Trusts Flashcards

Question

Passive/Dry Trust

Answer 1

Trust which **assigns no duties to the trustee** ("put this under your bed and keep it for 10 years, then give to Ava") **Invalid**--legal title passes to ben. + merges, ben. hold free + clear

Answer 2

1) **Settlor with requisite capacity,** who **expresses present intent to create** trust AND 2) **delivery of specific trust property** AND 3) **At least one ascertainable beneficiary (unless charitable)** AND 4) **Active trustee duties** AND 5) **Proper trust purpose** AND 6) **Trustee** (court can appt if not stated)

Answer 3

**No specific words needed** but must be **present**--NOT future In general: **mandatory** words (ex. shall, must) = **trust intent** (ex. shall, must);**precatory/wishful** words (ex. "could you..." "in the hopes that.." = **not enough on own**--look at **circum.** Relevant circum (non-exclusive) -**Degree of specificity** -**Commercial context** (if writing to bank, prob have intent--precatory lang. prob. for politeness ("would you set up a trust for..."))

Answer 4

Must be **ascertainable**--no beneficiaries = no trust **(exception: charitable trust)** Must have **reasonable basis** If objective standard = ascertainable **Can** allow **discretion** ("the person who cared for me the best") if r. basis--defer to trustee unless arbit, capricious., bad faith

Answer 5

**Any property/interest** in property (stock, car, cat, easement, license, future interest) MUST be **somewhat certain** ("40% of my..." = OK; "some of my..."-N/A) **CANNOT** BE - **Mere expectation** (property *expect* to get) -**Unearned profits** (ex. future wages, the profits will get from selling y) -**Debt owed by the trustee** (not really owned--owed)

Answer 6

Any purpose that is not 1) illegal, 2) fraudulent, or 3) against public policy -Goal--determine intent of settlor

Answer 7

CANNOT have: -provision **encouraging divorce** -provision **discouraging marriage** (exception-- settlor's spouse is the ben.)

Answer 8

1) **Delete** offending clause OR 2) Try to **determine from 4 corners** what **settlor would have wanted** if had known violative

Answer 9

Provision in will directing the transfer of decedent's property into a trust created by the testator during T's lifetime OR by another person **Under UTATA can amend trust at any pt. w/out amending will**--back door, v. pop.

Answer 10

Uniform Testamentary Additions to Trusts Act Can **devise assets in will** to **trust** established **during testator's lifetime OR at death** IF **terms** of trust set forth in **separate written instrument** executed before, concurrently, or **after** will made **even if** it does **not meet the rules** for a valid will/codicil "Estate planning magic"--can **say "to trust," execute trust doc + edit doc through lifetime w/out needing new will**

Answer 11

Arrangement with bank allowing depositor to open account in the depositor's own name, as trustee for other parties Only right beneficiary has: take whatever is left in account after depositor dies (if ben. still alive)

Answer 12

RAP applies if 1) Private trust OR 2) Mixed private and charitable trust Does NOT apply if charitable trust "No interest is good unless it must vest, if at all, no later than 21 years after some life in being at the creation of the interest"

Answer 13

Modification to RAP--court will wait and see what actually happens before determining if rule violated

Answer 14

-**Purely charitable**: "for racial justice" (RAP N/A) -**Charity-to-charity exception**: "to the NAACP; if it ever closes its doors, to the ASPCA" (RAP N/A) -**Charitable remainder trust**: "to Chris for 150 years/for life, then to the NAACP" (**RAP applies**) -**Charitable lead trust**: "to the NAACP, but if it ever closes its doors, then to Chris" (**RAP applies**)

Answer 15

1) **Settle or abandon** trust claims 2) **Borrow** money 3) **Sell or lease** trust assets 4) **Incur r. expenses** necessary to **maintain trust property** (ex. insurance--charge expenses to trust) Legal title = default v. broad rights CANNOT use trust principal for ben. who is only income ben., or vice versa (income for remainder ben.)) **Abuse of discretion** standard-- (unless trust limits--ex. HEMS) Ben. doesn't like, thinks dead settlor wouldn't have liked--N/A on own

