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Bar Exam > Trusts > Flashcards

Trusts Flashcards

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1
Q

Define beneficiary of a trust and their duties

A

Beneficiary is the equitable owner of the trust. The trust is managed for their benefit. Only real duty is to hold Trustee to account for managing correctly–they have power to enforce the trust instrument. and ENJOY benefit of trust.

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2
Q

Trustee definition

A

Legal owner and controller of the trust. Manages trust for benefit of other(s). Many duties.

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3
Q

Explain principal vs income in a trust

A

Principal is the original property of the trust and any increase in value
income is the $ invested by the trust

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4
Q

settlor definition

A

person who creates a trust and settles is on another

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5
Q

presumption for trust, revocable s not

A

UTC says trust is revocable unless it clearly creates otherwise

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6
Q

mandatory trust

A

trustee has no discretion, must make certain distributions from the trust on a schedule

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7
Q

nonmandatory trust

A

trustee can choose, sometimes within guidelines, about when to make payouts from the trust

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8
Q

remedial trust

A

a legal remedy. Also called a passive trust. Created by operation of law. Trustee’s only obligation is to hold on to trust until passing it along

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9
Q

Does RAP apply to trusts?

A

yes, the “wait and see approach” to see if it vests tends to be the practical approach

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10
Q

Can trustee enjoy benefit of trust?

A

Sometimes. But can’t be a sole beneficiary and the trustee.

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11
Q

What can trustee generally do with the property?

A

Sell, reinvest, etc–advantage of holding legal title to it

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12
Q

If trustee backs out, does trust fail?

A

No, trust can always find a trustee. Does not fail

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13
Q

During what time period can a revocable trust be revoked?

A

Any time during the settlor’s life but NOT by the settlor’s will

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14
Q

two types of express trusts

A

private and charitable

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15
Q

what is the effect of precatory language on a gift or trust?

A

Precatory language indicates the hope or wish of the grantor/settlor, but that has no legal effect

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16
Q

when does a trust creation need to be written down to be effective?

A

When the statute of Frauds would apply (i.e. if real property is in the trust) OR if a will is involved.

(minority rule: no oral trusts)

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17
Q

When does a trust need to be created in order to be in a will?

A

Trust has to already exist OR be created at the same time as the will. Cannot devise something that doesn’t exist.

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18
Q

What elements are needed to create a trust?

A
  1. Intent. Need trust words–“in trust” or “for the benefit of”
  2. In writing ONLY IF conveying real estate or the trust is in a will
  3. res: must have property in the trust
  4. must have a purpose. Can be anything so long as it’s legal and does not violate public policy
  5. Beneficiary. Must be ascertainable: either a person or a set of persons that we can identify. “members of Moab high school band” is fine. (exceptions!!)
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19
Q

how do you distinguish between a trust and a gift?

A

Gift: no trust relationship; same person has all benefit and all control
Trust: if different person enjoys benefit of trust than owns trust

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20
Q

what does “res” mean in a trust

A

“res” is the property in a trust

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21
Q

Can you have a trust without property in it (empty trust)

A

Generally no, but EXCEPTION:
pourover will where empty trust is created and a will puts property into it when settlor dies

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22
Q

what happens when funds are commingled?

A

This violates a duty to the beneficiary

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23
Q

Excepttion to need for ascertainable beneficiary

A
  1. Unborn children “A’s children” is fine
  2. Class gifts–so long as have criteria
  3. Charitable trust (bc we like charity)
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24
Q

What distinguishes an express public trust

A

charitable trust must have a charitable purpose for public good: poverty, education, religion, health, gov purposes, or “other purposes benefiting community at large or particular segment thereof” can be TINY segment, like super rare disease

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25
Q

What is the law’s attitude towards failing a charitable trust?

A

presumes general charitable purpose unless it’s CLEAR we don’t have one. Also no RAP applies. Because we like charity!

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26
Q

How is Cy Pres used for a charitable trust?

A

If charitable purpose no longer possible, court can use Cy Res (equitable doctrine) reform a trust so we don’t lose the gift.
FIND A GENERAL CHARITABLE PURPOSE
goal: to make new purpose very close to old

27
Q

what happens if a charitable trust fails?

A

The trust assets go to a “resulting trust” which is passive creation of law, and we send it back to the settlor if we can’t use cy pres to find new charity
Settlor and maybe trustee can tecide

28
Q

who has standing to enforce terms of charitable trust?

A
  1. AG office
  2. settlor under UTC
29
Q

how to create an express trust?

