Trusts 1-19 Flashcards
What are the elements to form a valid Trust?
Definitive beneficiary;
Settlor with capacity;
Intent to create a trust;
Trustee;
Valid trust purpose;
Trust property (the res); AND
Compliance with any State formalities.
*A trust will NOT fail solely because the appointed trustee dies, is removed, or refuses to act as trustee. The court will appoint a new trustee.
Priority: HIGH
Are trusts revocable?
No. In most states, a trust is irrevocable by default (unless stated otherwise).
An irrevocable trust CANNOT be modified or revoked by the settlor after its creation.
Priority: Medium
Testamentary Trust
vs.
Inter Vivos Trust
Testamentary: A Trust created through the provisions of a Settlor’s Will, which does not take effect until the Settlor’s death.
Inter Vivos: A trust created during the settlor’s lifetime
Priority: Low
What is a Charitable Trust?
One created by a Settlor to confer a substantial benefit to society (charitable purpose).
(The rule against perpetuities DOES NOT apply here)
Even if a Charitable Trust fails to state a specific purpose or beneficiary, the trust will NOT fail. Instead, the court will select a purpose/beneficiary consistent with the Settlor’s intent.
Priority: Medium
What is a DiscretionaryTrust?
When a Trustee has absolute discretion and power to determine when and how much of the trust property is distributed to the beneficiaries.
The exercise of discretion must be in good faith.
Priority: Low
What is a Resulting Trust?
When does it arise?
A trust implied by lawbased upon the presumed intent of the parties. It may arise when:
A private express trust has NO beneficiary or is missing a provision concerning the handling of trust property;
A charitable trust ends because of impossibility or impartibility;
A purchase money resulting trust; OR
A semi-secret trust.
Priority: Low
What is the Cy PresDoctrine, and when will courts apply it?
An equitable doctrine that applies to charitable bequests and charitable trusts.
Courts will apply it to modify a Charitable Trust to be consistent with and “as near as possible” with the settlor’s or testator’s intent (if the purpose of the trust or bequest is frustrated).
*Only applies if the testator had a general charitable intent.
Priority: HIGH
What is a SpendthriftProvision?
When is it valid?
A provision that prevents the transfer of a beneficiary’s interest, and it is valid ONLY IF it restrains both voluntary AND involuntary transfers.
*A spendthrift interestmeans that the interest CANNOT be sold or assigned by the income beneficiary, nor may any creditors reach it.
Priority: Low
What are the 5 Exceptionsallowing a creditor to reach a beneficiary’s income interest despite a Spendthrift Provision?
A judgment creditor who has provided services for the protection of a beneficiary’s interest;
A creditor who furnishes necessities;
An Order for child support or alimony;
Any claim by the state/federal government; OR
A self-settled trust where the settlor retains an interest.
*Spendthrift Trusts DO NOT provide protection for mandatory distributions of trust property.
Priority: Low
When may a trust be modified by the Settlor?
It can be modified by the Settlor:
Who expressly reserved the power to modify the trust; OR
Who has power to revoke the trust (including power to amend).
Priority: Low
When may an Irrevocable Trust be terminated?
The settlor and all of the beneficiaries agree to do so while the settlor is still alive;
All of the beneficiaries agree, and it will not frustrate the purpose of the trust; OR
By operation of lawthrough merger (trustee is sole beneficiary) or passive trust (all trust property has been transferred to the beneficiary).
Priority: Medium
How may a Revocable Trust be revoked?
Compliance with any method of revocation provided in the trust instrument; OR
If the instrument doesn’t provide a method, then the trust can be revoked by a writing signed by the settlor and delivered to the trustee during the lifetime of the settlor.
Priority: Low
What does the Duty of Care require of the Trustee?
To manage the trust as a reasonably prudent personwould in his own dealings.
Priority: HIGH
What does the Duty of Loyalty require of the Trustee?
To refrain from self-dealing;
Administer the trust in the best interest of the beneficiaries; AND
Give the same care and deference to each beneficiary.
Priority: HIGH
How is a Trustee given powers?
Their powers can be expressly granted in the trust OR implied.
*A Trustee has a duty to distribute the trust incomeand assets in accordance with the directions in the trust instrument.
Priority: Medium
