Trusts

Question 1

Trust

Answer 1

a fiduciary relationship where a trustee holds legal titles to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries who who equitable title

passes outside of probate process

tax benefits

Question 2

Trustee as fiduciary

Answer 2

• deal with property with reasonable care
• maintain the utmost degree of loyalty
• personally responsible if their conduct falls beneath required standards

owes fiduciary duty to beneficiaries

Question 3

Settlor

Answer 3

creates trust by supplying the initial trust property

Question 4

Basic functions of trust

Answer 4

Settlor creates by transferring legal title to trustee and equitable titles to beneficiaries

Trustee manages and invests and makes payments in accordance with instructions and legal duties

Terminates when trustee’s duties are complete, any remaining property distributed to remainder beneficiaries

Question 5

Classifications of trust

Answer 5

Express trusts
- private - private beneficiaries - ascertainable people
- charitable - charitable beneficiaries - indefinite class or general public

Operation of law
- resulting trust - presumed intention of owner of property - presumed to settlor if trust fails
- constructive trust - equitable remedy to prevent unjust enrichment

Question 6

Elements of valid trust

Answer 6

Intent

Identifiable corpus

ascertainable beneficiaries
- notice not required but acceptance is

proper purpose

mechanics and formalities

Question 7

Trust intent

Answer 7

• settlor has capacity to convey
• present intent to create trust when settlor owned property and prior to conveyance - no future intent
• competent trustee
• definite beneficiary
• same person is not the sole trustee and sole beneficiary

hope, wish, desire does not show intent

Question 8

Identifiable corpus

Answer 8

Existing interest in existing property
- future interest
- future profits from existing contract

Question 9

Qualified beneficiary

Answer 9

Beneficiary who is a current beneficiary or a first line remainder man

Question 10

Disclaimer

Answer 10

Beneficiary does not ahve to accept interest

• file written instrument with trustee and treated as deceased

within 9 months of interest’s creation unless under 21, other states do not have time limit

cannot disclaim if exercised any dominion or control over interest or accepted any benefits

Question 11

Anti-lapse statutes

Answer 11

Some states apply to future interests created by trusts, even if expressly made contingent on survival - unless trust makes an alternate gift in case of nonsurvival

Question 12

Divorce

Answer 12

revoke gifts and fiduc appointments to former spouse

some states and UPC also revoke for relatives

treated as deceased

Question 13

Private trust beneficiaries

Answer 13

Must be ascertainable by the time their interest are to come into enjoyment

example - class gift, unborn children

class gift
- CL requires reasonably definite class
- UTC - trustee may select from indefinite class

Question 14

Trust purposes

Answer 14

Can create for any purposes except

• illegal
• contrary to public policy
• impossible to achieve
• intended to defraud the settlor’s creditors or based on illegal consideration

Contrary to public policy
- induct engagement in crim or tortious activities
- encourage immortality
- induce person to neglect parental, familial, or civic duties

Look at settlor’s alt desires
if it is a condition subs. - invalidate condition and trust is valid
if condition precedent - interest valid unless evidence that settlor would want it voided

Question 15

Rule against perpetutities

Answer 15

many state abolish

some state do wait and see or 90 year vesting period

Question 16

Trustee dies or refuses to accept

Answer 16

Will make intervivos fail

otherwise, court appoints unless evidence that settlor only wanted trust as long as that trustee served

Question 17

Trustee accpetnace

Answer 17

Sing trust or written acceptance
substantially comply with terms
accept delivery of property unless notice of rejection

can resign after accepting by giving 30 days notice to qualified benef and cotrustees and settlor or court approval

Question 18

Qualification of trustee

Answer 18

capacity to acquire and hold property
capacity to administer property (not minors or insane)

Question 19

Removal of trustee

Answer 19

Court on its own or request by settlor, benef, co-trustee

• serious breach of trust
• serious lack of cooperation among cotrustees
• unfitness, unwillingness, or persistent failure to administer
• substantial change in circumstances

