Trusts

Question 1

Who is the settlor?

Answer 1

The person who creates the trust. Also called a trustor, grantor, and donor.

Question 2

What are the two basic classifications of trusts?

Answer 2

• express trusts
• trusts created by operation of law

Question 3

express trusts categories

Answer 3

private and charitable

Question 4

trusts created by operation of law

Answer 4

a. resulting trusts
b. constructive trusts

Question 5

how do resulting trusts arise?

Answer 5

from the presumed intention of the owner of the property

Question 6

how do constructive trusts arise?

Answer 6

they are the equitable remedy used to prevent unjust enrichment

Question 7

five main elements of a valid trust:

Answer 7

1. intent
2. identifable corpus
3. ascertainable beneficiaries
4. proper purpose
5. mechanics and formalities

Question 8

five elements of an express trust:

Answer 8

1. a settlor with capacity to convey
2. a present intent to create a trust relationship
3. a compentent trustee with duties
4. a definite beneficiary, and
5. the same person is not the sole trustee and sole beneficiary.

Question 9

split of title

Answer 9

any split of title is sufficient so long as the sole trustee is not the sole beneficiary. If they are the same individual the trust terminates.

Question 10

A qualified beneficiary is a beneficiary who on the date the beneficiary’s qualification is determined is:

Answer 10

(1) a current beneficiary, or
(2) a first-line remainderman

Question 11

How may a benficiary disclaim an interest?

Answer 11

By filing a written instrument with the trustee.

Question 12

time for making disclaimer

Answer 12

many states require that a disclaimer be made within 9 months of the interest’s creation.

Time limit does not apply to a beneficiary who is under 21.

Question 13

estopppel of disclaimer

Answer 13

beneficiary might be stopped from making a disclaimer if they have exercised any dominion or control over the interest or accepted any benefits under the trust

Question 14

resulting trust remedy

Answer 14

property reverts to settlor

if trust fails for lack of a beneficiary, a resulting trust in favor of the settlor or their successors is presumed

Question 15

a trust purpose is invalid if

Answer 15

• illegal
• against public policy
• impossible
• intended to defraud the settlor’s creditors or based on illegal consideration

Question 16

a person accepts trusteeship by:

Answer 16

(1) signing the trust or a separate written acceptance;
(2) substantially complying with the acceptance terms in the trust instrument; or
(3) accepting delivery of trust property, exercising powers or performing duties as trustee, or indicating acceptance.

Question 17

grounds for trustee removal:

Answer 17

(1) serious breach of trust;
(2) lack of cooperation among co-trustees;
(3) unfitness, unwillingness, or persistent failure to administer; or
(4) substantial change in circumstances

Question 18

How can a trust be created?

Answer 18

inter vivos transfer
inter vivos declaration of trust
by will (testamentary trust)

Question 19

a trust will automatically terminate upon:

Answer 19

expiration of the term specified in the instrument or when all the purposes of the trust have been accomplished or have become unlawful, contrary to public policy, or impossible to achieve.

Question 20

in the case of self-dealing, the beneficiary may have a choice of the following remedies:

Answer 20

• affirm if trust profited
• set aside the transaction if the trust lost money
• trace profits from the trustee if the trustee profited

Question 21

Charitable trust purposes include:

Answer 21

• relief of poverty
• advancement of education or religion
• promotion of health
• accomplishment of government purposes

Question 22

What is the doctrine of cy pres?

Answer 22

When a charitable purpose selected by the settlor is impracticable or unlawful the court can select an alternative under cy pres which means as near as possible. Here, we look at the settlor’s primary purpose.

Question 23

Are charitable trusts bound by the rule against perpetuities?

Answer 23

No. Charitable trusts may be perpetual. The rule DOES apply, however, between shifts between private and charitable uses.

Question 24

What is a constructive trust?

Answer 24

Not really a trust but more like a flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct.

equity turns the holder of legal title into a trustee when they may not in good conscience retain the beneficial interest in the property.

Question 25

Do beneficiaries need to be identified at the time the trust is created?

Answer 25

No not at the time the trust is created but they need to be significantly identifiable by the time their interests are to come into fruition

Question 26

Can trust beneficiaries be a class?

Answer 26

Yes, provided that the class is sufficiently defined.

Question 27

Can the settlor give the trustee discretion to select class members?

Answer 27

Yes, as long as the class is reasonably definite; if its too broad, the trust (or portion thereof) will be invalid.

Question 28

What is presumed when a portion of a trust fails for lack of a beneficiary?

Answer 28

When a portion of a trust fails for lack of a beneficiary, a resulting trust in favor of the settlor or the settlor’s successors in interest is presumed.

Question 29

Can the interest of an insolvent beneficiary be reached in the absence of a statutory prohibition or spendthrift clause?

Answer 29

Yes, the interest can generally be reached to satisfy creditors.

However, the creditor reaches only the INTEREST of the beneficiary and not the trust property itself.

Question 30

What is the cy pres doctrine?

Answer 30

Applies when a specific CHARITABLE purpose indicated by the settlor is no longer possible, and the settlor manifested a general charitable intent.

In states following the UTC, general charitable intent is presumed and application of cy pres is mandatory.

Question 31

Under cy pres, can the court direct that the trust property be applied to another charitable purpose?

Answer 31

Yes, another charitable purpose as close as possible to the original one, rather than permit the trust to fail and become a resulting trust.