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BAR EXAM > Trusts > Flashcards

Trusts Flashcards

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1
Q

support trust

A

directs trustee to use discretion to pay income or principal as necessary to support the trust beneficiary

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2
Q

discretionary trust

A

when trustee given complete discretion regarding whether or not to give payments of income or principal to the beneficiary

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3
Q

spendthrift trust

A

expressly restricts beneficiary’s power to voluntarily or involuntarily transfer his equitable interest / withdraw from the trust

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4
Q

remedial trust

A

equitable remedy created by operation of law; not subject to creation requirements and immune from SoF challenge
passive - sole duty of trustee is to convey trust property to beneficiary

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5
Q

mandatory trust

A

trustee of mandatory trust has no discretion regarding payments; trust doc explains spec and in detail how distributed

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6
Q

define trust

A

a trust is a financial relationship where one person (the trustee) holds a property interest at request of another (grantor, settlor) for benefit of a third party

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7
Q

in a trust, who holds what type of title?

A

trustee: legal title
beneficiary: equitable title

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8
Q

what are the two main types of trust?

A

express trust: created with intention and complying with certain formalities

implied: imposed by court b/c of unfairness

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9
Q

three most important aspects for creation of express trust

A
  1. beneficiary
  2. intent
  3. transfer of property
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10
Q

7 aspects of trust (express) creation

A
  1. intent
  2. delivery and acceptance
  3. trust property
  4. trustee
  5. settlor
  6. one or more beneficiaries
  7. valid trust purpose
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11
Q

what is needed to show intent to create a trust?

A

no magic words; but need some evidence of intent (to create trust - now, rather than in future). holistic test - prior conduct, dispositions of wealth, tenor of words, etc.

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12
Q

precatory language and effect on trust

A

precatory language is language expressing only wish (e.g. ‘I hope this can be used for x’). insufficient to create a trust

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13
Q

requirements for delivery and acceptance of trust

A

settlor must deliver goods
trustee must take them and exercise legal control over them

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14
Q

creation: requirements for “res” (and define res)

A

res = the trust property
can be anything owned or transferred, and must be
1. described with certainty
2. ascertainable

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15
Q

who can be named as the trustee? do they have to be named? why?

A

settlors and trustees can be beneficiaries. sole trustee however cannot be sole beneficiary

should be named, but won’t fail for lack

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16
Q

requirements for trustee settlor

A

must have mental and legal capacity

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17
Q

who can you make beneficiary of trust?

A

natural persons, corporations, and other organizations

not animal (though can make trust for their care)

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18
Q

example fact: what would you say if a trust was made for ‘my friends’?

A

indefinite class - insufficient. no member of class may enforce it

but, may be able to ascertain other evidence of what you met

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19
Q

what is a valid trust purpose?

A

pretty much anything

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20
Q

what special rule applies if the trust involves real property?

A

statute of FRAUDS

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21
Q

ways creditors can remove money from spendthrift trust

A
  1. court order for alimony or child support
  2. felony crim offenses where victim physically injured
  3. when mandatory disclosures or money gets distributed (creditors then can take it from beneficiary)
  4. necessities provided to beneficiary such as food, shelter, clothing
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22
Q

can creditor have a future interest in a trust?

A

yes - they can wait for beneficiary to get the money. but, if the trust is discretionary, the trustee can just leave it in there

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23
Q

what happens if you don’t put any assets in your trust?

A

it is invalid - but you can fund it and bring it back to life so long as manifesting intent to get it rolling again

24
Q

what is required to create a spendthrift trust?

A

just say that

25
Q

testamentary trust

A

trust that does not take effect until death

will must state essential terms of trust and intent can be found to create it from terms or incorporation of other documents

26
Q

pour-over trust

A

pours over stuff into will into existing trust

(vs. testamentary: creates trust)

27
Q

what happens if you try to pour over your probate assets into a trust to promote ballet, but the settlor changes it right before you die to a trust to protest ballet

A

they can do that right up until you die. it doesn’t matter

28
Q

charitable trust

A

trust that accomplishes a social benefit to public at large or to reasonably large class

29
Q

what will a court do if you create a charitable trust for koalas and then you die and the charity is destroyed?

A

applies cy Pres
when settlor exhibits general intent to give to charity, try to save gift to get it as close as possible to what settlor intended

30
Q

common law vs. UTC views of trust revocability

A

common law: trust is presumed irrevocable unless you reserve yourself a right to revoke it
UTC: trust is presumed revocable unless trust expressly states otherwise

31
Q

duties of a trustee

A
  1. loyalty (no self dealing - no sneaky stuff)
  2. care (manage trust in reasonably prudent way)
  3. keep records / accounting
  4. can’t loan yourself property or sell property from the trust
  5. act impartially

cannot loan self money from trust. can’t sell yourself property.

