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Trusts > Trusts > Flashcards

Trusts Flashcards

1
Q

trusts

A

legal arrangements for dealing with property

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2
Q

settlor

A

conveys property to trust

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3
Q

trustee

A

holds legal title to trust property and safeguards, manages, and distributes it

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4
Q

beneficiary

A

holds equitable title to property and has beneficial ownership

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5
Q

four elements of a trust

A

intent, property (corpus/res), trustee, at least one ascertainable beneficiary
NO WRITING REQUIRED

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6
Q

types of trusts

A

inter vivos/testamentary, irrevocable/revocable, mandatory/discretionary, short term/perpetual

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7
Q

bifurcation of ownership

A

separate ownership into legal title and equitable title

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8
Q

suing a trust

A

Cannot sue trust as it is not a judicial entity, but is a fiduciary relationship. Must sue trustee.

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9
Q

fiduciary administration duties include:

A

loyalty, impartiality, prudence, duty not to commingle trusts assets with other assets, and duty to inform and account

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10
Q

precatory statements

A

Wishes and hopes. Do not create a trust, but only an unenforceable moral obligation.

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11
Q

no named trustee

A

Courts will appoint one. Trusts do not fail for want of a trustee.

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12
Q

formalities of trusts

A

If testamentary trust, then must follow testamentary formalities in wills. If inter vivos - no formalities, may be oral

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13
Q

imperfect gift due to lack of delivery ____ be turned into a trust ________

A

cannot; without an express manifestation of intent

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14
Q

res for trusts

A

any property that can be transferred

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15
Q

beneficiaries must be:

A

Ascertainable. Need not be ascertained yet, just ascertainable and subject to RAP.

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16
Q

powers of appointment

A

Nonfiduciary duty to distribute trust property that may be exercised arbitrarily as long as the exercise is within scope of powers granted.

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17
Q

honorary trust

A

Trust that is binding on the conscience of the trustee since there is no beneficiary. Cannot be compelled to apply property as directed, but also cannot keep it for themselves.

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18
Q

oral trusts can exist for:

A

Personal property only. Real property must be conveyed in writing to satisfy Statute of Frauds.

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19
Q

If a trust fails, property:

A

Passes as part of the settlor’s estate. Trustee does not keep property.

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20
Q

secret trust

A

Leaving a bequest and person promises to use it a certain way. Can be enforceable.

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21
Q

semi-secret trust

A

Bequest is to be taken in trust but no beneficiary specified. No extrinsic evidence allowed.

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22
Q

think of principal and income:

A

Separately. Protect and grow principal and income can be distributed per trust terms.

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23
Q

trusts ___ comply with will’s testamentary formalities

A

do not

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24
Q

during period of revocability, trustee has duty to

A

settlor only

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25
Q

trusts are presumed to be:

A

revocable (Ohio, UTC, and other jurisdictions); some jurisdictions are the opposite

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26
Q

when amending or revoking a trust, there must be:

A

clear and convincing evidence of settlor’s intent and must follow terms of the trust

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27
Q

Creditors can get to assets of revocable trust because:

A

power to revoke is enough ownership interest to do so even after death.

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28
Q

Divorce ______ revoke provisions for ex-spouse in wills and trusts.

A

does

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29
Q

Types of retirement plans

A

IRAs, defined benefit, defined contribution

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30
Q

beneficiaries of life insurance and IRAs, etc. are changed by

A

Terms of contract and can’t be changed by will.

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31
Q

State laws regarding revocation on divorce for IRA, etc. beneficiaries

A

are preempted by ERISA.

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32
Q

Pay on death and transfer on death:

A

similar to joint tenancy but only one person owns and automatically transfers on death.

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33
Q

convenience account

A

One person owns the account but another named on it to pay on their behalf.

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34
Q

joint tenancy with right of survivorship

A

Each person owns the entirety of it and at death, their interest is extinguished.

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35
Q

conservatorship

A

Declared incompetent and someone is appointed to manage property with fiduciary duty of care and loyalty.

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36
Q

guardianship

A

similar to conservatorship, but more court supervision.

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37
Q

Revocable trust ____ be used instead of guardianship/conservatorship, but ______.

A

can; no court supervision of trustee.

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38
Q

power of attorney

A

Agency relationship in which agent is authorized to act on principal’s behalf. Ends at incapacity.

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39
Q

durable power of attorney

A

POA that remains effective through incompetency and ends at death.

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40
Q

nondelegable acts

A

marriage, voting, wills, and affidavits of knowledge

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41
Q

health care POA

A

POA for terminating or directing medical care.

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42
Q

Share for surviving spouse

A

Statutory right for elective share of estate and sometimes can reach nonprobate assets. Can be waived by prenup. Must choose it and must waive any gift in will.

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43
Q

Elective share can be claimed by:

A

Legally married spouse, regardless of length of marriage or source of wealth. Not for cohabitating spouses, domestic/civil unions, except for common law if state allows it.

