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MEE GMW > Trusts > Flashcards

Trusts Flashcards

1
Q

What is the basic premise of a trust?

A

Split legal title and equitable title.

Legal title → trustee / equitable title → beneficiary

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2
Q

How are trusts classified?

A
  • Express trusts
    • Private or Charitable
  • Operation of law
    • Resulting or Constructive
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3
Q

What are the elements of a valid trust?

A
  • Intent
  • identifiable corpus
  • ascertainable beneficiary
  • proper purpose
  • compliance with mechanics and formalities
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4
Q

What are the two prongs of intent?

A
  1. Settlor splits legal and equitable title
  2. AND imposes enforceable duties on holder of legal title

*present intent - at time settlor owned property. No expressions of hope, wish, mere suggestion

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5
Q

identifiable corpus

A

Ascertainable with certainty. Existing interest in existing property.

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6
Q

Qualified beneficiary

A

On the date the beneficiary’s qualification is determined, is: a current beneficiary or first-line remainder man.

May have additional rights

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7
Q

Class gifts

A

May be unascertainable when created but must be ascertainable when they are to benefit.

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8
Q

Will a trust fail because a trustee dies, refuses to accept the position, or resigns?

A

No.

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9
Q

How does a person accept a trusteeship?

A
  • Sign written acceptance
  • Substantially comply with acceptance terms in instrument
  • OR accept delivery of trust property, exercise powers, indicate acceptance
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10
Q

When can the court remove a trustee?

A

On its own motion or by request of settlor, beneficiary, co-trustee.

Grounds include:

  • serious breach of trust
  • serious lack of cooperation
  • unfitness/unwellness/persistent failure to administer
  • substantial change in circumstances
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11
Q

Inter vivos trust

A

Created while settlor is alive either by settlor declaring themself trustee for another or by transferring property to another as trustee.

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12
Q

Formalities of inter vivos trust

A

For trust of land → in writing (SOF), signed by person entitled to impress trust upon property

*part performance

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13
Q

Delivery of an inter vivos trust by declaration of trust requires:

A

No conveyance of property is needed as long as the property is identified and segregated.

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14
Q

Delivery of an inter vivos trust by conveyance in trust requires

A

Settlor must convey property to trustee.

Real property → by deed / personal property → physical delivery or written assignment

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15
Q

Can a pour-over trust be the initial trust funding?

A

Yes if:

  1. Trust is identified in will
  2. AND trust is executed before testator’s death
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16
Q

Testamentary trust

A

created in a settlor’s valid will

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17
Q

What is a secret trust?

A

Settlor agrees with a will beneficiary that beneficiary hold the property in trust for someone else, but the will does not state the nature of the gift.

*Constructive trust imposed

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18
Q

What is a semi-secret trust?

A

The will makes a gift in trust but fails to name the beneficiary.

The gift fails and the named trustee holds the property in a resulting trust for the testator’s successors in interest.

19
Q

May a beneficiary freely transfer their interest in a trust?

A

Yes, absent restrictions by statute or trust instrument.

20
Q

What is a discretionary trust?

A

Trustee is given discretion whether to apply or withhold payments of income and principal to a beneficiary.

Before trustee exercises discretion, beneficiary’s interest is not assignable or reachable by creditors.

21
Q

What is a spendthrift trust?

A

Precludes beneficiary from voluntarily or involuntarily transferring their interest in trust, and beneficiary’s creditors are precluded from reaching it.

22
Q

Can a settlor use a spendthrift trust to protect own property from creditors?

A

No.

23
Q

What is a support trust?

A

Directs the trustee to pay only so much of income and/or principal as is necessary for beneficiary’s support.

  • Can be mandatory or discretionary.
  • Not assignable
  • Standard of support is beneficiary’s accustomed standard of living
24
Q

How can a trust be modified?

A
  • By express terms of the trust
  • By the settlor
  • By the beneficiaries
    • consent of the settlor and all beneficiaries
    • consent of all beneficiaries if no material purpose is frustrated
  • Operation of law
    • property has been exhausted
    • legal and equitable titles have merged
  • By the court
  • By the trustee
25
Q

What are the trustee’s duties on termination?

A
  • Trustee may continue to exercise powers for a reasonable period of time necessary to wind up affairs of trust
  • Trustee must then timely distribute trust property to appropriate remainder beneficiaries
26
Q

What are the powers of a trustee?