Question 20

Intervivos trust

Answer 20

Created by settlor declaring himself trustee - keeps legal title - convey real property to settlor as trustee

created by transferring legal title to trustee - can keep or transfer equitable title

Question 21

Statute of frauds

Answer 21

No writing needed for personal property

writing needed for trust of land

part performance precludes SoF defense - holder of legal titles acts as trustee

Question 22

Pour over gift

Answer 22

Gift in will to trust

trust as exists on the date of death, even if amendment made after execution of will

can be initial funding of the trust if
- trust identified in will
- trust executed before t’s death

Question 23

Secret trust

Answer 23

Settlor agrees with will beneficiary that the benef will hold the property in trust for someone else and relies on the promise but will does not state

intended trust benef can present c&c evidence - constructive trust created

Question 24

Semi-secret trust

Answer 24

Will makes a gift but it fails to name benef - resulting trust for T’s successors

Question 25

Spendthrift restriction

Answer 25

Cannot transfer interest, can only transfer once paid settlor cannot use to protect own property unless domestic asset protection trust exception - judgments or court orders for support or maintenance of benef child, spouse, or former spouse, or claims by the government

Question 26

Support trust

Answer 26

pay only so much as necessary for benef support Not assignable even without spendthrift clause benef standard of living

Question 27

Modification and termination

Answer 27

Settlor - can revoke or amend unless terms expressly say irrevocable , other states say that it is irrevocable unless expressly reserve rights - even if irrevocable - can with consent of all living persons with vested or contingent interest Beneficiaries - with settlor's consent and all beneficiary - without settlor's consent if all beneficiaries consent and if no material purpose is frustrated operation of law - property exhausted or legal and equitable titles have merged by court - unanticipated circumstances threaten purpose - impracticable or wasteful - value of trust insufficient to justify cost By trustee - trst property less than 50,000 and insufficent to justify costs

Question 28

Duties of Trustee

Answer 28

Duty to administer trust in good faith - cannot delegate discretionary functions duty of loyalty to trust and benef - cannot deal with trust in individual capacity - good faith or actual benefit is irrelevant - voidable duty to report no commingling duty to enforce claims and defend trust from attack duty to preserve trust property and make it productive

Question 29

Investments

Answer 29

Reasonably prudent investor standard portfolio approach - overall investment strategy must diversify unless reasonably believe trust is better served without diversification if have special skill or knowledge, must use social investing may breach duty of loyalty may delegate investment and management functions - must be prudent in selecting, establishing scope and terms, periodically reviewing - not liable from decisions of agent

Question 30

Liabilities of trustee

Answer 30

Breach of trust/investment - liable for greater of - amount necessary to restore, or the profit self dealing - affirm - set aside - trace profits not liable if - reasonable reliance on terms of trust - benef consented, released, or ratified

Question 31

Exculpatory clause

Answer 31

Void if relieve trustee of laibility for breach of trust in bad faith or reckless indifference or abuse of confidential relationship

Question 32

Liability to co-trustee

Answer 32

Not liable if did not join in action and exercised reasonable care in preventing or redressing breach

Question 33

Charitable trust

Answer 33

Indefinite beneficiaries may be perpetual cy pres applies RAP does not apply - unless private to charitable trust enforcing - settlor - qualified beneficiary - state's attorney general

Question 34

Honorary or purpose trust

Answer 34

Pets or maintenance of burial places CL- trustee honor to carry out terms UTC- enforceable by someone named in trust or appointed ant excess distributed to settlor CL - RAP UTC - for burial places not more than 21 years

Question 35

Purchase money resulting trust

Answer 35

X (beneficiary) furnishes the consideration to purchase property but title is taken in the name of Y (trustee) x expects an interest in the property, not the consideration back exceptions when trust not presumed - parties closely related - parent, gparent, spouse - unlawful purpose, may if x misconduct slight compared to y's unjust enrichment - transferee obtained title wrongfully, but may create constructive trust