her obligation of loyalty.
d. Good Faith Irrelevant and doesn’t shield a trustee from liability.
e. The duty of loyalty extends equally to all beneficiaries, unless the trust instrument specifies otherwise.

f. Beneficiary’s Rights if a Prohibited Transaction occurs -- the beneficiary may: (i) set aside the transaction; (ii)
recover the profit made by the trustee, reduced by losses arising out of the same transaction; or (iii) ratify the
transaction. Thus, the trustee bears the risk of subsequent loss, and is also required to turn over any profit where the
dealings with the trust were advantageous to her.
g. The settlor of a trust can waive the rules prohibiting self-dealing by expressly conferring upon the trustee the
power to act in a dual capacity. If the self-dealing rules are waived by the settlor, the trustee will not be held liable
for her conduct unless she has acted dishonestly, in bad faith, or has abused her discretion.
3. Duty to Separate and Earmark Trust Property—No Commingling -- Trust assets must be kept physically separate
from the trustee’s personal assets and from the assets of other trusts. (Statutory exceptions permit a corporate fiduciary to
hold property of trusts of which it is a trustee in a common trust fund.) Trust property must be titled in the trustee, as
trustee for a specific trust, e.g., a bank account must be deposited in the name of “T as trustee,” and not in the name of T
personally.
a. If the trustee commingles trust property with her own and some of the property is thereafter lost or destroyed,
 the presumption is that the property lost was the trustee’s own, and that the property still on hand belongs to the
trust. If a portion of the commingled assets increased in value, it is presumed that those belonging to the trust
increased in value; if a portion declined in value, it is presumed that those belonging to the trustee, individually,
declined in value.
4. Duty to Perform Personally (Prohibition on Delegation of Trust Duties) -- A trustee cannot delegate the entire
administration of a trust. A trustee can’t delegate discretionary functions, such as the decision to make discretionary
distributions. She may delegate acts that would be unreasonable to require her to perform personally (e.g., mailing
letters).
a. Exception—Investment and Management Decisions -- investment decisions could not be delegated. Under the
Uniform Prudent Investor Act (“UPIA”), a trustee may delegate investment and management functions that a
prudent trustee of comparable skills could properly delegate under the circumstances.
b. Following Advice of Others -- The trustee can seek the advice of attorneys and others on matters that she can’t
delegate, but she must make the decisions. If she appears to take advice without exercising her independent
judgment, she may be held liable on the theory that she improperly delegated her duties.
c. Remedy -- If a trustee improperly limits or surrenders her control over trust property, she becomes a guarantor of
the fund. Her motives or the fact that the loss was not directly caused by the abdication of control will not be
considered by the Ct. The trustee is held liable for the amount of the actual loss to the trust.
5. Duty to Defend Trust from Attack -- Except when the trustee’s examination reveals that an attack against the trust is
well founded, she has a duty to defend the trust.
6. Duty to Preserve Trust Property and Make It Productive -- There is a basic duty to preserve and protect the trust
corpus. From this basic duty, there normally will be implied the duty to make the trust property productive, which
includes the duty to invest. The duty to preserve and protect the corpus requires that the trustee exercise reasonable care to
do the following (and if she has held herself out as having special skills or has been selected on account of such special
skills, she will be held to exercise such skills):
a. Collect all claims due the trust.
b. Lease land or manage it so that it is productive; or sell it if it is not productive (but this does not apply if the trust
instrument requires the trustee to convey that land to a beneficiary).
c. Record recordable documents to protect title; keep securities and funds in safe places; pay taxes on trust assets to
prevent liens; and secure insurance on trust properties. It is proper for the trustee to obtain insurance on trust
property—including liability insurance—even though such insurance protects her individually as well as the trust
estate.
d. Invest trust funds within a reasonable period of time following receipt thereof (and continuously review such
investments and sell and reinvest when required). If the trustee fails to invest trust monies, she is chargeable with
the amount of income that would normally accrue from appropriate investments.

C. INVESTMENTS. The majority of states have enacted a version of the UPIA, which regulates the investment responsibilities of
the trustee. A few states continue to use a statutory “legal list” approach, which establishes approved types of investments for a
trust.
1. Uniform Act or Legal List Are Default Rules -- No matter which approach to investments a state uses, the trust terms
can expand or limit a trustee’s powers, including investment powers. Thus, the UPIA or legal list provisions apply only if
there is no contrary provision in the trust instrument.
a. Grant of Discretionary Powers -- If the trust instrument provides for investments to be made “in the discretion of
the trustee,” it is a question of interpretation whether the trustee’s investment power is enlarged beyond the powers
prescribed by the UPIA or legal list.
1) UPIA Jx -- trustee’s authority to make investments “in her discretion” permits only those investments that
satisfy the prudent investor standard.
2) Legal List Jx -- such language is likely to free the trustee from the list and probably permits investment in a
manner similar to that under the UPIA.