Answer 16

Health, education, maintenance, and support--requirement often used as limit on trustee power

Answer 17

Held to "highest punctilio of honor" DEFAULT = CANNOT HAVE 1) *Any* self dealing, EVEN IF good faith + outcome (ex. buy from trust at favorable price) 2) *Any* personal ben through position, other than agreed on fees EVEN IF gf+ outcome (ex. lend at favorable rate) 2) Interaction/bus. trans. w/ ben, UNLESS all facts disclosed AND trans. fair 3) *Any* personal ben. from 3d party re: dealings w/ trust (ex. finders fee, comm) 4) Sit. where even *apparent* conflict of i. (ex. trustee bank can't buy own stock)

Answer 18

-**Sales proceeds** -***Stock* dividends** -Cost of **extraordinary repairs** Some discretion allowed, so long as **fair to all**

Answer 19

-**Rents** -***Cash* dividends** -**Ordinary expenses/repairs** Some discretion allowed, so long as **fair to all**

Answer 20

AKA **"trustus corpus"** **Amount originally received, plus capital gains and less debts, expenses, and capital losses**

Answer 21

The **interests, receipts, dividends, and other income earned by the principal** -Allocated to income-->distributed to income beneficiaries

Answer 22

**Prudent Businessperson Rule**--in investing, trustees must use the **degree of skill, care, and prudence** that would be **r. used** by a **business person in their own personal affairs** **Trustee has higher expertise** OR **professional fiduciary** = care, skill + prudence of **individual with that expertise/capability** MUST use property in **productive** manner MUST (generally) **diversify**

Answer 23

Breaches duty of care = **liable** for **results of breach** EVEN IF breach paid off (ex. risked on lottery + won) Breach + *increases* in value = **increase goes to trust as well** **Self-dealing profits** = go to trust Breach + *decrease* in value = **personally liable** for full loss (can't offset w/ gains in trust elsewhere) Liable for **lost interest** NOT liable for decline based on **general economic** conditions

Answer 24

States that a prudent trustee can make investment determinations based on the *total* trust fund portfolio, in *light of risk + return* (i.e. can invest in some riskier bets, so long as overall balance) Gen. safer/more acceptable: gov. or highly rated bonds, blue-chip stocks, quality mutual funds Gen riskier: penny or speculative stocks, commodities, derivatives

Answer 25

Generally = **MAY NOT** delegate duties Exception: **CAN** delegate **investment functions** and **MUST delegate** this if **lack necessary background** to make r. competent decisions If delegate: 1) MUST be **diligent in selection + supervision** 2) MUST **inform beneficiaries**

Answer 26

Revocable trust =settlor can revoke, still has power, interest--trustee has **duty to settlor** Gen rule: **No liability** for **following instructions** UNLESS **r. person** would realize not prudent + **refuse**

Answer 27

Successor-trustee **not liable** UNLESS 1) **Knew or should have known** of breach AND 2) **failed to take appropriate action** to **minimize effects** OR **pursue approp. remedy**

Answer 28

Provision in the trust agreement that relieves the trustee of liability for potentially wrongful acts (ex. self dealing, conflicts o/ interest) Cannot waive duty of good faith

Answer 29

If 1) Have **full knowledge of material facts** AND 2) **Expressly approve** of **complained-of action** = May **waive** breach. or (if reliance) **estopped** from action Can't waive duty of good faith

Answer 30

Removed = only **for cause** Resign = **at will** BUT most statutes require **notice**

Answer 31

Unless stated otherwise, can **freely assign equitable title** OR **right to get income/principal** Any conditions must be **reasonable** AND can't violate public policy (ex. unless ben. spouse, can't condition on marriage/divorce) Generally--**restrictions disfavored**

Answer 32

General rule: Creditor **stands in shoes of beneficiary**--no fewer rights AND no more CAN'T force trustee to do x if **ben. couldn't force** trustee to do x (ex. sell right/have lien to collect but disbursement discretionary = trustee can refuse to pay creditor)

Answer 33

Trustee provides **only what necessary for beneficiary's support**--no other purpose Support = **lifestyle to which the ben. has become accustomed**--not merely essentials Can alienate/have lien, but not v. useful to creditors (limited by shoes of ben.)

