MEE Trusts

Question 1

What are the elements of a trust?

Answer 1

(1) Intent to create a trust
(2) Identifiable corpus (property)
(3) Ascertainable beneficiaries
(4) Proper purpose
(5) Mechanics and formalities

Question 2

What is a “pour over” trust?

Answer 2

A settlor can make gifts by will to a trust—even an amendable and revocable trust—established during their lifetime. The trust must be clearly identified from language in the will.

Question 3

Can a trust fail because the trustee dies?

Answer 3

No, the court will appoint one.

Question 4

What is a “resulting” trust?

Answer 4

If a trust fails for lack of a beneficiary (for example, because the beneficiaries are not ascertainable), a resulting trust in favor of the settlor or their successors is presumed.

Question 5

What is a “constructive” trust? How is it created?

Answer 5

Not really a trust but rather is a flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct, such as fraud, undue influence, or breach of a fiduciary duty.

Must be requested for particular property.

Question 6

What is a “discretionary” trust?

Answer 6

The trustee is given discretion whether to apply or withhold payments of income or principal (or both) to a beneficiary.

Question 7

What are the requirements for a charitable trust? What is the cy pres doctrine?

Answer 7

A charitable trust must have indefinite beneficiaries, it may be perpetual, and the cy pres doctrine applies.

Must have a purpose considered to benefit the public.

Cy Pres - When the trustee cannot carry out the trust as written, court decides “as near as possible”.

Question 8

What is a “spendthrift” trust? Is it a restraint on alienability?

Answer 8

Precludes the beneficiary from voluntarily or involuntarily transferring their interest in the trust, and the beneficiary’s creditors are precluded from reaching it to satisfy their claims. The purpose is to protect the beneficiary from their own improvidence.

No, most courts uphold them.

Question 9

What is a “class gift”?

Answer 9

Beneficiaries may be designated by generic descriptions such as “children.” This is an open class.

Question 10

What is “disclaimer of interests”?

Answer 10

No one can be compelled to accept an interest in a trust against their will. Under the law of most states, a beneficiary may disclaim an interest by filing a written instrument with the trustee.

Treat the disclaimed benificiary as if they were deceased.

Question 11

What is the difference between Principal vs. Interest?

Answer 11

Trust Assets = Principal goes to remaindermen.
Interest = Generated income for benificiary.

Question 12

What is a support trust?

Answer 12

Directs the trustee to pay only so much of the income or principal (or both) as is necessary for the beneficiary’s support. A support trust may be mandatory or discretionary.

Question 13

What are the duties and liabilites of a trustee?

Answer 13

(1) Invest Prudently (reasonable care, skill, and caution).
(2) Preserve Trust Property
(3) Loyalty (no gaining, self dealing, must keep everything completely seperate).
(4) Follow Directions
(5) Not Discriminate
(6) Remedies

Question 14

What is the liability and what damages are owed by a trustee for breach?

Answer 14

If a trustee commits a breach of trust, the trustee is liable to the beneficiaries for the greater of:

(1) The amount necessary to restore the trust property and distributions to what they would have been absent the breach, or
(2) The trustee’s profit from the breach.

Question 15

When is a trustee not liable for breach?

Answer 15

(1) the trustee acted in reasonable reliance on the terms of the trust; or
(2) the beneficiary consented to the conduct, released the trustee from liability, or ratified the transaction, so long as the beneficiary was not improperly induced.

Question 16

What is the general rule for termination of a trust?

Answer 16

A trust will terminate automatically upon the expiration of the term specified in the instrument or when all of the purposes of the trust have been accomplished or have become unlawful, contrary to public policy, or impossible to achieve.

Question 17

What are the 6 other ways a trust be terminated?

Answer 17

(1) By the terms of the trust.
(2) By the Settlor.
(3) By the Benificiaries subject to special conditions.
- With Settlor and all Benificiaries consent.
- Without Settlor consent, with all Benificiaries consent, as long as no material purpose of the trust would thereby be frustrated (“Claflin Rule”).
(4) By operation of law.
(5) By the court.
(6) By the trustee (if non-economical to continue).

Question 18

Can an irrevocable trust be terminated?

Answer 18

Yes, with written consent of all living persons with vested or contingent interests.

Question 19

What happens to property in an inter vivos trust/gifts?

Answer 19

They pass outside the probate process.

Question 20

What is the special rule for a joint tenancy homicide?

Answer 20

The killer may be trustee of only a one-half interest OR killer may hold the whole interest in constructive trust less his life estate in one-half (depends on jurisdiction).

Question 21

What is a “totten” trust?

Answer 21

A totten trust is a bank account with a named beneficiary that transfers its assets to that beneficiary when the account owner dies. It’s also known as a “payable on death” (POD) account.

Question 22

What happens in the case of divorce?

Answer 22

A final decree of divorce or annulment revokes all beneficial gifts and fiduciary appointments in favor of a former spouse (and sometimes family of former spouse).

The governing instrument is read as though the former spouse (and their relatives) is deceased.