2. Uniform Prudent Investor Act

a. Standard of Care -- Under the UPIA, a trustee must invest and manage trust assets as a prudent investor would. To
satisfy this objective standard of prudence, the trustee must exercise reasonable care, skill, and caution.
1) Fiduciaries with Special Skills Held to Higher Standard -- A trustee with special skills or expertise, or
who has represented herself as having such knowledge, has a duty to use those skills or expertise.
2) Loyalty and Impartiality -- A trustee must act exclusively for the beneficiary when investing and managing
trust assets, or she is acting imprudently. If there is more than one beneficiary, she must act impartially in
investing and managing the trust assets, taking into account the beneficiaries’ differing interests.
b. Prudence Evaluated as to Overall Investment Strategy -- Each investment decision must be evaluated, not in
isolation, but in the context of the entire trust portfolio (corpus) and as part of an overall investment strategy
that has risk and return objectives reasonably suited to the particular trust.
1) Investment Performance Measured by “Overall Return” -- Under the UPIA, investment returns are
measured by the “overall return” concept rather than the production of ordinary income. A prudent investor
 seeks overall return, not merely income. The prudent investor rule recognizes that the most effective way to
provide for current income beneficiaries, as well as the trust remaindermen, may be to generate gains through
capital appreciation.
2) Risk/Return Curve -- The UPIA requires the trustee to tailor an investment strategy that incorporates risk
and return objectives suited to the particular trust.
3) Any Type of Investment Permitted -- The UPIA permits a trustee to invest in any kind of property or any
type of investment “consistent with the standards of this Act”; therefore, no particular type of investment is
inherently imprudent. The overriding concern is the risk/return objective of the investment, rather than the
classification of investments as prudent or imprudent.
4) Factors Considered in Making Investment Decisions -- The following circumstances are relevant and
must be considered by the trustee in making investment decisions:
(i) General economic conditions;
(ii) effect of inflation or deflation;
(iii) tax consequences of investment decisions or strategies;
(iv) overall trust portfolio;
(v) expected total return from income and the appreciation of capital;
(vi) Other resources of the beneficiaries;
(vii) Needs for liquidity, regularity of income, and preservation or appreciation of capital; and
(viii) An asset’s special relationship or value to the purposes of the trust or to one or more of the
beneficiaries.
a) Within a reasonable time after accepting the trusteeship or receiving trust assets, the trustee must review
the trust assets and make and implement decisions concerning their retention and disposition, taking
into account the factors listed above.
b) A trustee has a duty to investigate and is required to make a effort to verify info likely to affect the
investment and management of the trust’s assets.
5) Diversification of Investments -- A trustee must diversify the investments of the trust unless the trustee
reasonably determines that, because of special circumstances, the purposes of the trust are better served
without diversification. In this regard, while a trust is revocable, the trustee owes duties only to the trust
settlor. The settlor’s direction that the trustee not diversify trust investments would constitute a “special
circumstance” that would relieve the trustee of its duty to diversify trust investments.
6) Reviewing Compliance with Act -- Compliance with the UPIA is determined in light of the facts and
circumstances existing at the time of the trustee’s decision or action. A trustee who acts in substantial
compliance with the Act is not liable to the beneficiaries even if the trust estate declines in value or
produces less income than anticipated.
c. Delegation of Investment and Management Functions Permitted -- A trustee may delegate investment and
management functions that a prudent trustee of comparable skills could properly delegate under the circumstances.
The trustee must exercise reasonable care, skill, and caution in:
(i) Selecting an agent;
(ii) Establishing the scope and terms of the delegation, consistent with the purposes of the trust; and
(iii) Periodically reviewing the agent’s actions to monitor the agent’s performance and compliance with the terms of
the delegation.
1) Agent’s Duty -- The agent has the duty to exercise reasonable care in complying with the terms of the
delegation.
2) Trustee’s Liability -- If the trustee exercises reasonable care, skill, and caution in selecting, delegating, and
reviewing the agent’s actions, she is not liable for the decisions or actions of the agent to whom the function
was delegated.
3. Statutory Legal Lists -- A state’s statutory legal list sets forth approved investments for trust assets. The list usually
includes government bonds, first mortgages, and other conservative investments.
a. Permissive vs. Mandatory Lists -- If the list is deemed to be “permissive,” the trustee can invest in securities
outside the list but incurs a heavier burden of proving the propriety of each investment when she does so.
b. List Can’t Be Followed Blindly -- Under either type of statutory list, the trustee cannot blindly follow the list. In
selecting among permissible investments, the trustee must exercise reasonable care, skill, and caution.
1. Except for bank deposits bearing interest, an unsecured loan of trust funds is an improper investment. An
investment in a second mortgage is a breach of trust in the absence of extreme or compelling circumstances.
2. Corporate Stocks -- Most statutory lists exclude common and preferred stocks.
3. Land -- Acquisition of land or other property for the purpose of resale at a profit is speculation and
therefore a breach of trust.
4. Mortgage Participations -- under which large sums are advanced by several trusts administered by the same
trustee as loans to property owners in exchange for mortgages, are increasingly upheld as proper investments—
mainly because they permit a greater diversification than would be possible if a single trust fund had to make
the loan by itself.
5. Investment in Mutual Funds -- trustee could not invest in mutual funds because doing so was regarded as an
 improper delegation of the investment duty. However, a mutual fund is a permissible investment under the
UPIA, and statutes in several states expressly authorize investment in mutual funds because this produces
diversification of investments in smaller trust estates.
6. Testator’s Business -- Where a testator is engaged in business at the time of his death and leaves all of his
property to his executor in trust, the executor cannot properly continue the business unless authorized by the
testator. She must dispose of the business and make proper trust investments, and if she fails to do so within a
reasonable time, she is liable for any losses that result.

D. SUMMARY—THE FIDUCIARY OBLIGATION. The standards imposed on the trustee are harsh. The policies behind such
stringent standards and remedies for their violation are: (i) deterrence of wrongful conduct, and (ii) easing the burden of
proving a breach of duty, should that become necessary. Do not overlook mentioning policy reasons in your answer. Watch for a
bar exam question regarding self-dealing, diversification, improper investment, and offsetting gain from one breach against
loss from another. You should ask the following questions:
1. Was the act one that the trustee was authorized to perform under the terms of the trust and applicable law? If not, there is
a breach of trust regardless of the good faith, skill, and diligence with which the trustee performed the act.
2. If the act was proper for the trustee to perform, did the trustee perform in a manner that satisfies the standard of conduct
required of her? Did she act prudently, diligently, and in good faith, exercising the appropriate amount of care, skill, and
caution of a reasonably prudent person under the circumstances?

