Trusts

Question 1

Allocation of receipts in a trust under the Uniform Principal and Income Act

Answer 1

rents and cash dividends = income

sales proceeds and dividends paid in stock = principal

Question 2

Rule of convenience

Answer 2

When a trust remainder is given to a class, the class closes (no new persons can join the
class) when there is no outstanding income interest, and at least one member of the class is then entitled to demand possession of his or her share of the remainder.

Question 3

A class member may demand poss of her share of the remainder…

Answer 3

upon termination of the income interest only when the class member’s interest is not otherwise subject to a condition precedent.

Question 4

Disclaimer

Answer 4

When a beneficiary timely disclaims an interest in a trust, that beneficiary is treated as if he had predeceased the testator.

Question 5

Effect of renouncing a life estate at common law

Answer 5

remainder interest accelerates and becomes immediately distributable to the remaindermen of the trust if the remainder is vested but not if the remainder is contingent.

Question 6

Trustee has obligations until the trust become distributable

Answer 6

the trustee must continue to hold trust
assets until the ultimate remaindermen are ascertained

Question 7

Three separate approaches to distribution of trust income

Answer 7

1. have the trustee distribute the trust income to the testator’s heirs on the theory that the income represents property that was not disposed of by the testator’s will and which thus passes by partial intestacy to the testator’s heirs
2. have the trustee accumulate trust income for distribution to the ultimate remaindermen. Under this approach, only those individuals ultimately entitled to the principal would share in the income.
3. have the trustee distribute trust income to those individuals who would be the remaindermen if the trust were to terminate when the income is received by the trustee

Question 8

provisions of trust that violate public policy are…

Answer 8

void

Question 9

Trust provisions that restrain a first marriage have generally been held to…

Answer 9

violate public policy

Question 10

Trustee viol duty of loyalty when

Answer 10

Engaging in self-dealing

(purchase of trust assets by the trustee in his indvidiaul capactity)

Question 11

no further inquiry rule

Answer 11

dont need to inquire into the trustee’s motivation for the self-dealing transaction or even its fairness

This strict approach is justified on the grounds that it may be difficult for a trustee to resist temptation when personal interests conflict with fiduciary duty.

Question 12

Trust beneficiary’s remedies if trustee breaches duty of loyalty

Answer 12

Have the self-dealing purchase by a trustee to be set aside or obtain a damages award.

If set aside - trust property purchased by the trustee is returned to the trust and the amount the trustee paid for the property is refunded by the trust.

If damages - damages are based on the diff in the FMV of the trust assets at the time of the self-dealing transaction and the amount paid by the trustee.

Question 13

UTC § 602 - revoking/amending trust

Answer 13

a trust is both revocable and amendable unless the trust instrument expressly provides otherwise

power to revoke/amend is exercisable by will unless trust provides otherwise

Question 14

Restatement 2nd of Trusts §331 - power to revoke/modify

Answer 14

if a settlor has a power to revoke, that retained power ordinarily includes a power to amend

Question 15

Permissible appointees

Answer 15

the persons to whom an appointment is authorized

Appointments to impermissible appointees are invalid

Question 16

“objects” of the power

Answer 16

include only those who receive a “beneficial Interest

Question 17

illusory-transfer doctrine

Answer 17

a surviving spouse can reach assets transferred during the marriage by the deceased spouse into a revocable trust on the theory that the transfer is economically “illusory” because, by the simple expedient of exercising the power of revocation—typically with nothing more than a signature on a piece of paper—the deceased
spouse could have recaptured the assets she had placed in the trust

Question 18

fraudulent-transfer doctrine

Answer 18

a surviving spouse can reach assets transferred into a revocable trust on the theory that, as to the surviving spouse, the transfer was “fraudulent.”

The assumption behind this doctrine is that a state statute providing surviving spouses with an elective-share entitlement gives spouses a legitimate expectancy in assets that would have been included in the decedent spouse’s probate estate but for their transfer into a revocable trust; such a transfer is treated as defrauding the surviving spouse of his or her expectancy

Question 19

Abuse of discretion by a trustee (Restatement third)

Answer 19

depends upon the terms of the trust instrument and the other duties of the trustee, such as the duty to administer the trust in accordance with its terms, the duty to act impartially, and the duty of care

trustee abuses discretion by acting in bad faith or with an improper motive

Question 20

section 50 of the Restatement (Third)

Answer 20

when there are multiple trust beneficiaries, the trustee’s duty of impartiality requires that, in making distributions, the trustee act “with due regard for the diverse beneficial interests created by the terms of the trust

Question 21

Discretionary trusts

Answer 21

the terms of a trust provide for a beneficiary to receive distributions in the trustee’s discretion.

a creditor of the beneficiary is entitled to receive any distributions the trustee is required to make in the exercise of that discretion

Question 22

spendthrift clause

Answer 22

puts trust assets out of the reach of most creditors of a trust beneficiary until such time as trust assets are distributed to that beneficiary

even when a trust provides spendthrift protection, claims against a beneficiary for unpaid child support may still be enforced against the trust.

