Kaplan MEE Trusts Flashcards
1
Q
What is a trust?
A
A fiduciary relationship where one party holds legal title to property for the benefit of another who holds equitable title.
2
Q
Name the two main types of trusts.
A
- Express Trusts
- Implied Trusts
3
Q
What is an express trust?
A
A trust created intentionally to benefit private or charitable beneficiaries.
4
Q
What are implied trusts?
A
Trusts that arise by operation of law, such as constructive and resulting trusts.
5
Q
What is a constructive trust?
A
A trust imposed by a court to deprive a wrongdoer from retaining improperly obtained property.
6
Q
What is a resulting trust?
A
A trust imposed irrespective of wrongdoing when the circumstances require it.
7
Q
What are the three parties to a trust?
A
- Settlor
- Trustee
- Beneficiary
8
Q
What role does the settlor play in a trust?
A
The person who sets up the trust.
9
Q
Define the role of a trustee.
A
Receives legal title to the trust property and administers it for the benefit of the beneficiaries.
10
Q
Who is considered a beneficiary in a trust?
A
The person who receives equitable title to the trust property.
11
Q
What distinguishes a remainder beneficiary?
A
They have a future interest in the trust fund, generally principal.
12
Q
What is an inter vivos trust?
A
A trust created during the settlor’s lifetime.
13
Q
What is a testamentary trust?
A
A trust created in the settlor’s will.
14
Q
What is a self-declared trust?
A
A trust where the settlor names themselves as trustee.
15
Q
What is an illusory trust?
A
An arrangement that appears to be a trust but lacks the necessary legal separation of interests.
16
Q
What happens if a sole trustee is also the sole beneficiary?
A
The trust will collapse because the interests merge into the same person.
17
Q
What are the rights of the settlor after creating a trust?
A
The settlor no longer owns the assets unless they are also a trustee or beneficiary.
18
Q
List the common duties of a trustee.
A
- Collect, protect, and preserve trust property
- Invest prudently
- Administer the trust per the settlor’s directions
- Exercise fairness to all beneficiaries
19
Q
What must every valid trust have?
A
- A settlor with capacity
- Delivery of specific trust property
- An ascertainable beneficiary
- Active duties imposed on the trustee
- A proper trust purpose
- A trustee
20
Q
What type of language creates a trust?
A
Mandatory language such as ‘shall’ or ‘must’.
21
Q
Is a precatory statement sufficient to create a trust?
A
No, unless accompanied by circumstances reflecting a duty was intended.
22
Q
What is required for trust property?
A
It must be transferred to the trustee with present intent.
23
Q
What are the exceptions to what can be subject to a trust?
A
- Mere expectation
- Unearned profits
- Debt owed by the trustee
24
Q
What is necessary for beneficiaries of a trust?
A
Beneficiaries must be ascertainable and determinable when the trust is distributed.
25
What happens if a trustee does not have active duties?
The trust is considered 'passive' and title passes directly to the beneficiaries.
26
Can a trust be created for any purpose?
No, it cannot be for illegal, fraudulent, or against public policy purposes.
27
What must be done if a trust purpose violates public policy?
Delete the offending language from the trust.
28
What must a trustee do to end a trust through merger?
Transfer title to the person who holds equitable title
29
What can a trust be created for?
Any purpose that is not illegal, fraudulent, or against public policy
30
What is an example of a trust purpose that violates public policy?
Provisions encouraging divorce
31
What must be determined regarding the settlor's intent for a trust?
The intent of the settlor must be determined from the four corners of the instrument
32
What must happen for an inter vivos trust to be created?
Present intent and the trust property must be conveyed to the trustee
33
What is a testamentary trust?
A trust created by the testator’s valid will
34
What is a pour-over provision in a will?
A provision directing the transfer of decedent's property into a trust
35
What does UTATA allow regarding trusts and wills?
Devise assets to a trust established during the testator's lifetime or at death
36
What is a Totten Trust?
An arrangement with a bank allowing the depositor to open an account as trustee for others
37
What must all private, non-charitable trusts comply with?
The Rule Against Perpetuities (RAP)
38
What does the Rule Against Perpetuities state?
No interest is valid unless it must vest within 21 years after some life in being
39
What is a red flag for RAP violations?
Age contingencies beyond age 21 that do not refer to people already born
40
What happens if one class member's interest violates the RAP?
All class members lose out
41
Is the trust for B's children valid under the RAP if it states 'to the children of my son B who reach the age of 25'?
No, the trust fails
42
What does the wait-and-see doctrine involve?
Determining if the RAP has been violated based on actual events
43
What types of trusts are exempt from the RAP?
* Charitable trusts
* Trusts for ethical treatment of animals
* Charity-to-charity exemptions
44
What is a trustee's source of powers?
* The trust instrument
* Statutory grants or implied powers
45
What duty does a trustee owe to beneficiaries?
Duty of utmost loyalty and good faith
46
What is self-dealing in the context of a trustee's duties?
A trustee buying assets from the trust
47
What must a trustee do to preserve trust property?
Consider the best interests of all beneficiaries
48
What are the definitions of principal and income in trust management?
* Principal: Original amount plus capital gains
* Income: Interest, receipts, dividends from the principal
49
What does the Prudent Business Person Rule require from trustees?
Use skill, care, and prudence like a reasonable business person
50
What is the trustee's liability for breaching duty?
Liable for the results of the breach, must return property and appreciation
51
What happens if a trustee invests trust property and it depreciates in value?
Trustee must personally recompense the trust for losses
52
What is an exculpatory clause in a trust?
A provision that relieves the trustee of liability for wrongful acts
53
True or False: A trustee can offset losses from a breach of duty with gains from other investments.
False
54
What is a trustee responsible for in terms of lost interest?
