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Trusts Flashcards

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1
Q

What is a trust?

A

Legal arrangement in which a settlor conveys property to a trustee to hold as a fiduciary for 1+ beneficiaries or for a charitable purpose

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2
Q

Who is a settlor?

A

Creator of the trust

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3
Q

Property of a trust is also known as:

A
  1. Trustus corpus
  2. Res
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4
Q

What is bifurcation of ownership?

A
  1. The trustee has legal title to the trust property AND
  2. The beneficiaries have equitable title
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5
Q

What are the key categories for trusts?

A
  1. Inter vivos OR testamentary
  2. Revocable OR irrevocable
  3. Private OR charitable
  4. Express OR implied
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6
Q

What is an inter vivos trust?

A

Created during settlor’s life

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7
Q

What is a testamentary trust?

A

Created by the settlor’s will

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8
Q

What does it mean when a trust is revocable?

A

The settlor can:
1. Revoke the trust AND
2. Take back the trust property

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9
Q

What does it mean when a trust is irrevocable?

A

A settlor cannot take the property back.

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10
Q

Is a testamentary trust revocable or irrevocable?

A

Not necessarily either

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11
Q

When is a trust private?

A

Trust is for 1+ ascertainable beneficiaries

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12
Q

When is a trust charitable?

A

Trust i for 1+ charitable purpoes

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13
Q

Both private and charitable trusts are _______ trusts.

A

Express

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14
Q

To create a private express trust requires:

A
  1. Intent to create a trust
  2. Specific trust property
  3. 1+ ascertainable beneficiaries
  4. In certain circumstances, a writing
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15
Q

The test for intent is _____.

A

Objective

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16
Q

For a private express trust, the settlor must manifest an intent to ________.

A

Create the fiduciary relationship w/ respect to property that is known by the law as a trust

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17
Q

For an inter vivos trust, how is intent manifested?

A
  1. If settlor is to be trustee, Declaration of Trust OR
  2. If third party is to be trustee, Deed of Trust
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18
Q

For a testamentary trust, how is intent manifested?

A

The will

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19
Q

A declaration/deed of trust must manifest ____________.

A

The settlor’s intent to create the trust

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20
Q

In order for a testamentary trust to be valid, the will must have been executed with _________.

A

The proper formalities under the Statute of Wills

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21
Q

In order to make an inter vivos irrevocable trust, the settlor must have ________ capacity.

A

Contract

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22
Q

In order to make an inter vivos revocable or testamentary trust, the settlor must have ________ capacity.

A

Testamentary

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23
Q

______ capacity is a lesser level of capacity than for contract.

A

Testamentary

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24
Q

Any charitable purpose that is not _____ or ______ is allowed.

A

Illegal

Contrary to public policy

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25
Q

A trust will be held invalid based on intent if:

A
  1. illegal
  2. Performance involves commission of tort/crime
  3. Contrary to public policy
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26
Q

What are precatory words?

A

Words expressing a wish/desire but not creating a legal obligation or affirmative duty

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27
Q

Will precatory words manifest intent to create a trust?

A

Typically, no.

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28
Q

Will precatory words manifest intent to create a trust?

A

Typically, no.

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29
Q

Other than express intent, a valid trust intent may be shown via:

A
  1. Definite/precise directions
  2. Directions addressed to fiduciary
  3. Unnatural disposition of property if no trust OR
  4. Extrinsic evidence of prior support of intended beneficiary by settlor
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30
Q

A trust must be funded with a valid interest in _________.

A

Property

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31
Q

For the property requirement of a trust, there must be a delivery of ____________ to the trustee.

A

A valid presently existing interest in the property

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32
Q

Delivery of a property to a trust can be:

A
  1. Actual
  2. Symbolic
  3. Constructive
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33
Q

What is actual delivery of property to a trust?

A

Hand-to-hand delivery of the property

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34
Q

What is symbolic delivery of property to a trust?

A

Some item representing ownership, including a written deed

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35
Q

What is constructive delivery of property to a trust?

A

Presenting the means to access the property, such as giving the trustee a key

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36
Q

What interests are prohibited as forming valid presently existing interest in property?

