Trusts

Question 1

Acceptance Trustee Designation

Answer 1

Trusteed can accept position by substantially complying with a method of acceptance provided for in the terms of the trust

Terms of trust do not provide a method of acceptance, or the method is not made exclusive, then 1) by accepting delivery of trust property
2) exercising powers as a trustee
3) performing duties as a trustee OR
4) otherwise indicating acceptance of the trusteeship

Question 1

When must the manifestation of intent occur?

Answer 1

manifestation of intent must occur either prior to or simultaneously with the transfer of property

Question 2

Valid Trust Purpose

Answer 2

a trust can be created for any purpose, as long as it is not illegal, restricted by rule of law or statute, or contrary to public policy, and is possible to achieve

Question 3

General Allocation of principal and income

Answer 3

Life Beneficiaries = trust income

Remaindermen = trust principal

Allocation must be balanced so as to treat present and future trust beneficiaries fairly, unless a different treatment is unathorized by the trust instrument

Question 4

Mandatory Trust

Answer 4

Trustee has no discretion of payments; trust document explains specifically and in detail how and when the trust property is to be distributed

Question 5

Delivery for Inter vivos trust

Answer 5

simple declaration of trust will usually suffice if the settlor is also the trustee, delivery must accompany the declaration if a third-party trustee is named, whereby the settlor parts with dominion and control over the trust property

Question 6

Totten Trust

Answer 6

a designation to a bank account in a depositor’s name as trustee for a named beneficiary (no separation of legal and equitable title), and it can be revoked by any lifetime act manifesting the depositor’s intent to revoke, or by will

Question 7

“Semi-secret” Trust

Answer 7

when a gift is directed in a will to be held in trust, but the testator fails to name a beneficiary or specify the terms or purpose of the trust; extrinsic evidence may not be presented, the gift fails, and resulting trust is imposed on the property to be held in trust for the testator’s heirs

Question 8

Exceptions to Ascertainable Beneficiaries

Answer 8

1) Unborn children
2) Charitable trusts

Question 9

Charitable Trusts

Answer 9

Must have stated charitable purpose and it must exist for the benefit of the community at large or for a class of persons the membership in which varies

Charitable purposes:
1) relief of poverty
2) advancement of education or religion
3) promotion of good health
4) governmental or municipal purposes
5)
purposes benefiting the community at large or a particular segment of the community

Question 10

Valid Private Express Trust

Answer 10

1) settlor who has a capacity to create a trust
2) clearly expresses a present intent to transfer ownership of
3) property to
4) a trustee who has duties to perform
5) for the benefit of one or definite or ascertainable beneficiaries
6) for a valid purpose

Question 11

Majority presumption on revocability

Answer 11

Most jurisdictions, a trust is presumed to be revocable unless it expressly states that it is irrevocable

Question 12

When does a trust terminate automatically?

Answer 12

1) when it is revoked or expires pursuant to its terms
2) when no purpose of the trust remains to be achieved
3) when the purposes of the trust have become unlawful, contrary to public policy, or impossible to achieve

Question 13

cy pres doctrine

Answer 13

a court may modify a chartable trust to seek an alternative charitable purpose if the original charitable purpose becomes illegal, impracticable, or impossible to perform

Question 14

Pour-Over Devise

Answer 14

a provision in a will that directs the distribution of property to a trust upon the happening of an event, so that the property passes according to the terms of the trust without the necessity of the will reciting the entire trust

Question 15

Secret Trust

Answer 15

looks like a testamentary gift, but it is created in reliance on the named beneficiary’s promise to hold and administer the property for another; if promise is proven by clear and convincing evidence, then a constructive trust is imposed on the property for the intended beneficiary, so as to prevent the unjust enrichment of the secret trustee

Question 16

Class Gift

Answer 16

Modern trend presumes that children includes adopted children absent a contrary intent;

Question 17

Honorary Trust

Question 18

Private Trust

Answer 18

Ascertainable: equitable interest can be transferred automatically by operation of law and directly benefit the person

Question 19

Discretionary Trust

Answer 19

when the trustee is given complete discretion regarding whether to apply payments of income or principal to the beneficiary; creditors have the same rights as a beneficiary if the trustee exercises discretion to pay

Question 20

Precatory Trust

Answer 20

a donor transfers property to a donee using language that expresses a hope or wish that such property be used for the benefit of another

Question 21

Spendthift Trust

Answer 21

Prevents creditors from accessing the property in a trust; property is held to grow at the discretion of the trustee and the beneficiary does not have the to claim

Creditors usually cannot reach trust interest if the governing instrument contains one (Unless for child or spousal support, tax lien holders, and sometimes basic necessities providers)

Question 22

Methods of revoking a trust

Answer 22

1) by substantial compliance with a method provided in terms of the trust

If no method is provided in the trust: then:
2) by a later will/codicil that expressly refers to the trust or specifically devises property that otherwise would have passed according to the terms of the trust OR
3) by any other method manifesting clear and convincing evidence of the settlor’s intent