Question 23

if in addition to a spendthrift clause, distributions are discretionary w/ the trustee, the creditor who provided the beneficiary w/ a necessary cannot…

Answer 23

compel a distribution in the absence of an abuse of discretion

Question 24

discretionary support trust subject to a spendthrift clause

Answer 24

When a trust instrument grants the trustee of a support trust discretion whether or not to pay a beneficiary’s support-related expenses, the trustee’s judgment controls unless the trustee abuses his discretion.

Question 25

trustee’s decisions in a discretionary trust can be overruled by court if

Answer 25

trustee acted in bad faith or w/ an improper motive

Question 26

trustee’s abuse of discretion in a discretionary trust Restatement 3rd

Answer 26

depends on terms of trust instrument and other duties of the trustee - duty to administer the trust in accordance w/ its terms, duty to act impartially, and duty of care

these duties entitle beneficary to general information concerning the baes upon which the trustee’s discretionary judgments have been or will be made

Question 27

support trust

Answer 27

permits distributions from the trust to enable the beneficiary to maintain his accustomed standard of living

support is measured in terms of lifestyle to which the beneficiary has become accustomed even if trust instrument doesnt expressly refer to that lifestyle

child support + medical care are always support

Question 28

to create a valid trust, there must be

Answer 28

intent, delivery, and acceptance

also must be trust property, a trustee, and one or more beneficiaries

Question 29

A trust for indefinite beneficiaries is…

Answer 29

invalid under the common law of trust bc the trust beneficiaries must be ascertainable in order to ensure that there is someone to enforce the terms of the trust.

Question 30

donee of a special power of appointment

Answer 30

a power that excludes the donee, the donee’s
creditors, and the donee’s estate as permissible objects

(anything that’s not a general pwoer of appt)

Question 31

general power of appointment

Answer 31

any power of appt that the person can exercise in favor of one or more of the following

1) the donee (the person who has the power of appt),

2) in favor of donee’s estate,

3) in favor of creditors,

4) exercise it against creditors of my estate

Question 32

an irrevocable turst can be terminated prior to the death of all income beneficiaries if

Answer 32

both the income beneficiares and remaindermen unanimously consent unless there’s a material purpose of the trust yet to be performed, then the beneficiares alone may not terminate the trust

Question 33

in the absence of additional circumstnaces indicating a further purpose, the inference is that the material purpose of the trust was

Answer 33

intended to allow one or more persons to enjoy the benefits of the prop during the period of the trust and to allow other beneficiaries to receive the property thereafter

Question 34

1st and 2nd restatement of trusts - termination of irrevocable trust

Answer 34

if the continuance of the trust is necessary to carry out a material purpose of the trust, the beneficiaries cannot compel its termination

Question 35

class gift

Answer 35

a gift to a group of persons described collectively typcially by their relationship to the a common ancestor

Question 36

common law - if a member of the class fails to survive until the time of distribution, that members share passes to…

Answer 36

her estate

NOT to her descendants

Question 37

UPC §2-707 (modern approach) - if a member of the class fails to survive until the time of distribution, that members share passes to…

Answer 37

her descendants

unless trust instrument specifies an alternate disposition

Question 38

there is no abuse of trustee discretion if

Answer 38

the trustee acts honestly and in a state of mind contemplated by the trust creator

Question 39

UPC §2-705(a) - adopted individuals + class gifts

Answer 39

adopted individuals are included in class gifts in accordance w/ the rules for intestate succession

Question 40

UPC §2-114(b) - adopted individuals

Answer 40

an adopted individual is the child of his/her adopting parents

Question 41

a class closes when..