Answer 34

Trustee provides as **much income as the trustee thinks is desirable** Discretion unlimited = only violate if act in **bad faith--abuse/completely fail to exercise discretion** (look to duty to be impartial, r., to provide reports to ben.) Can alienate/have lien, but not v. useful to creditors (limited by shoes of ben.)

Answer 35

Says that beneficiary **cannot voluntarily transfer the property** NOR can **creditors attack prop.** Effect = **Trust property effectively inalienable** until **actually distributed** CANNOT (usually) apply if: -Alimony/child support owed by ben. -Repayment for provision of necessities to ben. -Gov. claims against ben. CANNOT have if settlor also a beneficiary

Answer 36

Trust that can be revoked by settlor Settlor maintains *some* rights--**quasi-property owner** **Traditional**--trust *irrevocable default * unless *explicitly otherwise* **UTC**-- opposite--*revocable default* unless explicit In most jx: *Can't* force revocation if *creditor* *Can* force revocation if *bankruptcy court*

Answer 37

1) (If testamentary/in will or revocable) At Will 2) (if inter vivos) Unanimous Consent of All Living Ben., Settlor 3) Merger 4) Operation of Law 5) Clafflin Doctrine (material purpose met) 6) Natural Expiration

Answer 38

Only if all living beneficiaries consent

Answer 39

1) **Sub. compliance w/ stated method** *IF NO STATED METHOD,* 2) **later will or codicil** which specifically **refers** to trust OR **devises property** that **should have passed according to trust** OR 3) **any other method** manifesting **clear and convincing evidence** of intent

Answer 40

If the **sole trustee becomes the only beneficiary** the interests **merge**--trust terminates + trustee personally owns assets

Answer 41

Occurs if 1) **Trust res (principal) consumed, destroyed, or lost** 2) **Trust purpose fully accomplished** OR 3) **Accomplishment of the trust's material purposes** has become **illegal, impossible, or impractical** Usually done via trustee or ben. going to court, asking

Answer 42

If exact compliance with the *administrative provisions* of a trust would, as a *result of unforeseen circumstances,* frustrate or substantially impair a material purpose, a court can, upon petition of trustee, allow deviance from those portions MUST be administrative, not material or dispositive CANNOT change beneficial interests-(including dispositive/material remainderman interest)

Answer 43

Two ways to phrase: 1) **After settlor's death, cannot terminate** trust--even at request of ben--if not time specified + **material purpose not accomplished** 2) **Can terminate** trust after settlor's death if **all trust beneficiaries ID'd + consent** AND **termination would not violate ongoing material purpose** of trust Ask (non-exclusive): **staggered distribution? Discretionary trust? Spendthrift clause?** Fact that successive beneficiaries exist **≠** material purpose

Answer 44

1) Resulting Trust 2) Constructive Trust **Implied trust arises= "trust"**-- will quickly end No named beneficiaries **only duty of trustee of implied trust--> give title to those who should hold it** Once transfer legal title--rights merge, trust ends

Answer 45

Arise when an express trust makes an incomplete disposition of assets or fails after property has been conveyed to trustee (similar to reversion) Result = **only person left** holding **equitable title** is the **settlor** in an **equitable reversion (aka resulting trust)** Ex. "to T as trustee to pay income to A for life" = Settlor = *remainder in resulting trust* --A dies - back to Settlor in resulting trust Ex. "To T as trustee to pay income to A, remainder to A's heirs" *if A dies heirless