E. LIABILITIES OF TRUSTEE
1. Enforcement by Beneficiaries -- The beneficiaries may seek to have the trustee surcharged (i.e., pay damages suffered
by the trust) or removed from office if the trustee breaches her duties. The settlor may sue if he is also a beneficiary, but
third parties can’t seek to enforce the trust.
a. Prior to Breach -- A Ct of equity will compel the trustee to perform her duties or will enjoin her from committing
the breach.
b. After Breach -- The trustee is liable to the trust estate for losses resulting from the breach and for any profit that
clearly would have accrued to the trust but for the breach, as well as any profit made by the trustee as a result of
her breach. The trustee will also be liable for interest on her liability from the time of the breach.
c. Defenses -- Equity can’t enforce the trust if the beneficiaries expressly or impliedly consented to or joined in the
breach of trust. The beneficiary must sue within a reasonable time after the breach or he will be barred from
enforcing the trust by the doctrine of laches. Note that the mere failure to object when the trustee commits a breach
of trust does not constitute consent.
d. Virtual Representation -- In any action in which trust beneficiaries are parties, a minor, incapacitated, or unborn
beneficiary who is not otherwise represented may be represented (and bound by any decision) by another
beneficiary having a substantially identical interest with respect to the particular question or dispute, but only to the
extent that there is no conflict of interest between the beneficiary and the person being represented.
2. More than One Breach of Trust—Losses Cannot Be Offset -- Where a trustee is liable for losses resulting from one
breach of trust, she cannot reduce the amount of this liability by offsetting it against a gain resulting from another breach
of trust.
3. Trustee’s Liability for the Acts of Others

a. Agents -- A trustee is not liable for the acts of her agents unless the trustee:
1) Directs, permits, or acquiesces in the act of the agent, or conceals the act, or negligently fails to compel the
agent to redress the wrong;
2) Fails to exercise reasonable supervision over the agent;
3) Permits the agent to perform duties that the trustee was not entitled to delegate; or
4) Fails to use reasonable care in the selection or retention of her agents.
b. Co-Trustees -- A trustee is not liable for a breach of trust committed by a co-trustee unless the trustee:
1) Improperly delegated her authority to the co-trustee (one trustee cannot delegate to a co-trustee power to
manage the property);
2) Participated, approved, or acquiesced in the breach by her co-trustee, or negligently disregarded her own
duties of administration so as to facilitate the breach by her co-trustee; or
3) Concealed the breach or failed to take proper steps to compel redress of it by the co-trustee.
c. Predecessor Trustees -- A trustee is not liable for breaches of trust committed by a predecessor trustee unless
she:
1) Knew or should have known of the breach and failed to take proper steps to prevent further breach or to
compel redress of a prior breach; or
2) Negligently failed to determine the amount of property that should have been turned over to her, or otherwise
neglected to obtain delivery of the full trust property from the predecessor.
d. Successor Trustees -- A successor trustee can maintain the same actions as could be maintained by the original
trustee. She can sue third persons for damaging trust property before she became trustee, and she can sue
 predecessor trustees to redress a breach of trust.
4. Effect of Exculpatory Clauses -- An exculpatory clause is one that attempts to relieve the trustee of liability for breach of
duty in the administration of the trust or lowers the standard of conduct required of her. An exculpatory clause designed to
absolve the trustee of all liability is void as against public policy. Limited exculpatory clauses are valid unless its: (i)
attempt to relieve the trustee from liability for bad faith, intentional breach of trust, or recklessness; or (ii) appear in the
trust instrument because of the trustee’s abuse of a confidential relationship with the settlor.

5. Trustee’s Liability to Third Parties

a. Unless it is explicitly stated in a contract the trustee is personally liable to third parties on contracts entered
into with them in the course of the trust administration.
1) Indemnification Rights & Reimbursement for Legal fees – if the trustee acted properly in making the
contract (i.e., within her powers and acted with reasonable prudence and care), she is entitled to
indemnification—either by paying the creditor directly from the trust property or by paying the claim herself
and obtaining reimbursement from the trust estate. The trustee is entitled to reimbursement for legal fees
incurred in defending suits brought against her by third parties, unless the suit arises out of a breach of duty
or from some fault of the trustee.
b. The trustee is personally liable to third parties for torts to the same extent as would be an ordinary owner. She
is liable for torts committed by herself or her agents.
1) The trustee is entitled to indemnification from the trust if she is not personally at fault and if the tort
liability is a risk that is a normal incident of the type of activity in which the trustee was properly engaged.
2) If the trustee is entitled to indemnification, tort creditors can reach the trust assets to satisfy their claims.

F. LIABILITY OF THIRD PARTIES TO THE TRUST

1. The trustee’s transactions with third parties that constitute a breach of trust can be set aside by a beneficiary or successor
trustee, provided it does not result in taking property from a bona fide purchaser. The third party can be compelled to
return the trust property improperly transferred to him or to restore the proceeds or product of that property, if it can be
traced into his hands.
2. A third party who acquires the legal title to trust property for value and without notice of the trust takes the property
free of the equitable interests of the beneficiaries. This cuts of beneficiaries interests.
a. The third party will be deemed to have notice of the existence of the trust if he knows of facts requiring an
inquiry that, if pursued, would have disclosed the existence of the trust. Therefore, 3rd party will not qualify as a
bona fide purchaser and can be compelled to return said trust interest.
b. An innocent donee of trust property must restore the property to the trust but cannot be held liable for damages.
If the donee has exchanged the trust property for other property, he can either restore the value of the property when
received or its substitute, whichever value is lower.
3. A third party who knowingly participates in a breach of trust by the trustee is liable for the resulting loss to the trust
estate. One who innocently participates in a breach of trust is not liable to the beneficiaries, except to the extent he is
obligated to return property transferred to him when not protected as a bona fide purchaser.
4. The beneficiaries of a trust cannot bring an action in law/equity against a third party who damages the trust property or
is liable to the trustee on a contract. The trustee is the person to sue the third party, but the beneficiaries can sue the
trustee for breach of trust. The exceptions to the prohibition on a direct suit by the beneficiaries are:
a. Trustee Participates in Breach -- the beneficiaries can sue the third party directly
b. Trustee Fails to Sue -- the beneficiaries can bring a suit in equity to compel trustee to perform her duty. The third
party can be joined in this suit.
c. Trustee Abandons Office -- … and a successor trustee has not been appointed, the beneficiaries can sue the third
party in equity without joining the trustee.

