Resulting and Constructive Trusts

Question 0

Situations where Resulting trust arise

Answer 0

trust with no beneficiaries
no provision for part of trust property
trust provision is invalid or excessive
purpose never described
carrying out material purpose is illegal or impractical

Question 1

Resulting Trust

Answer 1

not a true trust
implied trust for benefit of settlor or settlors heirs
arising when settlor makes an incomplete disposition of assets or
fails after property has been conveyed to a trustee

Question 2

Purchase money resulting trust

Answer 2

party obligates himself to pay purchase price for property
directs title to be held by another
creates a rebuttable presumption that grantee holds property in a resulting trust for payor

abolished by statute in NY to avoid fraud

Question 3

When one party pays for property placed in someone else’s name

Answer 3

The property is presumptively placed in a resulting trust for the benefit of the payor’s creditors to the extent necessary to satisfy their claims

Question 4

Trustee’s responsibilities in a resulting trust

Answer 4

same duties and obligations as other trustees

primary among these

1. convey trust property back to settlor or her estate
2. convey property to payor’s creditors where purchase money resulting trust is involved
3. account for any income

Question 5

Constructive Trust

Answer 5

not a true trust but an equitable remedy

imposes duties on holder of property to redress wrongdoing or prevent unjust enrichment

Question 6

Use of Constructive Trust as Remedy is available where

Answer 6

1. property wrongfully obtained - fraud, undue influence
2. beneficiary kills decedent
3. formal requirements for establishing a trust have not been met
   ie secret trust

Question 7

Purpose of Constructive trust

Answer 7

compel holder of property to return it to the rightful beneficiaries

Question 8

Burden of proof to justify imposing a constructive trust

Answer 8

clear and convincing evidence

Question 9

Source of Trustee’s Powers

Answer 9

trust instrument, express or implied

granted by statute or implied in law as necessary to accomplish trust purposes

Question 10

Trustee statutory powers - short list (10)

Answer 10

1. acquire assets
2. invest and reinvest assets
3. maintain insurance on trust property
4. making repairs on property
5. lease property
6. mortgage trust property
7. vote shares of stock
8. exercise stock rights
9. incur reasonable expenses to maintain trust property
   10 mortgage trust property

Question 11

Invasion Power

Answer 11

court may order a trustee distribute principal to beneficiary
whose support or education is not sufficiently provided for if
consistent with settlor’s intent
necessary to execute settlor’s purpose
and not prohibited by instrument

Question 12

What trustee NOT automatically have the power to do (5)

Answer 12

abandon or destroy real property
continue business
pay illegal debts
borrow or lend to trust
make extraordinary repairs to trust property

Question 13

Trustee Duty of Loyalty

Answer 13

utmost good faith and loyalty to beneficiaries in carrying out obligations

requires trustee treat each beneficiary fairly and impartially

prohibited in self dealing in any manner in dealing with trust assets even if acting in good faith

Question 14

No Further Inquiry Rule

Answer 14

beneficiary can proceed to undue a self dealing transaction
or seek damages from the trustee
whether or not the transaction was fair to the trust or on good terms

Question 15

Beneficiaries option in breach of trust by trustee

Answer 15

have the option to waive breach caused by self-dealing if transaction was beneficial to them

Question 16

Self-Dealing of Trustee

Answer 16

automatic breach of trust

Question 17

Trustee obtaining personal benefit

Answer 17

ordinarily prohibited from obtaining personal benefit
other than agreed upon or statutory fees as
consequence of his position

Question 18

trustee Compensation

Answer 18

may receive reasonable compensation for services rendered
provided they are necessary
and consistent with duties

may not obtain a benefit from 3rd parties with respect to dealings with trust estate

Question 19

Trustee Apparent Conflict of Interest

Answer 19

no apparent conflicts of interest are permitted

must segregate his assets from trust assets

Question 20

Failure to Segregate trust assets and presumption created

Answer 20

lost assets were personal and remaining property belongs to trust

Question 21

Self Dealing Authorized by Trust

Answer 21

instrument may authorize specified acts of self dealing
loan money or purchase assets
trustee must act in good faith with utmost fairness in such transactions

Question 22

Affirmative Duties with respect to trust assets

Answer 22

preserve and enhance trust property
maintain clear and accurate accounting
may seek advice from professionals in deciding whether to undertake action

Question 23

Standard of Care applied to trustee’s actions

Answer 23

exercise degree of care, skill, and prudence
with respect to trust assets
as would a reasonably prudent business person
with respect to his own affairs and property

Question 24

Trustee with superior business expertise or is a professional fiduciary
standard of care

Answer 24

will apply higher standard of care

individual or entity possessing those characteristics

Question 25

Reasonable steps to preserve the estate that may be taken by trustee

Answer 25

1. obtain insurance
2. pay debts as due
3. maintain assets
4. insure no injuries on property
5. defend assets from settlor’s creditors
6. prevent property from being stolen

Question 26

Prudent Investor Rule

Answer 26

Trustee is permitted to invest assets
as a prudent investor
considering both the interest of life beneficiaries
and remaindermen

Question 27

What must trustee consider when making investments of trust assets

Answer 27

size of portfolio
nature and duration of fiduciary relationship
liquidity and distribution requirements of trust instrument
general economic conditions
inflation
tax consequences
role of investment in portfolio
current return of portfolio
future needs of beneficiaries

Question 28

When a Trustee may delegate investment or management functions

Answer 28

1. use care in selecting delegee
2. defines delegation consistent with trust instrument
3. periodically reviews functions
4. controls costs of delegee