Trust Creation, Modification, & Termination

Question 1

What are the requirements to form an express trust?

Answer 1

1. Settlor with capacity,
2. Present intent to create trust,
3. Competent trustee with duties,
4. Definite beneficiary (who is not sole trustee and sole beneficiary),
5. Specific property, and
6. Valid trust purpose

PIPCBT!

Question 2

Do precatory expressions create a trust?

Answer 2

No! This includes language like “hope” “request” or mere suggestions.

Question 3

Can the sole trustee be the sole beneficiary?

Answer 3

No! But the trustee can be one of the beneficiaries.

Question 4

What is sufficient to be trust property?

Answer 4

An existing interest in existing property. Can include future interests.

Res must be ascertainable with certainty.

Question 5

Definite vs. ascertainable beneficiaries

Answer 5

Beneficiaries may be definite, but not yet ascertainable. They must be ascertainable by the time their interests are to be enjoyed.

Question 6

When is a trust purpose invalid?

Answer 6

1. Illegal
2. Contrary to public policy
3. Impossible to achieve
4. Intended to defraud the settlor’s creditors
5. Based on illegal consideration

Question 7

How does the Rule Against Perpetuities apply to trusts?

Answer 7

Common law: a gift must vest within the death of a life in being at the time of the grant plus 21 years.

Some states: invalid only if gift actually does not vest per RAP (wait & see reform)

Other states: 90 year vesting period reform

Question 8

Intervivos trust

Answer 8

Created while the settlor is alive by delivering property or declaring trustee.

Under the UTC, are revocable unless expressly made irrevocable (but the exact opposite is true at common law).

If no res, trust is created when res is acquired and intent re-manifested.

Question 9

Pour-over provision

Answer 9

When a will gifts property to a previously established trust.

The trust instrument must be executed before the testator dies – but it doesn’t have to be executed before or concurrently with the will.

Question 10

Testamentary trust

Answer 10

Created in a settlor’s valid will.

Secret: absolute gift in will made in reliance on beneficiary’s promise to hold the property in trust for another
– constructive trust imposed in favor of intended beneficiary

Semi-secret: gift in will to a person “in trust” but does not name trust beneficiary
– person holds it from testator’s legatees/heirs

Question 11

Will a trust instrument fail for lack of a named trustee?

Answer 11

No, the court will appoint one.

Question 12

Discretionary trusts

Answer 12

Trustee is given discretion whether to apply or withhold payments of income and/or principal to a beneficiary.

Question 13

Spendthrift trust/provision

Answer 13

Prevents the beneficiary from transferring their interest in the trust.

– valid only if it restrains both voluntary and involuntary transfers

Prevents creditors from attaching to beneficiary’s interest (until the beneficiary is paid).

Question 14

Who/what can get at a beneficiary’s trust interest despite a spendthrift provision?

Answer 14

1. Judgment creditor who provides services for the trust
2. Creditor who furnished necessities
3. Court order for child support or alimony
4. Claim by state/federal gov’t
5. Self-settled trust

Question 15

Support trust

Answer 15

Directs the trustee to pay only so much of the income and/or principal as is necessary for the beneficiary’s support.

Is mandatory!

Question 16

Creditors’ rights

Answer 16

In the absence of a statutory prohibition or a spendthrift clause, they can attach to the beneficiary’s interest once distributions are made.

But can’t compel the trustee to make a distribution.

Question 17

Resulting trusts

Answer 17

Arise from the presumed intention of the owner of the property.

Question 18

When will a discretionary trust be interfered with?

Answer 18

Beneficiary can’t interfere unless abuse of power.

Court won’t interfere unless bad faith/dishonesty.
– no such thing as absolute discretion, but court less likely to intervene

Question 19

How do trust assets pass if a testamentary trust fails?

Answer 19

The property passes under a residuary clause in a will (if any) or to the settlor’s heirs.

Question 20

Under the UTC, when can a trust be terminated or modified?

Answer 20

1. By its terms
2. By the settlor, unless terms say otherwise
3. Consent of settlor and all beneficiaries
4. Consent of all beneficiaries + no material purpose would be frustrated
5. Unlawful, contrary to public policy, or impossible
6. By the court if:
   – unanticipated circumstances
   – impracticable or wasteful
   – value insufficient to justify costs

Question 21

What are the trustee’s duties upon termination?

Answer 21

To wind up trust business and distribute the property to the remainder beneficiaries.

Question 22

Can a trust be terminated by merger of title?

Answer 22

Yes. This is when the settlor, trustee, and (sole) beneficiary are the same person.

Question 23

Can a trustee select class members?

Answer 23

Yes. A settlor can give the trustee discretion to select class members as long as the class is reasonably definite.