Review

Question 1

What are the elements required to create a trust?

Answer 1

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)

Question 2

Are trusts revocable or irrevocable?

Answer 2

Under the UTC, an inter vivos trust is revocable unless the instrument expressly states otherwise

Question 3

Testamentary Trust

Answer 3

A trust created through the provisions of the settlor’s will. Does not take effect until settlor’s death.

Question 4

Pour-Over Provision

Answer 4

Occurs when a will gifts property to a previously established trust

Question 5

Charitable trust

Answer 5

A trust that confers a substantial benefit to society
-RAP does not apply

Question 6

Illusory Trust

Answer 6

Occurs when the settler retains significant control over the trust property including lack of intent to make a trust.
INVALID

Question 7

Resulting Trusts

Answer 7

Implied by law if a trust fails for lack of a beneficiary
-All trust property returns to the settlor’s estate

Question 8

Discretionary Trusts

Answer 8

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

Question 9

Support Trust

Answer 9

A trust directing the trustee to pay the beneficiary as much income as necessary for the beneficiary’s support

Question 10

In which type of support trust does the trustee have no discretion?

Answer 10

Pure support trust

Question 11

What happens if a testamentary trust fails?

Answer 11

Trust property passes under a residuary clause in the will (if one exists) or to settlor’s heirs

Question 12

What is the cy pres doctrine?

Answer 12

Courts will modify a charitable devise to conform close to the settlor’s intent if the purpose of the trust or bequest is frustrated

Question 13

What is a spendthrift provision?

Answer 13

A provision that prevents the transfer of a beneficiary’s interest in a trust. It cannot be sold or assigned.

Question 14

When might a creditor reach a debtor’s trust interest in a spendthrift trust?

Answer 14

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)

Question 15

What duties does the trustee have?

Answer 15

Duty of loyalty and duty of care

Question 16

What happens if a trustee engages in self-dealing?

Answer 16

a) the transaction is voidable by the beneficiary affected; or
b) beneficiary can seek damages

Question 17

When may a trustee engage in self-dealing? (5 exceptions to no self dealing)

Answer 17

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

Question 18

What is the Prudent Investor rule?

Answer 18

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.

Question 19

Special Power of Appointment

Answer 19

The holder may appoint property only to those authorized by the grantor

Question 20

General power of appointment

Answer 20

the class of people that the beneficiary can exercise the power of appointment in favor of is unlimited

Question 21

What is a power of appointment?

Answer 21

A power given to the beneficiaries of a will or trust. It enables the beneficiary to designate who will receive the trust property.

Question 22

What are the remedies for a breach of trust?

Answer 22

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”

Question 23

When may a settlor terminate a trust?

Answer 23

If all beneficiaries are in existence, and all agree to the termination

Question 24

May beneficiaries terminate a trust after the settlor dies?

Answer 24

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)