Trusts

Question 1

Express trust requirements

Answer 1

1. Intent
2. Trust property
3. Valid trust purpose
4. Ascertainable beneficiaries

Question 2

Inter vivos trust

Answer 2

Created while trustor is living, trustor can designate himself as the trustee or third party

Question 3

Testamentary trust

Answer 3

Created in writing in a will or document incorporated by reference into a will. Must meet attested or holographic requirements

Question 4

Intent in creating a trust

Answer 4

Settlor may manifest intent orally, in writing, or by conduct. Manifestation of intent must occur prior to or simultaneously with transfer of property

Question 5

Trustee not designated by settlor

Answer 5

Court will appoint one

Question 6

Funding a trust

Answer 6

Needs identifiable trust property (res), described with reasonable certainty

Question 7

Valid trust purpose

Answer 7

Trust can be created for any purpose as long as it is not illegal or contrary to public policy. If one of trust terms violates public policy, alternative terms will be honored, if none, the term will be stricken

Question 8

Ascertainable beneficiaries

Answer 8

• Must be identifiable
• May refer to outside writings or acts to identify beneficiaries

Exceptions:
- class gifts need to be reasonably definite (my brothers, my grandchildren)
- charitable trusts do not need individual ascertainable beneficiaries

Question 9

Omitted Children

Answer 9

Child omitted can force an intestate share IF:
1) child adopted or born after trust
2) settlor mistakenly believed child was dead
3) child unintentionally omitted
Limitation: see if child got something else other than trust

Question 10

Undue influence (traditional approach)

Answer 10

Contestant must show:
1) susceptibility: testator susceptible to being influenced
2) motive: influencer had reason to benefit
3) Opportunity: the influencer had opportunity to influence
4) causation: influencer caused an unnatural result
(COMS)

Question 11

Undue Influence re confidential relationship

Answer 11

Presumption of UI arises when
1) principal beneficiary has confidential relationship w testator (parent/child and attorney/client)
2) the principal beneficiary participated in executing the will AND
3) gift to beneficiary is unnatural

(If presumption arises, needs to show clear and convincing evidence of no undue influence exercised, otherwise intestate share given)

Question 12

Fraud in the inducement

Answer 12

Misrepresentation that causes trustor to make a different trust that he otherwise would’ve made. Must show that trustor would not have made the gift if he knew the truth

Question 13

Fraud in the execution

Answer 13

Trustor does not know he is creating a trust or is not told the true content of the trust

Question 14

Charitable trusts

Answer 14

Purpose: benefiting community at large
Beneficiaries must be in the community at large (to this church, etc)

Question 15

Failure to follow trust terms

Answer 15

Trustee can sue for return of funds

Question 16

Cy Pres Doctrine

Answer 16

Court may modify charitable trust to see alternative charitable purpose if original charity becomes illegal, impractical, or impossible

Question 17

Specific Intent for charitable trust

Answer 17

Court may not modify the trust and the trust will be terminated and become a resulting trust

Question 18

General intent for charitable trust

Answer 18

Court will substitute a similar charity

Question 19

Income beneficiary

Answer 19

Receives income from the trust (profits from a business or rent)

Question 20

Remainder beneficiary

Answer 20

Entitled to trust principal upon termination of trust

Question 21

Lapse and anti-lapse

Answer 21

Modern and CA rule: if beneficiary was related to settlor and B dies. The B’s surviving child will take the gift

Class gifts:
If trust beneficiaries are a class, only members of the class alive at the time of execution of the trust receive its benefit

Question 22

Discretionary trust

Answer 22

Trustee given complete discretion to apply payments to beneficiary. Creditors have the same rights as beneficiary if trustee exercises option to pay

Question 23

Mandatory trust

Answer 23

Trustee no discretion. Trust governs when and how it’s property is distributed

Question 24

Alienation

Answer 24

Beneficiary can assign their equitable interest in trust property to third parties.

Question 25

Support trusts

Answer 25

Directs trustee to pay income or principal AS NECESSARY to support a beneficiary. Creditors cannot receive this unless providing a necessity to beneficiary

Question 26

Spendthrift clause

Answer 26

Not allowed to transfer interest when this in place. Creditors cannot reach trust interest unless money is owed for child or spousal support, basic necessities, or tax lien holders

Question 27

Trust termination revocable

Answer 27

Settler has the right to modify or terminate trust (presumed)

Question 28

Trust termination irrevocable

Answer 28

Has to be expressly stated. Modification or termination may occur while settlor is alive ONLY with consent of all beneficiaries and if the proposed change will not interfere with a primary purpose of the trust.

Question 29

When will a trust terminate

Answer 29

Automatically when purpose is completed
If settlor deceased and has no remaining interest and all beneficiaries consent (trustee can block this by showing unfulfilled purpose)
If it becomes illegal, impracticable, or impossible

Question 30

Trustee Powers

Answer 30

Trustee has powers granted expressly in the trust, and powers necessary to act as reasonably prudent person in managing the trust, including implied power to contract, sell, lease, or transfer property

Question 31

Trustee Duty of Care

Answer 31

1) Duty to act as RPP and treat property as if her own
2) Duty to follow trust directions
3) Investments (not risky and diverse)
4) Duty to make property productive (pursue all possible claims, derive maximum from investments, sell when appropriate, insurance, act in reasonable time, pay expenses
5) Duty to be impartial (balance interests of present B’s, and for future B’s

R I FTD I PP

Question 32

Duty of Loyalty

Answer 32

Duty to administer trust in good faith and to act reasonably when investing property
Managing the trust solely in the best interests of the beneficiaries

Question 33

Self-dealing

Answer 33

When the trustee personally engages in transaction involving trust property, or conflict of interest arises

Question 34

Prohibited self-dealing transactions

Answer 34

Buying/selling trust assets, selling property between trusts that trustee manages, borrowing from or making loans to trust, doing anything for personal gain.
Irrebuttable presumption that duty is breached when self/dealing is an issue (PER SE BREACH)
- unless authorized by Bs, S, or court, still must be reasonable transaction

Question 35

Duty to disclose

Answer 35

Disclose complete and accurate info about property and allowing access to records and accounts

Question 36

Duty to account

Answer 36

Periodically account for actions taken on behalf of the trust so that trustee’s performance can be assessed against the terms of the trust

Question 37

Remedies for violation of trustees duties

Answer 37

Lost profits, interests, other losses due to T’s responsibility
Beneficiaries may sue trustee and seek damages or removal of trustee