Express Private Trusts

Question 1

elements required for a trust

Answer 1

1. Property
2. Beneficiary
3. Trustee
4. Intent
5. Valid legal purpose

Question 2

spendthrift trust

Answer 2

precludes the beneficiary from voluntarily or involuntarily transferring his interest in the trust, and his creditors are precluded from reaching it to satisfy their claims

Question 3

discretionary trust

Answer 3

trustee is given discretion whether to apply or withhold payments of income or principal (or both) to a beneficiary

Question 4

support trust

Answer 4

• directs the trustee to pay only so much of the income or principal (or both) as is necessary for the beneficiary’s support
• discretionary trust with a support standard

Question 5

termination of a trust by the beneficiaries

Answer 5

• A trust may be terminated or modified upon the consent of the settlor (or his agent, converator, or guardian) and all beneficiaries, even of the modification or termination conflicts with material purpose of the trust.
• A trust can be terminated or modified on the consent of only all beneficiaries, but only if no material purpose of the trust would be frustrated.

Question 6

termination of a trust by the court

Answer 6

• If termination or modification is not available because not all beneficiaries consented, a court may terminate or modify the trust if: (i) the trust could have been modified had all the beneficiaries consented; and (ii) the interests of any nonconsenting beneficiaries will be adequately protected.
• Additionally, a court may terminate or modify a trust if: (i) unanticipated circumstances threaten the purposes of the trust; (ii) continuation of the trust on its existing terms is impracticable or wasteful; or (iii) the value of the trust is insufficient to justify the cost of administration or to achieve settlor’s tax objectives.

Question 7

termination of a trust by the trustee

Answer 7

A trustee can terminate the trust if the trust property is less than $50,000 and the amount is insufficient to justify the cost of administration, as long as the trustee provides the qualified beneficiaries with notice.

Question 8

A trustee of a revocable trust owes her duties exclusively to the _________; whereas a trustee of an irrevocable trust owes her duties to ____________.

Answer 8

settlor; all of the trust beneficiaries

Question 9

duties of trustee

Answer 9

1. duty to administer trust
2. duty of loyalty
3. duty to report
4. duty not to commingle
5. duty to enforce claims and defend trust from attack
6. duty to preserve trust property and make it productive

Question 10

Uniform Prudent Investor Act standard of care

Answer 10

A trustee must exercise reasonable care, skill, and caution while investing and managing trust assets

Question 11

Investment decisions must be evaluated in the context of the

Answer 11

entire trust portfolio and as part of an overall investment strategy

Question 12

diversification of investments

Answer 12

A trustee must diversify the investments of the trust unless she reasonable determines that the purposes of the trust are better served without diversification.

Question 13

duty of fairness to all beneficiaries

Answer 13

The trustee is under a duty to administer the trust impartially, except to the extent that the trust or the will manifests an intent that one or more of the beneficiaries is to be favored over the others.

Question 14

resulting trust

Answer 14

• trust implied by law or imposed by courts

- involve reversionary interests and are based on the presumed intent of the settlor

Question 15

constructive trusts

Answer 15

• implied by law or imposed by courts

- used to prevent unjust enrichment

Question 16

Resulting trusts are of three types:

Answer 16

(i) purchase money resulting trusts;
(ii) resulting trusts arising on failure of an express trust; and
(iii) resulting trusts arising from an incomplete disposition of trust assets (i.e., excess corpus)

Question 17

purchase money resulting trusts

Answer 17

Presumed whenever the beneficiary furnishes the consideration for the acquisition of real or personal property but, with the beneficiary’s consent, title is taken in the name of the trustee.

Question 18

resulting trust on failure of express trust

Answer 18

• A settlor has conveyed property to a trustee under an express trust and (i) the trust is void or unenforceable, or (ii) the beneficiary is dead or cannot be located.
• May also apply on failure of a charitable trust where cy pres is inapplicable
• Express trust terminates and settlor becomes beneficiary of the resulting trust

Question 19

resulting trust implied from excess corpus

Answer 19

A resulting trust in favor of the settlor also arises when the trust purpose is fully satisfied and some trust property remains.