Creation of Trusts

Question 1

What are the three classifications of trusts?

Answer 1

(1) Express Trust
(2) Resulting Trust
(3) Constructive Trust

Question 2

What is an express trust?

Answer 2

A trust that is intentionally created by a person

Question 3

What is a resulting trust?

Answer 3

A trust that holds the remaining property after a trust’s purpose can no longer be served

Question 4

What is a constructive trust?

Answer 4

An equitable remedy used by courts to prevent unjust enrichment when one person is legally entitled to property, but equity requires the property go to another person

Question 5

How does a constructive trust work?

Answer 5

The court will give legal title to the first person as a trustee and require the first person to distribute the property to the second person, who should own the property under equitable principles

Question 6

What are the requirements for formation of an express trust?

Answer 6

(1) Intent
(2) Valid purpose
(3) Competent settlor
(4) Property
(5) Trustee
(6) Identifiable beneficiary

Question 7

What are the factors courts will consider in distinguishing trusts and gifts with precatory instructions?

Answer 7

(1) The property being transferred
(2) The beneficiaries
(3) The language of the transfer

Question 8

What are the five types of express trusts?

Answer 8

(1) Inter vivos
(2) Testamentary
(3) Revocable
(4) Irrevocable
(5) Charitable

Question 9

What is an inter vivos trust?

Answer 9

A trust that is created when a settlor transfers property to someone to hold in trust during the settlor’s life

Question 10

What is a testamentary trust?

Answer 10

A trust created by will

Question 11

Under the UTC, is a trust presumed to be irrevocable or revocable?

Answer 11

Revocable

Question 12

How is an irrevocable trust created?

Answer 12

(1) A testamentary trust
(2) A revocable trust becomes irrevocable upon the settlor’s death
(3) Created by a settlor during the settlor’s life

Question 13

What is a mandatory trust?

Answer 13

A trust containing instructions that mandates when a trustee must make distributions

Question 14

What is a discretionary trust?

Answer 14

A trust in which the trustee has discretion as to when distributions should be made

Question 15

How does a protective trust work?

Answer 15

It’s a mandatory trust that becomes discretionary upon a creditor’s attempted attachment

Question 16

What is a spendthrift provision?

Answer 16

A provision that bars the beneficiary from assigning or selling the beneficiary’s interest and prevents creditors from attaching to the interest

Question 17

Under the UTC, when can a creditor compel distribution subject to a discretionary standard?

Answer 17

When:
(1) the creditor is a child, spouse, or former spouse with a support order;
(2) the trustee failed to comply with the standard of distribution or abused their discretion;
(3) the amount is equitable under the circumstances, and
(4) the amount is not more than the amount the trustee would have been required to distribute

Question 18

What creditors are excepted from spendthrift provisions?

Answer 18

(1) children or former spouses with support orders
(2) creditors who provide necessities
(3) lawyers who helped the beneficiary protect the beneficiary’s interest
(4) state and U.S. government
(5) some tort creditors

Question 19

If a trustee resigns, for what actions are they liable?

Answer 19

Only for actions or omissions that occurred while they were still the trustee

Question 20

What is a purpose trust?

Answer 20

A trust with a noncharitable purpose that lacks an identifiable beneficiary