G. ALLOCATION OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL ACCOUNTS. Assets received by
the trustee must be allocated to either principal or income. The trustee will usually credit the assets received to principal, and credit
all income earned to income. However, certain receipts are of a mixed nature (both income and principal); thus, allocation problems
occur.
1. Uniform Principal and Income Act -- The Act, which applies to all trusts and estates unless the governing instrument
provides otherwise, gives the trustee or personal representative an adjustment power to reallocate investment portfolio
return. This adjustment power authorizes the trustee to characterize items such as capital gains, stock dividends, etc., as
income if the trustee deems it appropriate or necessary to carry out the trust purposes, e.g., where the income component
of a portfolio’s total return is too small (or too large) because of the investment decisions made by the trustee.
a. The trustee is under a duty to administer the trust impartially “based on what is fair and reasonable to all of the
beneficiaries,” unless the trust/will manifests an intent that a beneficiary(s) is to be favored over the others.
b. Adjustment Power -- If the trustee determines that by distributing only the trust’s “income” as stipulated in the
trust terms, she is unable to comply with the requirement that all beneficiaries be treated fairly, the trustee may
adjust between principal and income to the extent the trustee considers necessary; otherwise, trustee must follow
 traditional trust accounting rules by distributing interest and dividend income, etc., to the beneficiary
c. Factors to Be Considered -- In deciding whether and to what extent to exercise the adjustment power, the trustee is
to consider the following factors:
(i) nature, purpose, and expected duration of the trust; intent of the settlor; identity and circumstances of the
beneficiaries; needs for liquidity, regularity of income, and preservation and appreciation of capital; nature of
the trust’s assets; net amount allocated to income under the other sections of this Act and the increase or
decrease in the value of the principal assets; Whether and to what extent the trust gives or denies the trustee
the power to invade principal or accumulate income; actual and anticipated effect of economic conditions on
principal and income and effects of inflation and deflation; and the anticipated tax consequences of an
adjustment.
d. Trustee can’t use adjustment power if using it would result in some type of adverse tax consequence. Therefore,
he can’t make an adjustment if he’s a beneficiary of the trust or make an adjustment if using the adjustment power
would disqualify the trust for a federal estate tax marital or charitable deduction or cause the trust’s income to be
taxed to the trustee under the Internal Revenue Code’s “grantor trust” rules.
2. Allocation of Receipts -- The allocation rules follow traditional accounting rules. Net rental income is income, as is
interest on a bond or a certificate of deposit. The proceeds of sale of a trust asset (including any capital gains or profit
resulting from the sale) are principal, as are eminent domain awards for the governmental taking of property.
a. Receipts from Entity -- Money received from an entity, e.g., business (e.g., cash dividends, partnership cash
distributions) is characterized as income unless the money is characterized as a capital gain for federal income tax
purposes or is received in partial or total liquidation of the entity. All property other than money received from
an entity is characterized as principal.
b. Proceeds from a life insurance policy or other contract in which the trust or trustee is named beneficiary are
allocated to principal. If a contract insures the trustee against a type of loss (e.g., loss of profits from a business),
the proceeds are allocated to income.
1) Dividends from Insurance Policy -- are allocated to the account from which the premiums are paid.
c. Deferred Compensation—10% Default Rule -- For periodic receipts from a deferred compensation plan (e.g.,
pension or profit-sharing plan or individual retirement account), the receipt is income to the extent that the payment
is characterized by the payor as income, and the balance is principal. If no part of the payment is characterized as
income or as a dividend, 10% of the payment is characterized as income and the balance is principal.
d. Liquidating Assets Such as Patents, Copyrights—10% Rule -- A “liquidating asset” is an asset whose value will
diminish over time because the asset is expected to produce receipts over a limited period. Proceeds from such
liquidating assets (e.g., patents, copyrights, book royalties) are allocated 10% to income and 90% to principal.
e. Mineral Interests—10% Rule -- For most oil, gas, mineral lease, and water right payments, receipts are allocated
10% to income and 90% to principal.
f. Unproductive Property -- Under the former law, if a particular trust asset produced little or no income, on the
asset’s sale, the income beneficiary was entitled to a portion of the sale proceeds under the principle of “delayed
income.” The objective was to compensate the beneficiary for the income the asset would have earned had it been
invested more productively. Consistent with the UPIA, which looks to total return from the overall portfolio rather
than the income from particular assets, the unproductive property rule was repealed except for certain trusts that
are intended to qualify for the estate tax marital deduction.

3. Allocation of Expenses
a. The following expenses are charged against income: one-half of the regular compensation of the trustee and of
any person providing investment advisory or custodial services to the trustee; one-half of all expenses for
accountings, judicial proceedings, and other matters affecting both income and remainder interests; the entire cost
of ordinary expenses (including interest, ordinary repairs, and regularly recurring taxes assessed against principal);
and insurance premiums covering the loss of a principal asset.
b. The following expenses are charged against principal: the remaining one-half of the compensation of the
trustee and any person providing investment advisory or custodial services to the trustee; the remaining one-half of
all expenses for accountings, judicial proceedings, and other matters affecting both income and remainder
interests; payments on the principal of a trust debt; expenses of a proceeding that concerns primarily an interest in
principal; estate taxes; and disbursements related to environmental matters.

VII. WILL SUBSTITUTES

A. If a settlor desires to transfer, at the moment of her death, property interests to a trustee and beneficiaries, she must do so by a
duly executed will. However, it is possible for a settlor to make an inter vivos transfer by which economic benefits pass at her
death without the formalities of a will. The principal vehicles by which this is done are revocable inter vivos trusts, life
insurance designations, and bank arrangements.