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44
Q

Subsequently deceased spouse’s estate ______ claim elective share.

A

Cannot. Only claim while alive.

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45
Q

augmented estate

A

probate and nonprobate assets listed in statute

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46
Q

waiver of elective share by agreement

A

States enforce prenup waiver and most enforce postnup waiver. Focus on voluntariness, financial disclosure, and access to independent counsel.

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47
Q

other protections for surviving spouses

A

pensions, social security, homestead, personal property allowance, family allowance

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48
Q

Can disinherit

A

children, even minor, except in Louisiana

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49
Q

pretermitted spouse

A

can get pretermitted spouse share, unless proof testator did not want anything to go to spouse; premarital will no longer revoked. Look at will and if there is a trust for the spouse.

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50
Q

pretermitted child

A

share available to child if they were born after will executed

51
Q

duties of trustees

A

dispose of assets and the fiduciary duties

52
Q

functions of trustee

A

custodial, administrative, investment, distribution

53
Q

trustee’s powers are:

A

enumerated in the trust or statutory default

54
Q

duty of loyalty

A

administer trust solely in the interests of the beneficiaries.

55
Q

trustee ___ purchase trust property for themselves

A

Cannot. Cannot be overcome by good faith and honesty, but can be overridden by terms of trust.

56
Q

no further inquiry rule

A

no good faith or fairness for self-dealing by trustee.

57
Q

defenses for self-dealing trustee

A

authorized in terms of trust, consent of all beneficiaries, and judicial approval

58
Q

remedies for breach

A

compensatory damages, disgorgement of profits

59
Q

duty of prudence

A

objective duty to behave as reasonably prudent trustee. Applies to all functions.

60
Q

mandatory distributions

A

trustee must make specified distributions. No or very little discretion.

61
Q

discretionary distributions

A

trustee given discretion over when, to whom, and in what amounts to make a distribution

62
Q

sprinkle trusts

A

purely discretionary and can accumulate income

63
Q

spray trusts

A

must distribute according to terms, but may have some discretion

64
Q

support trusts

A

sprinkle trusts that provide support and maintenance

65
Q

trustees of discretionary trusts _____ a duty to inquire about the beneficiary’s needs

A

have

66
Q

sole, absolute, or uncontrolled discretion ____ remove the duty of prudence

A

does not

67
Q

exculpatory clause

A

effective to a degree and does not absolve all duties even if explicit in terms

68
Q

prudent investor rule

A

trustee can invest in any kind of property subject to risk management rules. Must consider overall risk and return objectives in modern portfolio theory.

69
Q

trustee must ____ assess the investments

A

constantly

70
Q

duty to diversify

A

Even if trust allows to retain certain assets, still must be prudent and diversify in reasonable time.

71
Q

damages for failure to act as prudent investor

A

money lost and also income that lost money would have produced

72
Q

custodial and administrative duties

A

duty to collect, protect, earmark assets; not to commingle; keep adequate records; bring and defend claims

73
Q

delegation of trustee duties

A

can delegate even discretionary duties according to trustee’s skills

74
Q

trustee’s obligation to disclose

A

must disclose all material facts in nonroutine transactions

75
Q

duty of impartiality

A

must act impartially in investment, management, and distribution if more than one current/future beneficiary

76
Q

if trustee fairly discloses a transaction and court or beneficiaries approve, then trustee ____ be held accountable

A

cannot. Can get formal approval from court or obtain approval from all beneficiaries

77
Q

voluntary alienation of beneficial interest in trust

A

to try to sell or extract assets of the trust or cash out. Beneficiaries do not have this power.

78
Q

involuntary alienation of beneficial interest in trust

A

Creditors want to try to reach assets. Usually cannot.

79
Q

alienation of support trusts

A

no voluntary or involuntary except for necessities and child/spousal support

80
Q

alienation and discretionary trusts

A

no voluntary alienation. UTC allows creditors to attach present and future distributions unless there is a spendthrift provision.

81
Q

spendthrift trusts

A

beneficiary cannot sell or give away their interests or rights to future income and their creditors cannot reach these rights.

82
Q

self-settled asset protection trusts

A

minority including Ohio allow these types of trusts to shield assets. In majority, creditors can reach the maximum amount that the trustee could pay to the settlor.

83
Q

fraudulent transfers in APTs

A

settlor attempts to put assets in an APT after a judgment against them

84
Q

trusts for state-supported people

A

self-settled trusts: resources are considered for eligibility
created by third-parties: not considered for eligibility

85
Q

modification or termination of trust: Claflin doctrine

A

by consent of all beneficiaries if not contrary to material purpose of the settlor

86
Q

modification or termination of trust: equitable deviation doctrine

A

changed circumstances not anticipated by the settlor that defeat or substantially impair accomplishment of the trust’s purpose. Applies to both private and charitable trusts.

