Trusts

Question 1

What is a trust?

Answer 1

A fiduciary relationship between the trustee and the trust beneficiaries. When created, property is divided between legal and equitable title. Legal title goes to trustee; equitable title goes to the beneficiary

Question 2

Settlor

Answer 2

person who creates the trust

Question 3

Trustee

Answer 3

Holds the assets of the trust for the benefit of the beneficiaries.

Question 4

Beneficiary

Answer 4

Person who is entitled to the assets or profits of the trust

Question 5

Express trust

Answer 5

Created when a person has the intent to create a trust and complies with the requisite formalities

Question 6

Implied trust

Answer 6

Created by conduct, regardless of whether there was intent to create a trust

Question 7

Elements of trust

Answer 7

PERPS SITT BAD

Purpose (not illegal), Settlor, Intent (no specific words required but no precatory language. must also have capacity), Trust property, Trustee, Beneficiaries, Acceptance, no Disclaimers !

Question 8

Trust res must either be:

Answer 8

(1) specifically described with certainty OR (2) ascertainable with certainty from the description of it

Question 9

Ascertainable beneficiary

Answer 9

Must either say by name or sufficiently describe how the beneficiary is to be identified; must be able to possess the property but doesn’t need capacity to manage it

Question 10

Settlors and trustees as beneficiaries

Answer 10

allowed, but a sole trustee cannot be the sole beneficiary. that would be a weird guy taking himself out to dinner all the time

Question 11

Trust involving real property

Answer 11

Must comply with the SOF, one of personal property does not

Question 12

Testamentary Trust

Answer 12

A trust that enters into existence upon the death of a person and disposes of their property. Must meet the same formalities as a will

Question 13

Revocable/Irrevocable Trusts

Answer 13

Under the common law, a trust is irrevocable UNLESS the settlor expressly retains the right to revoke or amend the trust. Under Uniform Trust Code (minority view) a trust is revocable unless the trust expressly provides otherwise

Question 14

Pourover provisions in testamentary trusts

Answer 14

A pourover provision in a will devises property to a previously existing trust under the terms of the trust. A pourover provision is distinguishable from a testamentary trust, as a pourover provision does NOT create a trust; it transfers property to a trust already in existence. Therefore, a pourover provision CANNOT devise property to a testamentary trust (because a testamentary trust does not come into existence until the settlor dies).

Question 15

Charitable Trust

Answer 15

Has the purpose of accomplishing a substantial amount of social benefit to the public at large or to a reasonably large class. Beneficiaries must be indefinite

Question 16

Does RAP apply to charitable trusts?

Answer 16

NO

Question 17

Cy pres doctrine

Answer 17

“as near as possible.” Courts will generally select a purpose or beneficiary that is consistent with the settlor’s intent if the settlor had a general charitable intent.

Question 18

Discretionary trusts

Answer 18

Grant the trustee absolute power and discretion to make good faith determinations regarding when and how much of the trust property should be distributed. Courts may interfere if the trustee is making determinations in bad faith

Question 19

Support trusts

Answer 19

Trust that contains a provision directing the trustee to pay the beneficiary as much of the income as necessary for the beneficiary’s education and support

Question 20

Pure support trusts

Answer 20

Limit the trustee’s discretion. The trustee is obligated to spend only so much of the available trust property as is necessary for the education and maintenance of the beneficiary

Question 21

Spendthrift trusts

Answer 21

prohibits voluntary and involuntary transfers

Question 22

When can creditors get a beneficiary’s interest in a spendthrift trust?

Answer 22

(1) the settlor is the beneficiary (can’t do that!) (2) creditor seeking reimbursement for providing necessaries; or (3) creditor has an order for child support or alimony

Question 23

Rights of creditors and trusts

Answer 23

(1) creditors of a beneficiary have no greater rights in the trust property than the rights of the beneficiary, so if the trust prevents a beneficiary from receiving the trust principal, then his creditors have no right to reach the thrust principal either

(2) absent a spendthrift provision, the beneficiary’s creditors may reach interest by attachment of the interest income to the beneficiary (i.e., creditors cannot go after the principal, but they may go after the interest income if there are no spendthrift provisions)

(3) Creditors can each the beneficiary’s interest once it is distributed to the beneficiary

Question 24

Alienability of trust interests

Answer 24

Trust interests are alienable, devisable, and descendible unless the terms of the trust provide otherwise