Question 23

Modification of noncharitable Trust

Answer 23

1) By consent of all beneficiaries if a court concludes that the trust continuance of the trust is not necessary to achieve any material purpose of the trust or that modification is not inconsistent with a material purpose of the trust
2) by consent of all beneficiaries and the settlor even though the modification or termination is inconsistent with a material purpose of the trust

Question 24

Modification or terminate a trust

Answer 24

1) unanticipated changes
2) inability to administer the trust effectively
3) trust becomes uneconomic
4) to correct mistakes
5) achieve the settlor’s tax objectives

Question 25

UPAIA Distribution of Stock

Answer 25

whether classified as a dividend or as a split, is treated as a distribution of principal

Question 26

Rule Against Self-Dealing

Answer 26

a trustee personally engages in a transaction involving the trust property, a conflict of interest arises between the trustee’s duties to the beneficiaries and her own personal interest

Prohibited activities include:
1) buying and selling trust assets
2) selling property of one trust to another trust that the trustee manages
3) borrowing from or making loans to the trust
4) using trust assets to secure a personal loan
5) engaging in prohibited transactions with friends or relatives
6) otherwise acting for personal gain through the trustee position

Question 27

What standard is applicable when an alleged conflict of interest arises that cannot be characterized as self-dealing?

Answer 27

“no further inquiry” standard is inapplicable, and the transaction is assessed under the “reasonable and in good faith” standard

Question 28

Expenses Allocation

Answer 28

Expenses charges to income:
a) 1/2 trustee’s compensation
b) 1/2 accountin/court costs
c) ordinary expenss
d) insurance premiums

Expenses charged to principal:
a) 1/2 trustee’s compensation
b) 1/2 accounting/court costs
c) payments on the principal of trust debt
d) expenses for any proceeding concerning an interest in principal
e) estate taxes
f) payments related to environmental matters

Question 29

Trustee’s Duty

Answer 29

Duty of Loyalty: duty to administer the trust in good faith (subjective standard)
Duty of Good Faith: to act reasonably (objective standard) when investing property and otherwise managing the trust solely in the best interests of the beneficiaries

Question 30

beneficiaries right of enforcement

Answer 30

Lost profits, lost interest, and other losses resulting from a breach of trust are the responsibility of the trustee, and beneficiaries may sue the trustee and seek damages or removal of the trustee for breach

Question 31

Duty of Prudence

Answer 31

may delegate responsibilities if it would be unreasonable for the settlor to require the trustee to perform such tasks. If a function goes to the heart of the trust or constitutes a critical function concerning the property, then the function is discretionary and is not delegable. Otherwise, the function is merely ministerial and can be delegated

Question 32

Prudent Investor Rule

Answer 32

Under the UPIA, trustee must act as a prudent investor would when investing his own property, and must exercise reasonable care, caution, and skill when investing and managing trust assets unless the trustee has special skills or expertise, in which case he has a duty to utilize such assets

Question 33

Duty to Diversify

Answer 33

Duty in the trustee, must adequately diversify the trust investments to spread the risk of loss

Question 34

Duty to make Property Productive

Answer 34

Trustee must preserve trust property and work to make it productive by:
1) pursuing all possible claims
2) deriving the maximum amount of income from investments
3) selling assets when appropriate
4) securing insurance
5) paying ordinary and necessary expenses
6) acting within a reasonable period of time in all matters

Question 35

Duty of Prudent Administration

Answer 35

trustee has a duty to administer the trust as a prudent person and must exercise reasonable care, skill, and caution with regard to trust property. This includes duties to secure possession of property within a reasonable time; to maintain real property; and to segregate personal property from trust assets

Question 36

Duty to be Impartial

Answer 36

trustee must balance the interests of the present and future beneficiaries by investing the property so that is produces a reasonable income while preserving the principal for the remainderman, and sell trust property within a reasonable time if a failure to diversify would be inconsistent with the total performance portfolio approach. Duty does not require that the trustee treat each beneficiary equally, but it does require a trustee not be influenced by the trustee’s personal favoritism or animosity toward individual beneficiaries in administering the trust

Question 37

Duty to Account

Answer 37

must periodically account for actions taken on behalf of the trust so that his performance can be assessed against the terms of the trust;

waiver to report does not relieve a trustee from liability for misconduct that would have been disclosed by a report

Question 38

Beneficiary’s Power of Appointment

Answer 38

given to a beneficiary, power of appointment enables the holder to direct a trustee to distribute some or all of the trust property without regard to provisions of the trust

Question 39

Right of Entry

Answer 39

grantor conveys a fee simple estate subject to a condition subsequent, then upon the happening of the condition subsequent, the grantor is deemed to have retained the right to enter or retake possession, but the fee simple does not end automatically

Question 40

Duty to Disclose

Answer 40

trustee must disclose to the beneficiaries complete and accurate information about the nature and extent of the trust property, including allowing access to trust records and accounts. The trustee must also identify possible breaches of trust and promptly disclose such information to the beneficiaries

Question 41

Class Remain Open

Answer 41

Class remains open and may admit members until
1) at least one class member is entitled to obtain possession of the gift OR
2) preceding interest terminates