Black Letter Law Flashcards
What is precatory language?
Language that expresses a settlor’s hope or wish is precatory.
When must beneficiaries to a trust be identifiable?
Beneficiaries must be susceptible of identification by the time their interests come into enjoyment.
What are sufficient charitable purposes for a charitable trust?
The purpose of a charitable trust must be one considered to benefit the public, including relief of poverty, the advancement of religion or education, the promotion of health, and the accomplishment of a governmental purpose. A trust for the dissemination of views of a political movement qualifies as educational and thus is charitable, but a trust for the benefit of a political party is not charitable.
Are charitable trusts subject to the Rule Against Perpetuities?
No.
When a trust is mixed—it has both charitable and non-charitable purposes—what rules govern?
The rules that govern non-charitable trusts govern unless the trusts can be separated. Then the rules of a charitable trust apply to the charitable interest.
What is the doctrine of cy pres?
Under the doctrine of cy pres, when a specific charitable purpose has become impossible or impracticable, a court may direct that the trust property be applied to another charitable purpose as close as possible to the original one.
What rights do creditors have against beneficiaries that are not sole beneficiaries and who are not the trust’s settlors?
If the debtor is neither the sole beneficiary nor the settlor of a revocable trust, a creditor reaches only the interest of the debtor, not the trust property itself.
What is a spendthrift trust?
A spendthrift trust is one in which the beneficiary is unable to transfer her interest—either voluntarily or involuntarily. She cannot sell or give away her right to income or corpus, and her creditors cannot attach these rights.
In what limited circumstances can a beneficiary’s creditors reach a spend thrift trust?
To satisfy child support, spousal support, or federal income taxes.
What happens when the trustee of a discretionary trust is served by the beneficiary’s creditor with notice of a claim?
In a discretionary trust, under which the trustee is given discretion to make or withhold distributions of income and or principal, neither the beneficiary, the beneficiary’s creditors, nor the settlor can compel the trustee to make a distribution. However, once the trustee has been served with process, she cannot exercise her power in favor of the beneficiary without first satisfying the creditor’s claim.
When can an irrevocable trust be terminated?
An irrevocable trust may be terminated or modified by the consent of all existing and potential beneficiaries as long as no material purpose of the trust will be frustrated. It may also be modified or terminated upon the consent of the settlor and all beneficiaries, including potential beneficiaries.
When will a court permit termination of a trust or modification of its administrative or dispositive terms?
When circumstances unanticipated by the settlor threaten the purposes of the trust.
The trustee must exercise discretionary power_______.
in good faith.
What are a trustee’s duties as between current beneficiaries and remaindermen?
If there is more than one beneficiary, the trustee must act impartially, taking into account any differing interests of the beneficiaries. The goals of present income and appreciation of the corpus must be balanced when there are life tenants and remainder holders.
Can a trustee delegate his investment and management responsibilities?
A trustee may delegate investment and management functions that a prudent trustee of comparable skill could properly delegate under the circumstances. The trustee must exercise reasonable care, skill, and caution in selecting an agent, establishing the scope of the delegation, and must periodically review the agent’s performance
When a trustee commits a breach of trust, what are his liabilities?
If a trustee commits a breach of trust, the trustee is liable to the beneficiaries, not the settlor, for the greater of: (i) the amount needed to restore the trust property and distributions to what they would have been without the breach, and (ii) the trustee’s profit from the breach. Likewise, a trustee is liable to the beneficiaries, not the settlor, for any profit arising from the administration of the trust, even if there was no breach.
Other than including an exculpatory clause in the trust instrument, how can a trustee be relieved of liability?
Other than including an exculpatory clause in the trust instrument, the settlor of an irrevocable trust has no ability to affect the trustee’s liability for a breach of trust. A trustee is not liable for a breach of trust if he acted in reasonable reliance on the trust terms and the breach resulted from that reliance. A trustee is also relieved of liability for breach if the beneficiary consented to the conduct, released the trustee from liability, or ratified the transaction. An exculpatory clause in the trust instrument relieves the trustee of liability or lowers the standard the conduct required. These clauses are valid unless they relieve a trustee of liability for breach committed in bad faith or with reckless indifference, or the clause was included because the trustee abused a confidential relationship with the settlor.
