Past Bar Exams

Question 1

Provisions of trusts that violate public policy are:

Answer 1

VOID

(Example: Marriage–except when the beneficiary is the trust creator’s spouse)

A restraint on marriage might be upheld if the trustee’s motive was merely to provide support for a beneficiary while the beneficiary is single

Question 2

fiduciary duty of loyalty to a trust

Answer 2

A trustee owes a fiduciary duty of loyalty to a trust; self-dealing, such as a purchase of trust
assets by the trustee in his individual capacity, violates this obligation

Question 3

“no further inquiry” rule

Answer 3

there is no need to inquire into the motivation for the self-dealing transaction or even its fairness (duty of loyalty)

Any trust beneficiary can cause a self-dealing purchase by a trustee to be set aside or obtain a damages award.

If a beneficiary elects to set aside the transaction, the trust property purchased by the trustee is returned to the trust and the amount the trustee paid for the property is refunded by the trust. If a beneficiary seeks damages, those damages are based on the difference in the fair market value of the trust assets at the time of the self-dealing
transaction and the amount paid by the trustee.

Question 4

A trustee has a duty to invest trust assets in

Answer 4

A prudent manner (Prudent Investor Rule)

A trustee shall administer “the trust as a prudent person would . . . [using] reasonable care, skill, and caution.”

One of the hallmarks of prudent investing is
diversification–Diversification thus is strong evidence of prudent investing