General Effects of Trust Creation

Question 1

Rights of the Settlor

Answer 1

Once a trust has been created, unless the settlor is also a trustee or a beneficiary, the settlor no longer owns the assets because they have been transferred into trust and are now owned by the trustee (legal title) and the beneficiary (equitable title).

Question 2

Rights of a Trustee

Answer 2

A trustee has legal title.

Question 3

Duties of the Trustee

Answer 3

A trustee is a fiduciary of the trust and is obligated to adhere to the terms of the trust with respect to the collection, preservation, enhancement, and distribution of the trust property to the beneficiaries.

Question 4

Duties of the Trustee: Active Duty Requirement

Answer 4

A trustee must be given some active duties to direct them with respect to the trust property for the trust to be valid. A trust that is “passive” or “dry” will result in legal title passing directly to the beneficiaries (who will receive FSA through merger).

Question 5

Common Duties of Trustee That Are Often Assigned or Implied

Answer 5

Include duties to:

• collect, protect, and preserve trust property
• to invest prudently
• to administer the trust pursuant to the settlor’s directions; and
• to exercise fairness to all beneficiaries, regardless of the nature of their interests as present (income) or future (remainder, principal)

Question 6

Elements Required to Create a Trust

Answer 6

Include:

• a settlor, with requisite capacity who expresses a present intent to create a trust
• delivery of specific trust property
• an ascertainable beneficiary
• active duties imposed on the trustee
• a proper trust purpose; and
• a trustee

Question 7

Intent to Create a Trust: Mandatory v. Precatory Language

Answer 7

• Mandatory language such as “shall” or “must” creates a trust.
• Precatory language such as “with the hope” will not be sufficient to create a trust unless other circumstances reflect that a duty was intended (e.g. the specificity of the surrounding language). Furthermore, if the conveyance was made in a commercial context, courts will usually find that there was intent to create a trust.

Question 8

Intent to Create a Trust: Present Req.

Answer 8

The intent to create the trust must be a present intent.

Question 9

Delivery of Specific Trust Property (Trust res)

Answer 9

There must be a specific trust property, or trust res. The trust res must be in existence at the time that the trust is created (a trust cannot merely give a future interest).

Question 10

What Happens When a Trust States that It Will Name Beneficiaries Later

Answer 10

If the trust states that it will name the beneficiaries later, it is a resulting trust with title returning to the settlor.

Question 11

What Happens if Settlor Does not Own the Stated Trust Property?

Answer 11

No trust is created unless the settlor later acquires the property and re-manifests trust intent at acquisition or there was a binding K to enforce it.

Question 12

What Kind of Property Can be Subject to a Trust?

Answer 12

Almost all types of property can be subject to a trust except:

• mere expectation
• unearned profits
• debt owed by the trustee

Question 13

Certainty Req. for Trust Property

Answer 13

There must be some certainty over what is the trust property (must put parties on adequate notice that the property is subject to a trust). A conveyance that one is trustee over “some” of the property is insufficient.

Question 14

Ascertainable Beneficiaries

Answer 14

Every trust must have ascertainable beneficiaries. Must be determinable when the trust is to be distributed.

Question 15

Ascertainable Beneficiaries: Obj. Standard

Answer 15

If the settlor provides some obj. standard by which to identify beneficiaries, then those beneficiaries are ascertainable. The criteria must provide a reasonable basis for the identification (“to A to hold the property in trust for ‘the person who provided the best health care for me before my death’”).

Question 16

Proper Purposes of a Trust?

Answer 16

A trust can be created for any purpose that is not illegal, fraudulent, or against public policy such as:

-provisions encouraging divorce or marriage (but the latter is permissible if the beneficiary is the settlor’s spouse).

Question 17

What Happens When a Trust Purpose Violates Public Policy?

Answer 17

• A court may:
• delete the offending language; or
• try to determine from the four corners of the instrument, what the settlor would have wanted had settlor known the provision violated public policy.

Question 18

Pour Over Provisions

Answer 18

Wills frequently contain “pour over” provisions that direct the transfer of the decedent’s property into a trust established either by the testator during his lifetime or by another person.

Question 19

Permissibility of Pour Over Provisions

Answer 19

Permissible under UTATA if:

• the terms of the trust are set forth in a written instrument other than the will itself that was executed before, or concurrently with, or after execution of the will.
• unless the will provides otherwise, property devised by will to a trust must be administered and disposed of in accordance with the provisions of the trust instrument, including any amendments thereto, regardless of when those amendments are made.

Question 20

Totten Trust

Answer 20

An arrangement with a bank that allows the depositor to open a bank account in the depositor’s own name, as trustee for other parties. The only right the beneficiary has is to take whatever is left in the account when the depositor dies if they are still alive.

Question 21

Limits on Trust Duration (RAP)

Answer 21

All private, non-charitable trusts comply with the Rule Against Perpetuities (RAP). Therefore, no interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest.

Question 22

Red Flags in Conveyances that Often Suggest RAP Violations

Answer 22

1) age contingencies beyond age 21 that don’t refer to people already born and ascertainable
2) double contingencies
3) interests that shift upon the occurrence of things that could happen at any time
4) large class gifts (if even a single class member might clear the RAP hurdle “too late” all class members are deprived)

Question 23

Modifications for RAP (Wait-and-See Doctrine)

Answer 23

Some jurisdictions hold that whether the rule has been violated depends upon what actually happens rather than what might happen. Some states will reduce an age requirement to 21.

Question 24

Trusts that are Exempt from RAP

Answer 24

Completely charitable trusts. However, the rule would apply when private beneficiary interests exist in the same trust (e.g. when a private beneficiary interest is given a remainder or when a charity is given a remainder following a private beneficiary’s present possessory estate).

Question 25

Types of Completely Charitable Trusts

Answer 25

Include those of a purely charitable purpose and charity-to-charity exemption

Question 26

Example of Purely Charitable Purpose

Answer 26

To trustee in trust for the ethical treatment of animals.

Question 27

Example of Charity-to-Charity Exemption

Answer 27

To trust for the Blue Cross, but should it ever close its doors, even if a thousand years from now, to the Red Cross