A
  1. Illusory property
  2. Mere expectancies
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37
Q

What is a pour-over will?

A

Will that devises some of the decedent’s estate to the then-acting trustee of an inter vivos trust created during settlor’s lifetime

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38
Q

All states allow pour-over wills to pour over into __________.

A

An unfunded inter vivos trust

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39
Q

At common law, a bequest to a trust required:

A
  1. Trust is already independently funded OR
  2. Trust is incorporated by reference
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40
Q

UTATA permit amendments to the trust even after the date of _______.

A

The will

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41
Q

Under UTATA, even if the will is executed prior to a trust amendment, the amendment will still govern ____________.

A

Property poured over to the trust

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42
Q

A trustee must have the capacity to:

A
  1. Acquire/hold property AND
  2. Administer such property
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43
Q

A trustee must have _____ duties.

A

Active

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44
Q

If there is no trustee, courts will appoint one unless ________.

A

Settlor intended otherwise

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45
Q

Courts will not allow an otherwise valid trust to fail for want of _________

A

A trustee

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46
Q

Who can be the beneficiary of a private express trust?

A

Any ascertainable person/group

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47
Q

If a beneficiary is too indefinite, no trust comes into being, because __________.

A

There would be no one to call the trustee to account and enforce the trust

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48
Q

Define beneficiary.

A

Ascertainable person/group:
1. For whose benefit trust funds may be expended AND
2. Who can sue to enforce fiduciary duties

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49
Q

A trust for the benefit of a class is valid if the class is reasonably ________.

A

Definite

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50
Q

When is a class reasonably definite for a trust?

A

There are one or more ascertainable beneficiaries who could call the trustee to account

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51
Q

If a class is reasonably definite, the trustee may exercise discretion in _________.

A
  1. Selecting the actual members to benefit
  2. Setting forth requirements for the members to be eligible
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52
Q

Unborn/future children or descendants are valid beneficiaries if ascertainable within _________.

A

The perpetuities period

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53
Q

Who will represent unborn or future child descendants in the interim?

A

An appointed guardian ad litem

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54
Q

The rule against perpetuities applies to __________ trusts.

A

Private express trusts

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55
Q

Interests in a trust are invalid under the Rule Against Perpetuities when __________.

A

They will not vest or fail within 21 years after the death of a life in being

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56
Q

What is a merger in terms of a trust?

A

If the sole trustee is the sole beneficiary, the legal and equitable interests “merge” and the trust terminates

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57
Q

What trusts do not have ascertainable beneficiaries but are valid all the same?

A
  1. Charitable trusts (for a charitable purpose)
  2. Honorary trusts (for a pet, grave maintenance)
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58
Q

When will a trust be required to be in writing?

A
  1. Includes valid will
  2. Trust holds land
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59
Q

Because writing is required for a valid will, a ________________ trust must always be in writing.

A

Testamentary

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60
Q

Why must there be writing for a trust holds land?

A

Statute of Frauds applies

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61
Q

What type of trust does not require writing?

A

Inter vivos trust of personal property

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62
Q

The requirements to create a charitable trust are the same as for a private trust, except that _______.

A

Instead of an ascertainable beneficiary, a charitable trust must be for the benefit of 1+ charitable purposes

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63
Q

What are allowable charitable purposes?

A
  1. Relief of poverty
  2. Advancement of education
  3. Advancement of religion
  4. Promotion of health, governmental, or municipal purposes OR
  5. Other purposes whose achievement is beneficial to the community
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64
Q

What political purposes ARE charitable?

A

Dissemination of political views

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65
Q

What political purposes are NOT charitable?

A

benefit to a political party

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66
Q

The rule against ______ does not apply to charitable trusts.

A

Perpetuities

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67
Q

Because a charitable trust may last forever, such a trust is more easily modified or terminated than a private trust under _______.

A

The cy press doctrine

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68
Q

Because a charitable trust must be for a charitable purpose rather than 1+ ascertainable beneficiaries, the law grants ___________ as parens patriae to enforce charitable trusts.