B. A revocable inter vivos trust avoids the costs and delays of probate and has a number of advantages over a will. The reason
 why the revocable trust is not a will, and does not have to comply with the Statute of Wills, is that an interest passes to the
beneficiary during the settlor’s life; it merely becomes possessory on the settlor’s death. The interest can be revoked or
divested during the settlor’s life, but it passes subject to revocation.
1. Determining Whether an Interest Passes -- during the settlor’s life is really a conclusion derived from applying the
ritual and evidentiary policies of the Statute of Wills. Where a written instrument is delivered to an independent third-
party trustee, there is little doubt that these policies are satisfied.
a. Where Trustee Given Usual Powers -- If a settlor transfers property to another in a revocable inter vivos trust,
and the trustee has normal trustee powers, the trust is valid everywhere.
b. Where Administrative Powers Retained -- If a settlor transfers property in writing to another in a revocable inter
vivos trust, but the settlor retains administrative and investment control over the trustee, it can be argued that the
arrangement is no more than an agency that ceases at the settlor-principal’s death, but all modern cases sustain a
revocable trust of this kind.
c. Declaration of Trust -- If a settlor declares herself the trustee of a revocable inter vivos trust, the trust might fail
on the theory that the settlor is still the owner and no interest has passed to a beneficiary. Nonetheless, such a trust
has been upheld in modern cases where the settlor notified third parties or took some action that made clear her
intention to create a trust. Comment: The Cts want to be sure that S intended to make a binding transfer, even
though revocable. The witnessing of a declaration of trust may give that assurance.
2. Advantages of Revocable Trust -- A revocable inter vivos trust has the following advantages:
a. Management of Assets – if you are constantly on the move having someone else manage your invests is doable
via revocable inter vivos trusts.
b. Planning for Incapacity—Avoidance of Guardianship – if you become incapacitated, but transferred legal title
in your investment assets to the bank as trustee, the trust continues to operate for your benefit without the
necessity of a guardianship administration.
c. Avoidance of Probate -- Suppose you dies, survived by wife and kids. Because legal title to your investment assets
is held by the bank as trustee, the assets are not subject to probate administration. The assets continue to be held for
the benefit of your wife and kids without the expenses and delays of a probate administration.
d. Secrecy -- A will is a public record, but an inter vivos trust is not recorded anywhere. Secrecy as to assets and
beneficiaries is thus available.
e. Choice of Law -- The settlor can select as trustee a person living in another state and provide that the law of that
other state shall govern the trust. Local restrictions on testation can thereby be avoided—e.g., by choosing a state
that permits spendthrift trusts, or permits a spouse’s statutory forced share to be avoided by a revocable trust.
f. Defeat Spouse’s Forced Share? -- In all non-community property states except Georgia, a surviving spouse is
given the right to elect a forced share (in most states, one-third or one-half) of the decedent’s estate at death. In
some states, a person can undercut the elective share entitlement by placing her assets in a revocable trust and
thereby removing the assets from her probate estate. Under the Uniform Probate Code and in most states,
however, lifetime transfers by the decedent are subject to the elective share if the grantor-spouse retained the power
to revoke, or to invade, consume, or dispose of the principal.
3. “Pour-Over” Gift from Will to Revocable Trust – A settlor can create a revocable inter vivos trust and in stead of willing
portions of his estate to the same beneficiaries he can list the trustee/trust as the receipent of the will gift to so that it pours
over into the inter vivos trust and operator under the terms of the trust. Such a gift to an inter vivos trust (called a pour-
over gift in practice) is valid under the Uniform Testamentary Additions to Trusts Act (“UTATA”). The statute thus
permits the integrated disposition of testamentary assets with a trust created during the settlor’s lifetime.
a. Trust May Be Established Before, After, or Concurrently with the Will -- A will may devise property to a
trustee of a trust established or to be established during the testator’s lifetime.
b. Trust May Be Amendable and Revocable -- A pour-over gift by will is valid even though the inter vivos trust is
amendable and revocable. The gift is to the trust as it exists at the testator’s death, including amendments to the trust
made after the will was executed.
c. Gift Is Valid Even Though Trust Unfunded During Settlor’s Lifetime -- The statute authorizes pour-over gifts
to a trust that is not funded with any assets during the settlor’s lifetime and whose sole purpose is to receive such a
testamentary gift. The statute eliminates any basis for challenging the gift on the ground that no valid trust was
created during the settlor’s lifetime because the trust had no res. Such a devise is valid even though the only res of
the trust is the possibility of receiving a devise under a will. Another statute authorizes the payment of life
insurance proceeds, employee death benefits, and similar benefits to an unfunded trust whose sole purpose is to
receive such benefits on the settlor’s death.

C. LIFE INSURANCE TRUSTS -- Life insurance trusts are usually one of the following kinds:
1. Contingent Beneficiary Trust -- the owner and insured under a life insurance policy, designates the policy beneficiary as
her husband, H; and if H does not survive W, to B to hold in trust for W’s children. This is a valid inter vivos trust, which
becomes effective immediately. The contingent right to the proceeds in W’s children is a sufficient res. B has active duties
in that he waits to see if H dies before W and, if he does, collects the proceeds on W’s death. This is not a testamentary
trust, even though B receives the proceeds, if at all, only on W’s death, because the trust came into being during W’s
 life.
2. Assignment of Policies – the owner and insured under a life insurance policy, assigns the policy to B to hold in trust for
his children. The trust can be funded (i.e., other funds are transferred to B), or unfunded (i.e., the only trust res is the
policy). In either event, it is valid as an inter vivos transfer.
3. Payable to Testamentary Trustee -- A, owner and insured under a life insurance policy, designates as beneficiary “the
trustee named in my will.” In A’s will, she names her brother B as trustee of her property for the benefit of her children.
Some Cts have held that this is a testamentary designation that does not comply with the Statute of Wills and, thus, fails.

D. TOTTEN TRUST BANK ACCOUNTS -- is the name given to a bank account in the depositor’s name “as trustee” for a named
beneficiary (e.g., “A, trustee for B”). Under such a bank account, A, the depositor, retains the passbook and continues to make
deposits and withdrawals during her lifetime. B has no beneficial interest in the account during A’s lifetime, but succeeds to
whatever is on deposit at A’s death.
1. Trustee-Depositor Has Full Rights During Lifetime -- A Totten trust is not really a trust because there is no
separation of legal and equitable title. The depositor remains the owner of all funds on deposit during her lifetime and
can withdraw them at any time.
2. Revocation by Other Lifetime Act -- While Totten trusts are revoked by withdrawals, they can also be revoked by any
lifetime act that manifests an intent to revoke.
3. Revocation by Will -- If A leaves a will that says, “I bequeath all funds on deposit in my ‘in-trust-for’ savings accounts
to my friend C,” this is a valid disposition. C, and not the beneficiaries named in A’s Totten trusts, is entitled to the funds
on deposit.
a. Compare—Joint Bank Accounts, with survivorship provisions cannot be bequeathed by a will.
4. Gift upon Delivery of Passbook -- if depositor delivers the passbook to beneficiary, this constitutes a valid gift to B of
the amount on deposit.
5. Creditors’ Claims can reach the totten account, because the depositor has complete control over the deposit during his
lifetime his creditors can reach the deposit while he is living, and can reach it as part of his estate on death.
6. Terminates If Beneficiary Predeceases Depositor -- If beneficiary predeceases depositor, the trust automatically
terminates. The funds on deposit belong to A absolutely and do not pass to B’s estate.

