Trusts

Question 1

Trust Formation Elements

Answer 1

• A valid trust requires:
  1. a beneficiary,
  2. a settlor,
  3. an intent to create a trust,
  4. a trustee,
  5. a valid trust purpose, and
  6. trust property.
• A trust must have a trustee, but the court can appoint a new trustee if the named trustee refuses to serve or dies.

Question 2

Revocation of Trusts

Answer 2

The majority view and the Uniform Trust Code (UTC) provides that a trust is revocable by the settlor by default unless stated otherwise.

Question 3

Charitable Trusts

Answer 3

• A charitable trust is one having a purpose to benefit the society.
• A charitable trust can be perpetual (Rule Against Perpetuities does not apply).

Question 4

Cy Pres Doctrine

Answer 4

Cy Pres Doctrine applies to charitable trusts. When a selected charitable purpose becomes impracticable, the court can select an alternative similar charitable purpose.

Question 5

Termination of an Irrevocable Trust

Answer 5

An irrevocable trust may be terminated if:
1. the settlor and all of the beneficiaries agree to do so, or
2. all of the beneficiaries agree and it will not frustrate the purpose of the trust.

Question 6

Trustee Powers

Answer 6

A trustee’s power can be expressly granted in the trust instrument or implied (all those powers helpful in carrying out the trust purpose).

Question 7

Trustee Duties Owed to Beneficiaries

Answer 7

• A trustee is a fiduciary of the beneficiaries, and owes them the duties of care and loyalty.
• The duty of care requires the trustee to manage the trust as a RPP would in his own dealings.
• The duty of loyalty requires the trustee to:
  1. refrain from self-dealing,
  2. administer the trust in the best interest of the beneficiaries, and
  3. give the same care and deference to each beneficiary.

Question 8

Duty to Follow the Trust Instrument

Answer 8

A trustee has a duty to distribute trust income and assets in accordance with the directions in the trust instrument.

Question 9

Prudent Investor Rule

Answer 9

• A trustee must invest as a prudent investor.
• This requires diversifying trust assets, avoiding risky investments, and selling and reinvesting investments as necessary to keep the trust assets productive.

Question 10

Remedies Against a Trustee

Answer 10

If a trustee breaches any of her duties, beneficiaries may seek damages and removal of the trustee.