A

The state attorney general

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69
Q

A trust with neither a charitable purpose nor an ascertainable beneficiary can be upheld under common law as a ________ trust.

A

An honorary trust

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70
Q

What occurs in an honorary trust?

A

Trustee is “on her honor” to fulfill the settlor’s intent

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71
Q

Typical honorary trusts are for the care of _____ or _____.

A

A pet

A grave

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72
Q

If a trustee is unwilling to perform the duties required of a trustee, what occurs?

A
  1. Trust will fail AND
  2. The property passes on a resulting trust to the next taker
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73
Q

If a trust violates the rule against perpetuities, what options are available?

A

Trust is invalidated as inception
OR
Valid for 21 years

Either way, honorary trust endures for 21 years

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74
Q

Court may reduce the amount of property in an honorary trust if _______.

A

It is excessive for the purpose

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75
Q

A Totten trust is also known as a ___________ trust.

A

Tentative bank account trust

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76
Q

What occurs in a Totten trust?

A

Named beneficiary receives the remainder of a bank account at the time of trustee’s death

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77
Q

In a Totten trust, __________ serves as trustee and retains full control of the money in the account.

A

Bank account depositor

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78
Q

A Totten trust is revocable via:

A
  1. Withdrawal of funds
  2. Act manifesting intent to revoke OR
  3. Contradictory will
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79
Q

A Totten trust is more in the nature of _______ than a true trust.

A

An early form POD contract

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80
Q

What is a constructive trust?

A

Passive, temporary arrangement in which the trustee’s sole duty is to transfer the title/possession to the beneficiary

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81
Q

A constructive trust is a _____, not a true trust

A

Equitable remedy

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82
Q

A trustee of a constructive trust must account for:

A
  1. All profits from…
  2. All damages to…
    …the property until it is conveyed
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83
Q

The party attempting to establish a constructive trust must do so according to what standard?

A

Clear and convincing evidence

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84
Q

Where a wrongdoer uses ____________ property to acquire other property, the wrongdoer holds the proper in constructive trust for the victim.

A

Wrongfully-obtained property

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85
Q

Where there is fraud, duress, or mistake of fact, the wrongdoer holds property in ____________ for the victim.

A

Constructive trust

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86
Q

The beneficiary of a fraudulent will is deemed a constructive trustee whose sole duty is to ____________ .

A

Transfer the property to the decedent’s heirs who would have taken but for fraud

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87
Q

When there is a breach of fiduciary duty, who becomes the constructive trustee?

A

Fiduciary who benefits improperly

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88
Q

What is the slayer rule?

A

When estate assets are distributed to the decedent’s killer, the wrongdoer holds any property as constructive trustee for person who would have received if killer predeceased the victim

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89
Q

Breach of promise will NOT give rise to a constructive trust unless:

A
  1. Fiduciary relationship between promisor/promisee
  2. Fraudulent promise
  3. Detrimental reliance by intended beneficiary
  4. Secret trust
  5. Promise to debtor by buyer at foreclosure sale
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90
Q

A secret trust arises when _______.

A

A will makes a gift that was made in reliance of beneficiary’s promise to hold the property in trust for the benefit of another

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91
Q

_______ defenses are available for constructive trusts.

A

Typical equitable defenses

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92
Q

What is a resulting trust?

A

An equitable reversionary interest that arises for example when a trust fails

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93
Q

A resulting trustee’s sole duty is to ________.

A

Convey the trust corpus back to the settlor/settlor’s estate

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94
Q

A resulting trust will arise when a private express trust terminates according to its own terms, but ________.

A

There is no provision governing how the trust’s remaining corpus will be distributed

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95
Q

A resulting trust will arise when a private trust fails due to lack of any ascertainable _________.

A

Beneficiary

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96
Q

What happens if a beneficiary of a private express trust is dead or cannot be found?

A

Resulting trust arises

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97
Q

A resulting trust arises when a private express trust fails because it is _____ or _____.

A

Void

Unenforceable

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98
Q

A resulting trust will arise when a charitable trust with specific intent fails for _____ or _____ AND ______ does not apply.

