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MEE 2021 > Trust > Flashcards

Trust Flashcards

1
Q

Trust creation ∑4

A

∑4

(a) settlor intent to create
(b) trust property
(c) valid trust purpose
(d) identifiable beneficiary

Intent: settlor must intend to make a gift in trust. Oral OK

Trust property: must contain some property owned by settlor at the time of creation/transfer.

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2
Q

Trust creation: valid trust purpose

A

Any purpose as long as it is not illegal or against public policy. (e.g. restraints on first marriage are generally against public policy and thus void

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3
Q

Trust creation: Ascertainable beneficiary

A

beneficiary must be identifiable © Exceptions: (1) indefinite class (2) class gift (3) charitable trust (4) unborn child

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4
Q

Charitable trust creation

A

must have (a) stated charitable purpose and (b) exist for the benefit of the community or a segment of the community

Charitable purpose: poverty, education/religion, health, government, community purposes
Benefit of the community: must not have a named individual
RAP does not apply

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5
Q

Cy Pres doctrine

A

if the original charitable purpose becomes illegal, impracticable, or impossible to perform, a court may find an alternate charitable purpose

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6
Q

Cy Pres presumption

A

Presumption of a general intent: If general intent to help: court will substitute a similar charity. © If there is a specific intent to help one charity, court will not modify, and the trust becomes a resulting trust held for the settlor/estate.

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7
Q

Resulting trust: who gets the resulting assets?

trust vs. testamentary trust

A

imposed when a trust fails.

A resulting trust requires holder to return it to settlor/estate.
If a testamentary trust fails, residuary legatee takes the property interest

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8
Q

Trust modification: revocability–generally

A

Majority rule: trust is presumed to be revocable unless specified otherwise

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9
Q

Trust modification: Settlor’s power to terminate/modify

A

must expressly reserve of power to modify/terminate.

If no reservation, can terminate/modify if (a) consent of all beneficiaries and (b) proposed change will not interfere with the primary purpose of the trust.

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10
Q

Trust modification: automatic termination

A

Automatic termination: when trust purpose has been accomplished

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11
Q

Trust modification: Termination by consent

A

can terminate

(a) if settlor is dead or the trust has no remaining assets,
(b) consent of ALL beneficiaries (including potential future) and trustee.

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12
Q

Trust modification: Claflin doctrine

A

A trustee can block termination by beneficiaries if the trust has an unfulfilled material purpose.

(e.g. a trust providing for successive interest has an unfulfilled material purpose, discretionary trusts, support trusts, age-dependent trusts, spendthrift trusts)

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13
Q

Trust modification: doctrine of equitable deviation and exception

A

A court may modify trust terms without beneficiary consent

(1) due to unanticipated circs if changes would further the purpose of the trust; or
(2) terms relating to trust management/administration that would be impractical/wasteful under current terms.

© A court may not alter the rights of beneficiaries (modifying terms that would affect rights of both income and remainder beneficiaries), due to changed circumstances, but may interpret certain changes as frustrating to the trust purposes in order to make such modification.

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14
Q

Trust beneficiary–2 types

A
  1. Income beneficiary

2. Remainder beneficiaries

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15
Q

Trust beneficiary’s right to alienate:

A

can alienate equitable interest in the trust

© Spendthrift

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16
Q

Trust beneficiary’s creditors–rights to trust assets

A

same rights as beneficiaries.

may reach trust assets only when (1) the amounts become payable to the beneficiary or
(2) are subject to her demand

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17
Q

Support trust: definition and creditor’s rights

A

directs trustee to pay income or principal necessary to support the beneficiary

Creditor-providers of necessities can be paid by the trustee directly

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18
Q

Discretionary trust: definition and creditor’s rights

A

if trustee exercises discretion to pay, creditor can’t reach unless spendthrift restriction exist

19
Q

Spendthrift trust: definition and creditor’s rights

A

Spendthrift restriction expressly restricts beneficiary’s power to transfer his equitable interest.

Creditors cannot reach unless money is owed for child/spousal support, tax lien, or owed to basic necessities providers

20
Q

Trust distribution: allocation of principal and income

A

Income beneficiary takes income.

Remainder beneficiaries take trust principal upon termination of the trust

21
Q

Trust distribution: allocation of receipts

General rule
Stock dividend

A

Principal: amount received in exchange for trust is principal;

Income: amount received for use of trust property is income © stock distribution (dividends or split) is principal

22
Q

Future interest: vested remainder

A

A remainder is vested if the holder of the interest is ascertainable and there is no express condition precedent required before the interest becomes possessory.(i.e., no requirement to “survive”)

23
Q

Future interest: UPC treatment of future interest

A

UPC: Future interests are contingent on the beneficiary surviving the distribution date

24
Q

A trust creates a vested remainder in X and then provides that the remainder should pass to X’s child if X predeceases the LE.

what happens to the remainder when X predeceases LE?

