MEE Essentials: Trusts Flashcards
Trust rule statement
A trust of PERSONAL PROPERTY is VALID if it has a TRUSTEE, BENEFICIARY, and TRUST PROPERTY
Trustee definition
Trustee MANAGES trust property and HOLDS it for benefit of beneficiaries.
Trust will NOT fail for lack of appointed trustee, court will APPOINT
Beneficiary requirements
Beneficiary to trust must be DEFINITE and ASCERTAINABLE. CANNOT be sole beneficiary/trustee or trust COLLAPSES
Trust property requirement
must be IDENTIFIABLE
Uniform Trust Code default rule of revocability
Under Uniform Trust Code (UTC), default rule is that trust is REVOCABLE, and irrevocable trust can still be terminated or modified under some circumstances
PRESUMPTION under UTC for status of trust
Under UTC, an intervivos trust is REVOCABLE unless instrument expressly states otherwise
Termination by settlor
A SETTLOR may terminate the trust if all beneficiaries are in EXISTENCE and all AGREE to termination
Termination of trust by beneficiaries after settlor dies
Irrevocable trust can be terminated if beneficiaries AND remainders UNANIMOUSLY CONSENT (assuming decision affects ALL beneficiaries) and there is NO MATERIAL PURPOSE OF TRUST IN THE FUTURE
Modification of trust rule statement
Under common law and UTC, court may order EQUITABLE DEVIATION from trust terms when UNANTICIPATED change in circumstances would otherwise DEFEAT OR IMPAIR purpose of trust
CL: modification of administrative provisions ONLY
UTC: modification of DISPOSITIVE TERMS too
Pourover will rule statement
A pourover will is a will that creates a trust, and is valid when trust IDENTIFIED in the will and terms are INCORPORATED IN WRITING before/concurrent to will execution
Modern approach: later amendments VALID
CL: later amendments INVALID
Discretionary trust
Trustee has DISCRETION to decide when to make distributions
Neither BENEFICIARIES nor CREDITORS can demand income or principle
UTC exception: child support or alimony
Support trust
Trustee may pay what is NECESSARY for beneficiary’s support incl. more than just bare essentials–supporting standard of living and family
Spendthrift trust
Allows for VOLUNTARY AND INVOLUNTARY transfer of beneficiary’s interest
Spendthrift trust: creditor right
Creditor generally may NOT reach part of distribution before beneficiary receives it
Spendthrift trust: creditor access exceptions
1) Child or spousal support creditor
2) judgment creditor (e.g. lawyer)
3) claim of STATE or US (taxes)
4) creditors with NECESSARIES in non-UTC states
Charitable trust
charitable trust can be made for charitable purpose (poverty/education/religion/health/government/community) + must have LARGE NUMBER of nonidentifiable individauls
is charitable trust subject to RAP?
NO!!
When can charitable trust be terminated or modified
It can be terminated if unlawful/impracticable/impossible
Modified/saved by CY PRES under UTC
Cy pres rule statement
Under CL and UTC, cy pres allows that
1) if purpose of charitable trust is not unlawful/impossible
2) NO ALTERNATIVE charity is named
3) court finds GENERAL INTENT
a court may apply cy pres to modify/terminate trust by directing property to be DISTRIBUTED in manner CONSISTENT with GENERAL CHARITABLE intent
Honorary trust
Trust with no charitable purpose OR definite beneficiary
Often to TAKE CARE OF A THING (e.g. cemetery plot)
UTC: valid but only for 21 years MAX
CL: not valid if violates RAP, but court can allow POWER of trust for up to 21 years
Trustee duty of loyalty
Duty to act in BEST INTEREST of beneficiaries
Trustee duty of care
Prudent administration
Uniform Prudent Investor Act
almost all states have adopted a form of UPIA, which requires that trustee ADMINISTER TRUST as PRUDENT person would with CARE, SKILL, and CAUTION
How to determine trustee prudence
evaluate in context of portfolio AS A WHOLE and investment strategy rather than IN ISOLATION
Duty to diversify
Hallmark of prudent investing, where trustee NOT liable for general downturn, but IS liable for failure to diversify UNLESS directions to contrary
Remedy options for breach of trust
-suspend/remove trustee
-decrease compensation
-compelling trustee to perform trust duties
-damages
-court-ordered relief
Self-dealing remedy
Trust may either RESCIND transaction and ask purchase to be SET ASIDE (refund)
OR can recover PROFITS that trustee made through breach
Purpose of power of appointment
Person writing will or trust can give beneficiaries POWER OF APPOINTMENT which allows beneficiary to DESIGNATE who will receive specific property
Power is usually UNLIMITED (e.g. can be for self, creditors, family, whoever person wants)
Power of appointment: majority view
General residuary clause does NOT provide blanket power of appointment UNLESS it includes blanket EXERCISE clause
Power of appointment: minority view
General testamentory power of appointment can be exercised by GENERAL LANGUAGE in beneficiary’s will EVEN IF it makes no reference to the power in the instrument
Special power of appointment
Class of people that beneficiary can exercise power over is LIMITED and must be specifically exercised
UPC: SUBSTANTIAL COMPLIANCE rule (if power holder intended to exercise power, blanket exercise clause may be sufficient)
Rule of convenience
When class gift is made, class closes when AT LEAST one member is ENTITLED TO DISTRIBUTION
Class gifts: UPC approach
When class gift made, every LIVING beneficiary takes their share and DECEASED shares pass to their DESCENDANTS
If there are no descendants, gift will fail EVEN IF beneficiary NOT related to settlor (diff from anti-lapse)
CL approach to class gifts (and non-class gifts)
Under common law, if gift or remainder to deceased beneficiary has already VESTED and there is no applicable statute, it will go to whomever INSTRUMENT says it should go to or whomever DECEASED has specified in will/intestacy
Applies to class gifts and regular gifts
Approach to class gift in estates question
when gift is to UNRELATED individuals and one predeceased testator, the deceased would NOT take, and neither would DESCENDANTS, UNLESS antilapse statute saves gift
Can a trust have multiple classifications?
YES, e.g. can be support + spendthrift simultaneously
If UPC is enacted, does that mean UTC is enacted, or vice versa?
NO, different! one does not necessarily imply the other