Answer 46

If a party **pays the original purchase price of property** but says to **put title to the asset in another person's name** AND the person is **not a close relative/close relationship**--> **rebuttable presumption** that **grantee** is **holding property in resulting trust for payor** If **close relative/relationship**--no presumption, **presume gift**

Answer 47

**Equitable *remedy*** imposed on **holder of property** to **redress wrongdoing/prevent unjust enrichment** Goal--**force holder to divest title** + transfer** to **person entitled to prop.** (ex. slayer, fraud) Trust is **"raised," "erected," "imposed"** by court--involuntary

Answer 48

Main differences 1) **Can't** have ascertainable beneficiaries, unless they are qualified charitable org (vs. private--**must** have ascertainable ben. 2) Not subject to RAP 3) Does not necessarily end when purpose becomes impossible/impractical (*cy pres*)

Answer 49

1) Charitable purpose AND 2) Non-ascertainable/indefinite ben. (ex. "for pre-K education") OR specifically named charitable org (ex. "the Red Cross")

Answer 50

Non-exclusive 1) Relief of poverty 2) Advancement of education 3) Advancement of religion 4) Promotion of health 5) Performance of gov./municipal purposes (ex. park) 6) Other purposes beneficial to the community Can be broad, IF trustee can only use funds to that goal (ex. "help animals")

Answer 51

Must have *charitable purpose* to have charitable trust--*not* benevolent Q--Goal to **make someone/some group happy (benevolence)** or **further x purpose? (charitable)** ("to my brother, to ease his financial woes"/"to the people who helped me when I got a flat tire" vs. "to the ASPCA"/"to support medical research") Look at: -Form of payment -Timing of payment -**Method for supervising how funds used** (ex. even if *say* give $ to kids to use for ed.--no structure--> enforce = goal prob. just happiness

Answer 52

If **charitable trust** AND **exact charitable purpose can't be met** court **can direct** trust to **different charitable purpose that approximates** settlor's intent Ex. to local dog rescue + 150 years later stops existing--might transfer trust to ASPCA MUST HAVE 1) Settlor's **original purpose illegal, impractical, or impossible** AND 3) Settlor had **in addition to specific charitable purpose, general charitable intent**--charitable purpose **not intended to be exclusive ("I want to support ed." "I want to support my alma mater") AND 3) New recipient **close to original purpose** (courts like *cy pres* but limits--deduce testator's intent)

Answer 53

Provision stating that, in the event x gift fails, will go to someone else Non-charitable gift over (ex. "to the ACLU, if that fails to Sarah") = prob. no *cy pres (not general charitable purpose), probably subject to RAP

Answer 54

Trust that does not qualify as a charitable trust, but that lacks definite beneficiaries to enforce it Basically--trust for ben. that can't sue (often care of an animal, gravesite) Tech. not really valid (no definite ben, violates RAP)--but courts/leg often allow Basically honor system re: enforcement--trustee's obligation moral/honorary ( court sometimes assigns person to supervise trustee)

Answer 55

Power created by donor of property that **enables another individual (donee)** to **designate transferees and what they may receive** Ex. power of attorney Often used **in connection w/ trust** Can be **general** (complete donee discretion re: apptment) OR **special** (limited--usually = specify group/set to pick from) Can be **lifetime** (must exercise in life) OR **testamentary** (must exercise in will) OR **both**

Answer 56

Donee (person given power) can gen.: 1) Take **action to releases/destroy** OR 2) Fail to use/exercise power of appointment

Answer 57

If a trustee has breached her duty of self-dealing, the court will not inquire into the fairness or good faith of the transaction--automatic violation

Answer 58

1) **Recession of the transaction**--**trustee returns assets, amount paid refunded** to trustee OR 2) **Damages**--**difference** between **fair market value at time** and **amount trustee paid**