87
Q

modern trend for termination and modification

A

still Claflin and equitable deviation, but now includes decanting

88
Q

trust decanting

A

trustee of a discretionary trust can distribute assets to new trust with new terms

89
Q

modification and termination of irrevocable trust

A

settlor and all beneficiaries can consent

90
Q

material purpose for Claflin doctrine if no settlor consent

A

cannot terminate or modify if: spendthrift, enjoyment postponed until certain age, discretionary, or support

91
Q

extrinsic evidence ____ be used to determine settlor’s material purpose of trust

A

can

92
Q

for Claflin doctrine, beneficiaries may be:

A

minors or unbord. Need to appoint guardian ad litem for them. UTC allows court to let fewer than all beneficiaries consent if all beneficiaries are adequately protected

93
Q

trustee removal

A

can remove for breach of trust or breach of fiduciary duty or over a modification. UTC allows removal with consent of all beneficiaries if in best interest and not contrary to material purpose

94
Q

virtual representation

A

one or more beneficiary can represent multiple beneficiaries if not conflict of interest. Cannot overrule a competent adult beneficiary who does not consent.

95
Q

charitable trusts: 3 differences

A

for charitable purpose, not subject to RAP because of cy pres, and enforced by state attorneys general

96
Q

charitable purposes include:

A

relief of property, advancement of education or religion, promotion of health, government or municipal purposes, other purposes beneficial to community

97
Q

charitable ___ benevolent

A

does not equal

98
Q

cy pres

A

if charitable trust’s specific purpose becomes illegal, impossible, or impracticable, court may direct application of the property to another purpose that is within settlor’s general charitable intent.

99
Q

cy pres, under UTC:

A

infers/presumes general charitable intent, so gift can go somewhere else if can’t be done

100
Q

discriminatory trusts

A

racial restrictions get removed, gender may get removed, and religion who knows

101
Q

charitable trusts are usually enforced by

A

state attorneys general. Some states: allow beneficiaries and settlors to sue.

102
Q

in powers of appointment, the donor is

A

creator of the appointment, usually trust settlor

103
Q

in powers of appointment, the donee is

A

the holder of the power of appointment

104
Q

in powers of appointment, the permissible appointees are

A

the people in whose favor the donee can exercise their power upon. Also called objects.

105
Q

in powers of appointment, the appointees are

A

the objects that have been appointed property

106
Q

in powers of appointment, the takers in default are

A

those that receive property if a donee fails to exercise a power of appointment

107
Q

in powers of appointment, the appointive property

A

the property subject to a power of appointment

108
Q

Why use powers of appointment?

A

builds flexibility, tax advantages, asset protection

109
Q

general powers of appointment

A

can appoint to donee, donee’s estate, creditors of donee, or creditors of donee’s estate. Donee’s creditors are likely to reach appointive assets, but may be ascertainable standard and 5 and 5 exception

110
Q

special or nongeneral powers of appointment

A

any powers that are not in general powers. Donee’s creditors cannot reach appointive assets.

111
Q

time and manner of exercise of power of appointment

A

inter vivos - by deed, during life of donee (presently exercisable)
testamentary - by will, at death of donee (postponed)

112
Q

to exercise powers of appointment:

A

donee must manifest intent to exercise the power, comply with any formal requirements, and appointment must be permissible

113
Q

formal requirements for exercising power of appointment

A

nature of instrument (will or deed) required and whether donee must make specific reference to the power. UTC: substantial compliance or harmless error

114
Q

permissible exercise of the power of appointment

A

cannot appoint to impermissible appointee. If general, donee can appoint it to their own trust. If special, possible to do this if trust is in permissible appointee’s name and it is revocable

115
Q

exclusive power of appointment

A

allows donee to exclude one or more permissible appointees

116
Q

nonexclusive power of appointment

A

requires donee to give something to each permissible appointee

117
Q

contract to exercise power of appointment

A

not common, generally enforceable as long as presently exercisable and permissible appointee

118
Q

failure to exercise general power

A

taker in default gets it. If none, then traditionally goes to donor’s estate. UPAA and modern - goes to donee unless donee released or expressly declined to exercise power, then to donor’s estate

119
Q

failure to exercise special power

A

goes to taker in default. If none, goes to permissible appointees, so long as they are defined and limited class, or to donor’s estate. Donee cannot get it.

120
Q

trust and future interests

A

usually trusts have contingent interests and beneficiary must survive at time of enjoyment. If get it dead or alive, then vested.

121
Q

failed trusts usually

A

revert back to settlor’s estate

122
Q

vested future interest

A

taker will take when prior interest expires. To A for life, then to B.

123
Q

contingent future interest

A

taker will take when the prior interest expires only if contingency occurs (usually survival). To A for life, then to B if B survives A.

124
Q

charity as contingent

A

make sure it passes cy pres or trustee has power to choose

Trusts (2 decks)

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