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WILLS & TRUSTS > TRUSTS > Flashcards

TRUSTS Flashcards

1
Q

Is a Trust revocable?

A

a trust is PRESUMED REVOCABLE unless the instrument expressly provides it’s irrevocable.

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2
Q

When may a trust be modified or terminated by Beneficiaries?

A

Modification or termination only when:

1) ALL BENEFICIARIES CONSENT, and
2) modification will NOT FRUSTRATE ANY MATERIAL TRUST PURPOSE.

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3
Q

When may a court modify or terminate a trust?

A
  1. Terminate when:
    a. Trust’s purpose IMPOSSIBLE or ILLEGAL, or
    b. Trust’s purpose COMPLETED
  2. Modify:
    CHANGED CIRCUMSTANCES, unanticipated by Settlor, make deviation from administrative terms NECESSARY TO ACHIEVE TRUST PURPOSE.
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4
Q

What is a Trust?

A

A trust is a FIDUCIARY RELATIONSHIP with respect to property in which one person holds the LEGAL TITLE to the trust property subject to ENFORCEABLE EQUITABLE RIGHTS in another.

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5
Q

What must a valid trust have?

A 
Settlor
Delivery
Intent
Trustee
Trust Res
Beneficiary
Valid Trust Purpose
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6
Q

What are important rules that are different for Charitable Trusts?

A
  1. must have Indefinite Beneficiaries
  2. may be Perpetual
  3. Cy Pres applies
  4. must have Charitable Purpose
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7
Q

What are the special requirements for a Charitable Trust?

A
  1. must have Indefinite Beneficiaries

2. must have Charitable Purpose

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8
Q

What is the doctrine of Cy Pres?

A

Cy Pres allows the court to apply the trust property to ANOTHER CHARITABLE PURPOSE if the charitable purpose indicated by the Settlor is ACCOMPLISHED or BECOMES IMPRACTICAL.

–> only if Settlor had GENERAL CHARITABLE INTENT

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9
Q

When may Cy Pres be applied?

A

If the settlor is found to have “GENERAL CHARITABLE INTENT,” which requires the court to determine whether the settlor INTENDED THE TRUST TO FAIL, or would have instead WANTED THE PROPERTY DEVOTED TO SIMILAR USE.

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10
Q

When do you get a RESULTING TRUST?

A

This is a remedy that will be presumed if:

  • the trust fails for LACK OF BENEFICIARY.
    OR
    -property is acquired by unjust enrichment (e.g. Purchase Money Resulting Trust)
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11
Q

What is the limitation on one person not being able to be 2 things wrt trusts?

A

One person cannot be the SOLE TRUSTEE and SOLE BENEFICIARY.

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12
Q

How do you manifest PRESENT INTENT for a trust?

A 
Conduct (Delivery)
or words (declaring oneself trustee)
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13
Q

What is “Delivery” of a trust?

A

Placing the trust property OUT OF SETTLOR’S CONTROL (unless S serves as Trustee).

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14
Q

What are the types of Express Trusts?

A

Inter Vivos Trusts
&
Testamentary Trusts

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15
Q

For a TESTAMENTARY TRUST:

How is Trust intent and the essential terms of the trust determined?

A
  1. THE WILL itself,
  2. Writing INCORPORATED BY REFERENCE,
  3. Facts of INDEPENDENT SIGNIFICANCE,
  4. or POWER OF APPOINTMENT created by will.
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16
Q

What is a “Secret Trust,” and what results from it?

What must be shown?

A

Where a will makes a gift that is ABSOLUTE ON ITS FACE but was in fact made IN RELIANCE ON B’s PROMISE to hold the property for another, one claiming to be the INTENDED BENEFICIARY may present extrinsic Evidence of the purpose.

If Intended Bene shows this promise by C+C EVIDENCE, then a CONSTRUCTIVE TRUST will be imposed on the property in favor of the intended beneficiary.

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17
Q

For a Secret Trust:

What if the promise was made AFTER the will was executed?

A

No matter. Still counts.

A constructive trust will still be imposed.

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18
Q

For a Secret Trust:

What if the will beneficiary DIDN’T INTEND TO PERFORM the promise?

A

All that matters is if T relied on the promise, not whether the will beneficiary intended to perform.
Constructive trust will still be imposed.

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19
Q

What is a “SEMI-SECRET TRUST” and what results from it?

A

Where a will makes a gift in trust but fails to name a Beneficiary.

Gift fails, and named trustee holds property in RESULTING TRUST for T’s heirs.

20
Q

Difference between a secret and a semi secret trust?

A

Secret: named beneficiary made a promise to T to actually hold property in trust for another.
–> Constructive Trust results. Intended Beneficiary gets it.

Semi-Secret: there are no named beneficiaries.
–> Resulting Trust results. Heirs get it.

21
Q

What is an Honorary Trust?

A

established for the benefit of pets of maintenance of burial places.

22
Q

What is the effect of RAP on an honorary trust?

A

Some states: Void the trust if its duration may be longer than a human life + 21 years.

UTC: enforceable up to 21 years.

23
Q

May a beneficiary transfer her interest in the trust?

A

Yes, Bene may freely transfer interest (absent restrictions by statute or in instrument).
…UNLESS A SPENDTHRIFT TRUST.

24
Q

May creditors attach to an insolvent beneficiary’s interest in the trust?

