Trusts

Question 1

Trust Classifications

Answer 1

Express: Intent to create a trust and comply with formalities.

Implied: Created by conduct, regardless of intent.

Resulting: Trust fails in some way or when there is an incomplete disposition, a court may create a resulting trust requiring the holder of the property to return it to the settlor or to the settlor’s estate.

Constructive: Imposed not because of the legally inferred intention of the parties but because the court concludes that the person holding the title to the property, if permitted to keep it, would profit by a wrong or would be unjustly enriched.

Question 2

Express Trust Creation “ATTIC”

Answer 2

-Ascertainable Bene
-Trust property
-Trustee
-Intent (present)
-Compliance (formalities)

Question 3

Trust Types

Answer 3

Revocable
Irrevocable
Testamentary
Pourover
Charitable
Protective

Question 4

Revocable and Irrevocable Trusts

Answer 4

CL: Trust irrevocable unless settlor expressly retains right to revoke or amend.
UTC (Majority): Trust is revocable unless the trust expressly provides otherwise.

Question 5

Testamentary Trust

Answer 5

Created through will and does not exist until settlor dies. Same formalities as will.

Question 6

Pourover

Answer 6

A pourover provision in a will devises property to a previously existing trust under the terms of that trust.

Question 7

Charitable Trust

Answer 7

Purpose of accomplishing a substantial amount of social benefit to the public at large or to a reasonably large class.

Question 8

Protective Trust Types

Answer 8

Discretionary
Support (pure or discretionary)
Spendthrift

Question 9

Discretionary Trust

Answer 9

Trustee has absolute power and discretion to make good faith determinations regarding when and how much should be distributed to benes.

Question 10

Support Trust

Answer 10

Contains provision directing trustee to pay the bene as much of the income or principal as is necessary for the bene’s education and support.
*Can be pure or discretionary.

Question 11

Pure Support Trust

Answer 11

Limits the trustee’s discretion. Trustee obligated to spend only so much as is necessary.

Question 12

Spendthrift Trust

Answer 12

Contains provisions to protect benes from their own carelessness. Serves two functions.

1. Bene not permitted to sell or assign interest
2. Bene’s creditors cannot reach bene’s interest.

Exceptions: Settlor is bene of support trust, creditor for necessaries, child support/spousal support order.

Question 13

Creditor Rights

Answer 13

No greater rights than bene. Absent spendthrift provision, creditor can reach interest via attachment. Creditors can alway reach interest once distributed to bene.

Question 14

Trust Modification

Answer 14

Cy près or Deviation

Question 15

Cy pres

Answer 15

If it becomes unlawful, impossible, or impracticable to carry out purpose of trust, Cy pres allows modification “as near as possible” to original intention.

General charitable intent: can modify.
Specific charitable intent: cannot modify and goes to resulting trust.

Question 16

Deviation

Answer 16

Trustee and Bene can request court to permit deviation from administrative provisions. Permitted if the purposes of the trust:

1. Have been satisfied;
2. Become unlawful; OR
3. Are impossible to carry out

Question 17

Modification by Parties

Answer 17

Generally, irrevocable cannot be modified or revoked unless settlor retained right.

Minority allows modification or revocation w/o express terms.

Question 18

Termination of Trusts

Answer 18

(1) Revoked or expires per terms
(2) Material purpose satisfied or becomes unlawful, contrary to public policy, or impossible
(3) Settlor and all benes unanimously agree to terminate
(4) All benes are in existence and agree and no material purpose left. *Claflin
(5) Termination will further purpose due to unforeseen circumstances

Question 19

Trust Income

Answer 19

-Rental payments from res
-Corporate distributions
-Interest
-Money

Question 20

Trust Principal

Answer 20

-Funds from sale of res property
-Repayment of loan principal
-Distribution of stock
-All property other than money received from entity
-Life insurance proceeds

Question 21

Trustee Fiduciary Duties

Answer 21

Care,
Loyalty,
Act impartially,
Prudence,
Inform and account, and
Prudent administration.

*Must manage trust property exclusively for benefit of ALL benes and administer in good faith pursuant to trust terms.

Question 22

Self-Dealing

Answer 22

Per se violation in which court uses “no further inquiry” rule.

UTC allows trustee to avoid liability if he can prove transaction was fair and reasonable, and not affected by conflict of interest.

Question 23

Standard of Care for Trustee

Answer 23

Did trustee act reasonable (objective) and in good faith (subjective)

Question 24

Uniform Prudent Investor Act

Answer 24

Must act as prudent investor and spread risk of loss. One mutual fund is sufficient. Whole portfolio approach, not looked at in isolation.

Question 25

Impartial

Answer 25

Must be impartial when dealing with benes. Not necessarily equal, but not influenced by favoritism or animosity.

Question 26

Allocation of Assets

Answer 26

Under the traditional approach, money generated by trust property is income and any money generated in connection with conveyance of trust property is principal. Modern approach says traditional approach is starting point. Trustee can re-characterize and allocate as necessary to fulfill trust purpose.

Question 27

Honorary Trust

Answer 27

No charitable purpose or definite bene. Often a trust to take care of a thing for a non-charitable purpose. UTC: Valid but not enforceable beyond 21 years. CL: Not valid as it violates RAP, but may treat it as a "power" and allow trustee to exercise power for 21 years.