Trusts

Question 1

Creation of a Valid Trust:
(1-3)

Answer 1

(1) property
(2) beneficiary (“B”): unincorporated associations can only be beneficiary under Mod. law
(3) trustee (“T”): not fatal if absent; the court will appoint

Question 2

creation of a valid trust:
(4-6)

Answer 2

(4) intent: must be present manifestation: precatory workds are not enough;
(5) creation;
(6) valid legal purpose: if illegal at creation: exercise the bad part. If impossible: invalidate the trust at inception and settlor remains owner or allow trustee to keep the property
—if illegal condition: the trust provided to B free of condition
—if illegal after creation: decree resulting trust

Question 3

alienation

Answer 3

-voluntary: allow B to sell or transfer property interest
-involuntary: creditors

Question 4

Types of Trusts:
-discretionary

Answer 4

-T given sole and absolute discretion to determine how much to pay B
-must be expressly stated in terms of the trust
-no voluntary or involuntary alienation
-settlor (“S”) can trust for himself, but can’t with regard to involuntary alienation in order to deny creditors

Question 5

spendthrift trust

Answer 5

-prevents B from voluntarily transferring future payments, and creditors from attaching
-same rules as discretionary

Question 6

-support trust

Answer 6

-T required to use only so much income or principle as necessary for B’s health, support, maintenance or education
-same rules as discretionary

Question 7

-honorary trust

Answer 7

-trust has no ascertainable B and confers no substantial benefit to society, but rather a goal of the S
-T isn’t required to carry out the goal, but has the power to if he wants
-if not, resulting trust is created

Question 8

constructive trust (and oral real estate trust)

Answer 8

-prevents fraud or unjust enrichment
-applies if self-dealing, fraud, secret trust, or oral real estate trust
—oral real estate trust: deed handed to A for B. A can’t invoke SoF if: fiduciary relationship between S and A; fraud in inducement on A’s part; detrimental reliance by B, eg. takes possession and makes improvements

Question 9

-secret trust

Answer 9

-will on face gives gift outright to A, but T requires A to provide an oral promise to use property to benefit B
-Parol evidence is admitted to show T’s intent

Question 10

-semi-secret trust

Answer 10

-will makes a gift to a person to hold as a trustee, but names no beneficiary
-the Court decrees a resulting trust; no parol evidence

Question 11

-totten trust

Answer 11

-tentative bank account trust naming B who takes whatever is left in the account at death

Question 12

-charitable trust

Answer 12

-Restatement: any trust that confers a substantial benefit on society eg. help the poor, advance education, help the sick or promote religion
-requirements: same as private express trust
*NO RAP
-if impossible or impracticable, the Court will use intrinsic and extrinsic evidence to ascertain S’s intent and determine cy pres, “as nearly as possible”

Question 13

resulting trust

Answer 13

-implied in fact trust based on presumed intent of the parties
-T transfers property to S if alive, to S’s estate, or to intestate takers
-result if: private express trust ends or fails for illegality or lack of B; charitable trust if cy pres isn’t an option; excess corpus; or purchase money resulting trust (S purchases and is intended B but title is in the name of Y)

Question 14

Modification & Termination of Trust:
-modification by S

Answer 14

-only if expressly reserved

Question 15

-modification by Court

Answer 15

-cy pres; in express trust, Court can deviate from admin or management provisions, nit not the B’s if unforeseen circumstances or necessity

Question 16

termination of revocable trust

Answer 16

-majority: S may only revoke if expressly reserved
-minority: S has the power to revoke, unless expressly said irrevocable

Question 17

termination of irrevocable trust

Answer 17

-if all B’s and S consent; if all B’s agree and all material purposes done; operation of law (if real property in private trust and T has no active duties)

Question 18

Trust Administration and Duties
-powers

Answer 18

-all enumerated; implied (sell property; incur expense; lease; borrow (under CL))

Question 19

duty of loyalty

Answer 19

-admin trust for B’s benefit; no self dealing

Question 20

duty to invest: (3 different authorities)
(1) state list

Answer 20

(1) state list: in absence of directions, good investments are fed government bonds, federally insured certificates of deposit, 1st deeds of trust; public company stock
*no new businesses or 2nd deeds of trust

Question 21

(2) CL prudent person test

Answer 21

-requires T to act as RPP investing own money
-good investments are federal government bonds; 1st deeds of trust; federally insured certificates of deposit; blue chip stocks; mutual funds
*no new businesses or 2nd deeds of trust

Question 22

(3) Uniform Prudent Investors Act

Answer 22

-T must act as prudent investor, as measured in the context of entire trust portfolio

Question 23

duty to diversify

Answer 23

requires every trustee, in making and implementing investment decisions, to diversify the investments of the trust unless under the circumstances it is prudent not to do so.

Question 24

duty not to speculate

Answer 24

It is not the province of [the Court] to allow trustees to speculate in stocks which might result in a loss to the remaindermen,’ [should not lend the court’s aid] to the trustee in speculating in stocks which might result in a loss to the contingent remaindermen but should, if such order is entered, instruct the complainant to confine its investments to investments having equal security with these that complainant now holds.’

Question 25

duty to earmark

Answer 25

-CL: if loss, T is personally liable
-Mod: if loss, T personally liable ONLY if loss is from failure to earmark

Question 26

duty to segregate

Answer 26

-CL: T can rely on professional advisors, but can’t delegate authority to them. Unanimous T decision required
-Mod: T can delegate to professional advisors; T may act by majority

Question 27

duty to act

Answer 27

-T must provide B’s with statement of income and expenses on regular basis

Question 28

duty of care

Answer 28

-must as as a RPP would as if dealing with own affairs

Question 29

duty to collect/protect property

Answer 29

The trustee is responsible for collecting and protecting the trust property. He or she has the legal title to the property and owes a fiduciary duty to the beneficiary of the trust to preserve the property.

Question 30

duty to maintain marketability of property

Answer 30

If the property in the trust is a house, the trustee has duty to do things like keeping the house in good repair and paying the necessary taxes

Question 31

duty to keep trust property productive

Answer 31

-requires the person managing the trust to make trust assets productive.
-This generally requires you to ensure that assets of the trust are wisely invested.

Question 32

remedies

Answer 32

-damages; constructive trust; tracing and equitable lien; ratify transaction if good; remove the T

Question 33

liability to 3rd persons:
-contracts: (CL; Mod)

Answer 33

-contract: CL: T sued in personal capacity but may get indemnification from trust. T may be sued directly in representative capacity if contract stated so
-Mod: if promisee knew T was acting in representative capacity, T must be sued in representative capacity

Question 34

liability to 3rd persons:
-tort (CL; Mod)

Answer 34

-CL: T sued in rep capacity and, if w/o fault, can get indemnification from trust
-Mod: T sued in individual capacity and personally liable if T is at fault. If agent committed negligent act in the case of strict liability, T sued in representative capacity

Question 35

Income and Expenses:
-life tenant

Answer 35

-gets income from: cash dividends, interest income, net business income
-pays expenses for: interest on loans, taxes, minor repairs

Question 36

-remainderman

Answer 36

-gets income from: stock dividend, stock split, net proceeds on the sale of a trust asset
-pays expenses for: principal of loans, major repairs/improvements