Pg 24

Question 1

What is an inter vivos trust?

Answer 1

During the testator’s lifetime he makes a trust that says he is holding a property interest for his own benefit for the duration of his life, and then on his death, his successor beneficiary will take it. This does all of the same things that a will does [transfers property at death], but it doesn’t require formalities or probate.

Question 2

Is an inter vivos trust revocable?

Answer 2

Yes, you can revoke, amend, or modify the trust anytime before death or incapacity

Question 3

Does the testator have freedom to deal with the property any way he wants in an inter vivos trust?

Answer 3

Yes, he can sell it, give it away, consume it, or destroy it by first revoking the trust, and then the named beneficiaries have no rights to complain. There’s also an argument that the act of selling or disposing of trust property is an implied revocation of the beneficiary’s rights *** extra points

Question 4

What is the beneficiary’s interest in property in an inter vivos trust before the testator’s death?

Answer 4

The beneficiary only has an expectancy because the settlor can change his mind any time before he dies.

Question 5

What is the effect of a trust?

Answer 5

At the settlor’s death, the beneficiary gets the property and the settlor no longer holds it as the trustee. The beneficiary has equitable and legal title at that settlor’s death and the trust is extinguished.

Question 6

How does a trust act as a will substitute?

Answer 6

Title transfers to the trustee during the life of the settlor, so technically once the settlor dies, there is no need for probate, because title just gets passed along to the successor beneficiary without any need for probate.
– CL legal fiction: beneficiary has a presently existing interest in the res during the settlor’s life
– UTC: property belongs to the settlor during his life, so the trustee owes duties only to the settlor, and not to the beneficiary.

Question 7

If a settlor and a trustee in an inter vivos trust are the same person, what does that mean?

Answer 7

He can do whatever he wants with the property

Question 8

All of the subsidiary rules that apply to wills also apply to what?

Answer 8

Trusts. So this includes:

• definitions for things like children and heirs
• lapse and anti-lapse
• changes in property like ademption and exoneration

Question 9

Is there a specific way that trusts must be revoked?

Answer 9

No

Question 10

What does it mean that a trust involves ongoing management of the property?

Answer 10

Trusts can continue for decades, so there are often rules about the duties that a trustee owes or the rights that a beneficiary has.

Question 11

Can you use extrinsic evidence to reform a mistake with a trust?

Answer 11

Generally yes. Because trusts don’t have formalities, courts give them less deference, so they are OK with extrinsic evidence being used to correct mistakes in a trust, even after the settlor is dead and the trust has become irrevocable.

Question 12

Are there tax advantages to inter vivos trusts?

Answer 12

No, because if the settlor retains power to revoke the trust, then its income continues to be taxed to the settler. But irrevocable transfers can save income and taxes.

Question 13

What is an irrevocable trust?

Answer 13

A trust where the settlor has no power to revoke it.

Question 14

What do the words “revocable or irrevocable“ have to do with trust?

Answer 14

They only tell us whether the power to revoke is present in the trust, they have nothing to do with modification or termination

Question 15

What is an express trust?

Answer 15

When the settlor decides to dispose of his property by having one party hold or manage it on behalf of another or for a valid charitable or honorary purpose. A private express trust is established by the settlor for the benefit of one or more ascertainable beneficiaries.

Question 16

What is an implied trust?

Answer 16

There isn’t a settlor that made a conscious decision to set up a trust, but the law implies a trust-type relationship. This is not a true trust, but instead it is a quasi-trust.

Question 17

What are the two categories of implied trusts?

Answer 17

– constructive trusts

– resulting trusts

Question 18

What is a constructive trust as a category of implied trust?

Answer 18

This is an equitable remedy that the court imposes to avoid unjust enrichment. It happens when a party ends up legally owning property that the transferor didn’t intend him to own, then the court imposes a constructive trust on the recipient and says he holds only legal title for the benefit of the rightful recipient, and has an obligation to transfer title to the rightful recipient. After that, legal and equitable title are both held by the rightful owner and the trust extinguishes.

Question 19

What is a resulting trust as a category of implied trust?

Answer 19

This is a reversionary interest that arises by operation of law in two situations:
– trust fails or terminates by its own terms
– purchase money resulting trust: one party provides the purchase price of the property, but title is taken in the name of another.

Question 20

What is involved in a resulting trust where the trust fails or terminates by its terms?

Answer 20

Ie: if the will said, “Everything to T in trust for A.“ If A dies before the settlor, and anti-lapse doesn’t apply to save his gift because he’s not a protected transferee, then his gift lapses. There’s no residuary beneficiary, so the property reverts back to the settlor’s estate and is distributed by intestate succession. Even though the settlor never specified that his estate would benefit from trust property if A pre-deceased him, that is implicitly what happens or results. The same is true if the settlor had said he was putting property in trust to T with A to get the income from it for five years and then afterwards for property to revert back to the settlor.

Question 21

What is involved in a purchase money resulting trust?

Answer 21

This is when one party provides the purchase price of the property, but title is actually taken in the name of another, usually someone that is not a close relative

Question 22

What is an example of a purchase money resulting trust?

Answer 22

If you put up $500,000 and B uses it to buy a house, and then B takes title in his name. If you can prove you put up all of the money, the court may decide that B actually holds title to the property in trust for you. No one consciously decided to set up a trust, but the court imposed it to avoid unjust enrichment. But if B was his kid, the court would say that it is natural that he would put up the money and let B take title, so no trust in that situation.

Question 23

What is a private trust?

Answer 23

A trust that is for the benefit of a specific named individual or class of individuals as long as there’s an ascertainable beneficiary

Question 24

What is a charitable trust?

Answer 24

One that is set up to serve a charitable purpose (or a charity is the ultimate beneficiary) and created for the public at large. These can never be implied, they are only created by the express intent of the settlor. They can be testamentary or inter vivos and they are exempt from the rule against perpetuities.

Question 25

What are the elements of a charitable trust?

Answer 25

– manifestation of intent to create a trust
– existing trust res
– valid charitable purpose

Question 26

What is considered to be a valid charitable purpose for a charitable trust?

Answer 26

It is created for the benefit of the public, so it is enforceable by the state attorney general on behalf of the citizens of the state. Duration is not an issue because this is an exception to RAP, so it can last forever. But the trust must be intended for a recognized charitable purpose and it must reasonably be expected to further that purpose. The trust must benefit the public.