Trusts

Question 1

How definite do trust beneficiaries have to be? Are the Necessary?

Answer 1

Because a trust cannot exist without someone to enforce it, definite beneficiaries are necessary to the validity of the trust.
Although the beneficiaries need not be identified at the time a trust is created, they must be susceptible of identification by the time their interests are to cone into enjoyment.

Question 2

Can the trust beneficiaries be a class?

Answer 2

The trust beneficiaries may be a class, provided that the class is sufficiently definite.

Question 3

Can the trustee pick the beneficiaries if they are part of a class?

Answer 3

The settlor can even allow the trustee in its discretion to select the members as long as the class is reasonably definite.

Question 4

What happens if the class is too broad?

Answer 4

If the class is too broad, however the trust, (or a portion thereof) may be invalid for lack of definite beneficiaries.

Question 5

What is a support trust?

Answer 5

A support trust is one 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 the discretion to refuse to pay bills necessary for the beneficiary’s support.

Question 6

What is a discretionary trust?

Answer 6

In a discretionary trust, the trustee is given discretion whether to apply or withhold payment of trust property to the beneficiary. This discretion actually limits the rights of the beneficiary to the amounts the trustee decides to give her.

The beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses her power.

Question 7

What constitutes trustee abuse?

Answer 7

What constitutes abuse depends on the extent of the discretion conferred on the trustee. Generally, a court will not interfere unless the trustee has acted in bad faith or dishonestly.

Question 8

The trustee’s duty of loyalty extends …

Answer 8

The trustee’s duty of loyalty extends to all beneficiaries equally.

Question 9

Most jurisdictions permit termination of a trust by its beneficiaries only if

Answer 9

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.

Question 10

Although permitted by the UTC, most states do not permit a guardian to consent to

Answer 10

Although permitted by the UTC, most states do not permit a guardian to consent to the termination of the trust on behalf of unborn beneficiaries.

Question 11

Can a court terminate a trust prior to the time fixed in the instrument?

Answer 11

Yes, 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 become illegal or impossible to carry out.

Question 12

To create a valid trust there must be (4 elements)

Answer 12

To create a valid trust there must be (1) a settlor who, intending to create a trust for a (2) valid trust purpose, (3) delivers the trust property to the trustee to hold for benefit of (4) one or more beneficiaries.

Question 13

What happens if there are no trust assets when the trust instrument is executed?

Answer 13

If there are no trust assets when the trust instrument is executed (i.e. the settlor promises gratuitously to create a trust in the future) a trust arises in the future only if, when the assets come into existence, the settlor manifests anew an intention the create the trust.

This re-manifestation is not required however if the trust is supported by valid consideration.

Question 14

Under the traditional view, to create a valid pour-over gift from a will to a revocable trust, the trust must

Answer 14

Under the traditional view, to create a valid pour-over gift from a will to a revocable trust, the trust must be in existence or must be executed at the time of the will’s execution.

Question 15

Can a will devise property to a trust that is established after the will is executed?

Answer 15

Yes, under the prevailing view, a will may devise property to a trustee of a trust established or to be established during the testator’s lifetime, ie the trust may be established after the will is executed but before the testator’s death.

Question 16

Pour-over gifts are valid even if

Answer 16

Pour-over gifts are valid even if the trust is unfunded during the testator’s lifetime, and even if the trust is amended prior to the testator’s death.

Question 17

What is a spendthrift provision?

Answer 17

A spendthrift provision is one in which the beneficiary is unable voluntarily or involuntarily to transfer his interest in the trust.

He cannot sell or give away his rights to future income or capital, and his creditors generally are unable to collect or attach such rights.

Question 18

Can a spendthrift provision stand if the settlor is the beneficiary of the trust?

Answer 18

No, an exception is made when the settlor is the beneficiary of the trust and attempts to protect his own retained interests from his creditors by the inclusion of a spendthrift provision.

In that event, the settlor-beneficiary’s creditors can reach his right to the income just as if the spendthrift provision did not exist.

Question 19

What happens when a portion of the trust fails for lack of a beneficiary?

Answer 19

When a portion of a trust fails for lack of a beneficiary, a resulting trust in favor of the settlor or the settlor’s successors in interest is presumed.

Question 20

Can the interest of an insolvent trust beneficiary be reached by creditors?

