Trusts

Question 1

Support Trust

Answer 1

Trustee is required to apply so much of the trust as is necessary for the beneficiary’s support. The trustee does not have discretion to refuse to pay those bills.

Question 2

Discretionary Trust

Answer 2

Trustee is given discretion whether to apply or withhold payment of trust property to the beneficiary. The beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses her power.

Question 3

Trustee Fiduciary Duties

Answer 3

(1) Manage the trust property exclusively for the benefit of ALL the trust’s beneficiaries; and (2) Administer the trust in good faith pursuant to the terms and purposes of the trust.

Question 4

Termination of a Trust

Answer 4

Generally may be terminated if:

(1) the trust is revoked or expires pursuant to its terms;
(2) the material purpose of the trust has been satisfied or becomes unlawful, contrary to public policy, or impossible to carry out;
(3) the settlor and all of the beneficiaries unanimously agree to terminate;
(4) all the beneficiaries agree and no material purposes for the trust remain;
(5) termination will further the purpose of the trust due to circumstances that were not foreseen by the settlor; or
(6) the court or trustee determines that the value of the trust property is too low to justify the cost of administration.

Question 5

Valid Express Trust

Answer 5

(1) the settlor has intent to create the trust;
(2) there is trust property;
(3) an ascertainable beneficiary exists;
(4) the trust has a trustee; and
(5) all parties comply with the requisite formalities.

Question 6

Revocability of Trusts

Answer 6

Majority view, a trust is irrevocable unless the settlor expressly retains the right to revoke or amend the trust.

UTC, a trust is revokable unless the trust expressly provides otherwise.

Question 7

Testamentary Trusts

Answer 7

Created through provisions of the settlor’s will and does not come into existence until the settlor dies

Question 8

Pourover Provisions

Answer 8

Devises property to a previously existing trust under the terms of that trust. Does not create a trust; it just transfers property to a trust already in existence.

CANNOT devise property to a testamentary trust.

Question 9

Charitable Trusts

Answer 9

Trust that has the purpose of accomplishing a substantial amount of social benefit to the public at large or to a reasonably large class.

Question 10

Spendthirft Trusts

Answer 10

Contain provisions designed to protect beneficiaries from their own carelessness. Serve two main functions: (1) beneficiary is not permitted to sell or assign his beneficial interest; and (2) the beneficiary’s creditors cannot reach the beneficiary’s beneficial interest.

Question 11

When are creditors able to reach the beneficiary’s beneficial interest under a Spendthirft Trust?

Answer 11

If: (1) the settlor is the beneficiary of the spendthirft trust; (2) the creditor is seeking reimbursement for providing necessaries; or (3) the creditor has an order for child support or spousal support.

Question 12

When may a trustee be allowed to invade the trust principal?

Answer 12

If (1) only one beneficiary exists; (2) the beneficiary will ultimately receive the trust principal; (3) there is a significant change in circumstances; or (4) the trust grants the trustee discretion to invade the principal.

Question 13

Cy Pres Doctrine

Answer 13

If it becomes unlawful, impossible, or impracticable to carry out the purpose of a charitable trust, the Cy Pres doctrine allows the court to modify the terms of the charitable trust “as near as possible” to the original intention of the settlor in order to prevent the trust from failing.

Only applicable if: (1) property is place in trust for charitable purpose that has become unlawful, impossible or impracticable; and (2) the settlor manifested a general charitable intent to devote the property to charitable purposes (absence of reverter clause).

Question 14

Totten Trusts

Answer 14

Created when a person opens a bank account for himself as trustee for another. Absent clear and convincing evidence of a different interest, the trustee is the sole owner of the account throughout his lifetime. Upon the trustee’s death, the remaining funds pass to the designated beneficiary free and clear of the trust.

Revocable by both will and during the trustee’s lifetime if the trustee: (1) withdraws all funds from the account; or (2) delivers a signed revocation in writing to the bank naming a new beneficiary.

Question 15

What must be done to create a valid trust?

Answer 15

There must be a settlor who, intending to create a trust for a valid trust purpose, delivers the trust property to the trustee to hold for the benefit of one or more beneficiaries.

Question 16

When is a settlor’s promise to create a trust in the future valid?

Answer 16

Only if: (1) supported by consideration; or (2) he manifests anew an intention to create the trust when the assets come into existence.

Question 17

Must the trust be in existence/executed at the time of the will’s execution for a valid pour-over gift?

Answer 17

Traditional view: YES

Prevailing view: NO, trust may be established after the will is executed but before the testator’s death

Question 18

May a settlor-beneficiary protect his own interests with a spendthrift provision?

Answer 18

No

Question 19

Duty of Loyalty

Answer 19

Trustee owes a duty of undivided loyalty to the trust and its beneficiaries. An important aspect of this duty is the prohibition on self-dealing. Absent court approval or a contrary trust provision, a trustee cannot enter into any transaction in which he is dealing with the trust in his individual capacity. Good faith on the trustee’s party is irrelevant, and no excuse can be offered by the trustee to justify the transaction.

Question 20

Duty to Preserve Trust Property

Answer 20

Trustee has a duty to administer the trust in a good faith and in a prudent manner. Furthermore, a trustee has a duty to preserve and protect the trust corpus and must exercise reasonable care in doing so. As part of protecting the trust corpus, the trustee must secured insurance on trust properties.

Question 21

Duty to Administer Trust

Answer 21

Trustee has a duty to administer the trust in good faith, in accordance with the terms and purposes of the trust instrument, the interests of the beneficiaries, and applicable law.

Under UPAIA, ordinary repairs should be charged to income, but extraordinary repairs should be charged to the principal. Proceeds from insurance policies are located to the principal.

Question 22

Remainder

Answer 22

A future interest created in a transferee that is capable of becoming a perfect interest upon the natural termination of the preceding estate created in the same disposition.

Question 23

Indefeasibly vested remainder

Answer 23

Remainder that:

(1) can be created in an held only by an ascertained person in being;
(2) must be certain to become possessory on termination of the prior estate; and
(3) must not be subjected to being defeated, divested, or diminished in size.

Question 24

Vested Remainders

Answer 24

Fully transferable during life, devisable by will, and descendible by inheritance. Will pass by will or intestacy.