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Wills and Trusts > Trusts > Flashcards

Trusts Flashcards

1
Q

Trust Requirements

A

Grantor/Settlor

Intent to create a trust

Trustee

Ascertainable beneficiary

Trust assets

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2
Q

Express Trusts: Private Express Trust- what must it clearly state?

A

Clearly states the intention of the settlor to transfer property to a trustee for the benefit of one or more ascertainable beneficiaries

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3
Q

Express trust: Intent

A

A settlor with capacity may manifest the present intent to transfer to trustee who has duties to perform for the benefit of one or more ascertainable beneficiaries for a valid purpose

Manifestation of intent must occur prior to or simultaneously with the transfer of property

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4
Q

For a trust, what type of terms will create a presumption of intent?

A

Common trust terms

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5
Q

Is consideration required to form a trust?

A

No

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6
Q

Precatory Trust

A

Expresses a hope or wish that the property transferred be used to benefit another, rather than creating a legal obligation

– must contain specific instructions to a fiduciary and must be shown that absent the trust, there would be an unnatural disposition of the donor’s property because of history of the family support between donor and intended beneficiary

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7
Q

Trust Property element

A

A trust must be funded with identifiable trust property (res)

Trust property must be identifiable and segregated, and it must be described with reasonable certainty

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8
Q

What happens if a trust is invalidated for lack of assets, but is later funded with assets?

A

a trust arises if the settlor re-manifests the intent to create a trust

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9
Q

What does the purpose of a trust need to be?

A

Any purpose as long as it is not illegal or contrary to public policy, and for the benefit of the beneficiaries

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10
Q

What happens when a trust term violates public policy?

A

Alternative terms will be honored, or if none, the term will be stricken, but the trust will not fail unless removing the term is fatal

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11
Q

Ascertainable Beneficiaries

A

Beneficiaries must be identifiable by name; the settlor may refer to acts of independent significance to identify the beneficiaries

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12
Q

Ascertainable Beneficiary exception

A

Trusts for the benefit of unborn children or to a reasonably definite class will be upheld, and charitable trusts do not need individual ascertainable beneficiaries

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13
Q

Two Types of Trusts

A

Inter vivos (during life)

Testamentary (contained in a will)

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14
Q

Inter vivos Trust requirements

A

Delivery (must accompany the declaration of a trust if a third party trustee is named)

Writing (required only for real property)

Parol evidence (evidence outside of the agreement is permitted to show intent only if its ambigious)

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15
Q

Inter vivos trust- Pour Over Trust

A

Provision in a will that directs the distribution of property to a trust upon the happening of an event, even if the trust isn’t executed in accordance with statute of wills

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16
Q

Inter vivos trust- Totten Trust

A

Designation given to a bank account in a depositors name as trustee for a named beneficiary; can be revoked by any lifetime act manifesting the intent to revoke, or by will

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17
Q

Inter vivos trust- Life insurance trust

A

proceeds to to trust upon insured’s death; trust is owner of policy and trust is irrevocable

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18
Q

Inter Vivos Trust: Living Trust: who is the trustee typically?

A

Typically settlor names himself trustee until death; settlor can change successor trustee and beneficiaries until death

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19
Q

In a living trust, is the property protected from creditors or federal estate taxes?

A

No, it is not protected.

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20
Q

Testamentary- “secret trust”

A

Looks like a testamentary gift, but is created in reliance on the beneficiaries promise to hold and administer the property for another person

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21
Q

Testamentary: Semi-Secret Trust

A

Occurs when a gift is directed in a will to be held in a trust, but the testator fails to name a beneficiary or specify the terms or purpose of the trust

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22
Q

Testamentary- Modern Trend

A

Impose a constructive trust in favor of the intended beneficiaries (if known) in both secret and semi-secret trusts

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23
Q

Charitable Trust - Purpose

A

Relief of property, advancement of education or religion, good health, governmental purposes, and other purposes benefitting the community

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24
Q

Charitable Trust - indefinite beneficiaries

A

The beneficiaries must be the community at large (directly or indirectly)

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25
Q

Charitable Trusts- Does Rules against Perpetuities apply?

