Trusts

Question 1

Required Intent

Answer 1

1. Must intend trust to take effect immediately
2. Must express intent by words or conduct while settlor owns the property
3. Precatory expressions (hope, wish, suggestion) result in inference that no trust was intended, but inference may be overcome by other evidence

Question 2

Trust Property (Res)

Answer 2

1. Property may be of any type, including future interests
2. Must be property that settlor has the power to convey
3. Must be described with certainty

Question 3

Beneficiaries

Answer 3

1. Must be capable of taking and holding title to property
2. Must be definite (ascertainable within the period when all interests must vest under the Rule Against Perpetuities); e.g., “friends” is insufficient
3. Notice not required but beneficiary must accept; acceptance is presumed

Question 4

Trustee

Answer 4

1. Failure to name trustee (or failure of trustee to accept or qualify) does not defeat a testamentary trust; court will appoint trustee
2. Inter vivos trust will fail without trustee because there can be no valid delivery and
   transfer of trust property (see below)
3. Trustee must have duties
4. Settlor may declare himself trustee

Question 5

Revocable Trusts

Answer 5

1. Interest passes during life but becomes possessory at death
2. Pour-over from will to revocable trust
   a. Trust may be established before, after, or
   concurrently with willb. Trust may be amendable and revocablec. Gift is valid even if trust unfunded during
   settlor’s lifetime

Question 6

Pour Over

Answer 6

Pour over from will pours into revocable trust

Question 7

Irrevocable Trusts

Answer 7

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

Question 8

Resulting and Constructive Trusts

Answer 8

Resulting and Constructive trusts are implied by law or imposed by courts.

Resulting Trusts involve reversionary interests and are based on the presumed intent of the settlor.

Constructive trusts are used to prevent unjust enrichment. They arise either where there is no valid express declaration of trust or, frequently, when no trust was even intended.

Question 9

Spendthrift Trusts/Provisions

Answer 9

1. Spendthrift trust provides that beneficiary may not voluntarily or involuntarily transfer his interest (i.e., cannot sell or give away interest, and creditors cannot reach it)
2. Not valid if settlor is also a beneficiary
3. Unenforceable against claim brought by government or by child, spouse, or former
   spouse with support order

Question 10

Discretionary Trusts

Answer 10

Trustee has the discretion to pay or withhold income or principal.

1. Before trustee makes discretionary payment, interest cannot be reached by creditors
2. After trustee elects to make payments, must pay creditors directly if he has notice—unless there is a spendthrift restriction

Question 11

Support Trust

Answer 11

Support trust cannot be assigned or reached, even without a spendthrift clause

Question 12

Charitable Trusts

Answer 12

The purpose must benefit the public (ex. poverty relief, education, health)

1. Must have indefinite beneficiaries
2. May be perpetual—Rule Against Perpetuities (“RAP”) does not apply
   a. RAP does not apply to limitations that
   shift beneficial interest from one charity
   to another (charity-to-charity exception)b. RAP does apply to a limitation shifting
   the interest from private use to charitable
   or from a charitable use to a private use
3. Enforceable by settlor, a qualified beneficiary, or attorney general

Question 13

Cy Pres Doctrine

Answer 13

If the settlor’s intended purpose is impracticable, unlawful, or wasteful, the court may substitute a new charitable purpose.

a. Must find settlor had general charitable intent, not just interested in the named charity
b. Court will select another purpose as near as possible

c. Uniform Trust Code (“UTC”)—settlor’s general charitable intent is presumed
and application of cy pres is mandatory

Question 14

Totten Trust Bank Accounts

Answer 14

1. Trustee-depositor has full rights during lifetime
2. Revoked by withdrawals, any other lifetime act indicating intent to revoke, or by
   will
3. Subject to depositor’s creditors’ claims
4. Automatically terminates if beneficiary predeceases depositor

Question 15

Resulting Trusts

Answer 15

Resulting Trusts
1. Purchase money resulting trusts—person taking title did not supply consideration;
sole duty is to convey title to one furnishing consideration
a. No resulting trust presumption if parties
closely related
2. Failure of express trust—resulting trust arises with settlor as beneficiary

3. Excess corpus—if trust property remains after purpose fulfilled, resulting trust for
   settlor arises

Question 16

Inter vivos Trusts Formalities

Answer 16

It is create during the settlor’s life (as opposed to a testamentary trust that is created by settlor’s will)

a. Declaration of trust by property owner that he holds in trust, or
b. Transfer of property by the settlor to the trustee
c. No writing required unless trust of land

Question 17

Gifts Causa Mortis

Answer 17

Gift made in contemplation of death. Differ from inter vivos gifts

Question 18

Disclaimer (trusts)

Answer 18

In most states, a beneficiary may disclaim an interest by filling a written instrument with the trustee or probate court.

Trust is to be read as though the disclaimer was deceased as of the relevant date

Estoppel: A beneficiary may be estopped from making a disclaimer if they have exercised any dominion or control over the interest

Disclaimer can be used to defeat creditors claims

Question 19

Duty of Loyalty

Answer 19

Trustee owes a duty of undivided loyalty to the trust and its beneficiaries.

1. cannot buy or sell trust assets, even for a fair price
2. Cannot sell property of one trust to another trust where they are also the trustee
3. Cannot borrow trust funds or loan their own funds to the trust unless to protect it. Interest paid on loan should be returned to trust
4. Cannot use trust assets to secure a personal loan
5. Cannot invest in its own stocks as a trust investment
6. Self employment may be a form of prohibited self dealing outside of extraordinary circumstances

NOTE: Settlor can waive self-dealing restrictions!

Question 20

Prudent Investor Requirement

Answer 20

Trustee must make prudent investments and must use reasonable care, skill, and caution

Must diversify investments!

Trustee with special skills held to higher standard

Investment decisions can be delegated if a prudent trustee would do so

Question 21

Class Gifts

Answer 21

Beneficiaries may be designated by generic descriptions such as “children”. Beneficiaries may be unascertainable when the trust is created as long as they are ascertainable when they are to benefit.

Common Law – Reasonably Definite Class Required: if a private trust exists for the benefit of a class, the class must be reasonably definite. As long as the class is reasonably definite, the trust may authorize the trustee to exercise their discretion in selecting members to be benefited, or may provide that only
those who meet certain requirements will benefit

UTC – Trustee may select from indefinitely class