Answer 41

named person dies or the gift becomes possessory

one person becomes entitled to possession of the remainder interest

Question 42

UPC section 2-707(b) - future interests

Answer 42

makes future interests under the terms of a trust contingent on the beneficiaries suriving to the distribution date

Question 43

doctrine of equitable deviation

Answer 43

court may order equitable deviation from terms of trust when an unanticipated change in circumstances would otherwise defeat or substanitally impair the accomplishemnt of the purpose of the trust

Question 44

Under the UTC, an administrative provision of a trust may not be modified if

Answer 44

because of circusmtaces not anticipated by settlor, modification or termination will futher purposes of the turst

Question 45

an administrative provision of a trust is one

Answer 45

relating to the mgmt of trust property instead of the allocation of benefits among trust beneficiaries

Question 46

UTC §412(a) - modification of dispositive terms of a trust

Answer 46

a court may modify the dispositive terms of a term if bc of circumstances not anticipated by settlor, modification will further the purpose of the trust.

must be in accordance with settlor’s probable intention

Question 47

Cy pres doctrine

Answer 47

under common law when trust property to be used for charitable purpose couldnt be distributed as directed, the court can exercise this power and redirct the charitable gift to another like charity.

cy pres requires an initial inquiry into the settlor’s intent. if court determines settlor had a specific charitable intention limited to the charitable purpose stated in the instrument, property reverts to settlor/settlor’s estate.

if settlor had general intent, court subsitutes for named charity anohter one w/ activities consistent w/ settlor’s intention

CL & restatment 3rd presume S has a general chariatble intent

Question 48

a charitable trust can only be created for a charitable purpose. a charitable purpose includes…

Answer 48

1) relief of poverty,
2) advancement of education,
3) advancement of religion,
4) promotion of health,
5) gov. or municipal purposes, or
6) other purposes the accomplishemnt of which is beneficial to the community

Question 49

a noncharitable trust ordinarily must have ascertainable beneficiaires, but UTC §409 says…

Answer 49

a trust without an ascertainable beneficiary but otherwise having a valid purpose, can be created but may not be enforced for more than 21 years

Question 50

consanguinity method heirship is determined by…

Answer 50

degree of relationship; all persons of the same degree of relationship to deceased person take equally

Question 51

parenelic method of heirship is determined by…

Answer 51

descendant’s of decedent’s parents take to the exclsuion of descendant’s of decedent’s grandparents

Question 52

undue influence

Answer 52

wrongdoer exerted such influence over the testator that it overcame T’s free will and cuased T to make a donative transfer they wouldnt have otherwise made

Will contestant must establish that
1) T was suspectible to undue influence,
2) alleged influencer had the opportunity to exert undue influence upon T,
3) alleged influencer had the disposition to exert undue influence,
4) will appears to be the product of undue influence

Question 53

A will or provision procured by fraud is invalid. Fraud occurs when…

Answer 53

a testator is deceived by a misrepresentation and is thereby led to execute a will that the testaor would not have otherwise made.

Question 54

Under majority appraoch, a residuary article in a donee’s will that makes no refernce to a power of appointment is not an effective exercise of a general power

Answer 54

Under the minority view, a genearal residuary clause does not effectively exercise a power of appointment.

Question 55

UPC and Simultaneous Death act says…

Answer 55

in beneficiary fails to survive testator by 120 hours then beneficiary is deemed to have predeceased testator.

testator can change time requirement in their will

Question 56

under UTC onlu requirements for creating a valid inter vivos trust are

Answer 56

intent

specification of beneficiaries

designation of trustee

*inter vivos trust that doesnt involve real estate can be created orally
*doesnt need to be witnessed like in a wil

Question 57

under the uniform testatementary additions to trusts acts, a revocable trust may be amended..

Answer 57

at any time prior to the settlor’s death and the amendment applies to probate assets poured into the trust at the settlor’s death pursuant to ssettlor’s will even when the will was executed prior the date of the amendment

Question 58

if a trust is revocable, the period during which the common law RAP requires that the interest vests (21 years + lives in being) began to run from…

Answer 58

date settlor no longer had power of revocation (death), not the date on which the trust was created

Question 59

under the UTC, an inter vivos trust is

Answer 59

revocable unless the trust expressly states otherwise

Question 60

pourover will

Answer 60

a will that makes a gift to a trust is valid so long as the trust is indentified in the will and the terms are incorporated in a writing executed before or concurrently with the execution of the will.

under modern approach, later made amendments to te trust are valid

under common law, amendments made after execution of the will are not valid

Question 61

honorary trust

Answer 61

doesnt have a charitable purpose or a definite benficary and is often a trust to take care of a thing

valid under UTC but may not be enforced for more than 21 years

under common law such a trust would not be valid if it viols RAP but a court may characterize the trust as a power and allow the trustee to exercise that power in accorddance w/ the trust terms for 21 years

Question 62

trustee’s duty of loyalty

Answer 62

duty of loyalty to act in the best interest of the beneficiaries

Question 63

trustee’s duty of care

Answer 63

UPIA states that the trustee must admisnter the trust as a prudent preson would using reasonable care, skill, and caution

diversify assets and invest portfolio