CA Trusts

Question 1

Trust elements

Answer 1

1. Writing
2. Manifestation of settlor’s intent to create trust/fiduciary relationship (not outright gift, precatory language, etc)
3. Trust is funded with trust res/corpus/prop (Constructive trust to prevent unjust enrichment)
4. Ascertainable Bens (reasonable certainty)
5. Valid purpose (corps allowed as trustee only for 21yrs)

Question 2

Trusts bifurcate title

Answer 2

1. Trustee holds legal title to prop: If settlor is trustee then no need to transfer legal title because simple declaration that holding title as trustee is enough. If T is trustee then declaration is not enough and requires actual transfer of legal title to trustee
2. Ben holds equitable title to prop

Question 3

Trustee’s duties and obligations

Answer 3

CADI is Fiduciary, Loyal, Prudent, Impartial and doesnt Commingle Account Information

1. Custodian
2. Administrator
3. Distribute (prop impartially among Bens)
4. Invest (prudent investor rule)
5. Fiduciary Duty
6. Duty of Loyalty (undivided to Ben, and for the benefit of Ben): good faith NOT a defense to self-dealing
7. Duty of Prudence
8. Duty of Impartiality
9. Duty not to comingle
10. Duty to accounting to Bens (at least annually)
11. Duty to keep Bens reasonably informed
12. Avoid Conflicts of Interest
13. Control and preserve trust prop
14. Make trust productive
15. Duty to enforce and defend trust in litigation

SoC: Objective std
Ben as trustee: Even if Ben has absolute power as trustee, Ben is not held to higher std as fiduciary, but rather a reasonable std when distributing of income or principal

Question 4

Pour Over Wills POW

Answer 4

If asset is left off the trust, will states any remainder asset is transferred to the Trust; thus saves any prop left off the trust for any small deficiency

Question 5

Revocable Trust

Answer 5

Person holding power to revoke (often settlor) MUST be competent at the time

May be revoked in part or whole BUT cannot be revoked by will.

Unless expressly made irrevocable, trust is revocable.

Creditors: If settlor has creditors and hold power to revoke, prop is subject to creditor’s of deceased settlor’s estate

Question 6

Standing to sue (Trust)

Answer 6

Ben (not settlor) and co-trustee have standing to sue for breach of duty by trustee

Question 7

Exculpatory Provision (Trust)

Answer 7

trustee can be relieved of liability if provided in the trust, UNLESS breach is intentional, reckless, grossly negligent, bad faith, or for trustee’s profit

Question 8

Remedies for breath of Trust duty

Answer 8

Trustee removal
Compensatory (FACUE): 
Disgorge profits
Constructive Trust
Equitable Lien
Restitution

Question 9

No Further Inquiry Rule (CA)

Answer 9

If trustee self-deals, transaction is PER SE voidable requiring no further inquiry into the transaction

Defense: Settlor autho, Ben consents, to transaction (even w/defense Ben is entitled to Judicial review)

Exception: trustee uses trust prop for trust admin compensation

Question 10

Measure of Damages

Answer 10

Ct discretion:

1. Ct selects measure of damages according to severity of trustee’s actions:
   a. If self-dealing: disgorge profits + interest + any profit that WOULD HAVE accrued to trust prop if loss of profit results from the breach
   b. If trustee acted reasonably and in good faith under the circumstances, Ct has discretion to excuse trustee in whole or in part fro liab

Question 11

Prudent Investor Rule

Answer 11

Trustee is not a market guarantor.
Trustee must act (e.g. inquire, review, diversify, etc) as a prudent investor would to care for the trust prop

Trustee may delegate investment and management functions as prudent under the circumstances. Trustee must exercise prudence when selecting an agent, selecting the scope of the A’s duties, periodically review A’s performance

Trustee liable for acts of A for: delegating power not allowed to delegate, directs A’s actions, not pudent in selecting A, supervising A, reviewing A’s performance.

Question 12

General vs Specific power (Trust)

Answer 12

Gen powers not presumed: Unless clearly expressed by settlor in writing AND referencing to the statute, a Ben who holds discretionary power under the trust may exercise it for HEMPS (thus transforming it into specific power limiting creditor rights)

Question 13

Spendthrift trust

Answer 13

If the trust instrument provides that “Ben’s interest in income and/or principal is not subject to voluntary or involuntary transfer,” Ben’s interest in income/principal under the trust may NOT be transferred and is NOT subject to enforcement of a money judgment until paid to the Ben

Ben cannot transfer Ben interest and creditors cannot attach even if Ben has present right to mandatory distribution

Exceptions: Child and spousal support can be enforced against debtor’s interest in Spendthrift trust

Question 14

Durable Power of Attorney

Answer 14

Terminates when Principal revokes Agency or dies. Survives incapacity of Principal

Trust may NOT be mod/revoked by atty in fact under a power of atty UNLESS it is expressly permitted by trust instrument

Powers MUST be expressed (may be expressed as gen autho)

Question 15

Power of Appointment Analysi

Answer 15

1. General vs Special: gen power not presumed. Look at Ben’s intent
2. Exclusive or non-exclusive: look at donor’s intent
3. Valid execution of power
4. If not, imperative: permissible appointees take equally prop not already appointed
5. if not, discretionary: takers in default named by donor take prop, if non reverts to donor’s estate

Question 16

Contingent Remainder

Answer 16

NOT vested but may be vested at later time. Modern: Allows interest to persist and vest

1. Subject to condition PRECEDENT, OR
2. Unascertained Ben, OR
3. Unborn person

Question 17

Vested Remainder (general concept)

Answer 17

Interest becomes possessory upon NATURAL expiration of all prior interest

NEVER follows defeasible fees FSD, FSSCS or fee simple

Question 18

Vested Contingent Remainder

Answer 18

Vested if

1. Ascertainable person
2. Upon natural expiration of prior estate, AND
3. Not subject to condition precedent

Question 19

Vested Remainder Subject to complete Divestment

Answer 19

1. Vested but uncertain of becoming possessory because of subsequent event
2. Subject to condition subsequent (if fails Right of Entry to Grantor)
   e. g: “yours but if X event occurs, T-party takes”

Question 20

Vested Remainder Subject to Open (Class gifts)

Answer 20

Anti-lapse applies

1. Vested in a group/class (defined membership w/precision)
2. Rule of convenience closes if one member of class vests and thus avoids RAP