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UBE Rule Statements > 2. Trusts > Flashcards

2. Trusts Flashcards

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1
Q

What are the requirements for a valid trust?

A
  1. Trustee (but a trust never fails for want of trustee)
  2. Beneficiary - definite and ascertainable
  3. Trust Property - identifiable
  4. Intent (present intent to form trust - words, conduct such as delivery of res to Trustee)
  5. Valid trust purpose
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2
Q

What are the rules related to a promise to form a trust?

A

General rule - a promise to form a trust does not form a trust, even when the res is received

Exceptions:

  1. If promise supported by consideration, trust is formed on receipt
  2. If settlor reaffirms upon receipt of the res, trust is formed
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3
Q

What are the rules related to a settlor trying to form a trust on future property rights?

A
  1. If settlor trying to use rights to property in a non-vested will (meaning the testator is still alive), it is illusory and not a valid trust
  2. But if the settlor uses rights after the will has vested (the testator has died, but before probate), this is a valid trust
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4
Q

What is the common law trust presumption?

A

Any inter-vivos (lifetime) trust is presumed to be irrevocable unless specified otherwise

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5
Q

What are the requirements for private trust beneficiaries?

A

RULE – sufficiently ascertainable

Example: “to my friends” is not ascertainable enough, “my descendants” IS enough, need not be living beneficiaries

Modern majority exception: if trust fails because of unascertainable beneficiaries, the trustee may still dispose using power of appointment

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6
Q

What are the traits of an honorary trust?

A

Common Law – honorary trusts are invalid and violate RAP

UPC – honorary trusts are valid but cannot last longer than 21 yrs and will terminate on death of the animal

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7
Q

Secret Trust

A
  1. Gift in will based on secret promise to hold the property in trust for third party beneficiary
  2. Court looks at extrinsic evidence
  3. Constructive trust for the beneficiary
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8
Q

Semi-Secret Trust

A
  1. Gift in will to devisee to hold “in trust” but fails to name beneficiary.
  2. Court does NOT look at extrinsic evidence
  3. Trustee holds for testator’s heirs
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9
Q

Is a pour over will valid?

A
  1. Traditional Rule – pour over will is not valid if trust is not in existence at time of execution of will
  2. Modern Rule – trust may be formed after execution BUT before death of testator

Trust can be modified and funded as needed during Testator’s lifetime

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10
Q

When is a valid contract to form a will OR refrain from revoking a will enforceable?

A
  1. Majority rule - contracts valid but if for real property, must satisfy statute of frauds
  2. UPC - contract to form will valid IF (a) terms are in the will; OR (b) terms of the will are in the WRITTEN contract; OR (c) the will refers to the contract (easiest)
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11
Q

What are the requirements of a Charitable Trust?

A
  1. Same as private trusts; BUT
  2. Beneficiaries must be unascertainable (not including specific charities or organizations); and
  3. Must have a charitable purpose (this means actually function as charitable, not masquerade as a private trust)

Special rules: does not violate RAP, can be amended using Cy Pres doctrine, enforced by state AG, settlor, or beneficiaries

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12
Q

What are the requirements for Cy Pres modification?

A

Charitable trust can be modified “as near as possible” to the intent of the trust if:
- The trust has a general charitable intent

General charitable intent determined by:

  1. Evidence of broader purpose that original purpose
  2. Direction of the trust allows for broader use

MODERN RULE - favors reformation not termination
UTC Rule - MUST imply general charitable intent and modify

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13
Q

What is the general rule on transfer of a trust beneficiary’s interests?

A

Beneficiaries - Absent limitations by trust or statute, beneficiary can freely transfer income streams or right to receive

Creditors - Absent limitations, creditors can garnish or levy on beneficiary’s interests but NOT get at the res

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14
Q

What are the traits of a spendthrift trust?

A
  1. Must include a spendthrift clause restricting voluntary and involuntary alienation of beneficiary’s rights
  2. Completely eliminates creditor’s ability to get to the income before distribution except for three exceptions:

(a) settlor’s creditors if settlor is beneficiary (self settled trust)
(b) Judgments for child, spouse, or formal spouse support
(c) Gov’t claims

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15
Q

What are the traits of a discretionary trust?