A
  • Express - by terms of the trust
  • Powers granted by state law
  • Implied - powers appropriate/necessary to achieve proper investment, management, distribution of property

Also mandatory and discretionary powers

27
Q

What are the trustee’s duties?

A
  • duty to administer the trust (in good faith and prudent manner)
  • duty of loyalty to trust and beneficiaries
  • duty to report - annual accounting of trust
  • duty to separate trust property and earmark trust property
28
Q

What standard of care must a trustee exercise in making investments?

A

Prudent investor rule

  • Evaluated in the context of the entire trust portfolio, as part of the overall investment strategy
  • Trustees with special skill/expertise have duty to exercise skills/expertise
  • Delegate only if prudent trustee of comparable skill could properly delegate
29
Q

Must a trustee diversify investments?

A

Yes, unless they reasonably determine the purpose of the trust is better served without diversification.

30
Q

What is the liability of a trustee for breach of trust?

A

Money damages

  • lost profits
  • depreciation in value of the trust property
  • trustee’s profits
31
Q

What are the remedies for a trustee’s self-dealing?

A
  • Affirm transaction
  • Set aside transaction
  • Trace profits from trustee, if profited
32
Q

When is a trustee not liable for breach of trust?

A
  • Trustee acted in reasonable reliance on terms of trust
  • Beneficiary consented, released trustee, ratified transaction
33
Q

What is a trustee’s liability to third parties?

A
  • May be sued on contract in trustee’s fiduciary capacity
  • 3rd party may sue trustee personally only if trustee failed to reveal fiduciary duty in entering into contract
  • May sue trust estate in tort by proceeding against trustee in fiduciary capacity
34
Q

Income Receipts

A
  • ordinary receipts from use or investment of trust property
  • cash dividends
  • proceeds from contract insuring trustee against loss
  • 10% of payment from deferred compensation plan
  • 10% of proceeds received from liquidating asset
  • 10% of proceeds received from working interest
35
Q

Income Expenses

A
  • 50% of regular compensation of trustee
  • 50% of all expenses for accountings, judicial proceedings, etc.
  • ordinary expenses
  • insurance premiums covering loss of principal asset
36
Q

Principal Receipts

A
  • extraordinary receipts
  • stock dividends
  • proceeds from life insurance policy naming trust or trustee as beneficiary
  • 90% of payment from deferred compensation plan
  • 90% of proceeds received from liquidating asset
  • 90% of proceeds received from working interest
37
Q

Principal Expenses

A
  • 50% of regular compensation of trustee
  • 50% of all expenses for accountings, judicial proceedings, etc.
  • expenses of proceeding that concern principal interest
  • payments on principal of trust debt
  • estate taxes
  • disbursements related to environmental matters
38
Q

Charitable trust

A
  • must have a purpose considered to benefit the public
  • must be significantly altruistic
  • court determines if charitable by a community standard
  • beneficiaries must be indefinite
  • NOT bound by RAP
39
Q

Honorary trust

A

trust not for charitable purpose and has no private beneficiaries (ie. for pets)

40
Q

Resulting trust

A

Arise by implication from settlor’s conduct. The settlor is the beneficiary of the resulting trust.

  1. Purchase money resulting trust
  2. Resulting trust arising on failure of express trust
  3. Resulting trust arising from incomplete disposition of trust assets
41
Q

When does a resulting trust arise?

A

When a settlor has conveyed property to a trustee under an express trust and the trust is void/unenforceable or beneficiary is dead/cannot be located.

42
Q

When is a purchase money resulting trust presumed?

A

Whenever beneficiary furnishes the consideration for the acquisition of real or personal property but, with beneficiary’s consent, title is taken in the name of Y (the trustee).

43
Q

Constructive trust

A

An equitable remedy to prevent unjust enrichment resulting from wrongful conduct.

Must be requested as a remedy in a court action, and plaintiff must be able to identify particular property as trust res.

44
Q

How can a constructive trust arise?

A
  • Fraud, duress
  • Homicide (if no slayer statute)
  • Breach of promise when:
    • fraudulent promise, confidential relationship, breach of promise by decedent’s devisee or heir to hold property for benefit of third person

MEE GMW (8 decks)

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