A

Impracticality

Impossibility

Cy pres

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99
Q

A purchase money resulting trust arises when ___________.

A

One party supplies consideration for the purchase of property, to which another party - with purchaser’s consent - takes legal title

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100
Q

Who is the trustee in a purchase money resulting trust?

A

Title holder

101
Q

When must consideration be paid in a purchase money resulting trust?

A

Either when:
1. Trustee takes title OR
2. Before trustee takes title

102
Q

Under a purchase money resulting trust, there is a rebuttable presumption that ___________.

A

The legal title holder is holding the property in trust for the purchaser

103
Q

If there is ____________, there is a rebuttable presumption of a gift rather than a purchase money resulting trust.

A

Close personal relationship between the parties

104
Q

What evidence is admissible to prove the existence of a secret trust

A

Parol evidence

105
Q

A party attempting to establish a secret trust must do so by what standard?

A

Clear and convincing evidence

106
Q

What is the remedy for a secret trust?

A

If a secret trust is proven to exist, then:
1. A constructive trust is imposed AND
2. Intended beneficiary receives the property outright

107
Q

A semi-secret trust arises when _________.

A

A will makes a gift to a trustee as trustee but doesn’t name the beneficiary of the trust

108
Q

Under majority rule, is a semi-secret trust valid?

A

No; the gift fails

109
Q

Under the restatement rule, a semi-secret trust arguably results in __________.

A

Injust enrichment of the residuary or intestate takers

110
Q

Who is the trustee in a purchase money resulting trust?

A

Title holder

110
Q

Who is the beneficiary in a purchase money resulting trust?

A

Party who supplied the consideration

111
Q

Beneficiary is permitted to voluntarily alienate her interest in a trust unless the interest is _______ or _______.

A

Discretionary

Subject to a spendthrift clause

112
Q

A creditor may attach the beneficiary’s interest by __________.

A

Obtaining a judgment ordering the trustee to pay the creditor directly

113
Q

The terms of a discretionary trust grant the trustee discretion over __________.

A

To whom, when, or how much trust income/principal to distribute to beneficiaries

114
Q

Under a pure discretionary trust, a trustee has broad discretion to __________.

A

Pay/withhold trust income/principal to/from a beneficiary

115
Q

What is voluntarily alienation in a pure discretionary trust?

A

Assignee will only receive distribution if the trustee exercises her discretion to make a distribution

116
Q

Unlike a beneficiary, _______ or ______ cannot compel distribution under a pure discretionary trust.

A

An assignee

A creditor

117
Q

if a trustee has notice of assignment under voluntary alienation of a pure discretionary trust, a trustee must _________ or be held personally liable.

A

Pay the assignee, not the beneficiary

118
Q

What is involuntary alienation under a pure discretionary trust?

A

Creditor may attach the beneficiary’s interest but will only receive distribution if the trustee exercises her discretion to make a distribution

119
Q

if a trustee has notice of creditor’s attachment under involuntary alienation of a pure discretionary trust, a trustee must _________ or be held personally liable.

A

Satisfy the creditor before paying the beneficiary

120
Q

Under a pure discretionary trust, creditors may compel payments when _______ is the beneficiary of the trust.

A

the settlor

121
Q

In a support trust, the trustee has the power to ________.

A

Distribute trust income/principal to the beneficiary only as necessary for the beneficiary’s support/maintenance

122
Q

Whether the beneficiary’s other income will be considered in determining the amount of support in a support trust depends on _______.

A

The settlor’s intent

123
Q

Under traditional law, if the terms of the trust are silent as to whether to consider beneficiary’s other income in a support trust, then ______.

A

Do not consider

124
Q

Under modern law, if the terms of the trust are silent as to whether to consider beneficiary’s other income in a support trust, then ______.

A

Do consider

125
Q

The rules for voluntary alienation and involuntary alienation in a support trust are the same as for a discretionary trust, except that _______.

A

supplier of necessities - and in some states, spouse and children - can recover through the beneficiary’s right to support

126
Q

A spendthrift clause protects _________.

