Review Flashcards
What are the elements required to create a trust?
1) beneficiary;
2) settlor with capacity;
3) intent to create;
4) Trustee named (will not fail for lack of trustee, court will appoint)
5) Valid purpose
6) Property, &
7) state formalities (i.e. signed in front of notary)
Are trusts revocable or irrevocable?
Under the UTC, an inter vivos trust is revocable unless the instrument expressly states otherwise
Testamentary Trust
A trust created through the provisions of the settlor’s will. Does not take effect until settlor’s death.
Pour-Over Provision
Occurs when a will gifts property to a previously established trust
Charitable trust
A trust that confers a substantial benefit to society
-RAP does not apply
Illusory Trust
Occurs when the settler retains significant control over the trust property including lack of intent to make a trust.
INVALID
Resulting Trusts
Implied by law if a trust fails for lack of a beneficiary
-All trust property returns to the settlor’s estate
Discretionary Trusts
Trustee has absolute discretion and power to determine when and how much of the trust property is distributed to the beneficiaries
-must be in good faith
Support Trust
A trust directing the trustee to pay the beneficiary as much income as necessary for the beneficiary’s support
In which type of support trust does the trustee have no discretion?
Pure support trust
What happens if a testamentary trust fails?
Trust property passes under a residuary clause in the will (if one exists) or to settlor’s heirs
What is the cy pres doctrine?
Courts will modify a charitable devise to conform close to the settlor’s intent if the purpose of the trust or bequest is frustrated
What is a spendthrift provision?
A provision that prevents the transfer of a beneficiary’s interest in a trust. It cannot be sold or assigned.
When might a creditor reach a debtor’s trust interest in a spendthrift trust?
a) Judgment creditor who provided services for the trust;
b) Creditor who furnished necessities;
c) Order for child support or alimony;
d) Claim by state or fed gov; OR
3) self-settled trust (settlor retains interest)
What duties does the trustee have?
Duty of loyalty and duty of care
What happens if a trustee engages in self-dealing?
a) the transaction is voidable by the beneficiary affected; or
b) beneficiary can seek damages
When may a trustee engage in self-dealing? (5 exceptions to no self dealing)
1) Authorized by trust terms;
2) Approved by court;
3) Beneficiary did not commence judicial proceeding within required time
4) Beneficiaries consented, ratified, or released trustee liability
5) Transaction occurred before the person became a trustee
What is the Prudent Investor rule?
A trustee must exercise the degree of care, skill, and prudence of a reasonable investor investing his own property. Must diversity assets, avoid risky investments, and keep the trust assets productive.
Special Power of Appointment
The holder may appoint property only to those authorized by the grantor
General power of appointment
the class of people that the beneficiary can exercise the power of appointment in favor of is unlimited
What is a power of appointment?
A power given to the beneficiaries of a will or trust. It enables the beneficiary to designate who will receive the trust property.
What are the remedies for a breach of trust?
Suspending or removing a trustee
Decreasing compensation
Compelling trustee to perform trust duties
Compelling payment of damages
A court may “order any other appropriate relief”
When may a settlor terminate a trust?
If all beneficiaries are in existence, and all agree to the termination
May beneficiaries terminate a trust after the settlor dies?
Generally, yes if the income beneficiaries and remaindermen unanimously consent, and if there is no material purpose of the trust yet to be performed. (Claflin)
