Flash Cards for Bar Courses - Trusts

Question 1

Interests of Trustee & Beneficiary

Answer 1

Trustee: Holds legal interest– who has responsibiliyt of ownership
Beneficiary: holds equitable or beneficial interst, who recieves the benefits of ownership – has little to no control over the trust or the trust property

Question 2

Settlor

Answer 2

The person who causes the trust to come into existence by suppluing the initial trust property

Question 3

Initial Trust Property

Answer 3

Initial trust property is required for the trust to be effective. If a trust is executed but no trust property – the trust becomes effective when property is placed into trust

Question 4

Express Trusts

Answer 4

Are createred by the express intention of the settlor.

Private- private beneficiaries
Charitable - charistable beneficiaries

Question 5

Trusts created by Operation of Law

Answer 5

Resulting trusts- These trusts arise from the presumed intention of the owner of the property
- resulting trust on failure of express trust: i.e. trust is void, beneficiary is dead, or where cy pres is inappliable. In such events, the trust terminates and teh settlor becomes the benefiary of the resulting trust

Constructive Trusts - are an equitable remedy used to prevent unjust enrichment
- must be requested
- Requires particular property

Question 6

Elements of a Valid Trust

Answer 6

1. Intent
2. Indentifiable Corpus (property)
3. Ascertainable beneficiaries
4. Proper Purpose
5. Mechanics and formalities

Question 7

Intent 5 elements

Answer 7

Express trust requirements are
1. a Settloer w/ capacity to convey
2. a present intent to create a trust relationship
3. competent trustee w/ duties
4. a definite beneficiary
5. the same person is not the sole trustee and sole beneficiary

Question 8

Identifiable Corpus

Answer 8

Property must be ascertainable w/ certainty
- where there is no property, there is no trust
- trust property must be an existing interest in exisiting property

Question 9

Ascertainable Beneficiares

Answer 9

Qualified Beneficiary: who on the date the beneficairy’s qualiification is determined is a 1) current beneficiary or (2) a first-line remainderman

Acceptance by beneficiary is req. but can take place after trust is created. Can be express, implied, and is generally presumed

Beneficiary can also disclaim an interest in a trust

Beneficiaries must be definite

Question 10

Trust purpose

Answer 10

Generally, a trust may be created for any purpose unless it is:
1) illegal
2) contrary to public policy
3) impossible to acheve
4) intended to defraud settlor’s creditors based on illegal consideration

Question 11

Acts contrary to public poliocy

Answer 11

If the turst is to induce other sto engaeg in criminal or tortious acts; encourage immorality; or induce a person to neglect paternal, familial, or civic duties

Question 12

Trustee

Answer 12

A person accepts a trusteeship by
1) signing the tusrt or a seperate written acceptance
2) substantially complying w/ the acceptance terms in the trust instrument, or
3) accepting delivery of trust property, exercising powers as trustee, or indicating acceptance

A trustee can be anyone who has capacity to acquire and hold property – minors and insane ppl cannot be trustees

Question 13

Removal of trustee

Answer 13

Ct can remove a trustee on its own or upon request if
1) a serious breach of trust
2) seriois lack of coorpoertation
3) unfitness, unwillingness, or persistent faluer to administer, or
4) a substantial change in circumstances

Question 14

Trustee Resigniation

Answer 14

Upon 30 day notice or ct approval

Question 15

Writing Req. for trusts of land

Answer 15

For a trust of land a written instrument signed by the rperson entited to impress thre trust is req for the SOF

part perfomance precludes SOF

Question 16

pour-over gift from will to trust

Answer 16

a settlor can make gifts by will to a trust

Pour over property can be inital trust funding if:
- the trust is identified in the will, and
- trust us executed b4 the testator’s death

Question 17

Discretionary Trusts

Answer 17

trustee is given discretion whtehr to apply or withold payments of income or principal to a beneficiary

Beneficiary cannot interfere w/ the exercise of the trustee’s discretion unless the trustee abuses her power. (Ct will interfere if trustee acted in bad fait or dishonestly)

beneficairy has notihing to transfer and creditors cannot reach – expcept claims of child, spouse, or former spose

Question 18

Spendthrift Trusts

Answer 18

precludes beneficiary froim voluntary or involuntart transferring ther interest in the trust and creditors are precluded from reaching it to satisfy claims

Ineffective is settlor is the beneficiary

Does not protect from : judgments or ct orders for suppirt of beneficiary’s child, spouse, or former spouse OR for claims by the govt.

Question 19

Support Trusts

Answer 19

Dirests trustee to pay only so much of the income or princiap as is necessary for beneficiary’s support.

Standard of support is the beneficiary’s accustomed std of living

Question 20

Recovation of a Trust by Beneficiary

Answer 20

Can revoke wiht the consent of the Settlor
OR
IF NO CONSENT, can revoke with the consent of all beneficiaries (but all including future beneficiaries and unborn beneficiaries req)

Question 21

Implied Trustee Powers

Answer 21

• Sell trust property
• Lease trust property
• incur reasonable expneses
• Hire agents
• Mortgaeg trust property
• repair

Question 22

trustee’s liabilities to 3rd party’s

Answer 22

K’s on behalf of trust estate: general rule is that trustee may be sued on the K in trustee’s fiduciary capacity. 3rd pty may sue tye trustee personally if trustee failed to reveal the fiduciary relationship by indicateding their role as trustee

Tort: 3rd pty injured in tort can sue the trust estate by proceeding against trustee in their fiduciary capacity. 3rd pty may also sue trustee personally if the trustee is personally at fault, but not by respondeat superior

Question 23

Trust liabilites to 3rd parties

Answer 23

If trust prop is sold to a BFP, party who sold nmust replace value of property into trust.

Question 24

Allocation of Receipts

Answer 24

From an entity: all money is icnome and all other property other than money is principal

Insurnace policies and other K’s: proceeds from life insurnace are prinicpal; but proceeds from a type of loss are income

Question 25

Allocation of expenses

Answer 25

Charged to income: 1/2 of trustees compensation, 1/2 of all accting expenses and other matters affecting both income and reaminder interestt, the entire cost of ordinary expenses, insurance premiums covering lloss

Charged to Prinicpal: reamininf 1/2 charged for trustee compensation and the ones chaged for income, payments madfe on principal of trust debt, estate taxes

Question 26

Charitable tursts

Answer 26

must have indefinites beneficiaries, may be perpetual, and cy pres doctrine applies

Question 27

Cy pres doctrine

Answer 27

When trustee cannot carry outr the trust as wrtitten, the trustee attemps to carry out as near as possible by ascertaining the settlor’s primary purpose.

Question 28

Honorary Trusts or Purpose Trusts

Answer 28

Is a trust that is not charitable and has no private beneficiaries; commonly used for pets

Question 29

Trustee’s duties to trust corpuse

Answer 29

• Duty to protect
• make productive
• duty to invest (invest and manage as a prudent investor would)

Question 30

Changes to terms of trust

Answer 30

Can deviate from terms if Settlor did not anticipate new circumstances, compliance would impair trust purpose

By court if:
- All beneficiaries consent
- changed circumstances threaten trust purpose

Question 31

Can trustee use trust principal to pay for a life tenant’s support

Answer 31

Many states permit if support for life tenant was the primary purpose

UTC: if unanticipated circumstances threaten the purposes of the trust