A

No, they are exempt, and may continue indefinitely

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26
Q

Chartiable Trusts- Honorary Trusts

A

No private beneficiaries (usually for pet or non-charitable purpose)

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27
Q

Charitable trusts: Cy pres doctrine

A

A court may modify a charitable trust to seek an alternative charitable purpose if the original one becomes illegal, impracticable, or impossible to perform

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28
Q

Remedial Trusts: Resulting Trust

A

When a trust fails, a court creates a resulting trust requiring the holder of the property to return it to the settlor of his estate to prevent unjust enrichment

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29
Q

Remedial Trust: Constructive Trust

A

Imposed when the court concludes that the person holding title to the property would profit by a wrong or be unjustly enriched; wrongful conduct is required

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30
Q

Remedial Trusts: Gift-Over Clause

A

Provides for the disposition of trust property if trust purpose fails

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31
Q

What is a Remedial Trust?

A

An equitable remedy, not subject to trust requirements

32
Q

Beneficiary/Creditor Rights to Distribution: Alienation

A

A beneficiary’s equitable interest in trust property is freely alienable unless a statute or trust instruments limits this right

33
Q

Beneficiary/Creditor Rights to Distribution: Support Trust- what is it?

A

Directs the trustee to pay income as necessary to support the beneficiary and maintain lifestyle

34
Q

Beneficiary/Creditor Rights to Distribution: Support Trust- can creditors reach these?

A

No, unless providing necessity to the beneficiary

35
Q

Beneficiary/Creditor Rights to Distribution: Discretionary Trust

A

Trustee is given complete discretion regarding whether or not to apply payments of income to the beneficiary

36
Q

Beneficiary/Creditor Rights to Distribution: Discretionary Trusts- Creditor Rights

A

Creditors have the same rights as the beneficiary if the trustee exercises discretion to pay

37
Q

Beneficiary/Creditor Rights to Distribution: Mandatory Trust

A

The trustee has no discretion; trust document explains in detail how and when trust property is to be distributed

38
Q

Beneficiary/Creditor Rights to Distribution: Spendthrift Trust

A

Expressly restricts the beneficiaries power to voluntarily or involuntarily transfer their interest

39
Q

Can creditors touch spendthrift trusts?

A

Usually not if the governing instrument contains a spendthrift clause (unless for child or spousal support, tax lien holders, and sometimes basic necessities providers)

40
Q

Revocable Trusts- Presumption of Revocability

A

A revocable trust can be terminated by the settlor at any time, and an irrevocable trust usually cannot be terminated

41
Q

Majority UTC rule for revocability

A

A trust is presumed to be revocable unless it says otherwise

42
Q

Minority rule for Revocability of a Trust

A

A trust is presumed to be irrevocable unless it expressly states otherwise

43
Q

True or False: A trust is presumed to be revocable under majority rule

A

True, unless it expressly says so otherwise.

44
Q

Method of Revocation

A

Settlor may amend or revoke according to trust terms, or if silent, by manifesting clear and convincing evidence of intent

45
Q

Revocation: Multiple Settlors

A

Ability of one settlor to amend/revoke turns on whether the trust contains community property

46
Q

Automatic Termination

A

Trust terminates if it is revoked or expires pursuant to its terms, no trust purpose remains, or the purpose has become unlawful, contrary to public policy or impossible

47
Q

Non-charitable Irrevocable Trust- modification or termination by agreement

Solely by all beneficiaries when there is no material purpose violation

A

trust can be terminated or modified by consent of all beneficiaries if continuance is not necessary to achieve any material purpose

48
Q

Non-charitable Irrevocable Trust- modification or termination by agreement

All Beneficiaries and Settlor, with material purpose violation

A

if all beneficiaries and settlor agree, an irrevocable trust may be modified/terminated even if inconsistent with material purpose

49
Q

Non-charitable Irrevocable Trust- modification or termination by agreement

Distribution of trust property upon revocation

A

Trustee must deliver trust property as settlor directs

50
Q

Judicial Modification, reformation or termination

A

Court may modify/terminate a trust without seeking beneficiary consent when it’s

1) due to an unanticipated circumstance or inability to manage the trust effectively, or if the trust is uneconomic or