A

Beneficiary’s interest by prohibiting both voluntary and involuntary alienation of that interest

127
Q

Spendthrift clauses generally prevent a creditor from:

A
  1. Attaching beneficiary’s interest AND
  2. Intercepting a distribution
128
Q

A court will disregard a spendthrift clause and allow a preferred creditor to ____________.

A

Attach to a beneficiary’s future income/principal payments from the trust

129
Q

A beneficiary’s preferred creditor has only as much of a right in trust assets as ________.

A

The beneficiary

130
Q

Preferred creditors include:

A
  1. Government
  2. Dependents
  3. Persons supplying necessities
  4. Tort creditors
131
Q

What does surplus do?

A

Attaches future payments to the beneficiary, despite a spendthrift clause, where the income to be paid exceeds what is needed to maintain the beneficiary’s “station in life”

132
Q

Station in life is synonymous with ___________.

A

Standard of living

133
Q

Under a majority view, is a spendthrift provision in a trust where the settlor is also the beneficiary valid?

A

No

134
Q

Under traditional law, a trustee only has those powers that are expressly granted in ______.

A

Terms of the trust

135
Q

In addition to powers expressly granted by the terms of a trust, most states also grant the trustee:

A
  1. Enumerated transactional powers
  2. All other powers of an outright owner
136
Q

What are a trustee’s imperative powers?

A

Powers a trustee must exercise but which are subject to review for abuse of discretion

137
Q

What are a trustee’s discretionary powers?

A

Powers the trustee may/may not exercise but which are subject to review for abuse of discretion.

138
Q

Under the Restatement of Trusts, courts will control the trustee in the exercise of a power only where:

A

Trustee exercises power
1. In bad faith OR
2. for improper motive/acts beyond reasonable judgment

139
Q

A trustee can petition a court for power to undertake an action that is ______________.

A

Not authorized under the terms of the trust

140
Q

Under the common law, what percentage of votes are required for joint trustees to exercise their power?

A

Unanimous agreement

141
Q

Under modern law, what percentage of votes are required for joint trustees to exercise their power?

A

Majority of joint trustees

142
Q

Although a trustee today has extensive powers over the trust property, all such powers are held by the trustee in a _______ capacity.

A

Fiduciary

143
Q

Primarily, a trustee has fiduciary duties of ____ and _____.

A

Loyalty

Prudence

144
Q

A trustee must act as a reasonably prudent person would in _________, and in the sole interests of ________.

A

handling her own affairs

the beneficiaries

145
Q

A trustee owes the beneficiaries a _________ level of loyalty.

A

Undivided

146
Q

Any form of ________ or conflict of _________ is a breach of the duty of loyalty

A

self-dealing

interest

147
Q

Borrowing _______ is a breach of a trustee’s duty of loyalty.

A

Trust funds

148
Q

Using trust assets to secure _______ is a breach of a trustee’s duty of loyalty.

A

Personal loan

149
Q

Loaning _____ funds to a trust is a breach of a trustee’s personal duty of loyalty.

A

Personal

150
Q

May a trustee personally gain from her position as trustee?

A

No

151
Q

Selling trust assets between multiple trusts which ___________ breaches a trustee’s duty of loyalty.

A

trustee is the trustee of

152
Q

A trustee may not purchase trust assets even if ________.

A

Purchase price is fair

153
Q

Sale of ______ to the trust breaches a trustee’s duty of loyalty.

A

Trustee’s own property

154
Q

A corporate trustee’s investment in _______ breaches a trustee’s duty of loyalty.

A

Corporation’s own stock

155
Q

What is the no-further inquiry rule?

A

There is no good faith or fairness defense that would allow self-dealing

156
Q

If an exception to the “no further inquiry” rule applies, the trustee is subject to ________.

A

Exacting scrutiny for acting in the best interests of the beneficiary

157
Q

What are the exceptions to the “no further inquiry” rule?

A
  1. Authorization by trust terms
  2. Authorization by beneficiary
  3. Authorization by judiciary
  4. Affiliated investment
158
Q

Even if an exception to the “no further inquiry” rule applies, the trustee must __________.

