Exam Rules - Trusts

Question 1

What is an express trust

Answer 1

An express trust is a trust created by a settlor where a trustee holds the property and the beneficiary enjoys the property

Question 2

What is a constructive trust

Answer 2

A constructive trust is an equitable remedy to prevent fraud

Question 3

What is a resulting trust

Answer 3

(1) A resulting trust arises when one person purchases property but has title conveyed to another; (2) an express trust fail and settlor has not declared his intent; (3) or the trust’s purpose is fully satisfied but some trust property remains

Question 4

What procedural steps must trustees of testamentary trusts take?

Answer 4

(1) qualify before clerk or court (2) furnish a bond with surety unless surety is waived and (3) file an annual accountings unless the requirement is waived by instrument

Question 5

What types of trusts are governed by the UTC

Answer 5

Express trusts and testamentary trust

Question 6

What are the requirements for creating a trust?

Answer 6

(1) settlor has capacity (2) intent (3) trust must have a definite beneficiary (4) trustee has duties (5) the same person is not the sole trustee and sole beneficiary

Question 7

What are grounds for removing a trustee

Answer 7

(1) committed serious breach of trust (2) lack of cooperation among trustees (3) unfitness, unwillingness, or persistent failure to administer trust effectively (4) substantial change in circumstances or upon request of all qualified beneficiaries

Question 8

Can settlors opt out of RAP?

Answer 8

Yes, RAP is a default rule for trusts holding personal property; settlors can opt out when the trust instrument holding personal property states that RAP shall not apply to the trust

Question 9

What types of creditors is a spendthrift trust ineffective against?

Answer 9

(1) child support (2) judgment creditor (3) the government

Question 10

When can a sttlor enjoy spend-thrift protection

Answer 10

(1) trust is irrevocable (2) trust is subject to VA law (3) VA trustee independent from settlor has sole discretion on distributing income (4) there is at least one other beneficiary entitled to receive income or principal distributions

Question 11

What are a trustee’s obligations

Answer 11

(1) duty of loyalty (2) impartiality - meaning the trustee considers the interests of both income and remaindermen beneficiaries (3) UPIA - invest funds within a reasonable amount of time and exercise reasonable care, skill, and caution in investing funds

Question 12

What is the safe harbor provision under UPIA

Answer 12

Under the Uniform Prudent Investor Act, a trustee holding intangible personal property of $100,000 or less will conclusively be presumed to have been prudent in investing funds if they are invested in obligations of VA, U.S. obligations, and insured bank deposits

Question 13

What duty exists between co-trustees

Answer 13

A trustee must exercise reasonable care to prevent a co-trustee from committing a serious breach of trust and compel the co-trustee to redress a serious breach of trust

Question 14

What are the remedies for breach of trust

Answer 14

(1) compelling the trustee to perform duties (2) enjoining trustee from committing breach (3) compelling trustee to pay money (4) suspending or removing the trustee and (5) reducing or denying the trustee compensation

Question 15

How are money damages for a breach of trust calculated

Answer 15

Money damages are equal to the greater of (1) the amount required to restore the property and distributions to what they would have been absent the breach or (2) the trustee’s profit from the breach

Question 16

When can a court modify an irrevocable trust without the consent of the beneficiaries

Answer 16

(1) There are unanticipated circumstances; (2) Trust is uneconomic to administer; (3) Necessary to achieve settlor’s tax objectives; or (4) Necessary to reform trust terms to conform to the settlor’s intent (need clear and convincing evidence that the settlor’s intent and trust terms were affected by mistake)

Question 17

Can trusts include exculpatory clauses for trustee liability

Answer 17

Yes, unless the exculpatory clause (i) provides immunity for breaches committed in bad faith or with reckless indifference to trust purposes or the beneficiaries’ interests; or (ii) it was inserted as result of trustee abuse of fiduciary or confidential relationship to the settlor

Question 18

When can court terminate a trust

Answer 18

The beneficiaries all consent and the continuance of the trust is not necessary to achieve any material purpose of the trust