Trusts

Question 1

Trust Formation Requires

Answer 1

A valid express trust requires:
1) a definitive beneficiary
2) a settlor
3) intent to create a trust
4) a trustee named
5) a valid trust purpose
6) trust property
7) compliance with any state formalities

A beneficiary can be natural persons, corporations, or organizations

Trustee: A person CANNOT be the sole trustee AND sole beneficiary

Question 2

What is a good mnemonic device for trust formation?

Answer 2

“BISTOPC”

Beneficiary (definitive beneficiary required)
Intent (intent to create a trust)
Settlor (the person creating the trust)
Trustee (trustee named)
Object (valid trust purpose)
Property (trust property)
Compliance (compliance with state formalities)

Question 3

Can precatory language be used for a trust?

Answer 3

No. Words such as “hope” or “request” that only express a settlor’s desire DO NOT create a valid trust or legal obligation. Specific settlor intent is required.

Question 4

Is a promise to create a trust enforceable?

Answer 4

A promise to create a trust in the future is unenforceable UNLESS the promise is a valid contract (mutual assent, consideration, and no defenses to formation)

Question 5

What is a pour-over provision?

Answer 5

A pour-over provision is when a will gifts property to a previously established trust.
* a pour-over provision DOES NOT create a trust. It must be connected with a previously created inter vivos trust (a trust created during testator’s lifetime)
* revocation or termination of the trust before testator’s death causes the gift to lapse

Question 6

What is a charitable trust?

Answer 6

A trust that confers a substantial benefit to society.
Beneficiary –> may be indefinite or a class of persons
–> Rule against perpetuities DOES NOT apply.
–> Failure to state a specific trust purpose or beneficiary does not make a trust fail, instead the court will select one.

Question 7

What is a discretionary trust?

Answer 7

When the trustee has absolute discretion and power to determine when and how much of the trust property is distributed to the beneficiaries.
- Trustee’s exercise of discretion MUST be in good faith (court will only interfere if the trustee is abusing their power)

Question 8

What is the Cy Pres Doctrine?

Answer 8

A court may modify a charitable devise “as near as possible” with the settlor’s intent if the purpose of the trust/bequest is frustrated.
* Only applies if the testator had general charitable intent
* Frustrated = it becomes impracticable, impossible, or wasteful.