A

Still act in good faith for the best interests of the beneficiaries

159
Q

What are the remedies a beneficiary can choose when there is a loyalty breach?

A
  1. Recover profits from self-dealing
  2. Receive compensation for losses
  3. Set aside transaction
160
Q

What is a trustee’s general duty of prudence?

A

A trustee must exercise the care, skill, and caution that a prudent person would in managing her own property under the circumstances

161
Q

How do a trustee’s special skills/expertise affect their duty of prudence?

A

Will be held to a higher standard as befits their skills

162
Q

A trustee must comply with the terms of ________.

A

The trust

163
Q

All states have enacted the prudent investor rule, replacing the earlier _____ and _____ rules.

A

Legal lists

Prudent man

164
Q

What are legal lists?

A

Lists of permitted investments for trustees and other fiduciaries

165
Q

What are proper investments under the old legal lists rule?

A
  1. Government securities
  2. First mortgages on land
  3. High grade corporate bond
166
Q

What are improper investments under the old legal lists rule?

A
  1. Unsecured loans
  2. Second mortgages on land
  3. Corporate stocks
  4. Unproductive land
  5. New businesses
167
Q

What is the old “prudent man” rule?

A

Required a trustee to act as a reasonably prudent man would in investing his own property, trying to maximize return while preserving

168
Q

Under the prudent man rule, each individual investment must be considered __________.

A

Individually

169
Q

Under the prudent man rule, each individual investment is measured at what time?

A

Time of investment

170
Q

Probably the most common version of the prudent investor rule is the _____________.

A

Uniform Prudent Investor Act

171
Q

Under the prudent investor rule, any type of investment is permitted as long as _______.

A

The trustee acts prudently

172
Q

Under the prudent investment rule, a trustee’s performance is measured by assessing ___________.

A

the entire trust portfolio

173
Q

A trustee is required to diversity the trust’s investments unless _______.

A

The trustee reasonably determiens that the purpose of the trust is best served w/o diversification

174
Q

How often is a trust best served without diversification?

A

Not often; it’s an exceptional case

175
Q

At common law, what kind of delefation is allowed?

A

Only tasks which would be unreasonable for trustee to perform

176
Q

Under modern law, a trustee may delegate if:

A
  1. Doing so is prudent under the circumstances AND
  2. Trustee exercises reasonable care, skill, and caution
177
Q

Under modern law, a trustee must exercise reasonable skill, and caution in:

A
  1. Selecting the agent
  2. Instructing the agent
  3. Periodically monitoring the agent
178
Q

What is the trustee’s duty of impartiality?

A

Acting impartially with due regard to beneficiaries’ various interests with respect to distribution, investment strategy, and other matters

179
Q

The duty of impartiality requires a trustee to act with due regard to beneficiaries’ various interests.

What determines “due regard”?

A

Terms of the trust

180
Q

Trusts commonly provide for ____ to be paid to a beneficiary for life, with the remainder _______ to be paid to another beneficiary at the life benficiary’s death

A

Income

Principal

181
Q

Under traditional law, the allocation of trust property to income or principal is based on __________.

A

The form of the property

182
Q

A life tenant is a _____ beneficiary?

A

Income beneficiary

183
Q

What income is allocated to life tenants?

A
  1. Interest from bank accounts and bonds
  2. Cash receipts
  3. Certain insurance proceeds relating to loss of income
184
Q

What expenses are allocated to a life tenant?

A
  1. Interest on debt
  2. Minor repairs
  3. Recurring taxes assessed against the principal
  4. Insurance premiums
  5. 1/2 of trustee’s & advisor’s compensation
  6. 1/2 of accounting & judicial expenses
185
Q

What principal is allocated to remainderperson?

A

Underlying assets that are productive of income

186
Q

Reaminderpersons receive receipts from entities as part of their due principal. What receipts will this include?

A
  1. Liquidating distributions
  2. Capital gains income
  3. Property other than money, such as stock splits/dividends
  4. Insurance proceeds
187
Q

The principal assets that may be allocated to a remainderperson may include ______ awards.

