Trusts Flashcards
What is a support trust?
A trust in which the trustee is required to pay or apply so much of the trust as is necessary for the support of the beneficiary. The trustee does not have discretion to refuse to pay bills necessary for the beneficiaries support.
What is a discretionary trust?
A trust in which the trustee is given the absolute power and discretion to make good faith determinations regarding when and how much of the trust property should be distributed to the beneficiaries of the trust. The beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses her power. Generally, a court will not interfere unless the trustee has acted in bad faith or dishonestly.
How can a trust be terminated by the beneficiaries?
Most jurisdictions permit termination of a trust by its beneficiaries only if all of the beneficiaries consent and the modification will not interfere with a material purpose of the trust.
How can a spendthrift provision be waived?
Only by the settlor joining the action to terminate. If the settlor is dead, in the case of a testamentary trust, the beneficiaries cannot terminate a spendthrift trust unless there is no longer a purpose for the trust.
How can a trust be terminated by the courts?
A court can terminate a trust prior to the time fixed in the instrument if the trust purposes are accomplished early or the trust purposes becomes illegal, contrary to public policy, impossible to carry out, or if the court or trustee determines that the value of the trust property is too low to justify the cost of administration.
What happens to trust property if it is terminated?
If a trust is validly terminated, the trust property generally vests in the beneficiaries who may distribute the property in any manner they choose. The trustee may retain a reasonable amount of the trust property to cover debts, expenses, and taxes.
How is a trust validly created?
To create a valid trust, 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.
What happens if there are no trust assets when the trust is executed (i.e., the settlor promises gratuitously to create a trust in the future)?
A trust arises only in the future if, when the assets come into existence, the settlor manifests anew intention to create the trust.
If the promise is supported by consideration, however, this remanifestation is not required.
How to create a valid pour-over gift from a will to a revocable trust?
Traditional view: the trust must be in existence or must be executed at the time of the will’s execution.
Prevailing view: 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.
***Pour over gifts are valid even if the trust is unfunded during the testator’s lifetime.
What is a spendthrift trust?
A spendthrift trust is one in which the beneficiary is unable to voluntarily or involuntarily transfer his interest in the trust. Additionally, creditors are generally unable to collect or attach such rights.
Exception: creditors are generally able to reach the beneficiary’s beneficial interest if: 1) the settlor is the beneficiary of the trust, 2) the creditor is seeking reimbursement fo providing necessaries, or 3) the creditor has an order for child or spousal support. Also, fraudulent transfers are not protected by spendthrift truss.
Rule Against Perpetuities (“RAP”)
An interest is void if there is any possibility that it may vest more than 21 years after some life in being at the creation of the trust.
For revocable trusts, RAP period begins to run on the date of the settlor’s death.
Rule of Convenience
When there is a class gift, the class closes when 1) the preceding estate, if any, terminates, and 2) some member of the class can call for a distribution of their share.
How can an irrevocable trust me terminated?
1) Upon consent of the settlor and ALL beneficiaries, even if the termination conflicts with a material purpose of the trust.
2) If the settlor does not join in, ALL beneficiaries may terminate the trust BUT only if the material purpose of the trust would not be frustrated.
What happens if a trust is terminated by consent of the beneficiaries?
The trustee MUST distribute the trust assets in accordance with the beneficiaries wishes.
NOTE: beneficiaries waive any claims against trustee for breach of fiduciary duties because they order the distribution.
How to determine members of a class for the purpose of a class gift?
Absent contrary trust provision, courts apply the Rule of Convenience
