MEE one sheets Trusts

Question 1

Trusts generally

Answer 1

A trust of personal property is valid if it has a trustee, a beneficiary, and trust property.

Question 2

Trustee

Answer 2

manages the trust property and holds it for the benefit of the beneficiaries

Question 3

No appointed trustee

Answer 3

Trust will not fail, the court will appoint one.

Question 4

Beneficiary

Answer 4

In a private express trust, beneficiaries must be definite and ascertainable. Also, the same person cannot be the sole trustee and sole beneficiary (merger)

Question 5

Trust/Res

Answer 5

Trust property must be identifiable

Question 6

Requirements for a valid trust:

Answer 6

1) Valid purpose
2) Identifiable Res
3) Trustee
4) Ascertainble Beneficiaries
5) Capacity/Intent
6) Compliance with formalities

Question 7

UTC rule on revocability

Answer 7

Under the UTC, the default rule is that trusts are revocable. An irrevocable trust can still be terminated or modified in some circumstances

Question 8

Presumption of revocability

Answer 8

Under the UTC, an inter vivos trust is revocable unless the instrument expressly states otherwise.

Question 9

Termination by Settlor

Answer 9

a settlor may terminate the trust if all beneficiaries are in existence and all agree to the termination.

Question 10

Termination by beneficiaries after settlor dies

Answer 10

Generally, even an irrevocable trust can be terminated if both the income beneficiaries and the remaindermen unanimously consent and if there is no material purpose of the trust yet to be performed.

Question 11

Pourover provision

Answer 11

A will that makes a gift to a trust is valid so long as the trust is identified in the will and the terms are incorporated in a writing executed before or concurrently with the execution of the will.

Under the modern approach, later made amendments to the trust are valid.

Under common law, amendments made after execution of the will are not valid.

Question 12

Discretionary Trust

Answer 12

The trustee has discretion to decide when to make a distribution to a beneficiary. The beneficiary cannot demand any part of the income or principle. Nor can a creditor, unless it shows the trustee acted dishonestly or in a state of mind “not contemplated” by the settlor. (There is an
exception under the UTC for child support or alimony.)

Question 13

Support Trust

Answer 13

the trustee must pay what is necessary for the beneficiary’s support.

Question 14

Spendthrift Trust

Answer 14

a spendthrift trust restrains “both the voluntary and involuntary transfer of a beneficiary’s interest.”

Question 15

Rights of Creditors in Spendthrifft

Answer 15

generally, a creditor may not reach (i.e.,by garnishment or attachment) part of a beneficiary’s distribution prior to the beneficiary reaching it.

Question 16

Exceptions to Rights of Creditors in a Spendthrift Trust

Answer 16

Favored creditors who may reach:

(1) a child or spousal support creditor (for maintenance and support),
(2) a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust (e.g., a lawyer), (3) a claim of the state or United States (usually for taxes), and
(4) creditors with claims for necessaries in some states (this fourth category is not recognized in states that follow the UTC).

Question 17

Charitable Trust

Answer 17

A charitable trust may be created for a charitable purpose. It must have a large number of not readily identifiable individuals (rather than just a few ppl)

Question 18

Modifying a charitable trust

Answer 18

A charitable trust may terminate if the charitable purpose becomes unlawful, impracticable, or impossible. However, cy pres may save the trust.

Question 19

Cy pres

Answer 19

Cy pres is a common law doctrine that is also a part of the UTC. It states: if a particular charitable purpose has become unlawful, impracticable, or impossible to achieve; no alternative charity is named in the trust; and the court finds that the settlor had general, rather than specific, charitable intent, then the court may apply cy pres to modify or terminate the trust by directing that the trust property be distributed in a manner consistent with the settlor’s general charitable intent.

Question 20

Trustee’s Duty of Care

Answer 20

Prudent Administration under the Uniform Prudent Investor Act

Question 21

Uniform Prudent Investor Act

Answer 21

Almost all states have adopted a form of the UPIA. The UPIA states that a trustee must “administer the trust as a prudent person would . . . using reasonable care, skill, and caution.”

Question 22

Trustee duty of care: duty to diversity

Answer 22

The trustee is not liable for declines in value due to a downturn resulting from general economic conditions—but is liable for failure to diversify absent directions to the contrary.

Question 23

Duty of care: entire estate portfolio examined to determine prudence

Answer 23

a trustee’s investment and management decisions with respect to individual assets should be evaluated in the context of the portfolio as a whole and as a part of an overall investment strategy rather than in
isolation.

Question 24

Self-dealing case of bad bad trustee

Answer 24

the trust beneficiaries may rescind the transaction and ask for the self-dealing purchase to be set aside (the trust property is returned to the trust and the amount paid is refunded by the trust) or recover any profits the trustee made by reason of the breach

Question 25

Remedies for breach of trust

Answer 25

The remedies include: 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

Powers of appointment

Answer 26

a person writing a will or trust can give her beneficiaries a power of appointment, which enables the beneficiary to designate who will receive specific property.

Question 27

Two types of powers of appointment

Answer 27

General and Special/Limited

Question 28

General power of appointment

Answer 28

the class of people that the beneficiary can exercise the power of appointment in favor of is unlimited (she can use it for herself, her creditors, or someone else).

Majority view: In most states, a general residuary clause in a will (“I give all of my estate… ”) does not exercise a power of appointment. However, if the general residuary clause is coupled with a blanket exercise clause (e.g., “including all property over which I have a power of appointment”), any power of appointment held by the donee is exercised, unless the donor of the power specifically requires reference to it.

Minority view: a general testamentary power of appointment can be exercised by general language in the beneficiary’s will (such as the residuary clause) even if it makes no reference to the power in the instrument (e.g., “Everything to my husband”—the husband will get it), unless the creating instrument of the power made an express gift in default or the instrument stated that the power needed to be specifically mentioned.

Question 29

Special power of appointment

Answer 29

The class of people that the beneficiary can exercise the power in favor of is limited. A special testamentary power needs to be specifically exercised. The Uniform Probate Code (UPC) adopts a substantial compliance rule which says that if it could be shown that the powerholder intended to exercise a power, a blanket exercise clause may be sufficient.

Question 30

3 points to discuss for class gifts

Answer 30

1) rule of convenience
2) UPC
3) common law

Question 31

Rule of convenience

Answer 31

when a gift is made to a group, such as “my children,” the class closes when at least one member is entitled to distribution

Question 32

Class gifts: UPC Approach

Answer 32

The UPC states that when a class gift is made, each living beneficiary will take their share and the deceased beneficiary’s share will pass to their surviving descendants. (If there are no surviving descendants then the gift will fail.) Note: this applies even if the beneficiary is not related to the settlor (and thus differs from most antilapse statutes).

Question 33

Class Gifts: Common law Approach

Answer 33

Under the common law, if the gift or remainder to a deceased beneficiary has already vested and there is no applicable statute, then it will go to whomever the instrument says it should go to or whomever the deceased person has specified in their will or through intestacy. (This also applies to gifts that are not made to classes.)

Question 34

General rule when gift to a class but beneficiary dies before testator

Answer 34

if a testator gives a gift to a group of unrelated individuals and one predeceased him, the deceased would not take, and neither would his descendants, unless the antilapse statute saved the gift.