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Mixed Law Flashcards > Trust > Flashcards

Trust Flashcards

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1
Q

Define trust

A

Management device featuring bifurcated transfer

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2
Q

Principal

A

Money generated in connection with conveyance of trust property

Under traditional approach, given to remainder beneficiary when trust terminated

Examples: stocks, bonds, real estate

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3
Q

When may revocable trust be revoked?

A

Any time DURING settlor’s life

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4
Q

Revocable vs. irrevocable trust (traditional v. UTC)

A

Traditional rule: Trust presumed IRREVOCABLE unless docs saying otherwise

Uniform Trust Code (UTC): trust is REVOCABLE unless docs saying otherwise

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5
Q

Mandatory trust

A

Trustee must make distributions from the trust

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6
Q

Discretionary trust

A

Trustee may make distributions at her discretion

Standard for misconduct: abuse of discretion

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7
Q

Remedial trust

A

Trust created by operation of law (passive trust, in which trustee only transfers property)

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8
Q

RAP and trusts

A

RAP applies to trusts

Jdx use ‘wait and see’ approach: wait until an interest vests to determine its validity

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9
Q

Settlor

A

Creator of trust

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10
Q

Trustee

A

Person who manages trust

Holds LEGAL title

May manage property (sell, invest, etc.)

Can be invidual, bank, or company

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11
Q

Will trust fail for lack of trustee

A

NO

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12
Q

Beneficiary

A

Person (or class) who receives benefit of trust

holds EQUITABLE title to property

Has power to enforce instrument

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13
Q

Are pet trusts recognized?

A

In majority jdx, NO

But can create trust for care of pets. Just need to direct funds to a human because animals cannot hold property

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14
Q

Can sole beneficiary be trustee?

A

No, conflict of interest.

But a beneficiary CAN be trustee if there are other beneficiaries who can hold trustee accountable

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15
Q

Express trust

A

Owner indicates intent to create a trust (either private or charitable)

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16
Q

Is an oral trust valid?

A

YES! Or even by conduct

Minority: requires writing

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17
Q

Private express trust: intent

A

Must use trust words to create presumption

“in trust” or “for the benefit of”

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18
Q

Exceptions for when trust must be written

A

-when SOF applies (real property)
-A devise (created in will–must be in existence at time of will or created simultaneously)

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19
Q

Does a trust avoid probate if in will?

A

Yes

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20
Q

When is a trust NOT created?

A

–precatory language (hope or wish for $$ to be used a certain way)

–ambiguous language that might just create a gift

Language must be clear and strong–obvious bifurcation

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21
Q

Empty trust

A

Trust without property–not a valid trust

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22
Q

Empty trust exception

A

Pour-over trust (trust that is in writing when will is executed, provides for property to pour over to will when testator dies)

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23
Q

Trust purpose

A

Valid if not illegal or contrary to public policy

RARELY: public policy violation can also cause trust to fail

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24
Q

Beneficiaries

A

Must be ascertained beneficiary (certain person or criteria to identify person–like members of a band)

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25
Q

Exception to ascertained beneficiary rule

A

Unborn children–this class will be added

Class gifts (if class is definite)

Charitable trusts

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26
Q

Charitable trusts’ purpose

A

-Relief of poverty
-advancement of religion or education
-promotion of good health
-government purposes
-any other purposes benefiting community (even small segment)

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27
Q

Modern charitable trust trend

A

In favor of charitable trust! For public good, we want to encourage or find valid whenever possible

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28
Q

Does RAP apply to charitable trusts?

A

NO

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29
Q

Cy pres and charitable trust

A

Court can modify trust purpose if the original purpose no longer possible SO LONG AS original purpose was GENERAL

Goal: make new purpose as similar as possible

UTC: presumption of general purpose

If no general purpose, property goes to resulting trust (to return to settlor)

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30
Q

Who has standing to enforce charitable trust

A

AG’s office has standing

UTC: Settlor also has standing

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31
Q

Creation of express trust: inter-vivos or testamentory

A

Inter-vivos: during settler’s life through either declaration of trust or deed of trust

Testamentory: created in will, needs to meet attested or holographic will requirements

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32
Q

Declaration of trust

A

Settler is holder of property

Settler is ALSO trustee

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33
Q

Deed of trust

A

Settlor conveys property to trustee

Settler is NOT trustee

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34
Q

Remedial trust definition

A

Not really a trust, an EQUITABLE REMEDY created by operation of law

PASSIVE in nature

1) resulting trust
2) constructive trust

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35
Q

Resulting trust

A

Used when trust fails to return payment to settlor or his estate

Goal: avoid unjust enrichment

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36
Q

Purchase-Money Resulting Trust

A

Person A buys property, but Person B its title

If Person B not natural object of bounty (close friend or relative), court will create purchase-money resulting trust

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37
Q

How to avoid resulting trust?

