Trust Validity

Question 1

What is an express trust?

Answer 1

Created by the express intention of the settlor.

2 categories:
1. Private – private beneficiaries (certain ascertainable persons)
2. Charitable – charitable beneficiaries (indefinite class of persons or the public in general)

Question 2

Types of trusts created by operation of law?

Answer 2

1. Resulting Trusts – arise from the presumed intent of the owner of the property
2. Constructive Trusts – an equitable remedy used to prevent unjust enrichment

Question 3

6 main elements of a valid trust:

Answer 3

1. Settlor
2. Intent
3. Trustee
4. Identifiable Corpus (property)
5. Ascertainable beneficiaries
6. Proper Purpose

Question 4

Any split of title is sufficient so long as:

Answer 4

the sole trustee is NOT also the sole beneficiary.

Question 5

What kind of language will not create a trust?

Answer 5

Precatory language (hope, wish, or mere suggestions)

Question 6

What kind of property is sufficient?

Answer 6

Settlor must have an (1) existing interest in property, (2) a future interest may be held in trust, but an interest not yet in legal existence cannot be held in trust, (3) existing property that the settlor has the power to convey

Question 7

What kind of property is insufficient?

Answer 7

1. Property the settlor cannot transfer or does not yet own, cannot be trust property.
2. An unenforceable gratuitous promise cannot be the subject of a trust.

Question 8

An ascertainable beneficiary is necessary to the validity of every trust except:

Answer 8

charitable and honorary trusts

Question 9

What is a qualified beneficiary?

Answer 9

a beneficiary who, on the date of the beneficiary’s qualification is determined, is (1) a current beneficiary, or (2) a first-line remainder man

Question 10

Do beneficiaries need notice and acceptance?

Answer 10

notice is NOT required but beneficiary must accept; acceptance is presumed

Question 11

Effect of a divorce on a beneficiary?

Answer 11

a final decree of divorce or annulment revokes all beneficial gifts and fiduciary appointments in favor of a former spouse

Question 12

Class gifts and beneficiaries

Answer 12

beneficiaries may be unascertainable when the trust is created as long as they are ascertainable when they are to benefit

ex: to my children and upon their death, to my then surviving grandchildren

“friends” = insufficient; “siblings” or “grandchildren” = sufficient

Question 13

If a trust fails for lack of beneficiary (bc the beneficiaries are not ascertainable), what is presumed?

Answer 13

a resulting trust in favor of the settlor or their successors is presumed

Question 14

The trust or the provision must not be:

Answer 14

illegal;
impossible to achieve;
contrary to public policy (e.g., induce crimes, torts, divorce, child neglect);
intended to defraud settlor’s creditors; or
based on illegal consideration

Question 15

If a condition attached to an interest is AGAINST public policy:

Answer 15

The settlor’s alternative desire controls if express.

If the illegal condition is a condition SUBSEQUENT –> condition is invalidated but the trust remains valid.

If the illegal condition is a condition PRECEDENT –> condition is stricken, but court will decide whether interest is valid or fails.

Question 16

What happens if trust fails to name a trustee?

Answer 16

Does NOT defeat a testamentary trust; court will appoint trustee.

DOES invalidate an inter vivid trust bc there can be no valid delivery and transfer of trust property.

Question 17

If a trusteeship is not accepted within a reasonable time ______.

Answer 17

presumed to be rejected.

Question 18

Qualifications of Trustee:

Answer 18

Anyone who has capacity to acquire and hold property for their own benefit and has capacity to administer that property may be a trustee.

Question 19

Compensation of Trustee:

Answer 19

Entitled to reasonable compensation or to whatever compensation is specified in the trust.

Also entitled to reimbursement for expenses incurred in the trust’s administration.

Question 20

Who can move to have trustee removed?

Answer 20

the court upon its own motion or upon request by the settlor, a beneficiary, or a co-trustee

Question 21

Grounds for removal of a Trustee?

Answer 21

1. serious breach of trust;
2. serious lack of cooperation among co-trustees;
3. unfitness, unwillingness, or persistent failure to administer; and/or
4. a substantial change in circumstances.

Question 22

A trust can be created by:

Answer 22

1. inter vivos transfer
2. inter vivos declaration of trust
3. will (testamentary trust)

Question 23

Inter vivos trust is created while:

Answer 23

the settlor is alive, either by:
1. the settlor declaring themselves trustee for another; OR
2. by the transfer of property to another as a trustee.

Question 24

Inter vivos trust intent element:

Answer 24

present intent required must be manifested by conduct (delivery) OR words (declaring oneself the trustee)

Question 25

Transfer (delivery) of property to trustee:

Answer 25

If a trust is created by a declaration of trust:
1. No conveyance of personal property is needed as long as the property is identified and segregated.
2. Real property should be conveyed from the settlor as an individual to the settlor as the trustee.

If the trust was created by a conveyance in trust, the settlor must convey the property to the trustee:
1. Personal property is conveyed by physical delivery or an appropriate written assignment.
2. Real property is conveyed by deed.

Question 26

Pour-Over Gift from Will to Trust

Answer 26

Settlor can make gifts by will to a trust, even amendable and revocable trust, established during their lifetime.

Trust must be clearly identified from language in the will.

Question 27

Traditional view for pour-over gifts:

Answer 27

To create a valid pour-over gift from a will to a revocable trust, the trust must be in existence or must be executed at the time of the will’s execution.

Question 28

New prevailing view for pour-over gifts:

Answer 28

A will may devise property to a trustee of a trust established or to be established during the testator’s lifetime; i.e., the trust may be established AFTER the will is executed but before the testator’s death.

Question 29

Pour-over property can be initial trust funding:

Answer 29

The trust may remain unfunded during the settlor’s lifetime. The pour-over property can be the initial trust funding if:
i. The trust is identified in the will; AND
ii. The trust is executed before the testator’s death.

Question 30

What is a testamentary trust?

Answer 30

Trust created in the settlor’s valid will.

Trust intent and the essential terms of the trust must be ascertained from the will itself, from a writing incorporated by reference into the will, or from the exercise of a power of appointment created by the will.

Question 31

“Secret Trust” under Testamentary Trust:

Answer 31

1. Settlor agrees w/ a will beneficiary that the beneficiary will hold the property in trust for someone else – and relies on the beneficiary’s promise – but the will does not state the trust nature of the gift.
2. The intended trust beneficiary may present extrinsic evidence of the will beneficiary’s promise to hold the property in trust.
3. If the promise can be proven by clear and convincing evidence, a constructive trust will be imposed on the property in favor of the intended trust beneficiary.

Question 32

“Semi-Secret Trust” under Testamentary Trust:

Answer 32

1. The will makes a gift in trust but fails to name the beneficiary.
2. The gift fails, and the named trustee holds the property on a resulting trust for the testator’s successors in interest.

Question 33

To avoid the predeceased beneficiary’s gift from lapsing, all states have:

Answer 33

anti-lapse statutes

Question 34

What is the purpose of an anti-lapse statute?

Answer 34

if the predeceased beneficiary was a relative and had issue, the anti-lapse statutes provide for substitution of the deceased beneficiary’s issue to take the gift instead of the beneficiary himself.

Question 35

Without an anti-lapse statute what happens?

Answer 35

Where a remainder interest is conditioned on the beneficiary’s surviving the settlor and the beneficiary does not meet the condition, his interest fails.