Subject outline

Trusts

10 core rule statements and a 263-line detailed rule bank, organized the way the California Bar tests them.

• Creation of Express Trust

  An express trust requires a settlor with capacity and intent, trust property, ascertainable beneficiaries or valid purpose, a trustee, and lawful terms.

  Elements / Factors

  1. 1Settlor capacity.
  2. 2Present intent to create trust.
  3. 3Identifiable trust property.
  4. 4Definite beneficiary or charitable/statutory purpose.
  5. 5Trustee with enforceable duties.
  6. 6Lawful purpose.

  Exceptions / Limitations

  • •A trust need not fail for want of trustee; a court can appoint one.
  • •A testamentary trust must comply with will formalities.
  • •A trust of real property generally requires a writing.

  California distinction

  • California Probate Code section 15200 et seq. governs creation and recognizes declaration, transfer, exercise of power, enforceable promise, and other methods.

• Trust Intent

  The settlor must manifest present intent to impose enforceable duties, not merely express a wish, moral request, or future intention.

  Elements / Factors

  1. 1Objective manifestation.
  2. 2Present creation.
  3. 3Imperative duties.
  4. 4Sufficient certainty of property and beneficiaries.

  Exceptions / Limitations

  • •Precatory language may create a trust only when context shows mandatory intent.

• Trust Modification and Revocation

  A revocable trust may be revoked or modified by the method in the instrument or a statutory method; an irrevocable trust may be modified or terminated through consent and court doctrines.

  Elements / Factors

  1. 1Determine revocability.
  2. 2Follow exclusive method if instrument makes it exclusive.
  3. 3Otherwise use statutory signed-writing procedure.
  4. 4For irrevocable trust, obtain required settlor/beneficiary consent or prove changed circumstances, frustration, uneconomic administration, or other equitable basis.

  Exceptions / Limitations

  • •Material purpose can prevent termination solely by beneficiary consent. Spendthrift protection may be a material purpose.

  California distinction

  • California presumes a trust revocable unless expressly made irrevocable for modern trusts and provides statutory revocation procedures in Probate Code section 15401.

• Duty of Loyalty

  A trustee must administer solely in beneficiaries’ interests and avoid self-dealing and conflicts.

  Elements / Factors

  1. 1Trustee transaction involving trust property or opportunity.
  2. 2Personal interest or divided loyalty.
  3. 3No authorization, consent, court approval, or statutory exception.

  Exceptions / Limitations

  • •No-further-inquiry rule generally makes self-dealing voidable without proof of unfairness.
  • •Beneficiary may seek rescission, constructive trust, accounting, surcharge, or profits, subject to bona fide purchaser rights.

  California distinction

  • California Probate Code section 16002 imposes the duty of loyalty and sections 16004-16004.5 regulate adverse transactions.

• Duty of Prudence

  A trustee must administer as a prudent person would, considering purposes, terms, distribution requirements, and circumstances of the trust.

  Elements / Factors

  1. 1Reasonable care, skill, and caution.
  2. 2Invest and manage as part of overall portfolio.
  3. 3Appropriate risk-return objectives.
  4. 4Diversification unless reasonably unnecessary.
  5. 5Periodic review and reasonable costs.

  Exceptions / Limitations

  • •Performance is judged at decision time, not with hindsight.
  • •A trustee with special skills is held to them and may delegate prudently with selection, scope, and monitoring.

  California distinction

  • California Uniform Prudent Investor Act applies portfolio-based prudence and diversification.

• Duty of Impartiality

  A trustee with multiple beneficiaries must act impartially, giving due regard to their respective interests.

  Elements / Factors

  1. 1Identify competing current and remainder interests.
  2. 2Follow settlor’s priorities.
  3. 3Balance investment, allocation, and distribution decisions fairly.
  4. 4Document reasons and relevant factors.

  Exceptions / Limitations

  • •Impartiality does not require equality when trust terms create different interests.

• Duty to Inform and Account

  A trustee must keep qualified beneficiaries reasonably informed and provide required reports and accountings.

  Elements / Factors

  1. 1Notice of trust administration where required.
  2. 2Information reasonably necessary to protect interests.
  3. 3Periodic and termination accountings.
  4. 4Disclosure of receipts, disbursements, assets, liabilities, compensation, and material transactions.

  Exceptions / Limitations

  • •Trust terms may modify some reporting duties but not all mandatory protections.

  California distinction

  • California imposes statutory notice and accounting duties, with limitations periods often tied to adequately disclosed reports.

• Spendthrift Trust

  A valid spendthrift provision restrains voluntary and involuntary transfer of a beneficiary’s interest before distribution.

  Elements / Factors

  1. 1Express restraint on transfer.
  2. 2Beneficiary is not also sole settlor and sole beneficiary as to self-settled interest.
  3. 3Creditor seeks undistributed interest.

  Exceptions / Limitations

  • •Exceptions may include support claimants, government claims, restitution, and amounts due and payable.
  • •A settlor generally cannot protect the settlor’s own beneficial interest from creditors.

  California distinction

  • California recognizes spendthrift restraints but permits statutory creditor access to specified portions and categories.

• Charitable Trust

  A charitable trust benefits the public or a sufficiently large class for a recognized charitable purpose.

  Elements / Factors

  1. 1Charitable purpose.
  2. 2Public benefit rather than identifiable private beneficiaries.
  3. 3Indefinite or sufficiently broad class.
  4. 4Lawful and practicable administration.

  Exceptions / Limitations

  • •Cy pres modifies purpose when it becomes impossible, impracticable, or wasteful and settlor had general charitable intent.
  • •Equitable deviation modifies administrative terms to further purpose.

  California distinction

  • California Attorney General has enforcement and notice roles concerning charitable trusts.

• Trustee Breach and Remedies

  A trustee breaches by violating the trust or fiduciary duty and may be compelled to restore loss or surrender profit.

  Elements / Factors

  1. 1Duty.
  2. 2Breach.
  3. 3Causation of loss or receipt of improper profit.
  4. 4No defense, consent, release, or limitations bar.

  Exceptions / Limitations

  • •Remedies include injunction, accounting, surcharge, disgorgement, rescission, constructive trust, tracing, removal, and denial of compensation.
  • •Exculpation does not protect bad faith, reckless indifference, or terms inserted through abuse of fiduciary/confidential relationship.