Trusts

Question 1

Trust basic Definition

Answer 1

is a fiduciary relationship in which one party (trustee) holds legal title to property for the benefit of designated beneficiaries

Question 2

Express trusts

Answer 2

1. Private trust
2. Charitable trust

Question 3

private trust

Answer 3

created for the benefit of certain defined and/or ascertainable persons (note — most common trust tested on essays)

May be created inter vivos (during settlor’s life) or as a testamentary trust (created by will)

Question 4

charitable trust

Answer 4

created for the benefit of an indefinite class of people or the public generally

Question 5

Resulting trust

Answer 5

trust implied or imposed by law, most often when an express trust fails for some reason (e.g., beneficiary is dead, trust is unenforceable or void, etc.)
Settlor usually becomes beneficiary and trustee conveys title back to settlor or, if settlor has died, settlor’s estate

trust without beneficiaries

Question 6

constructive trust

Answer 6

not a trust, but rather an equitable remedy used in cases to rectify unjust enrichment or wrongful conduct
Court imposes constructive trust on property in wrongdoer’s possession

Question 7

Reqs for valid trust

Answer 7

1) valid trust purpose
2) identifiable property
3) trustee
4) ascertainable beneficiaries
5) compliance with formalities
6) capacity/intent (settlor)

Question 8

Trusts are generally created

Answer 8

inter vivos (during life) or testamentary (by will)

Question 9

who has legal title and who has equitable title

Answer 9

trustee has legal title
bene has equitable title (enforces fiduciary duties)

Question 10

merger of title

Answer 10

when sole trustee is also sole beneficiary = trust terminates

Question 11

what words are generally not enough for trust creation

Answer 11

moral words (hope/wish/etc)

Question 12

inter vivos creation requires either:

Answer 12

1) transfer of property (settlor to trustee)
2) declaration of trust (settlor declares himself trustee)

Question 13

For inter vivos trust, if settlor is both trustee and settlor

Answer 13

need to deed the land from settlor to settlor as trustee

Question 14

for testamentary trust, trust intent and terms must be ascertainably by either

Answer 14

1) terms of will
2) incorporation by reference
3) power of appointment

Question 15

pour over provisions

Answer 15

provision in a will that devises property to a previously existing trust
Does not create a trust; transfers property to an existing trust

Question 16

Trustee Duties

Answer 16

1) loyalty
2) administer in good faith
3) Report
4) no commingling - records
5) defend trust
6) administer in accordance with applicable law (uniform principal and income act) Prudent investor rule

Question 17

discretionary trust

Answer 17

trustee has absolute power and discretion to make decisions regarding distribution of trust property to beneficiaries

Question 18

support trust

Answer 18

directs trustee to pay beneficiaries from trust as much as is necessary for beneficiary’s support

Question 19

spendthrift trust

Answer 19

prohibits beneficiaries from transferring their interests in the trust, either voluntarily or involuntarily
Usually included to protect beneficiary from his own carelessness

beneficiary creditors cannot reach but distributions are reachable

Question 20

Revocation of private trusts

Answer 20

Settlor: can usually revoke or modify unless the terms expressly prohibit
Beneficiary: need settlor consent
Without Settlor consent: can consent to modify or revoke if 1) all benenficaries consent; and 2) doing so would not frustrate material purpose of the truth

Question 21

“All beneificaires” includes

Answer 21

unborn and unascertainable beneficiaries

some states allow appointment of representation for minor, unborn or unascertained beneficiaries

Question 22

honorary trust

Answer 22

no human beneficiaries and no charitable purpose (pet care trust)

Question 23

Characteristics of charitable trust

Answer 23

1) indefinite beneficiaries required
2) charitable purpose
3) can be perpetual

Question 24

charitable trusts must be..

Answer 24

created in favor of a reasonably large class of indefinite beneficiaries

Question 25

what is the standard used to determine whether there is a valid charitable purpose

Answer 25

generally accepted standard - must be considered to benefit the public

Question 26

how can a charitable trust be perpetual

Answer 26

Charity to charity exception to RAP

Question 27

cy pres

Answer 27

allows courts to modify terms of charitable trust to as near as possible of settlor’s intent

Only applies when trusts purpose is accomplished or becomes impracticable, unlawful, wasteful

Question 28

grounds for removing trustee from office

Answer 28

1) incompetence
2 ) unfit
3) serious breach of duty
4) serious conflict of interest
5) insolvency
6) hostile to bene’s
7) refusal to post bonds

Question 29

can you sue the trust

Answer 29

no can only sue trustee in representative capacity

also liable for their own torts

Question 30

how to accept role as trustee

Answer 30

sign or if you start acting like one, you are deemed to have accepted role

Question 31

purchase money resulting trust

Answer 31

supplier of purchase money gives money to seller who gives title of property to 3rd party

Question 32

grounds to impose constructive trust

Answer 32

1) fraud/durress/mistake/breach of fiduciary duty
2) homicide
3) abuse of confidential relationship
4) breach of promise

Question 33

what property can you not transfer under will

Answer 33

property that settlor cant transfer or doesnt yet own

Question 34

who is a qualified beneficiary

Answer 34

beneficiary who is current or first in line for remainder

Question 35

does a beneficiary need to accept a trust

Answer 35

may disclaim only if they have not accepted any benefits

Question 36

divorce and trusts

Answer 36

divorce revokes all trusts where ex spouse is trustee of beneficiary - need final divorce, no filing

Question 37

principal, money received

Answer 37

1) money from selling assets
2) eminent domain
3) insurance proceeds if principal is destroyed
4) stock dividend/stock splits/shares received bc of reorganization
5) sale of unproductive property

Question 38

income, money received

Answer 38

1) rent
2) Interest on trust investments
3) cash stock dividends

Question 39

expenses, principal

Answer 39

1) capital gains tax
2) extraordinary repairs
3) estate tax

Question 40

expenses, income

Answer 40

1) ordinary income tax
2) ordinary repairs
3) depreciation