MEE - Trusts and Future Interests Flashcards
*How does a trust terminate?
At trust, even an irrevocable one, may be terminated or modified upon the consent of the settlor and all beneficiaries, even if the termination conflicts with a material purpose of the trust. If the settlor does not join in, all the beneficiaries of the trust may terminate or modify it, but only if no material purpose of the trust would be frustrated.
The presence of a spendthrift provision precludes termination of a trust because it shows the settlor’s purpose and manifests his lack of confidence in the judgment and management ability of the beneficiary. However, if the settlor were to join in the request for termination, the material purpose would be waived.
Although permitted by the UTC, most states do not permit a guardian to consent to the termination of a trust on behalf of unborn beneficiaries.
A court can terminate a trust prior to the time fixed in the instrument if the trust purposes are accomplished early or the trust purposes become illegal or impossible to carry out.
Finally, merger of title results in the termination of a trust where the sole trustee is also the sole beneficiary.
*How do you create a valid trust?
To create a valid trust, there must be intent by the grantor, trust property, one beneficiaries, and a trustee. A person can create a trust by declaring himself trustee for another. Although trusts must generally be in writing, most states do not require a writing for a trust of personal property.
Most courts hold that language merely expressing the settlor’s hope, wish, or desire (precatory terms) that the trust property be used for a certain purpose does not create a valid trust.
If there are no trust assets when the trust instrument is executed (the settlor promises gratuitously to create a trust in the future), a trust arises in the future only if, when the assets come into existence, the settlor manifests anew an intention to create the trust. This remanifestation is not required, however, if the promise is supported by valid consideration.
A trust will not fail for lack of a trustee (e.g., when settlor dies).
*How does one create a valid pour-over gift to trust?
A pour-over gift is a testamentary gift to a trust created during the testator’s lifetime, with the testamentary assets to be administered and distributed as part of that trust.
Under the traditional view, to create a valid pour-over gift from a will to a revocable trust, the trust must be in existence or must be executed at the time of the will’s execution.
However, under the prevailing view, a will may devise property to a trustee of a trust established or to be established during the testator’s lifetime; i.e., the trust may be established after the will is executed but before the testator’s death. Additionally, pour-over gifts are valid even if the trust is unfunded during the testator’s lifetime and even if the trust is amended prior to the testator’s death.
*What is a spendthrift trust?
A spendthrift trust is one in which the beneficiary is unable to voluntarily or involuntarily to transfer his interest in the trust. He cannot sell or give away his rights to future income or capital, and his creditors generally are unable to collect or attach such rights.
However, an exception is made when the settlor is a beneficiary of the trust and attempts to protect his own retained interests from his creditors by the inclusion of a spendthrift provision. In that event, the settlor-beneficiary’s creditors can reach his right to the income just as if the spendthrift restriction did not exist.
Additionally, other exceptions exist: claims of dependents, the government, and persons supplying necessities. A divorced spouse can for example, reach trust assets if she is dependent upon the alimony.
Except as otherwise provided by statute or as validly restricted by the terms of the trust instrument (e.g., a spendthrift provision), the interest of an insolvent trust beneficiary can generally be reached in appropriate proceedings to satisfy the claims of his creditors. However, the creditor reaches only the interest of the beneficiary and not the trust property itself.
Although creditors cannot reach a spendthrift beneficiaries interest in trust by garnishment or attachment, neither the spendthrift clause not any other provision applies to the income after it has been distributed to the beneficiary.
IF the trustee decides to make payments to a beneficiary and the trustee has notice of an assignment or attachment by creditors the trustee must pay the creditors directly.
*What does the power to revoke or amend entail?
A trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title.
Generally, a trustee’s duties cannot be enlarged after he has accepted. This makes it difficult to add assets to the trust.
The power to revoke also includes the power to amend. Thus, under the UTC, a settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable. However, many states still follow the common law rule, which requires that the settlor reserve the power to revoke and amend. In those states, a trust is irrevocable unless the instrument expressly states otherwise. Thus, for a settlor to retain control in those states, the trust instrument should expressly state that it is revocable.
*What is a discretionary trust?
In a discretionary trust, the trustee is given discretion whether to apply or withhold payments of income or principal to the beneficiary. This discretion actually limits the rights of the beneficiary to the amounts the trustee decides to give her. The beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses his power.
*What is a support trust?
A support trust is one where the trustee is required to pay or apply so much of the income or principal as is necessary for the beneficiary’s support.
The trustee does not have discretion to refuse to pay bills necessary for the beneficiary’s support.
*What is the power of appointment?