2) to correct mistakes or achieve the settlors tax objectives

51
Q

Modification: Combination and division of trusts

A

Trustee may combine or divide trusts after notice to beneficiaries

52
Q

Revocation of former spouses trust interest by divorce

A

Treat a spousal interest under a trust similar to one under a will (modern trend)

53
Q

Trustee Powers

A

Powers necessary to act as a reasonably prudent person in managing the trust, including implied power to contract, sell, lease or transfer the trust property

54
Q

Duties of a Trustee

A

Duty of loyalty and good faith

Duty of Prudence

Duty to Inform and Account

55
Q

Duty of loyalty and good faith rule

A

Duty to administer the trust in good faith (subjective) and to act reasonably (objective) when investing property and managing the trust in the best interests of the beneficiaries

56
Q

Loyalty: Self-Dealing Rule

A

When a trustee personally engages in a transaction involving the trust property, a conflict of interest arises between the trustees duties to the beneficiaries and her own personal interest

57
Q

Self-Dealing - Prohibited Transactions

A

Buying or selling trust assets, selling property between trusts that the trust manages, using trust assets to secure personal loan, engaging in prohibited transactions with friends or relatives, or otherwise acting for personal gain through trustee position

58
Q

Self-Dealing Irrebuttable Presumption

A

That the trustee breached the duty of loyalty when self-dealing is at issue

No further inquiry into reasonableness or good faith is required, because self-dealing is a per se breach

59
Q

Self-Dealing Exceptions

A

Even when self-dealing is authorized, the transaction must still be reasonable and fair to avoid liability

60
Q

Duty of Prudence Rule

A

The trustee may delegate responsibilities if it would be unreasonable for the settlor to require the trustee to perform such tasksM

61
Q

May a trustee delegate a critical function concerning the property?

A

No, it is discretionary and not delegable

62
Q

Duty to oversee decisions

A

The trustee can delegate the determination of management and investment strategies but must oversee the decision-making process

63
Q

Prudent-Investor Rule

A

Requires the trustee to act as a prudent investor would act when investing his own property; must exercise reasonable care, caution, and skill when investing

64
Q

Prudent Investor Rule: Factors considered in determining compliance with the rule

A

Trust distribution requirements

General economic conditions

Investment in relation to the trusts overall investment portfolio

Trust’s need for liquidity, income regularity, and preservation or appreciation of capital

65
Q

Duty to Diversify

A

Trustee must adequately diversify the trust investments in order to spread risk of loss

66
Q

Duty to be impartial to Beneficiaries

A

Does not require that the trustee treat each beneficiary equally, but does require a trustee balance the interests; DOES require trustee not to be influenced by favortism or animosity

67
Q

Duty to disclose

A

Complete and accurate information about nature and extent of trust property

68
Q

Duty to Account

A

Must periodically account for actions taken on behalf of the trust

69
Q

Trustee’s Liabilities: Beneficiaries right of enforcement

A

Lost profits, interests, and other losses resulting from breach of trust are the trustee’s responsibilities; beneficiaries may sue the trustee and seek damages or removal for breach

70
Q

Trustee’s Liabilities for others’ act

A

Co-trustees are jointly liable; trustee is liable for predecessors breach if he failed to address it or was negligent

Generally, trustee is liable for agent’s breach if trustee directs or conceals the agents act or fails to exercise reasonable supervision

71
Q

Trustee’s Liabilities against Third parties

A
  1. Trustee personally liable on contracts entered into and for tortious conduct committed while acting as trustee
  2. When property is improperly transferred as a result of a breach to third person, who is not a BFP, a beneficiary may have transaction set aside
72
Q

Resignation of Trustee

A

30 days notice to all parties, or by court approval

73
Q

Removal of Trustee

A

By court due to being incapable of performing or for materially breaching duty, conflict of interest, poor trust performance

74
Q

Future Interests: General Rule- What does a grantor retain?

A

A grantor retains a reversion, possibility of reverter, or right of entry

75
Q

Future Interests: General Rule- What does a Beneficiary retain?

A

the beneficiary is given a remainder or an executory interest

76
Q

Future Interests: Class gifts

A

The share of a deceased class member is paid to that class members surviving issue

By statute, the modern trend is that a substitute gift is created in the descendants of the deceased issue so that a predeceased beneficiaries interest in a trust will not lapse

Wills and Trusts (3 decks)

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