A trustee will be responsible for any lost interest.
55
When can a successor-trustee be liable for breaches of duty by prior trustees?
A successor-trustee can be liable if they knew or should have known of the prior trustee’s breach and failed to undertake appropriate action.
56
What is an exculpatory clause?
An exculpatory clause is a provision in the trust instrument that relieves the trustee of liability for potentially wrongful acts.
57
Under what conditions can a beneficiary waive a trustee's breach?
A beneficiary may waive a trustee’s breach if they have full knowledge of the material facts and expressly approve of the complained-of action.
58
What are grounds for removing a trustee?
A trustee may be removed for cause, such as a breach of duty or trustee incapacitation.
59
Can a trustee resign after accepting the appointment?
Yes, a trustee can resign at any time after accepting the appointment.
60
What rights and duties does a successor trustee have?
A successor trustee has all the rights and duties of the predecessor.
61
What can a trust beneficiary do with their interest absent a restrictive provision?
A trust beneficiary may freely assign their equitable title or right to receive income or principal from a trust.
62
Are restrictive covenants that violate public policy enforceable?
No, restrictive covenants that are unreasonable or violate public policy are unenforceable.
63
What is a support provision in a trust?
A support provision directs the trustee to provide only as much as is necessary for the beneficiary’s support.
64
What defines a discretionary trust?
In a discretionary trust, the trustee pays as much income as they believe desirable.
65
What is a spendthrift provision?
A spendthrift provision prevents a beneficiary from voluntarily transferring their property and protects the trust property from creditor attacks.
66
What interests does a settlor have in a trust?
A settlor has no interest in the trust unless they have reserved it or made themselves a beneficiary.
67
How can a settlor terminate an irrevocable trust?
A settlor may terminate an irrevocable trust only with the consent of all beneficiaries who are living at the time.
68
What is the Uniform Trust Code's stance on the revocability of trusts?
Under the UTC, trusts are fully revocable or amendable unless the terms expressly provide to the contrary.
69
What happens to a trust if the sole trustee becomes the only beneficiary?
The trust ceases to exist and the trustee becomes the owner of the trust assets.
70
What can cause a trust to terminate by operation of law?
A trust can terminate if the trust res has been consumed, destroyed, or lost, or if its purposes have been fully accomplished.
71
What is the Clafflin Doctrine?
The Clafflin Doctrine states that after the settlor’s death, the trust cannot be terminated before the time specified by the settlor if the material purpose has not yet been accomplished.
72
What is a resulting trust?
Resulting trusts arise when an express trust makes an incomplete disposition of assets or fails after property has been conveyed to the trustee.
73
What is a constructive trust?
A constructive trust is an equitable remedy imposed to redress wrongdoing or prevent unjust enrichment.
74
What distinguishes a charitable trust from a private trust?
A charitable trust cannot have ascertainable beneficiaries unless they are qualified charitable organizations, while a private trust must have them.
75
What are the major categories of charitable purposes?
* Relief of poverty
* Advancement of education
* Advancement of religion
* Promotion of health
* Performance of governmental and municipal purposes
* Other purposes beneficial to the community.
76
What does the cy pres doctrine allow?
Cy pres allows a court to direct the application of trust property to another charitable purpose that approximates the settlor’s intention when the original purpose cannot be accomplished.
77
What is the presumption regarding a purchase money resulting trust?
There is a rebuttable presumption that the grantee holds the property in a resulting trust for the payor if a party pays the original purchase price but directs title to be placed in another’s name.
78
What is an honorary trust?
A trust that does not qualify as a charitable trust and lacks definite beneficiaries capable of enforcing it.
## Footnote
Honorary trusts may provide for the care of an animal or a gravesite.
79
What happens to an honorary trust upon the death of the animal it was created for?
The trust terminates upon the death of the animal or upon the death of the last surviving animal if multiple animals are involved.
## Footnote
This applies only if the trust was created for the care of more than one animal.
80
What is the doctrine of cy pres?
A legal doctrine that allows a court to modify a charitable trust to fulfill the general intent of the settlor when the original beneficiary is no longer available.
## Footnote
This doctrine can be applied to allow substitution of beneficiaries in certain circumstances.
81
What are the basic categories of future interests?
* Reversion
* Possibility of Reverter
* Power of Termination
* Remainder (Vested or Contingent)
* Executory Interest (shifting or springing)
## Footnote
These interests can be held in law or in equity under a trust.
82
What is a power of appointment?
A power created by the donor of property enabling another individual (the donee) to designate transferees of the property.
## Footnote
This power may be limited by the donor specifying conditions for its exercise.
83
What distinguishes a general power of appointment from a special power?
A general power allows the donee to appoint property to anyone, while a special power limits the donee to a specific group of appointees.
## Footnote
The donee of a special power must comply with the donor's expressed intentions.
84
What is the consequence of exercising a power of appointment impermissibly?
Any property appointed impermissibly passes to the taker in default.
## Footnote
This emphasizes the importance of adhering to the terms set by the donor.
85
What is the difference between a testamentary power and an inter vivos power?
A testamentary power is only exercisable by will, while an inter vivos power can be exercised at any time by deed.
## Footnote
The method of exercise must align with the donor's specifications.
86
True or False: A future interest can be held only by the transferor.
False
## Footnote
Future interests can be retained by the transferor or held by someone other than the transferor.
87
Fill in the blank: A _______ trust is created to provide for the care of an animal alive during the settlor's lifetime.
honorary trust
## Footnote
Such a trust terminates upon the death of the animal.
88
What must a donee do when exercising a special power of appointment?
Exercise it in compliance with the expressed intention of the donor.
## Footnote
This often involves selecting from a specific group of possible appointees defined by the donor.