A

Eminent domain awards

188
Q

What expenses are allocated to a remainderperson?

A
  1. Principal portion of debt
  2. Major repair/improvements
  3. Insurance premiums
  4. Estate taxes
  5. 1/2 of trustee’s & advisor’s compensation, accounting, & judicial expenses
189
Q

A trustee must not discriminate a between ____ and _____ beneficiaries

A

Present

Future

190
Q

What is a trustee’s adjustment power?

A

Trustee has the power to reallocate income to principal or vice versa to show due regard to respective interests of beneficiaries

191
Q

What is a unitrust?

A

“income” beneficiary receives an annual fixed percentage of the trust corpus; the “principal” beneficiary receives the rest

192
Q

What is a trustee’s duty not to commingle trust property?

A

The trustee must separate trust assets and her own assets

193
Q

What is a trustee’s duty to earmark trust property?

A

Duty to designate the property as being held in trust and not belonging to the trustee personally or otherwise

194
Q

Under common law, what liability does a trustee bear for not earmarking?

A

Strict liability, regardless of whether the earmark was the cause of loss

195
Q

Under modern law, what liability does a trustee bear for not earmarking?

A

Liable for damages caused by failure to earmark

196
Q

What is a trustee’s duty to disclose?

A

Trustee is under a duty to keep/render accounts to the beneficiary

197
Q

In administering the trust, the trustee must respond promptly to a request by a beneficiary for _________.

A

Information reasonably related to the beneficiary’s interest in the trust

198
Q

The common law today recognizes a duty for the trustee to make affirmative disclosure to the beneficiaries any _____________.

A

Significant/unusual developments in the administration of the trust

199
Q

If a beneficiary does not seasonably object to a trustee’s report/accounting, the trustee is released from liability as to _____________.

A

All matters fairly disclosed in the report/accounting

200
Q

What remedies are generally available to a beneficiary for a trustee’s breach of duties?

A
  1. Damages
  2. Constructive trust remedy
  3. Tracing & Equitable lien on the property
  4. Ratify transaction
  5. Set aside transaction
  6. Remove trustee
201
Q

A beneficiary may recover compensatory damages for a trustee’s breach of duties in order to __________.

A

Make whole the trust estate and distributions

202
Q

A trustee cannot offset loss from one breach of duty with the gain from ___________.

A

Another breach of duty

203
Q

What is an exculpatory clause?

A

Absolves the trustee of liability for damages

204
Q

Exculpatory clauses are generally enforceable, but not for:

A
  1. Bad faith
  2. Reckless indifference OR
  3. Willful misconduct
205
Q

What does an extended discretion clause purport to do?

A

Give the Trustee unfettered or sole discretion

206
Q

An extended discretion clause entitles the trustee to ___________ but does not ___________.

A

Additional deference

Absolve the trustee of liabilty for abuse of discretion or failure to act in good faith

207
Q

Under traditional law, a trustee is personally liable for all contracts the trustee enters into on behalf of the trust unless ________

A

The contract expressly relieves the trustee of liability

208
Q

Under traditional law, a trustee is eligible for indemnification if the trustee:

A
  1. Acted within the scope of trustee’s power AND
  2. Is not personally at fault
209
Q

Under modern law, when the other party to the contract enters into the contract with the knowledge that ________________, the trustee can only be sued in her representative capacity

A

The trustee is acting in her representative capacity

210
Q

Under traditional law, a trustee is sued for torts in _______ capacity.

A

Personal

211
Q

At traditional law, a trustee is personally liable for torts, meaning the victim may _________.

A

Reach the trustee’s personal assets

212
Q

Under traditional law, a trustee is permitted to receive indemnification for torts if __________.

A

Trustee was not at fault

213
Q

At modern law, a trustee is sued for torts in her personal capacity only if _________.

A

The trustee was personally at fault for the tort

214
Q

At modern law, if ____________, a trustee is sued for torts in her representative capacity.

A

Trustee is not at fault

215
Q

Even if a transaction involves a breach of trust, _________ will prevail over the beneficiaries

A

Third-party BFP

216
Q

If there is a breach of trust, will BFP be liable for damages?

