Trusts

Question 1

Trust creation

Answer 1

A valid trust is created with (1) intent by the settlor, (2) identifiable trust property, (3) one or more beneficiaries that are definite and ascertainable, and (4) a trustee

Question 2

Merger

Answer 2

Although a trust will not fail for lack of a trustee, the sole beneficiary may not also be the sole trustee, otherwise a merger occurs and the trust is invalid.

Question 3

Trust beneficiaries

Answer 3

Beneficiaries need not be identified at the time of trust creation, but they must be susceptible of identification by the time their interests are to come into enjoyment.

Question 4

Class gifts

Answer 4

Beneficiaries may be a class if the class is sufficiently definite. The settlor may also allow the trustee discretion in selecting class members if it is reasonably definite. If the class is too broad, the trust (or applicable portion) may be invalid for lack of definiteness.

Question 5

Trust property

Answer 5

Trust property must be identifiable but may arise in the future if (1) the settlor manifests anew an intent to create the trust, or (2) consideration.

Question 6

Support trust

Answer 6

A support trust requires the trustee to pay, as is necessary, for the beneficiary’s support from the trust assets. The trustee does not have discretion to refuse to pay bills necessary for the beneficiary’s support.

Question 7

Discretionary trust

Answer 7

A discretionary trust allows the trustee discretion to decide when to make a distribution to a beneficiary. The beneficiary cannot interfere (demand payment) with the exercise of the trustee’s discretion unless the trustee abuses his power.

Question 8

Abuse of power

Answer 8

Generally, a court will not interfere unless the trustee has acted in bad faith or dishonesty.

Question 9

Spendthrift trust

Answer 9

A spendthrift trust is one which the beneficiary is unable voluntarily or involuntarily to trailer his interest in the trust. He cannot sell of give away his rights to future income or capital, and creditors generally cannot collect or attach such rights.

Question 10

Creditor attachment

Answer 10

A creditor in any case can reach only the beneficiary’s interest in a trust. Creditors generally cannot reach the interest in a spendthrift trust unless the claim is brought by (1) dependents, (2) the government, and (3) persons supplying necessities. A creditor is not prevented from income after it has be distributed to the beneficiary.

Question 11

Charitable trust

Answer 11

A charitable trust is created for a charitable purpose. It must have a large number of not readily identifiable individuals. A charitable trust is terminated when the charitable purpose become illegal, impossible, or impractiable.

Question 12

Cy pres

Answer 12

A court may modify or terminate the trust to be distributed to the settlor’s general charitable trust intent when (1) the purpose becomes impracticable, impossible, or illegal; (2) no alternative charity is named in the trust; (3) the court found the settlor had a general rather than specific charitable purpose.

Question 13

Pourover gift

Answer 13

A pourover gift ….

Question 14

Revocation of trust

Answer 14

Under the UTC, the default rule is that a trust is revocable. However, the common law reserves the power to revoke and amend with the settlor, thus trusts are presumed irrevocable unless the trust expressly states otherwise.

Question 15

Termination of trust

Answer 15

Settolor may terminate the trust if all beneficiaries are in existence and all agree. If the settlor dies, the beneficiaries may terminate the trust if (1) all income beneficiaries and remaindermen unanimously consent and (2) if there is no material trust purpose that requires performance.

Question 16

Power of appointment

Answer 16

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

Question 17

General power of appointment

Answer 17

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

Question 18

Special power of appointment

Answer 18

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

Question 19

Presently exercisable power of appointment

Answer 19

A presently exercisable power of appointment is exercisable by the donee during his lifetime.

Question 20

Testamentary power of appointment

Answer 20

A testamentary power of appointment is exercisable only by the donee’s will.

Question 21

Exercise of power of appointment

Answer 21

If a donee fails to exercise her power of appointment, the appointive property passes to the takers in default of appointment (the persons designated by the donor to take the property in such a situation).

Question 22

Conditioned interests

Answer 22

Where a remainder interest is conditional on a benficiary surviving the settlor and the beneficiary does not, his interest fails.

Question 23

Anti-lapse statutes

Answer 23

Anti-lapse statutes. operate a gift to a predeceased beneficiary if the beneficiary was in a specified degree of relationship to the testator and left surviving decedants. UPC does not apply anti-lapse statutes to future interests created in trusts. A majority of states only apply anti-lapse statutes to testimary gifts (wills).

Question 24

Duty of loyalty

Answer 24

A trustee owes a duty of loyalty to the trust and beneficiaries. The trsut must be administered solely for their benefit. The trustee must not place himself in a potitiont hat could create a conflict of interest.

Question 25

Breach of duty

Answer 25

A trustee breaches the duty of loyalty when he enters into any transaction in which he trustee invests trust assets in a corporation of which the trustee is a principal shareholder is considered self-dealing - trustee invests trust assets in an opportunity of which the trustee receives a benefit.

Question 26

UPIA: Duty to invest

Answer 26

A trustee must administer the trust as a prudent person would, using reasonable care, skill, and caution. The Act incposes the followinf standards in making investment decisions: (1) general economic conditions; (2) the role that each investment plays with the overall trust portfolio; (3) the expected total return from income and appreciation of capital; and (4) needs for liquidity, regularity of incomel and preservation or appreciation of capital.

Question 27

UPIA: Duty to diversify

Answer 27

A trustee must diversify the investments of the trust unless he reasonably determine that the purposes of the trust are better served without diversification. The trustee is not liable for declines in value due to general economic conditions.

Question 28

Duty of care

Answer 28

A trustee has a duty to administer the trust in good faith and in a prudent manner, in accordance with the terms and purposes of the trust instrument and the insterest of the beneficiaries.