E. UNIFORM TRANSFERS TO MINORS ACT – a procedure for making gifts to minors who have no legal capacity to
manage or sell property, under which property may be transferred to a person (including the donor) as custodian for the benefit
of a minor. The transfer may be made to a custodian by an executor, trustee, or guardian under a governing instrument (e.g.,
will, power of appointment, or deed, for a minor beneficiary). The transfer is in the form, “To [name of custodian] as custodian
for [name of minor] under the [name of state] Uniform Transfers to Minors Act.” Under the UTMA, custodianship terminates
when the donee attains age 21.
1. Custodian’s Powers and Duties -- The custodian does not hold legal title to the custodial property, the minor does,
subject to the custodian’s statutory power. The custodian has statutory powers: (i) to collect, hold, manage, invest, and
reinvest the custodial property; (ii) to pay to or on the minor’s behalf so much or all of the custodial property as the
custodian deems advisable for the minor’s use and benefit; and (iii) to the extent not expended, to pay over the property
when the minor attains age 21 (or to the minor’s estate should she die before age 21). A custodian is a fiduciary and is
subject to the standard of care of a prudent person dealing with property of another.
2. Qualifies for Annual Gift Tax Exclusion -- A custodial gift made pursuant to the UTMA qualifies for the annual
federal gift tax exclusion.

F. GIFT CAUSA MORTIS (GIFT IN VIEW OF IMPENDING DEATH) --- A gift causa mortis is a gift of personal
property made in contemplation of immediately approaching death.
1. Gifts causa mortis are subject to the same delivery and acceptance requirements as inter vivos gifts.
a. Actual Physical Delivery -- If the donor physically vests the donee with possession (must show he received
dominion and control over subject matter of gift) of the subject matter of the gift, the delivery requirement is
satisfied.
b. Constructive Delivery -- When an item, because of its size or location, would be impossible or impracticable to
manually deliver, substitute delivery may be sufficient. Here, the delivery requirement will be satisfied if the donor
surrenders (giving up the means to obtain possession and control) as much control over the subject matter of the
gift as he presently possesses.
c. Symbolic Delivery -- Symbolic delivery occurs when the donor hands over some object, other than the item given,
that is symbolic of the item. Symbolic delivery is most commonly effectuated by delivering a written instrument that
evidences ownership. A gift causa mortis cannot be accomplished by symbolic delivery. The Cts reason that if a
written instrument is used to pass property at death, it should comply with the Statute of Wills.
2. Anticipation of Death -- The donor of this type of gift must be suffering from a condition that realistically confronted
her with a fear of death.
3. Revocation
a. A gift causa mortis is a revocable transaction. The donor reserves the right, as a condition subsequent, to revest
 ownership in herself by any affirmative act manifesting such intention.
b. Recovery—Gift Revoked by Operation of Law -- If a donor recovers from the condition that put her in fear of
impending death, the gift is revoked by operation of law. One who attempts a gift causa mortis in contemplation of
death will have made a valid gift as long as she fails to recover—even if the precise cause of death is different.
c. Donor Survives Donee—Gift Revoked by Operation of Law -- The gift is revoked by operation of law if the
donee fails to survive the donor.
d. A gift causa mortis is subject to the claims of creditors of the donor’s estate.

VIII. TRUSTS ARISING AS A MATTER OF LAW—RESULTING AND CONSTRUCTIVE TRUSTS

A. Resulting and constructive trusts do not arise by a settlor’s express declaration of trust. They are implied by law or imposed
by courts. Resulting trusts occur when the equitable interest in property is not completely disposed of and are based on the
presumed intent of the settlor. Constructive trusts are equity court mechanisms that prevent unjust enrichment by the person
that obtained legal title to property somehow distasteful way. The court feels that the person with the legal title technically
shouldn’t have that interest. Since resulting and constructive trusts are implied by the Cts, the Statute of Frauds is inapplicable;
no writing is necessary even where real property is involved.

