Trusts

Question 1

Trust

Answer 1

Fiduciary relationship in which a trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of the designees (who hold equitable title)

Question 2

Legal Title?

Answer 2

Held by the trustee, who has the responsibility of ownership. The trustee receives no benefit from title

Question 3

Equitable Title?

Answer 3

Held by the beneficiary who receives the benefits of ownership as set forth in the trust.

Question 4

Settlor

Answer 4

Person who creates the trust

Question 5

Express Trusts

Answer 5

Created by the express intention of the settlor:
1. Private - private beneficiaries (certain ascertainable persons)
2. Charitable - charitable beneficiaries (indefinite class of persons or the public in general)

Question 6

Trust by Operation of Law

Answer 6

1. Resulting Trusts - arise from the presumed intention of the owner of the property
2. Constructive Trusts - equitable remedy used to prevent unjust enrichment

Question 7

Purposes/Uses of a Trust

Answer 7

1. Providing for and Protecting Trust Beneficiaries
2. Flexibility of Asset Distribution
3. Protection Against Settlor’s Incompetence
4. Professional Management of Property
5. Probate Avoidance
6. Tax Benefits

Question 8

Valid Trust contains

Answer 8

1. Intent
2. Identifiable Corpus
3. Ascertainable Beneficiaries
4. Proper Purpose
5. Mechanics and Formalities

Question 9

Express Trust Elements

Answer 9

1. Settlor with Capacity to convey
2. A present intent to create a trust relationship
3. a competent trustee with duties
4. a definite beneficiary
5. the same person is not the sole trustee and sole beneficiary

Must also have present disposition of specific property then owned by Settlor and a valid trust purpose

Question 10

Trust Contents

Intent

Answer 10

Settlor with capacity to create trust has the present intentention to split legal and equitable title and impose enforceable duties on the holder of legal title

Must intend for Trust to take effect immediately

Question 11

Trust Property

Answer 11

Identifiable “res” in existence at creation

Also called “corpus”

Question 12

Express Powers

Answer 12

A trustee has powers expressly conferred by the trust instrument, state law, or a court decree

Question 13

Implied Powers

Answer 13

A trustee has broad powers as necessary to carry out trust terms and promot beneficiary interests

Question 14

Resignation

Answer 14

Once trustee position is accepted, one can resign only where permitted by trust, court, or all beneficiaries

Question 15

Compensation

Answer 15

Entitled to reasonable compensation for duties

Question 16

Duty of Good Faith

Answer 16

A trustee must administer the trust in good faith in accordance with the trust purpose and terms, in the interests of the trust beneficiaries. If a trustee acts in bad faith or dishonestly, court may interfere with actions

Question 17

Duty of Loyalty

Answer 17

In all matters relating to the trust, a trustee must put the interest of the beneficiary first.

Must avoid self-dealing and conflicts of interest.

Question 18

Duty of Loyalty Examples

Answer 18

1. Buying Trust assets
2. Selling to another trust managed by the trustee
3. Borrowing from or loaning to the trust

Trustee’s good-faith is irrelevant (trying to save trust from fees by buying assets)

Applies to indirect self-dealing with relatives, business associates, etc.

Question 19

Duty of Care

Answer 19

Must exercise care, skill, and caution that would be exercised by a reasonably prudent person. Mistakes in judgement do not expose trustee to liability as long as reasonable care was exercised.

Question 20

Prudent Investor Rule

Answer 20

Trustee must act prudently and reasonably when managing the interests of the trust, as a prudent investor, as if it were his owns. Includes a duty to diversify trust assets and protect from devaluation