MEE Essentials: Trusts

Question 1

Trust rule statement

Answer 1

A trust of PERSONAL PROPERTY is VALID if it has a TRUSTEE, BENEFICIARY, and TRUST PROPERTY

Question 2

Trustee definition

Answer 2

Trustee MANAGES trust property and HOLDS it for benefit of beneficiaries.

Trust will NOT fail for lack of appointed trustee, court will APPOINT

Question 3

Beneficiary requirements

Answer 3

Beneficiary to trust must be DEFINITE and ASCERTAINABLE. CANNOT be sole beneficiary/trustee or trust COLLAPSES

Question 4

Trust property requirement

Answer 4

must be IDENTIFIABLE

Question 5

Uniform Trust Code default rule of revocability

Answer 5

Under Uniform Trust Code (UTC), default rule is that trust is REVOCABLE, and irrevocable trust can still be terminated or modified under some circumstances

Question 6

PRESUMPTION under UTC for status of trust

Answer 6

Under UTC, an intervivos trust is REVOCABLE unless instrument expressly states otherwise

Question 7

Termination by settlor

Answer 7

A SETTLOR may terminate the trust if all beneficiaries are in EXISTENCE and all AGREE to termination

Question 8

Termination of trust by beneficiaries after settlor dies

Answer 8

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

Question 9

Modification of trust rule statement

Answer 9

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

Question 10

Pourover will rule statement

Answer 10

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

Question 11

Discretionary trust

Answer 11

Trustee has DISCRETION to decide when to make distributions

Neither BENEFICIARIES nor CREDITORS can demand income or principle

UTC exception: child support or alimony

Question 12

Support trust

Answer 12

Trustee may pay what is NECESSARY for beneficiary’s support incl. more than just bare essentials–supporting standard of living and family

Question 13

Spendthrift trust

Answer 13

Allows for VOLUNTARY AND INVOLUNTARY transfer of beneficiary’s interest

Question 14

Spendthrift trust: creditor right

Answer 14

Creditor generally may NOT reach part of distribution before beneficiary receives it

Question 15

Spendthrift trust: creditor access exceptions

Answer 15

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

Question 16

Charitable trust

Answer 16

charitable trust can be made for charitable purpose (poverty/education/religion/health/government/community) + must have LARGE NUMBER of nonidentifiable individauls

Question 17

is charitable trust subject to RAP?

Answer 17

NO!!

Question 18

When can charitable trust be terminated or modified

Answer 18

It can be terminated if unlawful/impracticable/impossible

Modified/saved by CY PRES under UTC

Question 19

Cy pres rule statement

Answer 19

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

Question 20

Honorary trust

Answer 20

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

Question 21

Trustee duty of loyalty

Answer 21

Duty to act in BEST INTEREST of beneficiaries

Question 22

Trustee duty of care

Answer 22

Prudent administration

Question 23

Uniform Prudent Investor Act

Answer 23

almost all states have adopted a form of UPIA, which requires that trustee ADMINISTER TRUST as PRUDENT person would with CARE, SKILL, and CAUTION

Question 24

How to determine trustee prudence

Answer 24

evaluate in context of portfolio AS A WHOLE and investment strategy rather than IN ISOLATION

Question 25

Duty to diversify

Answer 25

Hallmark of prudent investing, where trustee NOT liable for general downturn, but IS liable for failure to diversify UNLESS directions to contrary

Question 26

Remedy options for breach of trust

Answer 26

-suspend/remove trustee
-decrease compensation
-compelling trustee to perform trust duties
-damages
-court-ordered relief

Question 27

Self-dealing remedy

Answer 27

Trust may either RESCIND transaction and ask purchase to be SET ASIDE (refund)

OR can recover PROFITS that trustee made through breach

Question 28

Purpose of power of appointment

Answer 28

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)

Question 29

Power of appointment: majority view

Answer 29

General residuary clause does NOT provide blanket power of appointment UNLESS it includes blanket EXERCISE clause

Question 30

Power of appointment: minority view

Answer 30

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

Question 31

Special power of appointment

Answer 31

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)

Question 32

Rule of convenience

Answer 32

When class gift is made, class closes when AT LEAST one member is ENTITLED TO DISTRIBUTION

Question 33

Class gifts: UPC approach

Answer 33

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)

Question 34

CL approach to class gifts (and non-class gifts)

Answer 34

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

Question 35

Approach to class gift in estates question

Answer 35

when gift is to UNRELATED individuals and one predeceased testator, the deceased would NOT take, and neither would DESCENDANTS, UNLESS antilapse statute saves gift

Question 36

Can a trust have multiple classifications?

Answer 36

YES, e.g. can be support + spendthrift simultaneously

Question 37

If UPC is enacted, does that mean UTC is enacted, or vice versa?

Answer 37

NO, different! one does not necessarily imply the other