Requirements for Creation of a Trust & Use of Trusts to Effect Nonprobate Transfers

Question 1

Define: Trust

Answer 1

A legal device whereby one individual or entity, a trustee, holds legal title to certain property and manages it for the benefit of named beneficiaries.

Question 2

What are the six elements to every valid trust?

Answer 2

a) settlor
b) property
c) one or more trustees
d) beneficiaries
e) intent to create a trust
f) a legitimate purpose

Question 3

Rule for capacity to create a trust

Answer 3

Mental capacity + over age of 18, or emancipated minor

Question 4

No trust arises unless and until . . .

Answer 4

legal title to a specific interest in CERTAIN AND ASCERTAINABLE property is fully conveyed to the trustee

Question 5

Who may a trustee be?

Answer 5

an individual, a group of individuals, or a corporation

Question 6

Does a trust fail for lack of a trustee?

Answer 6

No. If the intention to create a trust is clearly manifested by the settlor, but no trustee is named, or if the named trustee refuses, resigns, or becomes incapacitated and there is no provision for a successor trustee, the court will appoint a suitable successor to execute the trust

Question 7

When is a bond required of an individual serving as trustee?

Answer 7

Only if the court finds it is needed to protect beneficiaries’ interests

Question 8

Private Trusts

Answer 8

• Trusts that benefit private individuals
• Must have definite and ascertainable beneficiaries
• Subject to the RAP

Question 9

Charitable Trusts

Answer 9

• Cannot benefit identifiable individuals
• Must have a charitable purpose
• Must benefit an indefinite group of persons
• Not subject to the RAP

Question 10

Honorary Trusts

Answer 10

For aims that are more personal than charitable but also NOT for the benefit of other humans

Example: for care of pets or a cemetery plot

Question 11

How does a trustee accept his role?

Answer 11

• signature: signing a written acceptance of the trust
• conduct: accepting delivery of the trust property, performing the duties of the trustee, or otherwise manifesting acceptance of the responsibility, OR
• method stated in the trust: settlor may indicate some other way by which the named person accepts the role of trustee

Question 12

Common Law Rule Against Perpetuities

Answer 12

No [future] interest is good unless it must vest, if it does vest, not later than 21 years after some life in being at the creation of the interest.

What it means: At the creation of the interest, is there any possibility that any interest will not vest within 21 years after everyone now alive is dead?

Question 13

VA: Statutory “Gutting” of the RAP

Answer 13

Allow the trust to proceed for up to ninety years, to see whether during that time the questionable interest either vests or terminates.

Court may also “reform” (aka amend) a trust to eliminate any RAP problem not resolved by the 90 year thing

Question 14

What should you look to in order to determine whether a trust was created? (versus a gift)

Answer 14

Look to whether the settlor attached enforceable duties to the transfer of the property

Question 15

Are oral trusts valid?

Answer 15

Yes, so long as the terms of the trust are proven by clear and convincing evidence.

Question 16

What purposes made a trust invalid?

Answer 16

• To further the commission of a crime
• Wastefully destroy property
• Purpose is otherwise contrary to public policy (e.g. encourage divorce)

Question 17

Are trusts that impose restraints on marriage ever valid?

Answer 17

Yes, partial restraints on marriage are valid as long as they are reasonable restraints (do not unreasonably restrict right to marry, establish religion, interfere w/ freedom of association, limit your privacy, etc.)

Question 18

What is an effective non-probate transfer vehicle?

Answer 18

A trust made inter vivos (validly created during the settlor’s lifetime, NOT by will!)

Question 19

Revocability: by the settlor

Answer 19

All inter vivos trusts are revocable or modifiable by the settlor during his or her life unless the settlor expressly made the trust irrevocable and non-modifiable

Question 20

Revocability: by the conservator, guardian, or agent

Answer 20

A conservator of an incapacitated settlor or the settlor’s guardian or agent under a durable power of attorney may revoke or modify the terms of a revocable trust only:

(i) if expressly authorized by the trust, or
(ii) if authorized by the court for good cause shown

Question 21

SoL: An action contesting the validity of a revocable inter vivos trust must be brought within the earlier of . . .

Answer 21

(1) two years after the settlor’s death, or
(2) six months after the trustee sent the person commencing the judicial proceeding a copy of the trust instrument, the trustee’s name and address, and a notice of the time allowed for contesting the trust

Question 22

Trustee Liability: A trustee can be subject to liability for distributing trust property if…

Answer 22

(1) the trustee knows of a pending judicial proceeding contesting the validity of the trust, or
(2) a potential contestant has notified the trustee of a possible judicial proceeding and a judicial proceeding is in fact commenced within 60 (sixty) days after the contestant sent the notification

Question 23

Durable power of attorney

Answer 23

Authorizes another person (agent, attorney-in-fact) to act on behalf of the principal immediately and even after the principal becomes incapacitated and so unable to give direction

Question 24

Springing durable power of attorney

Answer 24

“This power of attorney becomes effective upon my disability or incapacity.”

The person named acquires authority only at that time, NOT before.

Question 25

Settlor

Answer 25

The person who creates or contributes property to a trust. Must have capacity.