A
  1. Trustee is given the DISCRETION on payment of income or principal
  2. Beneficiary’s rights - NO right to payment (can’t enforce) unless can prove breach of trust
  3. Creditor’s rights
    (a) CAN attach to distribution
    (b) CANNOT compel distribution
    (c) if Trustee notified of creditor’s attachment and decides to distribute, MUST distribute to creditor

Exceptions to limit on compeled distribution:
(a) judgment for child, spouse, or formal spouse

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16
Q

What are the traits of a support trust?

A

Same as discretionary trust, BUT

  1. Trustee does not have discretion and must distribute for the needs and support of beneficiary as determined; and
  2. Beneficiary cannot transfer interest (discretionary can)
17
Q

What are a Trustee’s powers?

A
  1. Express powers in trust instrument
  2. Powers necessary for investment, management, distribution of trust
  3. Holds legal title to all res
18
Q

What are a Trustee’s fiduciary duties?

A

Threshold - if revocable, duty only to settlor

  1. Duty to administer trust * (this includes prudent investor rule - see other flashcard)
  2. Duty of loyalty *
  3. Duty to report
  4. Duty to separate trust property and keep records (no commingling)
  5. Duty to enforce claims and defend trust
  6. Duty to preserve trust property and make it productive
19
Q

What are the specifics of the duty to administer trust?

A
  1. its the duty of CARE (good faith and prudent)

2. duty of impartiality

20
Q

What are the specifics of the duty of loyalty?

A

NO SELF DEALING

If the trustee is personally related in any way to acquiring or selling property of the trust, violated this duty

21
Q

What are the specifics of the Prudent Investor Rule?

A

Generally, this encompasses most of the fiduciary duties (administer trust, not commingle, make trust property productive)

RULE: Trustee must use “reasonable care, skill, and caution in managing trust assets”.

Specifics: duty to diversify assets, duty to keep the portfolio productive

22
Q

What is the rule for delegation of an investment function?

A

Trustee must use DUE CARE when:

  1. Selecting
  2. Defining scope and terms; and
  3. Periodically reviewing

If trustee satisfies this rule, no liability for financial mismanagement

23
Q

What are the general rules for breach of trust remedies?

A
  1. Financial breaches
    (a) Beneficiaries may RATIFY
    (b) Surcharge – have trustee restore money or property (personally liable)
  2. Other breaches
    (a) equitable remedies
    (b) suspend or fire
24
Q

When is an exculpatory clause for a trustee not enforceable?

A

Not enforceable if:

  1. Relieves liability for bad faith actions; OR
  2. Beneficiary induced the clause without separate legal representation
25
Q

When may a trust be modified or terminated?

A

PARTY modification or revocation

(1) Settlor revokes revocable trust
(2) Consent of BOTH settlor and ALL beneficiaries
(3) Consent of ALL beneficiaries IF does not frustrate a material purpose of trust (a spendthrift trust makes it impossible to revoke)

Exam tip - be wary of unborn or unascertained beneficiaries - need their approval too

COURT modification or revocation

(1) unanticipated circumstances threaten the purpose; OR
(2) continuation is wasteful;
(3) the trust value is insufficient to continue

26
Q

What is a resulting trust?

A

A presumed trust implied by court when a trust fails and the property REVERTS based on the presumed intent of the settlor (usually back to the settlor)

Three types:

  1. Purchase money resulting trust - take the L on the exam lol
  2. Resulting trust from failure of express trust
  3. Resulting trust from excess corpus (trust has concluded and there’s leftover money - goes back to settlor)
27
Q

What is a constructive trust?

A

An equitable remedy to avoid unjust enrichment from wrongful conduct

Commonly fraud, duress, breach of fiduciary duty
- Breacher holds the property in constructive trust for the damaged partty

Breach of promise does NOT create constructive trust unless: fraudulent, confidential relationship.

28
Q

What is a power of appointment?

A

Power granted via trust or will that gives the holder discretionary power to dispose of property without fiduciary obligations of trustee

Two types:

  1. General powers - holder can use it for her own shit
  2. Special powers - holder can’t use it for her own shit but for others
  • If donee (holder) does not use power, the descendants of donee take as takers in default
    • if donee exceeds powers as specified, the disposition is void

UBE Rule Statements (14 decks)

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