Answer 20

Yes, Except as otherwise provided by statute or spendthrift provision, the interest of an insolvent trust beneficiary can generally be reached in appropriate proceedings to satisfy the claims of his creditors.

However, the creditor reaches only the interest of the beneficiary and not the trust property itself.

Question 21

When does the cy pres doctrine apply?

Answer 21

Cy pres doctrine applies when a specific charitable purpose indicated by the settlor is no longer practical or possible, and the settlor manifested a general charitable intent.

In such a case, the court can direct that the trust property be applied to another charitable purpose as close as possible to the original one, rather than permit the trust to fail and become a resulting trust.

Question 22

In states following the Uniform Trust Code, the settlor’s charitable intent is?

Answer 22

In states following the Uniform Trust Code, the settlor’s charitable intent is conclusively presumed. In those states absent express trust terms to the contrary, application of cy pres is mandatory.

Question 23

What is a spendthrift provision?

Answer 23

• Generally, a spendthrift provision prohibits the voluntary or involuntary transfer of the beneficiary’s interest in the trust.
• Basically, the beneficiary cannot assign his interest to another, and the interest is free from the claims of creditors.
• However, some states do not enforce a spendthrift provision against certain types of creditors, such as dependents of the beneficiary.
• Alimony payments could make someone be considered a dependent.

Question 24

In the absence of a spendthrift provision

Answer 24

In the absence of a spendthrift provision, a creditor can reach a beneficiary’s interest in the trust.

However, the creditor is entitled only to the beneficiary’s interest in the trust.

Question 25

What is a pour-over gift?

Answer 25

A pour-over gift is a testamentary gift to a trust created during the testator’s lifetime, with the testamentary assets to be administered and distributed as part of that trust.

Question 26

When is termination of a trust permitted?

Answer 26

1. Termination of a trust is usually permitted if all the beneficiaries consent to termination and the termination does not interfere with a material purpose of the trust.
2. An example of a “material purpose” of the trust includes the desire to protect the beneficiary from his own improvidence.

Question 27

What is a power by appointment?

Answer 27

A power by appointment is an authority created in a donee enabling the donee to designate, within the limits prescribed by the donor of the power, the persons who shall take certain property and the manner in which they shall take it.

Question 28

When does merger of title happen?

Answer 28

Merger of title results in termination of trust when the sole trustee is also the sole beneficiary.

Question 29

What is a trustee?

Answer 29

A trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of the designated beneficiaries, who hold equitable title.

Question 30

What is default of appointment?

Answer 30

Default of appointment: the persons designated to take the property if the donee fails to effectively exercise her power of appointment.

Question 31

Do anti-lapse statutes apply to future interests created in trusts?

Answer 31

Several states and the UPC apply the anti-lapse statute to future interests created in trusts (even those conditioned on survival) but in most states, the anti-lapse statute applies only to testamentary gifts.

Question 32

Can a trustee’s duties be enlarged after he has accepted?

Answer 32

• Generally, a trustee’s duties cannot be enlarged after he has accepted.
• But trust instruments can provide for later additions to the trust corpus.
• The power to revoke also includes the power to amend, so if you can revoke you can amend the trust.

Question 33

What is a general power of appointment?

Answer 33

A general power of appointment is exercisable in favor of the donee, her estate, her creditors, or the creditors of her estate.

Question 34

What is a special power of appointment?

Answer 34

A special power of appointment is exercisable in favor of a specified class of persons that does not include the donee, her estate, her creditors, or the creditors of her estate.

Question 35

What is a testamentary power?

Answer 35

A testamentary power is one that is exercisable only by the donee’s will.

Question 36

What is a presently exercisable power?

Answer 36

A presently exercisable power is exercisable by the donee during her lifetime.

Question 37

Under the UTC when can a settlor revoke or amend a trust?

Answer 37

Under the UTC a settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable.

However, many states still follow the common law rule, which requires that the settlor reserve the power to revoke and amend.

In those states, a trust is irrevocable unless the instrument states otherwise.

Question 38

Where a remainder interest is conditioned on a B’s surviving the Settlor and the B doesn’t…

Answer 38

Where a remainder interest is conditioned on a B’s surviving the Settlor and the B doesn’t, their interest fails.

Nearly all states have anti-lapse statutes that operate to save a gift to a predeceasing B if the B was in a specified degree of relationship to the testator and left surviving descendants.