A power of appointment is an authority created in a donee enabling the donee to designate, within the limits prescribed by the donor of the power, the persons who shall take certain property and the manner in which they shall take it.
A general power of appointment is exercisable in favor of the donee, her estate, her creditors, or the creditors of her estate.
A special power of appointment, on the other hand, is exercisable in favor of a specified class of persons that does NOT include the donee, her estate, her creditors, or the creditors of her estate. (A class can not be a charitable organization)
The power to appoint trust assets may be exercised by creating further trusts, and the trustee is not considered an impermissible appointee. If part of an appointment is impermissible, but part would be permissible if standing alone, the permissible part is generally given effect.
IF a donee fails to exercise her power of appointment, the appointive property passes to the takers in default of appointment (person designated by the donor to take the property in such a situation)
A presently exercisable power is exercisable by the donee during her lifetime.
A testamentary power is one that is exercisable only by the donee’s will.
*What is an anti-lapse statute?
Nearly all states have anti-lapse statutes that operate to save a gift to a predeceased beneficiary of that beneficiary’s serving issue if the beneficiary was in a certain degree of relationship with the decedent and left serving decedents. As most states’ anti-laps statutes apply on to testamentary gifts, and do not apply if there is a contrary provision in the instrument. However in some states under the UPC, the anti-lapse statute also applies to revocable inter vivo trusts and is not affected by words of survivorship. In these states, if the trust creates a class gift and a class member dies before the event upon which the interest becomes possessory occurs, her descendants succeed to the interest.
Gifts to a decedent’s issue includes all lineal descendants, a gift to a decedent’s children includes only the decedent’s immediate offspring.
*Is it possible for the income portion of the trust to fail due to lack of definite beneficiaries?
To create a valid trust there must be a settlor who, intending to create a trust for a valid trust purpose, delivers the trust property to the trustee to hold for the benefit of one or more beneficiaries.
Because a trust cannot exist without someone to enforce it, definite beneficiaries are necessary to the validity of a trust. Although the beneficiaries need not be identified at the time a trust is created, they must be susceptible of identification by the time their interests are to come into enjoyment.
The trust beneficiaries may be a class, provided that the class is sufficiently definite. The settlor can even allow the trustee in its discretion to select the members as long as the class is reasonably definite. If the class is too broad, however, the trust (or a portion thereof) may be invalid for lack of definite beneficiaries.
When a portion of a trust fails for lack of beneficiary, a resulting trust in favor of the settlor or settlor’s successors in interest is presumed.
*What is the Cy Pres doctrine?
The cy pres doctrine applies when a specific charitable purpose indicated by the settlor is no longer possible or practicable, and the settlor manifested a general charitable intent. In such a case, the court can direct that the trust property be applied to another charitable purpose as close as possible to the original one, rather than permit the trust to fail and become a resulting trust.
In states following the UTC, the settlor’s general charitable intent is conclusively presumed. In those states, absent express trust terms to the country, application of cy press is mandatory.
*What is the rule of convenience as it relates to class gifts?
This rule applies in the absence of a contrary expression intent by the settlor. The rule of convenience provides that a class remains open until som member of the class can call for a distribution of the class gift. When possession and enjoyment are postponed, as where the gift follows a life estate, the class remains open until the time fixed for distribution of the class gift.
Adopted children are treated the same as biological children of adopting parents. Some states consider adult adoptees to be the children of their adoptive parents only for the purpose of inheriting from those parents, but such a benefit does not apply for the purposes of becoming a member of a class to receive a benefit.
*May a child who predeceases a life tenant take a share of the trust assets?
In such a case, reference is made to the trust’s terms. Survival of a class member until the time of closing is usually not required to share in a future gift. However, the express trust terms control.
*How may a beneficiary disclaim their interest in trust assets?
A beneficiary of a trust has the right, within a reasonable time after learning of the trust, to disclaim the beneficial interest, absent some act of expressed or implied acceptance. Upon disclaimer, any interest that otherwise would pass to that person under trust passes as though the disclaiming party predeceased the life tenant (here, settlor). In most states, a disclaimer is not effective unless it is in writing and is filed within nine months of the decedent’s death.
Several states and the UPC apply the anti-lapse statute to future interests created in trusts (even to those conditioned on survival), but in most states the anti-lapse statute applies only to testamentary gifts. In states that apply the anti-lapse statute, if a gift is made in trust to a class described as “children,” the property to which a deceased beneficiary would have been entitled if he had survived passes to his surviving descendants by representation.
**May a tenant of a life estate disclaim any interest?
Generally under common law, if a life tenant renounces the estate, the court accelerates the future interest that follows the life estate, allowing it to become possessory immediately. However this does not apply if the future interest is a contingent remainder.