A
  1. Inter vivos
    a. declares that there is a trust
    b. deed of trust–conveyance to another as trustee
  2. By will, it goes into effect when you die
30
Q

A settlor can declare himself to be the trustee of a trust by using a

A

declaration of trust

31
Q

what is cy pres and when can it be used in conjunction with a trust?

A

Cy pres is an equitable doctrine that allows the court to re-form a charitable trust whose purpose no longer works in order to keep the trust operating. It cannot be used on a private trust.

32
Q

how is a remedial trust created?

A

It’s an equitable remedy created bu operation of law
passive in nature
trustee has only one duty: to convey property back to the settlor

33
Q

2 types of remedial trust

A
  1. resulting trust. Used when a trust fails. Return property to settlor or settlor’s estate
    Goal: to avoid unjust enrichment.
    “purchase $ resulting trust”
    how to avoid resulting trust: gift over clause
  2. constructive trust--there is wrongful conduct. Sometimes takes advantage of the settlor–duress, breach of duty, detrimental reliance by a 3rd party, etc. As remedy, court will lock down the trust property so property goes back to state as trustee’s only option
34
Q

how tp prevent a resulting trust if your trust fails

A

make a gift over clause–a second place for the trust property to go if the first trust fails

35
Q

different types of trust distribution

A
  1. mandatory trust: trustee has no discretion as to how to distribute
  2. discretionary trust: has SOME direction. “makes distributions to support beneficiary while he is in college”
36
Q

alienability of beneficiary’s interest in trust property

A

As soon a beneficiary has it, can alienate at will!

UNLESS trust itself limits that right. Maybe beneficiary unreliable

37
Q

when can a beneficiary’s creditor get at the beneficiary’s trust interest?

A

As soon as B has the ability to alienated–so as payments come in!

Creditor can get at payment

Creditor CANNOT yeah reach trust principal or income until it’s in the trustee’s hands

Note: if trustee is worried about this and has discretion, can stop making payments

38
Q

what kind of trust protects assets?

A

asset protection trusts: shield B from creditor’s claims

  1. support trust: creditor can only reach when trustee makes support payment
  2. discretionary trust: same as above
  3. spendthrift trust: expressly restricts B’s power to alienate her interest.
39
Q

exceptions to spendthrift trust for creditors

A

When can creditors get to a spendthrift

  1. child or spousal support
  2. tax liens
  3. basic support for beneficiary (food etc)
40
Q

a purchase money resulting trust is imposed when..

A

the beneficiary is not the natural object of the settlor’s bounty

41
Q

how to terminate a trust

A
  1. expiration. express can retire at end of term. When A turns 25, it terminates
  2. fulfillment of material purpose. automatically ends when purpose fulfilled
  3. Settlor dead, B wants to terminate trust (get $) and trustee opposes termination.
    1. Trustee can block termination if material purpose is still being served. happens in age dependent, support trust, discretionary trust
  4. Settlor alive! can terminate if clause allows it, or if Bs agree to do it
42
Q

how to modify trust if settlor alive

A

settlor can unilaterally modify trust if reserved this power in the trust doc

if settlor did NOT reserve power, all Bs must consent and must be consistent with material purpose of the trust

OR

if purpose is trust is frustrated. If you see unanticipated facts on an exam, make sure you know purpose of trust

43
Q

can trustee terminate or modify trust unilaterally

A

NO

44
Q

how to remove trustee

A
  1. T is incapable
  2. material breach of trustee duty
  3. T conflict of interest
  4. SEROUS conflict between t and a B
  5. Trustee has not performed well die to T’s management
  6. Trustee can resign with notice
45
Q

Claflin doctrine re: blocking trust modification

A

The Claflin Doctrine says that a trustee can block premature termination of a trust if it is still serving its material purpose.

46
Q

can a settlor modify an irrevocable trust

A

Nope, that’s the point of an irrevocable trust

47
Q

how can trustee balance interests of life estate beneficiary versus future interest holder

A

old rule: income goes to life estate, principal foes to future interest holder??

UPAAIA: trustee is now supposed to be focused on “TOTAL RETURN” of trust

Trustee can re-characterize parts of trust

allocation must be reasoable

factor trustee MUST take into account when making trust decisions:

  1. intent of seller and language of trust
  2. nature, duration, purchase of trust
  3. identifies and circumstances of beneficiaries
  4. anticipated effect of economic conditions
  5. anticipated tax consequences
48
Q

What are the trustee’s powers and where find them?

A

Trustee’s powers are in the trust docs

If trust is silent, go to common law principles:

  1. all powers necessary to act as reasonably prudent person (has legal title):
    - sell, lease-resegregate property
49
Q

What are trustee’s duties?