A

No

217
Q

Transactions in breach of trust with non-BFPs can be set aside by _____ or _____.

A

A beneficiary

The trustee

218
Q

A third party is not considered a BFP if:

A

A third party knew/should have known of the existence of the trust by reasonable inquiry

219
Q

A third party who knowingly engages in a transaction in breach of trust may be liable for ________.

A

Damages

220
Q

A trust ends when _________.

A

Pursuant to its terms, all trust property has been disbursed

221
Q

Who can revoke a revocable trust?

A

The settlor

222
Q

A settlor of a revocable trust may revoke the trust and _______.

A

Take back the trust property

223
Q

Under the traditional view, a trust is presumed irrevocable unless:

A
  1. Settlor expressly reserved the right to revoke the trust AND
  2. Settlor complies with all provisions set forth in the trust instrument regarding revocation
224
Q

Under the modern view, all trusts are presumed revocable unless __________.

A

The trust instrument explicitly states that it is irrevocable

225
Q

Under the modern view, the trust may be revoked in any manner that _______.

A

Manifests revocatory intent

226
Q

If the trust contains provisions prescribing how to revoke, those provisions are not to be read as exclusive unless _________.

A

Stated expressly so

227
Q

Under a modern view, creditors of the settlor of a revocable trust can __________.

A

Recover against the trust property

228
Q

Where a settlor can revoke the trust, the settlor can also _____ the trust.

A

Modify

229
Q

Revocable trusts are generally amendable regardless of whether _______

A

The right to amendment was explicitly granted

230
Q

An irrevocable private express trust may be modified/terminated if:

A
  1. Unanimous agreement between (still-living) settlor & all beneficiaries
  2. The Claflin doctrine
  3. Equitable deviation doctrine
231
Q

A unanimous agreement between settlor and all beneficiaries is not available to terminate an irrevocable trust if _________

A

Settlor is dead

232
Q

What is the Claflin doctrine?

A

Permits modification or termination if 1. All beneficiaries agree AND
2. Termination would not be contrary to a material purpose of the settlor

233
Q

A _____ provision is usually material and thus blocks modification under the Claflin doctrine.

A

Spendthrift

234
Q

The ______ of a discretionary trust is usually material and thus blocks modification under the Claflin doctrine.

A

Purpose

235
Q

Postponement of _______ is usually a material purpose and thus blocks modification under the Claflin doctrine.

A

Enjoyment

236
Q

The equitable deviation doctrine is also known as ________.

A

The doctrine of changed circumstances

237
Q

What is the equitable deviation doctrine?

A

A trustee or beneficiary may request that the court modify a trust due to changed circumstances if:
1. Unknown & unanticipated changed circumstances AND
2. Continuing under existing terms would impair trust’s purposes

238
Q

How does the modern view affect the equitable deviation doctrine?

A

Deviation would further the purpose of the trust

239
Q

Cy pres only applies to _________.

A

Charitable truts

240
Q

Cy pres means _________.

A

As near as possible

241
Q

Cy pres allows the court to modify a charitable trust that would otherwise fail for:

A
  1. Impossibility
  2. Illegality OR
  3. Impracticality
242
Q

Before applying cy pres, the court must determine that:

A
  1. A general charitable intent exists
  2. Specific intent has become impossible, illegal, or impractical.
243
Q

How does the modern view affect the cy pres doctrine?

A
  1. General charitable intent is presumed
  2. Specific intent may be “wasteful,” not just impossible, illegal, and impractical
244
Q

If cy pres fails because there is specific charitable intent, then _________.

A

Resulting trust

245
Q

How often is a trust best served without diversification?

A

Not often; it’s an exceptional case

245
Q

At common law, what kind of delefation is allowed?

A

Only tasks which would be unreasonable for trustee to perform

246
Q

At common law, a trustee cannot delegate ________ management.

A

Investment

246
Q

A third party who knowingly engages in a transaction in breach of trust may be liable for ________.

A

Damages

Bar Exam (15 decks)

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