32
Q

what if a trustee tries to invest all the money into one crazy random thing?

A

he can’t do this as a violation of the duty of prudence. a lack of diversification of assets is not prudent

33
Q

what happens if a trustee invests in property that he owns a share in?

A

NO, its a presumptive breach of the duty of loyalty

can defend by showing transactions as fair or would have been made by independent party or ratified by beneficiaries

34
Q

what is the remedy if any small action by trustee is poisoned by conflict of interest?

A

it’s voidable by the trustees and they can seek damages

no further inquiry rule under UTC - good motives don’t matter

35
Q

how to revoke trust

A

unanimous agreement of settlor and beneficiaries
or look at material purpose of trust has been achieved
or, if can’t be ascertained and settlor is dead, let beneficiaries have the money and just end it

36
Q

what happens once trust is terminated?

A

trustee distributed the money in a way that is consistent w purposes and goals of trust

37
Q

power of appointment

A

ability to redirect remainder wherever you want. like if trust goes to you the son, and remainder to grandson, son can change it

38
Q

general vs special powers of appoinmtent

A

general: no restrictions, can appoint remainder to anyone
special: some limitation

39
Q

what is a “permissible object”?

A

whoever is designated as a permissible remainder under special power of appointment

40
Q

if someone with special power of appointment fails to exercise power, what happens?

A

trust usually states takers in default
if not specified, passes to who permissible objects of will were listed

41
Q

when can the principal of a trust that otherwise only distributes income be invaded?

A
  1. only one beneficiary
  2. trustee has discretion to invade
  3. beneficiary suffers huge injury and invasion makes sense based on what happened
42
Q

illusory trust

A

when you create a fake trust where you’re the sole trustee and you can withdraw whenever you want

43
Q

what happens if there is no beneficiary in a trust?

A

becomes a resulting trust - all trust property returns to settlor or their estate

44
Q

what is the exception to the ascertainable beneficiary rule?

A

if you have a specific non charitable purpose (like care of a cemetery plot)

45
Q

remedy if a trust is becoming impractical or wasteful

A

courts can apply equitable deviation doctrine, allowing court to modify trust procedures or admin if they think would be more fair

46
Q

totten trust

A

bank account where settlor leaves instructions for it to be left to a beneficiary after he dies

47
Q

what does the UTC say happens if: Jimmy for life, then Karen and her heirs, but Karen ends up dying before Jimmy?

A

per 2-707(b), lapse applies to prevent RAP and Karen does not get anything nor do her kids

48
Q

are charitable trusts barred under RAP?

A

no. they can lapse in perpetuity

49
Q

what do you do if they won’t tell you when the trust is created?

A

“I don’t know if it will vest in 21 years because I’m missing a fact”

50
Q

if there is one grandkid live and no one else and a grandmother leaves a crazy string of people who get the trust, does it violate RAP?

A

no. at time of settlor’s death only income beneficiary is great granddaughter and that is the life in being

51
Q

semi secret trust

A

when gift is directed in a will to be held in trust, but testator fails to name beneficiary or specify terms or purpose

extrinsic evd may not be presented, gift fails, resulting trust imposed to be held in trust for testator’s heirs

52
Q

secret trust

A

looks like testamentary gift
created in reliance on named beneficiary’s promise to hold and administer property for another - if promise proven by CC evidence, then constructive trust imposed for intended beneficiary, so as to prevent unjust enrichment of secret trustee

53
Q

constructive trust

A

trust created through court’s power over assets they determine a party cannot equitably keep
remedy for unjust enrichment - orders person who would be unjustly enriched to transfer property to intended party

54
Q

when court may take over trust

A
  1. unanticipated changes
  2. inability to administer trust effectivley
  3. trust becomes uneconomic
  4. to correct mistakes
  5. to achieve settlor’s tax objectives
55
Q

trustee’s liability to third parties

A

personally liable on Ks entered into and for tortious acts committed while acting as trustee

if trustee acted w/in scope of trust duties, then trustee is entitled to indemnification from trust

56
Q

how are principal and income allocated under the modern / UPAIA approach?

A

a trustee is empowered to recharacterize items and reallocate investment returns as necessary to fulfill the trust purpose as long as reallocations are reasonable and are in keeping with the trust instrument

BAR EXAM (28 decks)

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