A

Yes, creditors may attach to the beneficiary’s interest in the trust (absent restrictions by statute or in the instrument);

a court may order trustee to pay income to creditors until satisfied in order to avoid judicial sale.

25
Q

What is a Spendthrift Trust?

A

A spendthrift trust prevents the Bene from transferring his interest in the trust, and precludes creditors from reaching it.

Purpose is to prevent Bene’s own improvidence.

26
Q

When is a Spendthrift provision invalid?

A

When the Settlor is himself the Beneficiary.

Cannot protect his own interests from creditors this way.

27
Q

What type of creditors may reach a Bene’s assets notwithstanding a Spendthrift clause?

A

(Some states): certain classes of creditors (dependents, furnishers of necessities) may reach the trust assets despite the spendthrift clause.

28
Q

What is a DISCRETIONARY TRUST?

May creditors reach the trust assets?

A

Trustee is given DISCRETION WHETHER TO APPLY OR WITHHOLD payments to the Bene.

Creditors have the same rts as the Bene. They take only if the trustee exercises his discretion to pay.

    • WON’T take if there’s also a Spendthrift provision
    • WILL take if the Settlor is also the discretionary beneficiary.
29
Q

What is a SUPPORT TRUST?

May creditors reach the trust assets?

A

Directs Trustee to pay only so much of the income or principal (or both) as is necessary for the Bene’s support.

Interest of the Bene cannot be assigned or reached by creditors.

30
Q

What are the basic DUTIES of the Trustee?

A
  1. Duty of LOYALTY
  2. Duty to ACCOUNT
  3. Duty to SEPARATE and EARMARK PROPERTY
  4. Duty to PERFORM PERSONALLY
  5. Duty to DEFEND TRUST from attack
  6. Duty to PRESERVE and MAKE PRODUCTIVE the TRUST PROPERTY
31
Q

What is the Duty of Loyalty

A

A trustee owes a duty of UNDIVIDED LOYALTY to the trust and beneficiaries.
Cannot represent both her personal interest and the trust – NO SELF-DEALING

32
Q

What if a trustee self-deals in good faith?

A

No matter. Violates Duty of Loyalty

33
Q

What if a trustee self-deals and results in benefit to the trust?

A

No matter. Violates Duty of Loyalty.

34
Q

What is the remedy for violating the DUTY OF LOYALTY?

A

Recover any profit;

Set aside the T/N (or affirm the T/N if Bene wants)

35
Q

What is the Duty to SEPARATE AND EARMARK TRUST PROPERTY?

A

Prevents commingling. A trustee must keep trust assets physically separate from other assets.

36
Q

What happens if Trustee VIOLATES her Duty to SEPARATE AND EARMARK TRUST PROPERTY – what REMEDY?

A

Any losses are borne by the trustee.

If portion of assets increase, portion decrease, assumed the increasing assets are the trust’s.

37
Q

What is the Duty to PERFORM PERSONALLY?

A

No Delegation of Duties.
May delegate only acts that it’d be UNREASONABLE for her to perform personally.
No Delegation of the entire administration of trust.

38
Q

What happens if a Trustee VIOLATES her Duty to PERFORM PERSONALLY – what REMEDY?

A

If Trustee improperly surrenders control, she becomes the GUARANTOR of the fund and is responsible for actual losses.

39
Q

May Trustee EVER delegate investment and management decisions?

A

Yes, under the Uniform Prudent Investor Act, may delegate investment + management functions.

(Prudent investor rule is the Test:)
Provided a prudent trustee of comparable skills could properly delegate under the circs.

40
Q

What is the Duty to DEFEND TRUST from Attack?

A

Owes duty to defend from legal attack unless examination show the challenge is well-founded.

41
Q

What is the Duty to PRESERVE and MAKE PRODUCTIVE trust property?

A

Trustee is expected to take actions – e.g. lease land, collect claims, invest money.

42
Q

What happens if Trustee VIOLATES her Duty to PRESERVE and MAKE PRODUCTIVE trust property?

A

Trustee will be L for amount of income that would normally accrue from proper investments.

43
Q

What is the Prudent Investor rule?

A

It requires a Trustee to invest as would a Prudent Business person in making a PERMANENT disposition of HER OWN FUNDS, considering
I) Probable income,
II) Safety of capital.

44
Q

In a “State Lists” jurisdiction, what investments ARE permitted (absent trustee directions)?

Which are NEVER permitted?

A

a) Fed GOVERNMENT Bonds
b) Fed Insured COD’s
c) First Deeds of Trust in RE
d) sometimes, stocks of publicly traded corps*

NEVER:

a) a New business
b) Second Deed of trust in RE

45
Q

In a “CL prudent person” jurisdiction, what investments ARE permitted (absent trustee directions)?

Which are NEVER permitted?

A 
Each individual investment is scrutinized under the Prudent Investor rule. 
Generally:
a) Federal GOVERNMENT Bonds
b) Fed Insured COD's
c) First Deeds of Trust in RE
d) Blue chip stocks*
e) Mutual Funds (maybe)*

NEVER:

a) a New business
b) Second Deed of trust in RE

46
Q

In a Uniform Prudent Investor Act (UPIA) jurisdiction, what investments ARE permitted (absent trustee directions)?

A

Individual investments not scrutinized.

Performance is measured in context of entire trust portfolio.

WILLS & TRUSTS (3 decks)

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