Trusts

Question 1

Trust is formed (SPIRIT B)

Answer 1

• A valid express trust requires: 1) a beneficiary; 2) a settlor with capacity; 3) an intent to create a trust; 4) a trustee; 5) a valid purpose; 6) trust property (the res); and 7) compliance with any state formalities (i.e. signed in front of notary).

Question 2

Who can beneficiaries be

Answer 2

natural persons, corporations, or other organizations.

Question 3

Who cannot be the sole trustee and the sole benficary

Answer 3

trustee because they have duties to preform

Question 4

Will a trust fail solely because the person refuses to act as a named trustee, dies or is removed?

Answer 4

no, but there must be a named trustee for the trust to be valid

Question 5

What happens when a trustee refuses to serve, dies, or is removed

Answer 5

Court will appoint a new trustee

Question 6

When conducting you analysis, if no facts indicate failure of compliance, you should state

Answer 6

“as no facts indicate otherwise, it will be assumed the trust formation complied with all state formalities.”

Question 7

Resultant trust

Answer 7

When a trust fails or there is incomplete disposition of trust property, a court may create a resultant trust to return property to the settlor. This trust’s goal is to avoid unjust enrichment and is appropriate when a beneficiary is not using the money as the trust dictates.

Question 8

Discretionary trust

Answer 8

– When a trustee has absolute discretion and power to determine distributions. Discretion of the trustee must be in good faith - a court will not interfere unless abuse is found.

Question 9

Trustee standard of care

Answer 9

If the trustee has special skills they will be held to a higher standard.

Question 10

Spend thrift provision

Answer 10

– A provision that requires the trustee to use only so much income or principle as is necessary for the support of the beneficiaries.

Question 11

Spendthrift trust

Answer 11

Expressly restricts the beneficary’s power to voluntarily or involuntarily transfer an equitable interest. A trust restricting only involuntary transfers is void as against public policy

Question 12

duty of care

Answer 12

trustee must exercise that degree of care, skill and caution exercised by a reasonably prudent person in their own dealings. This duty requires 1) diversifying assets; 2) making property productive; and 3) making informed decisions regarding investment schemes. Mistake in judgement do not expose trustee to liability as long as RC was exercised

Question 13

Duty of loyalty

Answer 13

A trustee is required to 1) refrain from self-dealing; 2)administer the trust in the best interest of the beneficiaries; and 3) act impartially towards each beneficiary.

Question 14

Duty to diversify assets

Answer 14

A trustee is required to invest trust assets in varying classes of investments to protect against risk.

Question 15

Duty to distribute the trust instrument

Answer 15

trustee has a duty to invest and expend trust resources only in accordance with the trust instrument.

Question 16

Making property productive

Answer 16

A trustee is required to invest trust assets to produce income relative to the assets invested.

Question 17

Making informed decisions

Answer 17

A trustee must perform responsibilities with the due diligence required to invest trust assets only after developing the requisite knowledge of the investment landscape.

Question 18

Duty to inform and account

Answer 18

– A trustee must disclose to beneficiaries complete and accurate information about the nature and extent of trust property, and periodically (at least annually) account for actions taken on behalf of the trust so the trustee’s performance can be assessed against trust provisions.

Question 19

Co-Trustee liability

Answer 19

When more than one trustee is assigned, all trustees are responsible for administering the trust, and held liable for acts of other trustees if 1) they participate, approve, or conceal a breach of trust; 2) negligently enable a breach; 3) fail to reasonably correct breaches; or 4) improperly delegate administration of the trust.

Question 20

Charitable trust

Answer 20

trust is deemed charitable when it has a stated charitable purpose and exists for the benefit of the community at large or a class of persons with continually changing membership. The beneficiaries must indefinite and not to a single person. It is also enfored by the AG

Question 21

Cy Pres

Answer 21

equitable doctrine where the courts will modify a charitable charitable trust to be as consistent or near as possible to the testator’s intentions should the purpose of the trust be frustrated. The arbiter of Cy Pres disbursement is the State Attorney General.

Question 22

Modification of a trust

Answer 22

A trust may be modified by a settlor 1) who expressly reserved the power to modify the trust; or 2) who has the power to revoke or amend. A trust can be modified by a court when changes are required due to unforeseen circumstances, if all beneficiaries consent, and if modification is not contrary to trust purpose.

Question 23

CA modification of a trust

Answer 23

California, a trust may be modified on petition by a trustee, or a court may modify a trust if the trust will be substantially impaired due to unknown or unanticipated circumstances of the settlor.

Question 24

Termination of a Irrevocable trust

Answer 24

An irrevocable trust may be terminated if 1) the settlor and all beneficiaries agree while settlor is still alive; 2) all the beneficiaries agree, and it doesn’t frustrate the purpose of the trust; or 3) the trust ends on its own accord.

Question 25

termination of a revocable trust

Answer 25

A revocable trust can be terminated in any way specified in the trust, or if it doesn’t state so, in any writing signed by the settlor.

Question 26

Remedies against a trustee

Answer 26

A trustee may be removed and can be held liable for 1) any loss or depreciation in the value of the trust; 2) any profit made by the trustee through breach; 3) any missed profit caused by breach.

Question 27

Beneficiary remedies to sue the trustee

Answer 27

Beneficiaries pursuing legal action against a trustee to 1) affirm conduct and keep profit; 2) order an accounting and demand trustee to pay losses; 3) disgorge any profits made; 4) remove the trustee.

Question 28

Testamentary trust

Answer 28

Occurs when the terms of the trust are contained in writing in a will or a document incorporated by reference into a will.

Question 29

Rights of creditors

Answer 29

A beneficary’s creditors cannot reach the beneficiary interest until income has been paid. An attempted transfer by the beneficiary in violation of a spendthrift provision is only effective in that it authorizes the trustee to pay funds directly to the attempted transferee.

Question 30

Exceptions to spendthrift trusts

Answer 30

Many states allow certain classes of creditors like childern and spouses entitled to support and providers of basic necessities to reach a beneficaries interest dispite a spendthrift restraint

Question 31

What are the 5 ways to terminate a trust

Answer 31

settlors and beneficaries agree to terminate

all beneficaries agree to terminate and all material purposes have been accomplished

merger

operation of law - purpose impossible, divorce, illegal or completed

term of trust expires

Question 32

Clafin doctrine

Answer 32

Trust cannot be modified/terminated, even if all beneficiaries agree, if doing so would be contrary to a material purpose of the settlor
1. Material purpose includes spendthrift, support, discretionary trusts