B. RESULTING TRUSTS—WHEN WILL THEY BE IMPLIED? -- Resulting trusts are generally of three types: (i)
purchase money resulting trusts, (ii) resulting trusts arising on failure of an express trust, and (iii) resulting trusts arising
from an incomplete disposition of trust assets. In resulting trusts, the person who is declared by equity to be the beneficiary of
the resulting trust is the one responsible for supplying the trust property (corpus). He has directly conveyed the property to the
person held to be the trustee, or he has supplied the consideration for a transaction through which the “trustee,” acquired title
to the property. Thus, the person who holds title did not give consideration. From this fact, equity presumes that he was not
intended to have the benefits of ownership and that he should be a trustee for the person who did furnish the consideration or
conveyed title to him.
1. Purchase Money Resulting Trusts -- say there is a sale of property [real or personal] in which Y obtains legal title from
the seller. But Y, who takes title, did not supply the consideration; another person, X, paid the consideration. Unless X and
Y are close relatives, it is unlikely that X intended a gift. X intended to retain some benefit; thus, the Cts imply that Y is
trustee and X is beneficiary of a resulting trust. This resulting trust is dry or passive in that Y (title holder/trustee), has no
management duties. His sole duty is to convey his title to X (beneficiary).
a. Form of Consideration Immaterial -- The consideration given by X is usually money; but it need not be. The
resulting trust will arise if the seller asks for consideration (in what ever form) and X supplies it. So long as Y has
title and got it because X provided some form of consideration. But note: A resulting trust arises only from
consideration given for actual purchase of the property. This excludes money furnished by X to pay off a
mortgage, to pay taxes on the land, or to build improvements on it.
b. No resulting trust if beneficiary supplied consideration after trustee takes title. For a resulting trust to arise X
must supply the consideration at or before the time Y takes title (e.g., in the case of real property, at the time of
delivery of the deed to Y). It is also sufficient if X obligates himself, prior to or at the time Y takes title, to pay the
consideration (e.g., X gives the seller a promissory note). Payments made by X after Y has taken title will not give
rise to a resulting trust unless X has bound himself to make such payments.
c. Beneficiary claiming to be the beneficiary has the burden of proof and must provide by clear and
convincing evidence that he actually is the beneficiary, because he supplied the consideration to buy the property
He is entitled to bolster his claim by extrinsic evidence that Y had agreed to hold the property solely for his benefit.
If there is an actual trust agreement between X and Y, and if any applicable Statute of Frauds provision is satisfied,
the trust would be an express trust, not a resulting trust.
d. Rebuttable Presumption of Resulting Trust -- Once the beneficiary proves that he supplied the consideration, a
resulting trust is presumed. But, title holder/ trustee can rebut the presumption by submitting evidence that no
trust was intended and that the money used as consideration for the purchase was either: (i) a gift; (ii) a loan; or (iii)
debt payment the beneficiary owed alleged trustee.
e. Major Exception—No resulting Trust Presumption Where Parties Closely Related -- If X (the person
supplying the consideration) is a close relative of Y (the one taking title), a gift from X to Y of the funds used for
consideration, rather than a resulting trust, is presumed. The close family relationship between X and Y precludes
any presumption of a trust.
1) A gift, not a trust, is presumed from the following relationships:
a) Parent supplies consideration, title taken in child’s name.
b) Grandparent supplies consideration, title taken in grandchild’s name.
c) Spouse supplies consideration, title taken in other spouse’s name.
2) Relationships Where Trust Is Presumed -- The normal presumption of a trust applies where the person
furnishing consideration is the uncle, aunt, brother, sister, child, or grandchild of the person receiving title.
f. Second Exception—no resulting trust wherein arrangement is for an Unlawful Purpose. such as:
a) X, who supplied the consideration, is trying to keep property from his creditors.
b) X is trying to avoid a tax liability.
 c) Y is eligible for financing (e.g., he is a veteran) that X cannot get.
g. Third Exception—alleged trustee Obtained Title Wrongfully without beneficiaries consent. For there to be a
resulting trust, the placing of title in Y’s name must be with the consent of X, the one furnishing consideration.
Where Y has taken title without such consent, there is usually fraud or other wrongdoing sufficient to raise a
constructive trust in favor of X.
h. Pro Rata Resulting Trusts. Where X pays only part of the purchase price, the resulting trust in his favor will be
only for a pro rata portion of the title. Thus, if the total price is $8,000 and X paid $2,000 of it, the resulting trust
doctrine makes X the equitable owner of an undivided one-fourth interest. He is a co-tenant with the title holder,
Y.
2. Resulting Trusts Arising on Failure of Express Trust -- Typically, the settlor, creates an express trust and conveys
legal title to the trustee. A problem arises when the beneficiary of the trust cannot be located or is dead, or the trust is
unenforceable or void for some other reason (e.g., it violated the Rule Against Perpetuities), and the settlor in creating
the trust, did not provide what should be done with the property in this event. Equity implies the answer: The express
trust ends and a resulting trust arises in which Settlor is the beneficiary. This resulting trust is dry or passive—T’s duty as
trustee of the resulting trust is simply to convey title back to S. If S is dead, his estate is the beneficiary. The property will
go to his heirs or to those who took under his will.
a. No Resulting Trust Where Consideration Paid to Settlor -- There is no resulting trust in favor of S where he
received consideration for his conveyance of the property to the trustee. If someone other than T paid the
consideration, a trust may result in favor of that person. If T paid it, T keeps title.
b. On Failure of Charitable Trust -- Where the express trust is charitable and the designated beneficiary ceases to
exist, a resulting trust in favor of the settlor is implied where no general charitable intent by S appears (so that the
cy pres doctrine is inapplicable).
c. Limitation—Illegal Purpose -- If the express trust that fails was established by S for an illegal purpose (e.g., to
defraud S’s creditors), equity may refuse to imply a resulting trust, allowing T to keep title plus the beneficial
interest. Modern cases indicate that equity will imply a resulting trust despite the illegal scheme if the gravity of S’s
wrongdoing is slight compared to the unjust enrichment T would obtain if he were permitted to keep the trust
property.

3. Resulting Trust Implied from Excess Corpus -- A resulting trust in favor of the settlor arises when the trust purpose is
fully satisfied and some trust property remains. There could be a resulting trust of part of the corpus even where the trust
is not completely terminated, if it is clear that the trust property is in excess of the amount needed to carry out the trust
purpose.

