Pg 23

Question 1

What is a necessary component of a trust?

Answer 1

Ongoing management

Question 2

What is the law that applies to trusts?

Answer 2

Mostly common law rules, but UTC is also prominent and some of it deviates from common law positions.

Question 3

What is the difference between legal title and equitable title?

Answer 3

– legal title: ownership of property. This is the name on the deed. This goes to the trustee, who is the person that manages, cares for, and pays the taxes on trust property.
– equitable title: right to enjoy and benefit from the property. This is the beneficiary, or person with the right to use the asset

Question 4

How do trusts involve legal and equitable title?

Answer 4

There is a division between the two where the trustee has legal title to the property and the beneficiaries have equitable ownership

Question 5

Does a beneficiary have standing to sue a trustee?

Answer 5

Beneficiaries can sue trustees because the beneficiaries have equitable title. Plus it is their job to police the trust. They can sue personally or on behalf of the trust.

Question 6

What are the positives of trusts?

Answer 6

• give the settler oversight
• flexibility for the changing needs of the beneficiary or unforeseen circumstances
• can be started with very little funding
• can add funding later
• anything can be put into a trust
• can be revocable or irrevocable
• help people avoid probate and do not require consideration

Question 7

How is a trust a non-probate will substitute?

Answer 7

Because trusts transfer legal and equitable title. The idea is to avoid probate which is expensive and time-consuming because the settlor is not dead, so he can convey all of his assets to the trust when he’s alive, which means there’s no need for probate to distribute it once he dies.

Question 8

What are different trusts that can be made to take effect when a grantor is still alive?

Answer 8

- inter vivos
– disability
- education
– family trust
- heritage 
– loving trust

Question 9

What are different trusts that can be created to take effect on a grantor’s death?

Answer 9

- testamentary
– post mortem
– disability
- education
- family
– heritage
– loving trust

Question 10

What does it mean that a trust is a separate person?

Answer 10

A trust is a legal fiction that says that the trust is a separate person. This allows divesting of property while keeping control over its use.

Question 11

What is a major limitation on trusts?

Answer 11

You cannot use a trust to defraud creditors. I.e.: if your home is mortgaged, you cannot transfer title to a trust and then default on the mortgage. The bank isn’t stopped from foreclosing on the property

Question 12

What is the basic rationale for trusts?

Answer 12

• help avoid probate
• allow unified estate planning in ways that wills do not
• provide ongoing management of the property (necessary if a beneficiary cannot manage the property alone because he is a minor, incapacitated, fiscally irresponsible, or has addictions)
• allow for successive beneficiaries so the settlor can exert control over property for a few generations
• give tax advantages
• insulate from creditors

Question 13

What are the major types of trusts?

Answer 13

PRICE HIIT
- private trust
– revocable trust
–inter vivos trust
– charitable trust
– express trust

– honorary trust
– irrevocable trust
– implied trust
– testamentary trust

Question 14

What does it mean to have a revocable trust?

Answer 14

This is a trust where the settlor has the power to revoke the trust. This only applies to inter vivos trusts. The settlor can revoke unilaterally without going to court. When you set up an inter vivos trust, you can choose for it to be revocable or irrevocable.

Question 15

If there is ambiguity about whether a trust is revocable or not, what happens?

Answer 15

You have to know the jurisdiction that you are in to figure out the default provisions.
– Majority CL: inter vivos trusts are presumed IRREVOCABLE unless stated otherwise. The power to revoke must be expressly reserved
– Minority UTC/California: trusts are presumed to be REVOCABLE unless expressly stated otherwise. The power to revoke comes from either express language or a default statute, and the law presumes that the settlor has the power to revoke the trust unilaterally.

Question 16

If the jurisdiction is not given on an essay for whether a trust is presumed to be revocable or irrevocable, what do you do?

Answer 16

Begin by talking about the majority common-law approach, then the minority California approach to get the maximum amount of points

Question 17

What are different ways to trigger the California default rule with regard to revocability of a trust?

Answer 17

You just need one of these hooks into California to make the CPC control the trust and the California default apply:

• either the settlor must be a resident of California
• the trust was executed in California, or
• the trust’s terms say that it is governed by California law.

Question 18

If a trust is silent with regard to whether it is revocable or not, what do you do?

Answer 18

Follow the default rules in the particular jurisdiction

Question 19

What are different ways to create a revocable trust?

Answer 19

• through a deed of trust when the settlor transfers to the trustee the property to be held in trust
  – through a declaration of trust when the settler declares himself the trustee of certain property for his own benefit during his life with the remainder to pass at his death under the terms of the declaration

Question 20

During the time that a trust is revocable, does the beneficiary have any rights under the trust?

Answer 20

No, he just has an expectancy, not a legal right

Question 21

What are the powers that the settlor and the trustee retain?

Answer 21

• the power to consume the principal
  – direct investments
  – mortgage the trust property

Question 22

What are the duties of a trustee with regard to a trust?

Answer 22

He owes a duty exclusively to the settlor while the trust is revocable. He doesn’t owe a duty to the remainder beneficiaries until the trust becomes irrevocable.