A

Duty of loyalty: objective standard: did act reasonably
1. NO doing business with, or borrowing money from, the trust if you’re a trustee. “no further inquiry” rule. We don’t look into motivation or reasonableness or actual harm. it’s a per se violation.
Trust docs CAN SAY self-dealing is ok, but still has to be reasonable

Duty of care: subjective, did trustee act in good faith?
care that person of ordinary person would have in managing his own estsate
If you have special skills (investor) higher standard.

Duty of impartiality: balance competing interest between future and current holders. Modern rule: allocation of income between current and future interest holders must be BALANCED. How to we know; look at at the total return.

Delegation of trustee duty:
common law rule was against it, but modern rule permits delegation
Can delegate duties: must choose reas person and oversee that person

Admin duties:
. 1. duty to inform Bs of issues with trust
. 2. duty to recount–actions taken, portfolio status.

50
Q

What are teh old and modern rule for investments

A

old rule: specific list of investments, breach if finest outside

modern rule: prudent investor rule. Must manage and invest as prudent investor. Fiersify assets and spread risk of loss. Measure success of portfolio as a whole

51
Q

duty of impartiality

A

Duty of impartiality: balance competing interest between future and current holders. Modern rule: allocation of income between current and future interest holders must be BALANCED. How to we know; look at at the total return.

52
Q

can a trustee delegate any part of his duty?

A

common law rule was against it, but modern rule permits delegation
Trustee can delegate duties: must choose reas person and oversee that person

53
Q

Trustee’s duty of care

A

Duty of care: subjective, did trustee act in good faith?
care that person of ordinary person would have in managing his own estsate
If you have special skills (investor) higher standard.

54
Q

Trustee’s duty of loyalty

A

Duty of loyalty: objective standard: did act reasonably
1. NO doing business with, or borrowing money from, the trust if you’re a trustee. “no further inquiry” rule. We don’t look into motivation or reasonableness or actual harm. it’s a per se violation.
Trust docs CAN SAY self-dealing is ok, but still has to be reasonable

55
Q

Desribe remainder

A

Waits patently for something to happen to get possession

  • Vested remainder: remainderman is ascertained and there is no condition precedent
  • Contingent remainder: ascertained, but
56
Q

what makes a remainder vested?

A
  1. remainderman is ascertained
  2. there are no conditions precedent to his getting possession (other than life estate holder dying)
    1. if one member of a class in a class gift is vested, then the class is vested. If class members could still come along, then it’s vested subject to open.
    2. If no member of a class of class is vested, then its contingent
57
Q

O to A for life, then to O’s children. O has 2 children. Describe.

A

O’s children are a class. The two have a vested remainder subject to open.

58
Q

What makes a future interest contingent rather than vested?

A
  1. If remainderman is not ascertainable yet, OR
  2. if a condition precedent (If B graduates from law school) could block from getting possessory interest. We won’t know if it vests for sure until B dies, or graduates. O keeps a reversion, in case B never graduates.
59
Q

O to A for life, then to B’s first child. B has no kids.

A

A has life estate

O has reversion

B has nothing

This is a contingent remainder–condition is that B has kids

60
Q

What interest cuts short (divest) other interest

A

Springing executory interest. Cuts short the grantor. O to A for life, then B IF B gives A a proper funeral. So A dies, reverse to O (then hs fee simple subject to executory interest) and B has a springing executory interest.

O to A in on year. A has springing exec interest and O has given herself a fee simple subject to executory interest

Shifting executory interest. O to A for life, then to B and heirs if B graduates from law school, and if not to C. O: nothing; A: life estate; B vested remainder subject to executory interest; C has shifting executory interest (because in order to get it, must divest B)

61
Q

What happens if class member dies? Who gets their part of class gift?

A

Q: Trustee shall distribute to A (son) for his life, then to my grandchildren, with children of any deceased grand children taking their parents’ place.

When does the future interest becomes possesory? When the son dies, because then no more grandchildren. What happens if a grandchild dies without issue before the son? Does interest vest in grandchild’s estate or does it fail? Common law says: survival of grandchild is not essential. Under UPC, grandchild must survive son or the gift fails–cannot pass on something that never vested.

RST3: share of deceased class member goes to their surviving issue
--HOWEVER--

General rule: A gift to a group contains right of survivorship. If class member dies their share is divided among other class members.

62
Q

3 questions for trusts

A
  1. who is in possession now
  2. who has a future interest
  3. what has to happen for it to vest?
63
Q

Must a trustee explicitly accept trusteeship?

A

No, accepting the money or property that is the res in the trust is enough to indicate acceptance

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