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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
Charitable Trusts- Does Rules against Perpetuities apply?
No, they are exempt, and may continue indefinitely
26
Chartiable Trusts- Honorary Trusts
No private beneficiaries (usually for pet or non-charitable purpose)
27
Charitable trusts: Cy pres doctrine
A court may modify a charitable trust to seek an alternative charitable purpose if the original one becomes illegal, impracticable, or impossible to perform
28
Remedial Trusts: Resulting Trust
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
29
Remedial Trust: Constructive Trust
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
30
Remedial Trusts: Gift-Over Clause
Provides for the disposition of trust property if trust purpose fails
31
What is a Remedial Trust?
An equitable remedy, not subject to trust requirements
32
Beneficiary/Creditor Rights to Distribution: Alienation
A beneficiary's equitable interest in trust property is freely alienable unless a statute or trust instruments limits this right
33
Beneficiary/Creditor Rights to Distribution: Support Trust- what is it?
Directs the trustee to pay income as necessary to support the beneficiary and maintain lifestyle
34
Beneficiary/Creditor Rights to Distribution: Support Trust- can creditors reach these?
No, unless providing necessity to the beneficiary
35
Beneficiary/Creditor Rights to Distribution: Discretionary Trust
Trustee is given complete discretion regarding whether or not to apply payments of income to the beneficiary
36
Beneficiary/Creditor Rights to Distribution: Discretionary Trusts- Creditor Rights
Creditors have the same rights as the beneficiary if the trustee exercises discretion to pay
37
Beneficiary/Creditor Rights to Distribution: Mandatory Trust
The trustee has no discretion; trust document explains in detail how and when trust property is to be distributed
38
Beneficiary/Creditor Rights to Distribution: Spendthrift Trust
Expressly restricts the beneficiaries power to voluntarily or involuntarily transfer their interest
39
Can creditors touch spendthrift trusts?
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
Revocable Trusts- Presumption of Revocability
A revocable trust can be terminated by the settlor at any time, and an irrevocable trust usually cannot be terminated
41
Majority UTC rule for revocability
A trust is presumed to be revocable unless it says otherwise
42
Minority rule for Revocability of a Trust
A trust is presumed to be irrevocable unless it expressly states otherwise
43
True or False: A trust is presumed to be revocable under majority rule
True, unless it expressly says so otherwise.
44
Method of Revocation
Settlor may amend or revoke according to trust terms, or if silent, by manifesting clear and convincing evidence of intent
45
Revocation: Multiple Settlors
Ability of one settlor to amend/revoke turns on whether the trust contains community property
46
Automatic Termination
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
Non-charitable Irrevocable Trust- modification or termination by agreement Solely by all beneficiaries when there is no material purpose violation
trust can be terminated or modified by consent of all beneficiaries if continuance is not necessary to achieve any material purpose
48
Non-charitable Irrevocable Trust- modification or termination by agreement All Beneficiaries and Settlor, with material purpose violation
if all beneficiaries and settlor agree, an irrevocable trust may be modified/terminated even if inconsistent with material purpose
49
Non-charitable Irrevocable Trust- modification or termination by agreement Distribution of trust property upon revocation
Trustee must deliver trust property as settlor directs
50
Judicial Modification, reformation or termination
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
Modification: Combination and division of trusts
Trustee may combine or divide trusts after notice to beneficiaries
52
Revocation of former spouses trust interest by divorce
Treat a spousal interest under a trust similar to one under a will (modern trend)
53
Trustee Powers
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
Duties of a Trustee
Duty of loyalty and good faith Duty of Prudence Duty to Inform and Account
55
Duty of loyalty and good faith rule
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
Loyalty: Self-Dealing Rule
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
Self-Dealing - Prohibited Transactions
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
Self-Dealing Irrebuttable Presumption
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
Self-Dealing Exceptions
Even when self-dealing is authorized, the transaction must still be reasonable and fair to avoid liability
60
Duty of Prudence Rule
The trustee may delegate responsibilities if it would be unreasonable for the settlor to require the trustee to perform such tasksM
61
May a trustee delegate a critical function concerning the property?
No, it is discretionary and not delegable
62
Duty to oversee decisions
The trustee can delegate the determination of management and investment strategies but must oversee the decision-making process
63
Prudent-Investor Rule
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
Prudent Investor Rule: Factors considered in determining compliance with the rule
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
Duty to Diversify
Trustee must adequately diversify the trust investments in order to spread risk of loss
66
Duty to be impartial to Beneficiaries
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
Duty to disclose
Complete and accurate information about nature and extent of trust property
68
Duty to Account
Must periodically account for actions taken on behalf of the trust
69
Trustee's Liabilities: Beneficiaries right of enforcement
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
Trustee's Liabilities for others' act
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
Trustee's Liabilities against Third parties
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
Resignation of Trustee
30 days notice to all parties, or by court approval
73
Removal of Trustee
By court due to being incapable of performing or for materially breaching duty, conflict of interest, poor trust performance
74
Future Interests: General Rule- What does a grantor retain?
A grantor retains a reversion, possibility of reverter, or right of entry
75
Future Interests: General Rule- What does a Beneficiary retain?
the beneficiary is given a remainder or an executory interest
76
Future Interests: Class gifts
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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