Pg 28

Question 1

What is required with regard to capacity to make a trust?

Answer 1

– testamentary: unique testamentary capacity at the time of will’s execution
– irrevocable inter vivos: must have capacity to make an outright gift, and if not, the transfer is void. But if the seller regains capacity, he can ratify the transfer

Question 2

What is involved in the requirement that a trustee have active duties with regard to a trust?

Answer 2

He must have active duties beyond just ministerial ones, otherwise the trust is invalidated and is just treated as an outright gift.

Question 3

What is the difference between ministerial duties and active duties when it comes to a trustee?

Answer 3

– ministerial: mandatory distribution of income with NO DISCRETION for the amount, collecting income, and passing it to the beneficiaries
– active: must manage money collected from the rent, invest principle, Insure the property, which involves things that requires a trustee to have DISCRETION for the amount or timing of distributions.

Question 4

If a gift fails for lack of delivery, can the donee try to re-characterize it as a trust in order to save the gift?

Answer 4

Gifts need delivery, but if the settlor of a trust is also the trustee, then you don’t need delivery because it is the same person. There’s a modern trend that if doing this helps to carry out the transferor’s intent, then it’s OK.

Question 5

How does it work if you put property with an adult in order to benefit a minor?

Answer 5

Guardianship and custodianships allow an adult to be in charge of the property of a minor.

Question 6

What is the difference between a custodian and a guardian?

Answer 6

Custodians usually have less powers and they require more court oversight than trustees or guardians

Question 7

If you are a trustee, what kind of things are required from the court?

Answer 7

Usually a bond, periodic accounting to the court, court approval for things like sales, investments, distribution, etc.

Question 8

Do custodians have to pay a bond?

Answer 8

No, and they do not have to account to the court, but they all always have the same rights, powers, and authority over the custodial property that an unmarried adult owner would, and they owe fiduciary duties

Question 9

If a dad wants to give his child some of his stock, what can he do?

Answer 9

He can have the stock registered in his name as a custodian and that gives him discretion to expend for his son’s benefit as much of the custodial property as he considers advisable without a court order. These usually end when the child reaches 21

Question 10

If someone borrows money from you and doesn’t pay, can you just take their phone as payment?

Answer 10

No, because in the debt relationship there’s no particular property that is that aside for payment. You are just a general unsecured creditor

Question 11

Generally you do not need a writing to make a valid trust, but what things do require a trust to be in writing?

Answer 11

• REAL PROP: if the property in the trust is real property, then the SOF requires a writing for the transfer to be valid. But this is just an SOF requirement, not a trust validity requirement.
  – TESTAMENTARY trust: when the trust is created by a will. Because wills must be in writing to be valid, only a written will can create a testamentary trust. But this is a will requirement, not a trust rule.

Question 12

Because courts don’t love it when a trust is purely oral, what does the UTC say?

Answer 12

There must be clear and convincing evidence to find the existence of an oral trust

Question 13

What is involved in the element of a trust where the settlor must manifest intent to create a trust relationship?

Answer 13

• testamentary trust: this is by will

– inter vivos trust: this is by declaration of trust or by deed of trust

Question 14

What is the situation that involves a trustee having to agree to be a trustee?

Answer 14

You cannot thrust this duty on someone without their consent. They can accept by words or conduct

Question 15

What does it mean to have an ascertainable beneficiary for a trust?

Answer 15

There must be a beneficiary that is capable of being identified at the time that the trust goes into effect. The reasoning is that the trust needs someone to enforce its terms in court if necessary. They have standing to enforce the trust

Question 16

What is the timing for meeting ascertainable beneficiaries for a trust?

Answer 16

This must be present at the time the trust goes into effect

Question 17

If a settlor says that his house is held in trust by someone to benefit his kids after he dies, and at the writing of the trust he has no kids, what is the timing for when there must be ascertainable beneficiaries?

Answer 17

The courts will wait until his death to see if anyone meets that definition. It doesn’t matter that he had no children at the writing, because it is not at creation, it is the time that the trust goes into effect.

Question 18

What is required in order to identify the beneficiaries of a trust?

Answer 18

They don’t have to be currently identified, as long as they are identifiable within the period of RAP. They can still be unborn as long as they are ascertainable through a class or other designation. I.e.: if there’s a trust for a university’s 2025 graduating class, that is OK because the beneficiaries will be ascertainable, even though they haven’t been admitted to the university yet. Until they are identified, the court can appoint someone to represent their interests.

Question 19

Is it OK for a settlor to leave his house in trust for the benefit of his “friends“?

Answer 19

No, because it is impossible to determine who is included in that category, so they wouldn’t be ascertainable beneficiaries.

Question 20

What are the only times that a trust does not have to have ascertainable beneficiaries?

Answer 20

• charitable trusts: because then the Attorney General can enforce it
  – public trusts, trusts for the care of an animal, or other valid non-charitable purposes: because then the code provides a method for enforcement

Question 21

What are the variations for power of appointment with regard to someone not being given a gift, but the power to decide what gifts others will get?

Answer 21

– discretionary power: the holder doesn’t have to distribute the property to anyone or any certain amount
– CL mandatory power: the property is given for the sole purpose of using your discretion to distribute it among named people

Question 22

If a settlor designates A to choose to distribute property as he sees fit to B, C, and D. What has happened?

Answer 22

The variation has been employed for a power of appointment, where A has not been given a gift, but he has the power to decide what gifts the others will get

Question 23

If a settlor says that he leaves $100,000 to A with the power to distribute in such amount and time as he sees fit among the settlor’s grandkids, what is A entitled to do?

Answer 23

He can do whatever he wants. He can distribute all of the money to one of the grandkids, split it evenly, or not distribute it. It’s a non-fiduciary power because he doesn’t owe the grandkids any obligations for when, how, or to whom he distributes property if he doesn’t give any of them anything, they can’t sue him. So it’s possible to give someone discretionary power of appointment to distribute “to my friends” because no one has an enforceable right.

Question 24

What is involved in the mandatory CL power for a power of appointment?

Answer 24

This is when someone is given property for the sole purpose of using his discretion to distribute it among named people. There’s a power coupled with a trust because there’s the opportunity and a fiduciary obligation to distribute within the class. So if someone is given a mandatory obligation to distribute among the settlor’s “friends“, that doesn’t work because A is a trustee, but there are no identifiable beneficiaries with standing to sue if he abuses his discretion. The UTC says that a mandatory power to bestow property among an indefinite class is OK