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Bar Exam > Trusts > Flashcards

Trusts Flashcards

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1
Q

Trust

A

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

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2
Q

Trustee as fiduciary

A
  • 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

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3
Q

Settlor

A

creates trust by supplying the initial trust property

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4
Q

Basic functions of trust

A

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

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5
Q

Classifications of trust

A

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

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6
Q

Elements of valid trust

A

Intent

Identifiable corpus

ascertainable beneficiaries
- notice not required but acceptance is

proper purpose

mechanics and formalities

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7
Q

Trust intent

A
  • 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

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8
Q

Identifiable corpus

A

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

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9
Q

Qualified beneficiary

A

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

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10
Q

Disclaimer

A

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

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11
Q

Anti-lapse statutes

A

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

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12
Q

Divorce

A

revoke gifts and fiduc appointments to former spouse

some states and UPC also revoke for relatives

treated as deceased

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13
Q

Private trust beneficiaries

A

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

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14
Q

Trust purposes

A

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

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15
Q

Rule against perpetutities

A

many state abolish

some state do wait and see or 90 year vesting period

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16
Q

Trustee dies or refuses to accept

A

Will make intervivos fail

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

17
Q

Trustee accpetnace

A

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

18
Q

Qualification of trustee

A

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

19
Q

Removal of trustee

A

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
20
Q

Intervivos trust

A

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

21
Q

Statute of frauds

A

No writing needed for personal property

writing needed for trust of land

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

22
Q

Pour over gift

A

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

23
Q

Secret trust

A

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

24
Q

Semi-secret trust

A

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

25
Q

Spendthrift restriction

A

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

26
Q

Support trust

A

pay only so much as necessary for benef support

Not assignable even without spendthrift clause

benef standard of living

27
Q

Modification and termination

A

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

28
Q

Duties of Trustee

A

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

29
Q

Investments

A

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

30
Q

Liabilities of trustee

A

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

31
Q

Exculpatory clause

A

Void if

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

32
Q

Liability to co-trustee

A

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

33
Q

Charitable trust

A

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

34
Q

Honorary or purpose trust

A

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

35
Q

Purchase money resulting trust

A

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

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