A

Create GIFT OVER clause

(naming another person if gift fails)

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38
Q

Constructive trusts

A

Remedy to avoid unjust enrichment when third party takes advantage of settlor

Key characteristic: WRONGFUL CONDUCT (fraud, duress, undue influence, breach of duty, detrimental reliance)

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39
Q

Is a trustee who commits wrongdoing still trustee of constructive trust?

A

YES, because it is passive, the wrongdoing remains constructive trustee who holds property until it is conveyed to correct party

40
Q

Three types of distributions

A

1) Mandatory (no discretion for trustee–e.g. all x payments or y/month)

2) Discretionary (complete discretion for trustee–eg. for education or health)

3) Support trusts (to support beneficiary’s living, health, or child support)

41
Q

Alienability of trust property

A

Beneficiary’s equitable interest is FREELY ALIENABLE unless instrument or statute limits right

Creditors CAN reach equitable interest

42
Q

Creditor’s rights to trust distributions

A

Creditors CANNOT reach trust principal or income until it becomes AVAILABLE to beneficiary or beneficiary can DEMAND it

43
Q

Asset protection shields: goal

A

Protect beneficiaries from creditor claims

44
Q

Support trust and discretionary trust asset protection

A

Creditors cannot reach trust property because beneficiaries cannot demand payment

But they CAN reach property when a payment is made

45
Q

Spendthrift trust

A

Trust expressly restricts beneficiary’s ability to alienate interest

Creditors cannot reach trust property until trustee makes payment

46
Q

Exception: Which creditors CAN reach trust property?

A

1) spousal/child support
2) those providing basic necessities to beneficiary
3) holders of federal or state tax liens

47
Q

Trust expiration

A

Trust can expire at end of stated term OR if trust purpose has been satisfied (e.g. graduation from school)

48
Q

Claflin doctrine (unfulfilled material purpose)

A

If beneficiary wants to terminate prematurely and trustee opposes, a TRUSTEE can block premature termination if trust still serving MATERIAL PURPOSE

Common with: discretionary trusts, support trusts, age-dependent trust

49
Q

Settlor ability to modify or terminate trust

A

Can unilaterally modify or terminate trust, UNLESS it is irrevocable

If irrevocable, can terminate or modify if all beneficiaries consent

50
Q

How to modify trust if settlor is dead

A

1) all beneficiaries agree to modification consistent with MATERIAL PURPOSE of trust or

2) An unforeseen event has frustrated purpose of trust (i.e. equitable deviation)

On exam, be careful to identify purpose to evaluate if unforeseen circumstances align

51
Q

Removal of trustee

A

When trustee has breached fiduciary duty OR grossly mismanaged property

Removal likely if:
-trustee became incapable of performing
-material breach
-conflict of interest
-conflict between trustee and beneficiary
-trust performs poorly under trustee’s supervision

52
Q

May a trustee resign?

A

Yes, with written notice, if settlor is alive, to co-trustees and beneficiaires

53
Q

Principal + income: old vs. modern rule

A

Old rule: life beneficiary gets INCOME, remainder holder gets PRINCIPAL

Modern approach: more holistic, governed by Uniform Principal and Income Act
–Trustee to focus on TOTAL RETURN, and can reasonably reallocate items as necessary

54
Q

Modern approach to principal + income: factors for trustee

A

-intent of settler and language
-nature, duration, and purpose of trust
-circumstances of beneficiaries
-anticipated effect of economic conditions
-anticipated tax consequences

55
Q

Source of trustee’s powers

A

ALWAYS look to document first

If document is silent, apply statute and common law

56
Q

Modern trend of trustee powers

A

Grant all powers necessary to act as reasonably prudent person, including:
-sell/transfer
-lease property
-pay taxes
-sever/consolidate property

57
Q

Trustee duties

A

1) loyalty (objective reasonableness standard)
2) care (subjective good faith standard)

ANY beneficiary may enforce

58
Q

Trustee duty of loyalty: self-dealing

A

–NO self-dealing (governed by ‘no further inquiry’ rule: no need to inquire about good faith if self-dealing is established, context doesn’t matter)

–Always a per-se breach of loyalty

–even when trust docs DO allow self-dealing, transaction must be reasonable and fair to avoid liability

59
Q

trustee duty of loyalty: no conflict of interest

A

Conflicts of interest are non-self-dealing transactions that may still be breach of duty of loyalty

–presumption can be rebutted under “reasonable and good faith” test

60
Q

Duty of care: defined

A

Must use care of a person of ordinary prudence + treat property as if it was your own

