Trusts

Question 1

Elements of private express trust

Answer 1

1. Present Intent
2. Trust Property - in the trust
3. Valid Trust Purpose
4. Ascertainable Beneficiaries
5. Writing - only if RP or Testamentary

Question 2

Delivery of inter vivos trust

Answer 2

If settlor is trustee, then simple Declaration of Trust

If third party trustee, declaration of trust must be accompanied by Delivery

Question 3

charitable trusts

Answer 3

Purpose - benefit the community at large. Don’t need to have ascertainable grantees

Exempt from RAP

Cy pres doctrine

Question 4

Cy Pres

Answer 4

court may modify charitable trust to seek alternative charitable purpose if the original purpose becomes illegal, impracticable, or impossible

N/A if there is specific intent
If general intent, apply Cy Pres

Question 5

Two types of remedial trusts

Answer 5

Resulting - happens when the a trust fails. Typically results in settlor getting back property.

Constructive - person holding property engages in wrongful conduct and is unjustly enriched

Question 6

When can creditors of beneficiary reach trust assets?

Answer 6

Only when amounts become payable to beneficiary or beneficiary can demand payment (mandatory trust)

Subject to asset protection trusts

Question 7

Asset protection trusts

Answer 7

Support - creditors can only get at these assets if they are providing a necessity for beneficiary (can ask trustee to pay them)

Discretionary trusts - creditors can only get if the trustee exercises discretion to make payment

Spendthrift - creditors cannot get at trust property. Cannot alienate interest. Creditors can only get at distributions. EXCEPTION: spousal support, necessities, taxes

Question 8

Is a trust presumed to be revocable or irrevocable?

Answer 8

Majority - Presumed revocable

Question 9

How can an irrevocable trust be modified or terminated?

Answer 9

By consent of all beneficiaries

EXCEPTION: Claflin doctrine - If trust is sought to be terminated/modified by agreement by all beneficiaries, trustee can prevent by saying the trust is still serving a material purpose.

If still serving material purpose and settlor is still alive, then by consent of settlor and all beneficiaries.

Question 10

Trust Income and Principal allocations to beneficiaries

Answer 10

CL - life beneficiaries: income, remainderman: principal

Modern: allocation must be balanced to treat life beneficiaries and remaindermen fairly.

Question 11

Trustee’s power

Answer 11

Given powers necessary to act as a reasonably prudent person in managing the trust

Question 12

Duty of loyalty

Answer 12

Duty to act in good faith and reasonably

No self-dealing - breach leads to application of no further inquiry rule

No conflicts of interest

Remedy for breach - either avoid transaction or get profits from it

Question 13

Duty of care (prudence)

Answer 13

Can delegate responsibilities if reasonable. Otherwise, must perform responsibilities

Must oversee decision making

Prudent investor
diversify
impartial
make property productive

Question 14

Future interests held by grantor

Answer 14

possibility of reverter (FSD)

right of re-entry (FSSCS)

reversion (life estate)

Question 15

Future interests held by beneficiary

Answer 15

Remainder (follows life estate)

Executory Interest

Question 16

How can trustee accept appointment?

Answer 16

By complying with method of acceptance

If not specified, by (1) accepting delivery of trust res, (2) exercising powers, or (3) performing duties

Question 17

Semi-secret trusts

Answer 17

when will directs that gift is to be held in trust, but doesn’t identify a beneficiary.

It is invalid and the gift is held in trust for testator’s heirs.

Question 18

Automatic termination of trust

Answer 18

1 - when revoked or expired

2 - when purpose is satisfied

3 - if purpose becomes illegal

Question 19

When can a court modify a trust?

Answer 19

1. Unanticipated changes
2. Inability to administer the trust effectively
3. Trust becomes uneconomic
4. To correct mistakes
5. To achieve the settlor’s tax objectives

Question 20

Liability of Trustee - third parties

Answer 20

Trustee is personally liable if Trustee acted tortiously or when entering contracts.

Trustee can seek indemnification from Trust if acting within scope of trustee duties.

Question 21

Executory Interest

Answer 21

Someone other than the grantor holds a future interest preceded by either

(1) vested remainder subject to divestment; or
(2) fee simple subject to an executory limitation

Question 22

Two types of trust beneficiaries

Answer 22

Income beneficiaries - people entitled to income presently

Remainder Beneficiaries - entitled to trust principal upon termination of trust

Question 23

Exceptions to identifiable beneficiaries

Answer 23

-Indefinite class - all my friends valid, all my friends equally invalid
-unborn children
-class gifts
-charitable trusts

Question 24

When is trust required to be in writing?

Answer 24

-Transfer of real property
-Testamentary trust

Question 25

Pour-over provisions

Answer 25

Intervivos trust AND will

It is ok to have will that pours over to trust that wasn’t in existence at time of will execution.

The trust does not need to meet wills requirements, because it is an intervivos trust

Question 26

Disclaimer

Answer 26

Must disclaim within nine months of it vesting (either the possessory or future interest)

Disclaimer by income beneficiary (current) - it will pass to the future interest remainder holder

Disclaimer by future interest remainderman - treated as having predeceased the life tenant (either revert to grantor, or if anti-lapse, goes to future interest holder’s estate)

Question 27

When does class gift close?

Answer 27

Either when settlor dies OR when one member of class entitled to possession

Question 28

Anti-lapse for trusts

Answer 28

majority of states don’t allow anti-lapse for trusts

UPC and minority it does apply

Question 29

Allocation of expenses to income and principal

Answer 29

Ordinary expenses charged to trust income.

Extraordinary expenses charged to trust principal

Question 30

Allocating assets as principal or income

Answer 30

Traditional approach - money generated by trust property is income. Money generated by a conveyance of trust property is principal.

Modern - can re-allocate as deemed necessary for purpose of trust.

Question 31

Power of appointment

Answer 31

General vs. Special

Failure to exercise special - goes to defined beneficaries unless contrary intent