general

Question 1

express trust creation

Answer 1

 Beneficiary
 Intent
 Transfer of Property (can occur after trust is formed) (if real property, statute of frauds applies)
 Settlor w/ capacity
 Trustee (appointed by settlor or court)
 Valid purpose
 Formalities (required by state)

“a trust of personal property is valid if it has a trustee, beneficiary, and trust property”

Question 2

implied trust creation

Answer 2

created by COURT looking at settlor’s ACTIONS

Question 3

3 ways trust controls disbursement of assets

Answer 3

discretionary
mandatory
spendthrift

Question 4

discretionary trust

Answer 4

trustee discretion

Question 5

mandatory trust

Answer 5

trustee has to give out certain amount per settlor’s orders

Question 6

spendthrift trust (4 exceptions)

Answer 6

spendthrift - disallowal of voluntary and involuntary transfers of beneficiary’s interest

 Exceptions: Creditors can still get your shit via…
* Court order for alimony/child support
* Felony criminal offense damages settlement
* Priority over dispursements (when/if they ever happen)
* Reimbursements for necessaries (food/shelter/clothing/etc)

Question 7

discretionary spendthrift trust creditor rights

Answer 7

creditor CANNOT compel or pressure trustee to distribute

Question 8

creating or benefitting a trust via wills

Answer 8

Testamentary  creating trust via will that is created on your death

Pour over  uses assets to pour into a trust that is identified in a will (writing) & already exists
- Modern view: The trust gift terms can be changed UP UNTIL the moment of testator’s death
- common law: amendments made after will execution not valid
(talk about both modern and common law on exam)

Question 9

charitable trust & cy press

Answer 9

o Accomplishes a social benefit to the public at large or to a reasonably large class (ex. “advancement of dolphins”)

o trust may have to terminate if charitable purpose becomes unlawful/impractical/impossible BUT cy press to the rescue

o Cy Press Doctrine —> a court can modify a charitable trust “as near as possible” with the settlor’s general (NOT specific) intent if the purpose of the trust is frustrated

Question 10

revocability of trust

Answer 10

o UTC/Modern: revocable unless trust expressly says otherwise
o Common Law: Presumed irrevocable unless you reserve a right to it

Question 11

Settlors power in amending trusts

Answer 11

o If revocable –> settlor can
o If irrevocable –> settlor can if they reserved the power to modify the trust

Question 11

fiduciary duties

Answer 11

o revocable trusts —> T only owes duties to S while S is alive
o irrevocable trusts —> T owes duties to S AND B(s)
- T may be liable for acting in S’s wishes to the exclusion of B(s)
o NO LOANS, NO SALES —>trustee cant loan or sell themselves something from the trust

o Keep Records & Proper Accounting —>keep accounts & records of admin & account to beneficiaries at least 1x per year

o Duty to Diversify —>presumption against putting all eggs in one basket

o Duty of Loyalty
 Conflict of interest —> no further inquiry (ANY small COI thing) unless T has close business/personal relation w/ trustee (then its rebuttable)
 Self Dealing —> presumptive breach & voidable

o Duty of Care —>carrying out trust directives & protecting it

o Duty of Impartiality —>have to treat all beneficiaries (somewhat) equal (no favoritism/animosity getting in the way)
 Favortism/animosity could also be violation of Duty of Good Faith (UTC duty)

Question 12

termination of trust
- decided by the parties
- based on the purpose of the trust
- claflin doctrine
- post termination

Answer 12

o Unamious Agreement —>settlor + beneficiaries

o Settlor dead? —>court will look to see if material purpose of Trust has been achieved

o No material purpose? —>court will assume purpose was for beneficiaries to do whatever & they can all agree to end it

o Claflin Doctrine
 Even an irrevocable trust can be terminated if both income beneficiaries and remaindermen unamiously agree and there is no material purpose of the trust yet to be performed
 BUT trustee can block premature termination if they determine there is an unfulfilled material purpose
 BUT BUT the court can find there was no material purpose of the trust

o After termination —>trustee distributes along purposes/goals of trust

Question 13

power of appointment

Answer 13

settlor can give beneficiaries a POA to designate who receives specific property/remainder

Question 14

general power of appointment

Answer 14

o General: no restrictions and you can appoint remainder to ANYONE (even for selfish reasons ex. creditors)

 Exercising G-POA has to be shown by donee’s intent to exercise the power

 Substantial compliance: in most states, intent to exercise a power is presumed with a blanket exercise clause

Question 15

special power of appointment

Answer 15

o Special: donor leaves restrictions to who trust can be appointed to
 If special power of appointment person fails to specifically exercise their appointment, the trust will usually state takers in default, but if not then it goes to the permissible objects of the will/trust (usually heirs)
 Substantial compliance: in most states, intent to exercise a power is presumed with a blanket exercise clause??? (This may only be for general)

Question 16

What is an income beneficiary?
Can income beneficiaries invade the principle?