Special skills: if special skills used, trustee can be held to HEIGHTENED standard

61
Q

Duty of care: delegation

A

old rule: trustees cannot delegate

Modern: Delegation okay

62
Q

Duty of care: investments

A

Old rule: limited to list of acceptable investments

Now: discretion okay

Portfolio approach: measure success of portfolio AS A WHOLE

63
Q

Duty of care: impartiality

A

Old rule: income to life beneficiary, principal to remainder

modern: trustee must treat present and future beneficiaries equally, balance allocations

64
Q

Two administrative duties

A

1) duty to inform beneficiaries (about nature of property)

2) duty to account (for actions taken on behalf of trust + health of portfolio)

65
Q

Possessory estate holder

A

Has right to PRESENT possession

66
Q

Future interest holder

A

Has present right to FUTURE possession

67
Q

Fee simple absolute

A

Largest estate

Lasts forever

NO future interest

68
Q

Defeasible fee

A

A fee simple that can be cut short

1) determinable OR
2) condition subsequent

69
Q

Fee simple determinable

A

Fee simple for durational period

LANGUAGE: “so long as” “while” “during which time”

Possibility of REVERTER held by GRANTOR

70
Q

Fee simple subject to condition subsequent

A

Fee simple terminated upon happening of event or condition

LANGUAGE: “But if” “on condition that”

ELECTIVE right of entry by going to court, NOT automatic

71
Q

Life estate

A

Present possessory estate ending at tenant’s death

REVERSION held by grantor following life estate

72
Q

3 types of future interests of grantor

A

1) Possibility of reverter (end of FSD)

2) Right of entry (end of FSSCS, must petition court)

3) Reversion (end of life estate)

73
Q

Remainder interest

A

Future interest of TRANSFEREE capable of becoming possessory at end of natural termination of possessory estate

74
Q

Vested remainder

A

1) remainderman ascertained
2) no condition precedent

75
Q

Vested remainder subject to open

A

1) there is a class of people supposed to take AND
2) at least one member of class has vested

*ID when class closes

76
Q

Contingent remainder

A

1) Taker is ascertained OR
2) Taker is subject to condition precedent

77
Q

Executory interest

A

Interest held by grantee that will divest a prior vested interest

78
Q

Springing executory interest

A

Divests the GRANTOR

79
Q

Shifting executory interest

A

Divests the GRANTEE

80
Q

Do class gifts include right of survivorship?

A

YES

81
Q

Class gift death rules: traditional vs RST 3rd

A

Traditional: upon death of class member, that share automatically divided among other class members

RST 3rd: Share of deceased given to his surviving issue

82
Q

Three questions to approach essay

A

1) who has possessory interest now?
2) who has future interest?
3) when, if ever, will future interest vest?

83
Q

Pour-Over Trust and Will

A

Will can ‘pour over’ assets into trust, even if trust is not in existence when will is executed.

Later amendments to trust also valid

Trust does NOT need same formalities as will

84
Q

Is political party a charitable purpose?

A

NO

85
Q

Honorary trust

A

If something fails as charitable trust, it can be an honorary trust (animal trust or noncharitable purpose trust for valid purpose)

86
Q

Unanticipated changes to trust

A

Court can modify or terminate trust if circumstances not anticipated by settlor arise AND modification/termination would further the material purpose of the trust

87
Q

Disclaimer

A

In most states, disclaimer not effective UNLESS within 9 months after future interest becoming “indefeasibly vested”

If present beneficiary disclaims, principal gets his $ by acceleration if it has vested

If future beneficiary disclaims, treated as if he predeceased life tenant

88
Q

Gifts to surviving children

A

If child predeceases settlor, child would take nothing

BUT UPC has different rule

89
Q

Does anti-lapse apply to trusts?

A

Majority: NO

UPC: Yes, it applies, and substitute gift created in descendants of deceased

90
Q

Self-dealing remedy

A

beneficiaries can set aside transaction OR ratify transaction and recover profits

91
Q

Prudent Investor Rule

A

Duty to act as investor would when investing his own property–with care, caution, skill

92
Q

Duty to Diversify

A

Trustee must adequately diversify to spread risk of loss, not just in one stock

93
Q

Duty to make property productive

A

To rent property or make investments proper

94
Q

Does income or principal pay for property repairs?

A

Ordinary expenses: income

Extraordinary expenses: principal

95
Q

Power of appointment

A

Trustee appointed to distribute property

General: trustee can give property to anyone

Limited: Trustee must give property to specific person (if bounds exceeded, property will go back to estate or be redistributed)

96
Q

Income

A

Income = money generated by trust (given to income beneficiary)

Examples: dividends, interest, rent

97
Q
A

Mixed Law Flashcards (24 decks)

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