A

C/L: remainder interest is vested, and it is divested only if X has a child (remainder goes to child).
If X dies childless, the remainder goes to X’s estate

© UPC: X’s remainder interest is contingent on surviving LE. If X didn’t survive LE, interest does not vest and does not pass to X’s estate or X’s issue

25
Q

Disclaimer of trust interest

Validity requirement
Effect

A

Valid if in writing within 9 months after future interest becomes vested.

If disclaimed, treated as predeceased

26
Q

Acceleration of a vested remainder interest

A

A vested remainder accelerates into possession as soon as the preceding estate ends for any reason

27
Q

Acceleration upon disclaimer: disclaimer by income beneficiary

A

If income beneficiary disclaims her interest, the trust principal becomes immediately distributable to the presumptive remainder beneficiaries

© C/L: If remainder is contingent (i.e. not vested when preceding estate ends), the remainder does not accelerate. Modern: abolished

28
Q

Acceleration upon disclaimer: disclaimer by future interest holder

A

disclaimant is deemed to have predeceased the life tenant

the trust principal reverts back to the testator’s estate

29
Q

Trust: class gift membership closes when

A

When a future interest is to a class, a class gift closes to future entrants when

(1) at least one class member is entitled to distribution. or
(2) preceding interest terminates

30
Q

Class gift to children: who are the future beneficiaries?

Majority
UPC

A

Majority: Gift is expressly limited to transferor’s surviving children (and not their issue) at the time of distribution.

© UPC—deceased child’s surviving issue steps in the shoes of the deceased child

31
Q

Trustee’s power:

A

powers necessary to act as a reasonably prudent person in managing the trust, including power to contract, sell, lease, or transfer the trust property

32
Q

Trustee power to delegate

A

trustee may delegate responsibilities

© critical function concerning property is discretionary and nondelegable

33
Q

Trustee’s duties—3 duties:

A

(1) duty of loyalty and good faith;
(2) duty of prudence;
(3) duty to inform and account

34
Q

Trustee’s duty of loyalty

A

Trustee has a duty to administer trust in good faith and act reasonably when investing/managing property solely in the best interest of the beneficiaries

35
Q

Trustee’s self-dealing

A

Per se breach of duty of loyalty

Self-dealing activities: personally buying/selling trust assets, selling property between trusts, borrowing from/loaning to trust, transactions with friends/family, personally gaining

36
Q

Trustee’s self-dealing with authorization

A

Self-dealing with authorization: still must be reasonable and fair

37
Q

Trustee’s conflict of interest

Presumption
How to rebut

A

Conflict of interest transactions are presumed to be a breach of loyalty.

Rebuttable by showing that

(1) the terms of the transactions were fair or
(2) that the transaction would’ve been made by an independent party

38
Q

Trustee has a conflict of interest when

A

Conflict of interest transaction arises when: when trustee invests trust assets in a corporation that trustee has an interest that might affect the trustee’s judgment

39
Q

Trustee’s duty of prudence—generally

4 included duties

A

Trustee has a duty to act as a reasonably prudent person and treat the trust property as if it were their own.

Includes 4 duties:

(1) prudent investment rule
(2) duty to diversify
(3) duty to make property productive
(4) duty to be imparti

40
Q

Prudent investment rule

A

trustee must act as a prudent investor and invest as if he were investing his own—by exercising reasonable care, caution and skill

41
Q

Duty to diversify:

A

Trustee must diversify to spread the risk of loss under a total performance portfolio approach

42
Q

Duty to make property productive:

A

Trustee must derive income from investment, sell assets when appropriate

43
Q

Duty to be impartial

A

Trustee’s duty to be impartial includes two duties:

(1) Duty to balance interests of the present beneficiaries.
(2) Duty to balance interests of present and future beneficiaries by investing property so that it produces reasonable income for the income beneficiaries while preserving the principal for the remainder beneficiaries

44
Q

Remedies for trustee’s breach of duty

A

(1) set aside transaction
(2) ratify transaction and recover profits (difference between stock asset value and the purchase price); or
(3) sue trustee and seek damages (lost profits, interests, etc); or
(4) remove trustee

MEE 2021 (7 decks)

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