Answer 16

Generally, an income beneficiary is only entitled to trust income UNLESS the trust authorizes the trustee to invade the trust principal.

Invasion is ok if:
- there’s only one beneficiary
- the beneficiary will eventually receive the trust principle anyways (usually not allowed if invasion is inconsistent w/ settlor’s express directions)
- the trusee has the discretion to allow to invade
- there’s a significant change in circumstances (ex. the beneficiary suffers a huge injury and cant support himself otherwise)

Question 17

Class Gifts & the odd lapse rule UPC 2-707(b) for life gifts

Answer 17

If gift goes to “Jimmy for life, then karen and her heirs” and karen dies, her kids don’t get shit

If one of karen’s kids dies before jimmy, their heirs don’t get shit

Question 18

o Can you create a fake trust where youre the sole trustee and withdraw whenever you want?

Answer 18

no, illusory

Question 19

What if there’s no beneficiary in the trust?

Answer 19

resulting trust & all property returns to settlor’s estate

Question 20

o Trust for cemetary plot?

Answer 20

honorary trust is ok for specific, non-charitable purposes

Question 21

o Trust is becoming impractical/wasteful?

Answer 21

Equitable Deviation Doctrine allows court to modify trust to make it fair

Question 22

o What happens when the trust terminates?

Answer 22

either trust will say or beneficiaries will agree or the court has to decide

Question 23

are charitable trusts subject to RAP?

Answer 23

NO

Question 24

support trust

Answer 24

trustee has to pay for what is necessary for beneficiary’s support/lifestyle

Question 25

remedies for breach of trust by trustee

Answer 25

Suspending or removing a trustee,

decreasing compensation,

compelling a trustee to perform trust duties,

compelling payment of damages, etc.

(There are several other remedies, including asking the court to “order any other appropriate relief.

Question 26

remedies for self dealing by trustee

Answer 26

beneficiaries may rescind the transaction AND ask for self dealing purchase to be set aside (trust property returned and amount paid refunded by trust)

or

recover any profits from trustee

Question 27

Trust lapse & class gifts to child class

Answer 27

rule of convenience - when a gift is made to a group, such as “my children,” the class closes when at least one member is entitled to distribution (even at the exclusion of future qualifying members of the class).

———General Trust Lapse ——-

Substitute Takers - A sub gift is created for the deceased beneficiary’s surviving descendants if:
(1) the B of a future interest predeceases the distribution date; AND
(2) an anti lapse statute applies (anti-lapse doesnt apply to trusts in most states)

UPC —> sub gifts for predeceasing beneficiaries
- if it’s NOT a class gift —> goes to surviving descendants
- if its a single generation class gift (ex. Children) —> sub gift is presumed to apply only for the surviving descendants of any pre-deceased B (2-707(b)) (common law does not have this presumption)

—— Trust Class gifts to descendant class & lapse———

General - presumption that gift is limited to beneficiary’s surviving children

Common law - when class gift made to a class of a common ancestor (my children) then there’s not a condition of survivorship

UPC 2-707(b) - if a class gift is limited in favor of a class of children, there is a presumption that only the surviving children can take at distribution

Question 28

can the same person be the sole trustee and beneficiary?

Answer 28

NO - trust collapses

Question 29

RAP 3 step

this is good for RAP across the board!!

Answer 29

(1) does grantee have a contingent future interest?
- cont remainder
- vested remainder subject to open
- executory interest
- power of appointment
- right of first refusal
- option

yes? –> step 2

(2) must the vested event occur w/i 21 years after the interest is created?

no?

(3) could it possibly vest >21 years after validating life ends?

yes?
common law —> void from the start
modern rule –> wait and see 90 years

Question 30

Income and Principal Trust allocations

Answer 30

Allocated to Income →
(1) receipt of rental payments from real/personal property;
(2) money received from an entity (cash dividends, interest on investments);
(3) ordinary expenses and repairs.

Allocated to Principal →
(1) proceeds from the sale of a principal asset;
(2) all other property received – other than money received from an entity;
(3) extraordinary expenses and repairs.