Trusts

Question 1

Requirements to
Create a Valid Trust

Answer 1

1. Trustee - although the court can appoint one if not designated
2. Beneficiary - sole trustee cannot be sole beneficiary
3. Trust Property - identifiable; provided
4. Intent to Form Trust (Majority)

Question 2

Pourover Will

Answer 2

A will that makes a gift to a trust.

To create a valid pour-over will:
* trust must be in existence OR
* must be executed at the time of the will’s execution
* trust may be established after the will but before testator’s death

Pour-over gifts are valid EVEN IF
* unfunded OR
* amended during the testator’s life

Question 3

Spendthrift Trust

Answer 3

• Restrains transfer of beneficiary’s interest;
• A settlor-beneficiary CANNOT protect their own interests from creditors (if trustee is also beneficiary, a creditor can come after assets to satisfy claim against beneficiary/trustee)
• Prevents a creditor from reaching the assets;
• FAVORED creditors may reach assets with same limitations as beneficiary

Favored Creditors
* Child support
* Spousal support
* Judgment creditor
* State
* US Government
* Necessaries

Question 4

Charitable Trust

Answer 4

• charitable purpose - not identifiable individuals
• if impracticable, impossible, illegal the charitable trust will NOT fail - instead court will determine alternative distribution to accomplish general charitable intention (Cy Pres)

Question 5

Alienability & Disclaimer

Answer 5

A beneficiary may disclaim their interest in the trust.
Majority: within 9 months
UPC: anytime before acceptance

Question 6

Modification

Answer 6

Generally, trusts are revocable.

If the trust is revocable, it is amendable.

Question 7

Termination

Answer 7

1. Revocable: follow method
2. Irrevocable: settlor may terminate with consent of all existing beneficiaries exist; after settlor’s death, may terminate with all beneficiaries and remaindermen’s consent
3. Termination by Merger if sole truste becomes sole beneficiary
4. Termination by Purpose if purpose becomes illegal, impossible, impracticable (if charity, see cy pres)
5. Termination by Uneconomic Trust: cost of admin is not justified because the value of trust property is so low.

Question 8

Trustee’s Duties

Answer 8

1. Duty to administer the trust
2. Duty of loyalty: interest of beneficiaries; act impartially
3. Duty of care: prudent administration; including diversification; compliance w UPIA; allocate property to principal and income

Remedies for Trustee’s Breach of Duty
* remove trustee
* compel performance
* compel payment of damages

Question 9

Powers of Appointment

Answer 9

A settlor or testator can give a beneficiary power of appointment, which enables the beneficiary to designate who will receive trust or estate property.

General Power of Appt: Unlimited
Special Power of Appt: Limited

If default of appointment, will pass to estate

Question 10

Requirements to Validly Promise to Create a Trust in the FUTURE

Answer 10

A promise to create a trust in the future is valid IF:
1. supported by consideration OR
2. manifested anew an intention to create the trust when the assets come into existence (like adding trust’s name to bank account)