Question 25

Invasion of Trust Principal

Answer 25

Trustee may be allowed to invade trust princiapl if: (1) only one beneficiary exists; (2) the beneficiary will ultimately receive the trust principal; (3) there is a significant change in circumstances; or (4) the trust grants the trustee discretion to invade the principal

Question 26

Cy Pres doctrine is applicable only if

Answer 26

(1) property is placed in a trust for a charitable purpose that has become unlawful, impossible, or impracticable to carry out; AND (2) the settlor manifested a general charitable intent to devote the property to charitable purposes

**absence of a reverted clause is evidence of the settlor’s general charitable intent

Question 27

Termination of a trust

Answer 27

may be terminated if: (1) the trust is revoked or expires pursuant to its terms; (2) the material purpose of the trust has been satisfied or becomes unlawful, contrary to public policy, or impossible to carry out; (3) the settlor and all of the beneficiaries unanimously agree to terminate (4) all of the beneficiaries agree AND no material purposes for the trust to remain; (5) termination will further the purpose of the trust due to circumstances that were not foreseen by the settlor; OR (6) the court or trustee determines that the value of the trust property is too low to justify the cost of administration

Question 28

Fiduciary requirements

Answer 28

trustee must: (1) manage the trust property exclusively for the benefit of ALL the trust’s beneficiaries; and (2) administer the trust in good faith pursuant to the terms and purposes of the trust

Question 29

Trustee duty of care

Answer 29

The trustee possess a duty to exercise the degree of care and skill as a person of ordinary prudence would exercise in dealing with his own property. In making this determination, the focus is on the trustee’s conduct, not the results of such conduct

Question 30

Uniform Prudent Investor Act

Answer 30

Requires the trustee to exercise the degree of care and skill as an investor of ordinary prudence would exercise in investing his own property (diversifying investments, avoiding risky investments and speculation, etc.)

Question 31

Duty of loyalty

Answer 31

Duty to NOT obtain any personal gain from administering the trust, except for fees. Self dealing is a per se breach of the duty of loyalty. Self-dealing includes any transaction involving trust property that the trustee enters for his own gain

**settlor may express waive the trustee’s duty of loyalty in the trust instrument. However, a waiver will not excuse the trustee for acts done in bad faith

Question 32

Duty to act impartially

Answer 32

Trustee possess a duty to be impartial with respect to ALL the beneficiaries of the trust when investing, managing, and distributing the trust property

Question 33

Trust income allocations

Answer 33

receipt of rental payments from trust property and corporate distributions (cash dividends, return on investments, etc.)

Question 34

Trust principal allocations

Answer 34

Funds received from the sale of trust property and repayment of loan principal

Question 35

Powers of Appointment

Answer 35

A power of appointment is usually conveyed by will or trust from the donor to the donee granting the donee the right to appoint of distribute property left by the donor. The holder of a power of appointment does NOT receive full title to the donor’s property, only the power to appoint or distribute it.

Question 36

General power of appointment

Answer 36

Granted when the donor does not leave any restrictions as to the appointment of the property. Thus, the donee is free to appoint the property to himself, his creditors, or any others he chooses

Question 37

Special power of appointment

Answer 37

Granted when the donor leaves restrictions as to the appointment of the property. Generally, the donee may not exercise a special power of appointment for his own benefit

Question 38

Power of appointment in a residuary clause?

Answer 38

Only if: (1) the power of appointment is a general power; OR (2) the testator’s will manifests an intention to include the property subject to the power

Question 39

Approaches to giving gifts to a class

Answer 39

Rule of convenience: when a gift is made to a group such as “my children,” the class closes when at least one member is entitled to distribution

UPC approach: when a class gift is made, each living beneficiary will take their share and the deceased beneficiary’s share will pass to their surviving descendants (if there are no surviving descendants than the gift will fail). This applies even if the beneficiary is not related to the settlor (and thus differs from most antilapse statutes).

Common law approach: Under the common law, if the gift or remainder to a deceased beneficiary has already vested and there is no applicable statute, then it will go to whomever the instrument says it should go to or whomever the deceased person has specified in their will or through intestacy (this also applies to gifts that are not made to classes)

If you see a gift to a class in a Decedent’s Estates question: If a testator gives a gift to a group of unrelated individuals and one predeceased him, the deceased would not take, and neither would his descendants, unless the antilapse statute saved the gift