Pg 32

Question 1

What is the difference between restricting involuntary alienation and restricting voluntary alienation with regard to spendthrift trusts?

Answer 1

– involuntary: a provision is included that says that the beneficiary’s creditors cannot touch the money
– voluntary: a provision says that the beneficiary is also prohibited from selling or gifting his interest in the trust

Question 2

What is the rationale behind restrictions on involuntary and voluntary alienation in a spendthrift trust?

Answer 2

It’s not OK for the beneficiary to be able to sell or gift his interest and be protected from creditors. That would be against public policy

Question 3

If a beneficiary is a beneficiary of a spendthrift trust and he owes MasterCard $5000, but the trust gives him $1000 a month, can MasterCard get a court order to compel that the trust payments be given straight to them?

Answer 3

No, because this is a spendthrift trust, so creditors cannot touch the money. MasterCard would have to wait for distribution to the beneficiary and then try to collect from him.

Question 4

What is an example of spendthrift trust language?

Answer 4

“T will pay B $500 a month, but payment will not be made to B’s creditors or other parties.“ This shows a desire to prevent voluntary and involuntary alienation.

Question 5

What is absolutely required for a spendthrift trust to exist?

Answer 5

It must be expressly stated by the settlor. He doesn’t have to use the word “spendthrift,” but there must be language that the settlor does not want the beneficiary’s creditors to attach the trust res or for the beneficiary to sell or gift it away.

Question 6

What is the exception to spendthrift trusts for support trusts that doesn’t require express language?

Answer 6

Support trusts are by default spendthrift trusts. The reasoning is that the point of a support trust is to give the beneficiary a steady income for a period of time to ensure that his basic needs are covered. So a support trust doesn’t have to say that it is spendthrift, but it has always read as such.

Question 7

What is the exception to a spendthrift trust for necessities?

Answer 7

Suppliers of necessities like shelter, food, clothing, and medical care can compel payment directly from the trustee. The idea is that the settlor would want those things paid for because the beneficiary will die without them.

Question 8

What is the exception to a spendthrift trust for child support and alimony?

Answer 8

Public policy says that these trump spendthrift provisions because if a beneficiary doesn’t pay them, the state has to.

Question 9

What are the two different ways you can alter a trust?

Answer 9

Modification and termination

Question 10

What are the questions you need to ask if someone wants to change a trust?

Answer 10

• when is this happening?
  – who wants to do it?

If the settlor is still alive and the settlor plus ALL of the beneficiaries want to change the trust, that is OK as long as everyone is in agreement.

Question 11

How do trust terminate?

Answer 11

Usually by their terms.

Question 12

If a settlor provides that the trustee shall invest res and pay income annually to A for life, then pay principle to B, when A dies and the trustee transfers all the property to B, what happens?

Answer 12

There is a merger of legal and equitable title in B, so the trust is extinguished and the trustee has nothing left to do

Question 13

If a settlor says that the trustee must pay income annually to A until he turns 30, then he gets the principal. When a terms 30 and the trustee transfers the rest to him, what happens?

Answer 13

The trust terminates

Question 14

What exactly is a resulting trust?

Answer 14

If the trust doesn’t make a final or permanent disposition of property because the disposition failed or was never intended, then the property reverts back to the settlor or his estate if he is dead.

Question 15

If a settlor says to pay income annually to A for life, then principal to B, but if B dies before A, then anti-lapse applies if B is a protected transferee because he has surviving issue and no contrary intent is in the document, which saves his gift for his issue. But if anti-lapse doesn’t apply, and there is no alternative residuary beneficiary, what happens?

Answer 15

It reverts back to the settlor or his estate

Question 16

If the settlor says that the trustee should pay $100 a month to A for five years, after five years, what happens?

Answer 16

The trust terminates by its terms and it goes back to the settlor if it failed to dispose of all equitable interest in property.

Question 17

How are reformation and modification for mistakes within a trust dealt with?

Answer 17

Judicial reformation of inter vivos instruments to correct mistakes is OK to correct when the trust misstates the settlor’s intention, to include a term that got left out, or to make changes if the trust is written under a mistake of law, or scrivener’s error. Reformation involves the addition of language or deletion of something with the purpose of having the document align with the settlor’s intent. That is why relying on extrinsic evidence is OK under the clear and convincing proof standard. Common law does not allow reformation of testamentary trust, but the UTC does.

Question 18

How do you revoke a trust?

Answer 18

As long as the trust doesn’t say how to revoke it, then any words or act that is reasonably calculated to manifest an intent to revoke is enough. If the trust document states how revocation has to happen, then that will be followed

Question 19

For a revocable trust, how does early termination or modification occur?

Answer 19

The property interest in the res still belongs to the settlor, so the trustee only owes duties to the settlor. If the settlor wants to terminate early or modify the trust, he can

Question 20

How does early modification or termination take place when it comes to an irrevocable trust?

Answer 20

If the settlor and all beneficiaries agree to an early termination or modification, it is OK. The idea is that the beneficiaries have equitable title and although the trustee has legal title, since everyone with a right to enjoy the property agrees, the trustee can’t override their interests. If the settlor is dead, the law gives deference to his right to dictate what happens to his property on his death, so his intent is what is at issue

Question 21

If there’s only a small amount left in the trust, and it is uneconomical to have the trustee keep managing the trust, what do the UTC and other statutes say?

Answer 21

They allow for premature termination of the trust when continued operation becomes uneconomical because the cost outweighs the advantages since the value of the trust property is insufficient to justify the costs of administration. Upon termination, the assets are distributed in a way that is consistent with the purposes of the trust.

Question 22

What are the three types of early termination or modification to a trust?

Answer 22

– Claflin doctrine
– Changed circumstances
- Trust Decanting