C. CONSTRUCTIVE TRUSTS. A constructive trust is not a trust at all. It is a flexible equitable remedy imposed by a Ct to
prevent an unjust enrichment of one person at the expense of another as the result of wrongful conduct. The constructive
trustee’s only duty is to convey the property to the person who would have owned it but for the wrongful conduct. The party
seeking to have a constructive trust imposed must prove the facts he relies on (e.g., fraud, breach of confidence, theft) by clear
and convincing evidence (standard of proof).
1. Constructive Trust Arising from Theft or Conversion. If Y steals or converts property from X, title remains in X, so
there is no need to imply trust to restore title to the owner, X. But if Y uses the proceeds of his theft to buy other
property, he takes title to it. X can trace to this new property and have a constructive trust imposed upon it to prevent Y
from profiting from his wrong. X is the beneficiary of the constructive trust; Y is the trustee. Y’s sole duty is to convey
the property to X, for once a constructive trust is declared by a Ct to exist, it is a dry trust and the trustee has no active
management duties.
2. Constructive Trust Arising from Fraud, Duress, Etc. Where Y, by fraudulent misrepresentation or concealment,
causes X to convey title to property to him, X is entitled to a decree that Y holds the property in constructive trust for X’s
benefit. Moreover, if Y, after defrauding X out of property, sells or exchanges it for other items, the items would be the
subject of a constructive trust under the tracing doctrine.
a. Property Conveyed to Third Party Who Is Not a Bona Fide Purchaser. If Y acquired title from X by fraud
and conveyed title to a third party, Z, who is not a bona fide purchaser, the constructive trust could be imposed
against Z, requiring him as “trustee” to convey title back to the victim, X. Where Z has given value to Y to acquire
X’s property and has acquired it with notice of fraud, the victim, X, will have a choice of two possible constructive
trusts to pursue (i.e., X can have Z declared constructive trustee of the original property or have Y declared
constructive trustee of the proceeds from the sale to Z).
b. Circumstances Giving Rise to Constructive Trust -- As in the case of fraud, a constructive trust will be declared
against a party who obtains title to property by duress, undue influence, or mistake of fact.
c. Where Will Is Concealed or Fraudulent -- Where Y conceals X’s true will and takes property under a prior will
or by intestacy, he holds the property as constructive trustee for the aggrieved devisees and legatees. Where a party
takes title to property under a forged or fraudulent will, he is a constructive trustee for decedent’s aggrieved heirs or
devisees, even if he was innocent of wrongdoing.
d. Interference with Contract Relations -- The constructive trust remedy is available against a party who obtains
title to property by committing the tort of interference with contract relations.
 3. Constructive Trust Arising from Breach of Fiduciary Duty
a. Breach of Fiduciary Duty -- If the fiduciary violates this duty, he will be required to hold the property he thereby
acquires in constructive trust in favor of the person to whom he owes the duty. Under the same principle, if an
attorney advising a client on his will permits the client to leave property to the attorney without the attorney’s
making full disclosure of all he knows concerning its value, the attorney will, on the client’s death, hold title to the
property in constructive trust for the estate of the client.
4. Constructive Trust Arising from Homicide -- If one person kills another and is convicted of murder or manslaughter, he
holds any property he acquires from the victim by will or intestacy as constructive trustee in favor of whomever would
have taken the property had the killer predeceased the victim.
a. Where Victim and Killer Held Property in Joint Tenancy -- Where the victim held property in joint tenancy
with the killer, the killer obtains full legal title to the property. However, he holds at least one-half interest therein
as constructive trustee for the estate of the victim. In some states, he holds the whole fee in constructive trust for
the victim’s estate, less his own life estate in one-half.
5. Constructive Trust Arising from Breach of Promise
a. General Rule—No Constructive Trust. a person’s breach of a promise is not a sufficient basis for implying a
constructive trust. Thus, where A conveys real property to B on B’s oral promise either to hold it as trustee for C or to
convey it to C, and B later repudiates his promise, there is no constructive trust. A may be able to get a constructive
trust imposed in his favor. A can then convey the property directly to C. The theory is that to permit B to keep the
property would result in unjust enrichment, which thwarts the purpose of the Statute of Frauds.
1) Consideration for Promise Irrelevant. a breach of promise will not raise a constructive trust uniformly
applies even where there was consideration for the promise. A may recover damages and, in some
circumstances, obtain specific performance, but a constructive trust will not be imposed.
b. Exceptions to General Rule
1) Breach of Fraudulent Promise—Fraud in the Inception -- If A conveys land to B on his oral promise to
hold it for, or convey it to, C, and if at the time he made the promise B did not intend to keep it, there is
almost certainly fraud (misrepresentation) and a constructive trust will be imposed against B in favor of C (or
perhaps in favor of A, who will then be able to convey directly to C).
2) Breach of Promise by One in Confidential Relationship -- if the grantee, who orally promises to hold the
property in trust, is in a confidential relationship with the grantor the breach of the grantee’s promise is
constructively fraudulent and the agreement to hold in trust may be shown for the purpose of imposing a
constructive trust for the benefit of the intended beneficiaries. The grantee’s promise must be proved by clear
and convincing evidence.
3) Breach of Promise Concerning a Will or Inheritance -- Broken promises to a decedent concerning
devolution of his property on death is an exception to the rule that a breach of promise is an insufficient basis
for imposing a constructive trust.
D. OBLIGATIONS OF TRUSTEE OF CONSTRUCTIVE OR RESULTING TRUST
1. Duty to Convey Title -- From the time the Ct declares a constructive or resulting trust, the sole duty of the trustee is to
convey legal title to the beneficiary. If he does not do so, he is responsible for the profits the beneficiary would have
earned.
2. Other Trustee Duties and Liabilities—Constructive Trusts. When a Ct declares a constructive trust to exist, such a
trust is retroactive to the later of: (i) the date the trustee took title; or (ii) the time of the fraud, breach of promise, or other
wrongful conduct on which the trust is based.
a. From that date, the trustee is accountable to the beneficiary for all profits he has taken from the property and, if he
has used it himself, its fair rental value.
b. From that date, the trustee owes a fiduciary duty to the beneficiary to deal fairly with the property and to make full
disclosure, and he will be accountable for profits made on transactions where he breached this duty.
c. During this period of time and prior to conveying title to the beneficiary, the trustee will be held liable for
damages to the property that he willfully or negligently causes.
d. The trustee has no duty to invest the trust property.
3. Other Trustee Duties and Liabilities—Resulting Trusts. The rules above are also applicable to trustees of resulting
trusts from the date on which they arise:
a) In the case of a resulting trust on failure of an express trust, from the date the express trust becomes void, or
from the date it becomes inoperable for lack of a beneficiary;
b) In the case of excess corpus, from the date the trust purpose is completed; and
c) In the case of a purchase money resulting trust, from the date the trustee takes title to the property.
4. Tracing Assets. The doctrine of tracing trust assets is fully applicable to dealings by the trustee of a constructive or
resulting trust with trust property and the profits from trust property.

E. APPLICATION OF EQUITABLE PRINCIPLES.

1. The party claiming to be the beneficiary of such a trust may be denied relief if he has “unclean hands”.
2. The party claiming to be the beneficiary of such a trust and seeking relief in equity must himself “do equity.” For
 example, if the alleged trustee has in good faith paid taxes on the property, paid for sewer lines and the like, or
constructed improvements on the land, the beneficiary must agree to make reasonable reimbursement to the trustee.
3. Exception. While most equitable principles apply to actions seeking to impose a resulting or constructive trust, there is
one important exception: These remedies are available even though the one claiming to be the beneficiary has an
adequate remedy at law (e.g., a suit for damages). In answering a question on constructive or resulting trusts, you
should expressly state that an adequate remedy at law ordinarily does not preclude such type of equitable relief.
However, as noted above, an adequate remedy in damages at law may preclude a constructive trust in two particular
instances: (i) breach of oral promise to make a will; and (ii) breach of oral promise to hold property purchased at a
foreclosure sale for the benefit of the promisee.