trusts

Question 1

Revocability of Trusts

Answer 1

• Irrevocable Trusts are Unmodifiable; Revocable Trusts are Modifiable
• Under the UTC (modern), a trust is presumptively revocable, unless expressly stated otherwise
• Under Traditional (old) rule, trust is presumptively irrevocable

Question 2

Beneficiaries

Answer 2

• Income Beneficiary: Receives income from the trust
• Remainder Beneficiary: Entitled to the trust Principal upon termination of the trust

**Distinguish these on essay Qs

Question 3

Private Express Trust, Requirements

Answer 3

1) Intent: Settlor must have intent to make a gift by trust, either orally, in writing, or by conduct

2) Trust Property: When the trust is created, there must be some property that is put into the trust

3) Valid Purpose: Any purpose is ok, as long as it is not illegal, restricted by rule of law or statute, or contrary to public policy

4) Ascertainable Beneficiaries: beneficiaries must be identifiable
-Indefinite Class is ok, as long as not illogical (“to my friends” is ok, “equally to my friends” is not)
-Definite Class is always ok
-unborn children ok
-Charitable Trusts CANNOT have ascertainable beneficiaries

Question 4

Private Express Trust, Writing Required

Answer 4

• IF land, then must comply w/ SOF
• IF testamentary (takes effect upon settlor’s death), then must comply w/ Wills Statute

Question 5

Inter Vivos Trust

Answer 5

• a trust created while the trustor is living that transfers some or all of the trustor’s property into a trust
• settlor CAN be trustee

Question 6

Pour-Over Provision

Answer 6

• A provision in a will that directs the distribution of property to a trust, so that the property passes according to the terms of the trust

Question 7

Testamentary Trust

Answer 7

▪ Created in writing in a will or in a document incorporated by reference into a will.

▪ The will containing the trust must meet the attested or holographic will requirements.

Question 8

Charitable Trust

Answer 8

• Must have a stated charitable purpose for the benefit of the community at large or for a large
  class of persons.
• Not subject to RAP

Question 9

Cy Press Doctrine

Answer 9

• A court may modify a charitable trust to seek an alternative charitable purpose if the original one becomes illegal, impracticable, or impossible to perform
• Specific or General Intent: A court will analyze whether the trust has a specific intent to help one charity or a general intent to help charity
  -If there is specific intent, the court may not modify the trust; the trust will be terminated and become a resulting trust
  -If there is general intent, the court will substitute a similar charity

Question 10

Remedial Trusts - Resulting Trust

Answer 10

If a trust fails in some way or when there is an incomplete disposition of trust property, a court
may create a resulting trust requiring the holder of the property to return it to the settlor or to the settlor’s estate

Question 11

Creditor Rights to Distribution

Answer 11

A beneficiary’s creditors may reach trust principal or income ONLY WHEN those amounts become payable to the beneficiary or are subject to their demand

Question 12

Alienation

Answer 12

A beneficiary’s equitable interest in trust property is freely alienable (it can be sold or used as collateral for a loan) unless a statute or trust instrument limits this right.

Question 13

Support Trusts

Answer 13

• A support trust directs the trustee to pay income or principal as necessary to support the trust beneficiary (e.g., maintaining standard of living, healthcare, or child support costs).
• Creditors cannot reach the assets of a support trust, except to the extent that a provider of a necessity to the beneficiary can be paid directly by the trustee.

Question 14

Discretionary Trust

Answer 14

• Trustee is given complete discretion regarding whether or not to apply payments, Challenged for abuse of discretion
• If the trustee exercises his discretion to pay, then the beneficiary’s creditors have the same rights as the beneficiary, unless a spendthrift restriction exists
• If the discretion to pay is not exercised, then the beneficiary’s interest cannot be reached by his creditors

Question 15

Mandatory Trust

Answer 15

• Trustee MUST make distributions from the trust

Question 16

Spendthrift Clause

Answer 16

• A spendthrift trust expressly restricts beneficiary’s power to voluntarily or involuntarily transfer their equitable interest (i.e., spendthrift clause).
• Creditors usually cannot reach the trust interest, unless money is owed for child or spousal support, or to basic necessities providers, or tax lien holders

Question 17

Beneficiary, Power to Modify

Answer 17

• A noncharitable irrevocable trust can be terminated or modified by CONSENT of ALL beneficiaries if a court concludes that continuance is not necessary to achieve any material purpose of the trust.
• The most common example of a trust that has an unfulfilled material purpose is one that has both income and remainder beneficiaries; both the present and the future beneficiaries must agree for the trust to be terminated prematurely
• A noncharitable irrevocable trust can be terminated by consent of all the beneficiaries AND
  the settlor, even if termination is inconsistent with a material purpose of the trust

Question 18

Trustee, Power to Modify

Answer 18

Generally, a trustee does not have the power to terminate the trust, unless the trust contains express termination provisions

Question 19

Removal of a Trustee

Answer 19

A court can remove a trustee IF:
* The purpose of the trust would be frustrated by the trustee’s continuance in office
* OR if the trustee violated a duty

Question 20

Court, Power to Modify

Answer 20

• A court can modify the administrative or dispositive terms of a trust or terminate it IF, because of circumstances not anticipated by the settlor, modification or termination would further the purpose of the trust