Trusts

Question 1

Trust creation

Answer 1

Trust created by
- Declaration by owner
- transfer of prop during owner’s life to trustee
- power of appt
- enforceable promise

Question 2

Trust validity

Answer 2

A valid trust requires:
- Intent (settlor must have intent to make trust)
- Identifiable property and beneficiaries
- Legal purpose

**Trustee need NOT be named, court can appt one

Question 3

Limits on trusts

Answer 3

• Real property needs writing (think SOF)
• Personal property can be oral
• 21 year max for trustee
• Invalidation–see wills defenses (fraud, undue influence, capacity)

Question 4

Types of trusts

Answer 4

• Express: all validity requirements met
• Testamentary: in will
• Pour-over: in settlor’s will, disposes prop at death
• Secret: no intent on face but beneficiary named in will
• Semi-secret: no beneficiary named but intent there

Question 5

Main types of trusts: Spendthrift

Answer 5

Beneficiary protected from own fiscal irresponsibility. two features:
- Can’t transfer his interest
- Creditors can’t reach unless money owed for child or spousal support, basic necessities, or tax lien holders

Question 6

Main types of trusts: Support

Answer 6

Directs trustee to pay income or principal as necessary to support beneficiary
- Includes support for health, quality of life or maintenance, education

*Creditors generally can’t reach except if provider of a necessity to B can be paid directly by trustee

Question 7

Main types of trusts: Discretionary

Answer 7

Trustee has discretion to distribute or withhold payments to beneficiary

*Creditors have same rights as beneficiaries if trustee exercises discretion to pay

Question 8

Main types of trusts: Mandatory

Answer 8

Trustee has no discretion, governs when and how trust prop is distributed

Question 9

Main types of trusts: Charitable

Answer 9

One that is for charitable purposes and benefits society (NOT animals but poverty, religion, gov’t).

Question 10

Charitable trusts and cy pres doctrine

Answer 10

Cy pres doctrine and charitable trust approach: a charitable trust is one that benefits society. when a charitable trust fails for any reason, the court may invoke the cy pres doctrine to find a similar substitute to follow the settler’s intent.

Question 11

Main types of trusts: Resulting

Answer 11

Implied in fact; goes back to settlor’s estate. Arises from:
- Purpose of trust ends
- Trust fails
- Illegal trust
- Semi-secret

Question 12

Main types of trusts: Constructive

Answer 12

Applied to prevent unjust enrichment for fraud, self-dealing, etc

Question 13

Powers of trustee

Answer 13

Trustee has all enumerated powers and implied ones to carry out terms of trust

Question 14

Trustee’s duty of care

Answer 14

General duty to act as reasonably prudent person and treat prop as his/her own

Question 15

Duty of care sub-duties

Answer 15

• Be impartial to present and future B’s
• Act as prudent investor (exercise care when investing/managing trust assets)
• Diversify trust assets
• Make property productive (pursue possible claims to make max investments)
• Follow trust directions

BADMF

Question 16

Duty of Loyalty general rule

Answer 16

Administer trust in good faith and act in best interests of beneficiaries when managing trust.

Question 17

DOL: Self-dealing

Answer 17

When trustee acts for personal gain through her trustee position, COI arises between her interests and B’s.
- Examples: buying/selling trust assets, borrowing or making loans to trust, using trust assets to secure loan, transacting w/ relatives
- Effect: irrebutable presumption that breach of DOL happened, per se breach, no further inquiry.
- EXCEPT: when self-dealing authorized, transaction must still be reasonable and fair

Question 18

Other duties

Answer 18

• Disclose
• Account and inform on trust status to B’s regularly
• Not commingle
• Defend and enforce claims involving trust prop

DAND

Question 19

Liabilities of trustee

Answer 19

Personally liable for
- violating trustee duties
- torts committed by him
- K’s made within scope of trust supervision

**If T breached duties, B’s can sue trustee and seek damages or removal

Question 20

Transfer of trust prop to BFP

Answer 20

• Cuts off B’s interest but if not to a BFP, B can set aside transaction
• 3rd party can hold prop as constructive trustee if they knew about trust prop

Question 21

Allocation of trust

Answer 21

• Income to beneficiary
• Principal to future beneficiary
• Trustee uses best judgment in allocating

Question 22

Alienation

Answer 22

B can assign/transfer their interest freely unless statute or spendthrift prohibits it

Question 23

Revocation

Answer 23

Rule: Trusts are presumed revocable unless stated otherwise.
- Revocable: Settlor has the right to modify or terminate a trust
- Irrevocable: Modification or termination while settlor is still alive can occur only with (1) consent of all B’s and (2) proposed change does not interfere with primary purpose of the trust.

Question 24

Modification

Answer 24

Court can modify the trust.
- For cy pres purposes or changed circumstances due to unforeseen circumstances and
- Necessity, in order to meet settlor’s intent.

Question 25

Termination (who can terminate a trust and how?)

Answer 25

• Trustee: no power unless trust says otherwise
• Beneficiary: if all B’s consent, all competent and termination does not frustrate trust purpose
• Settlor: can terminate if he reserved power to do so
• Court: can terminate if purpose becomes frustrated or impossible or changed circumstances
• Automatically when purpose accomplished
• Settlor dies or no remaining interest and all B’s consent

Question 26

Unfulfilled material purpose

Answer 26

Trustee can block a premature trust termination by the beneficiaries if the trust is shown to have an unfulfilled material purpose.

Question 27

Removal of trustee

Answer 27

A court can remove a trustee if
- purpose of the trust would be frustrated by the trustee’s continuance in office or
- trustee violated a fiduciary duty