Trusts

Question 1

5 Elements of a Valid Trust Generally

Answer 1

1. Intent
2. Identifiable corpus
3. Ascertainable beneficiaries
4. Proper purpose
5. Mechanics and formalities

Question 2

Elements of a valid private trust

Answer 2

1. A settlor with capacity to convey
2. a present intent to create a trust relationship
3. a competent trustee with duties
4. a definite beneficiary
5. trust property (res)
6. a valid trust purpose

Question 3

Pour-Over Gift

Answer 3

Uniform Testamentary Additions to Trusts Act (UTATA)
A settlor can make gifts by will to a trust established during their lifetime
- trust must be identified in the will and
- must be executed before the testator’s death

Question 4

Secret Trust

Answer 4

Settlor agrees with a will beneficiary that the beneficiary will hold the property in trust for someone else, but the will does not state the trust nature of the gift.
Must be proven by clear and convincing evidence and a constructive trust will be imposed.

Question 5

Semi-Secret Trust

Answer 5

The will makes a gift in trust but fails to name the beneficiary. The gift fails, and the named trustee holds the property in a resulting trust for the testator’s successors.

Question 6

Discretionary Trust

Answer 6

The trustee is given discretion whether to apply or withhold payments of income or principal to a beneficiary.

Interest cannot be reached by creditors before distribution.

Question 7

Spendthrift Trust

Answer 7

Precludes the beneficiary from voluntarily or involuntarily transferring their interest in the trust.

Interest cannot be reached by creditors before distribution.

Question 8

Domestic Asset Protection Trust (DAPT)

Answer 8

A settlor uses a spendthrift trust to protect their own property from their own creditors. Generally unallowed, but a growing number of states are excepting it.

Question 9

Support Trust

Answer 9

Directs the trustee to pay only so much of the income or principal as is necessary for the beneficiary’s support. Can be mandatory or discretionary.

If silent, standard is the beneficiary’s accustomed standard of living.

Question 10

Revoking or amending a trust - settlor

Answer 10

Can revoke or amend unless the terms expressly state it is irrevocable. If irrevocable, through written consent of all living persons with vested or contingent interests.

Question 11

Revoking or amending a trust - beneficiaries

Answer 11

With consent of the settlor and ALL beneficiaries or without consent of the settlor if no material purpose of the trust would be frustrated.

Question 12

Trustees implied powers

Answer 12

1. sell trust property
2. lease trust property
3. incur reasonable expenses
4. hire agents
5. mortgage property
6. repair property

Question 13

Investments

Answer 13

Uniform Prudent Investor Act (UPIA)
A trustee must exercise reasonable care, skill, and caution when investing and managing trust assets.
Must be evaluated in the context of the entire trust portfolio.

Question 14

Duties of the trustee

Answer 14

1. administer the trust
2. loyalty
3. reporting
4. separate and earmark property
5. preserve and make trust property productive

Question 15

Income

Answer 15

1. ordinary receipts from use or investment of trust property
2. cash dividends
3. proceeds from contract insuring trustee against loss
4. 10% of payment from a deferred compensation plan
5. 10% of proceeds received from a liquidating asset
6. 10% of proceeds received from a working interest

Question 16

Principal

Answer 16

1. extraordinary receipts
2. stock dividends
3. proceeds from life insurance policy naming trust or trustee as beneficiary
4. 90% of payment from a deferred compensation plan
5. 90% of proceeds received from a liquidating asset
6. 90% of proceeds received from a working interest

Question 17

Expenses from income

Answer 17

1. 50% of regular compensation of the trustee
2. 50% of all expenses for accountings, proceedings, and other matters
3. ordinary expenses
4. insurance premiums covering loss of a principal asset

Question 18

Expenses from principal

Answer 18

1. 50% of regular compensation of the trustee
2. 50% of all expenses for accountings, proceedings, and other matters
3. expenses of a proceeding that concerns a principal interest
4. payments on the principal of a trust debt
5. estate taxes
6. disbursements related to environmental matters

Question 19

Resulting Trust

Answer 19

When the settlor has conveyed property to a trustee under an express trust and (1) the trust is void or unenforceable or (2) the beneficiary is dead or cannot be located.

Question 20

Constructive Trust

Answer 20

A flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct.