Trusts

Question 1

What is required for valid trust formation?
[SPIRIT B]

Answer 1

A trust is valid if there is:

S- a Settlor
P- a valid trust Purpose
I- present Intent to create a trust
R- Res (trust property)
I - BLANK
T- a Trustee

B- Beneficiaries

If the trust is over real property, it must be in writing to satisfy the Statute of Frauds. If no trustee is named, a court may appoint one.

Question 2

What is a Revocable Inter Vivos Trust?

Answer 2

A revocable inter vivos trust allows the settlor to modify or revoke the trust during their lifetime. Upon the settlor’s death, the trust becomes irrevocable, and its terms dictate the distribution of trust property.

Question 3

What is a charitable trust?

Answer 3

A charitable trust is a trust created for a valid charitable purpose, such as relief of poverty, education, or public health. It does not require ascertainable beneficiaries and is not subject to the Rule Against Perpetuities.

If the specified charitable purpose becomes impracticable, a court may modify the trust under the Cy Pres Doctrine to align with the settlor’s general charitable intent.

Question 4

What is a support trust?

Answer 4

A support trust directs the trustee to make distributions necessary for the beneficiary’s health, education, maintenance, or support.

Question 5

How may a trustee exercise discretion?

Answer 5

The trustee’s discretion is limited by the trust’s purpose, and creditors may only reach assets to satisfy claims for necessities provided to the beneficiary.

Question 6

What is a discretionary trust?

Answer 6

A discretionary trust grants the trustee full discretion over distributions to the beneficiary. Beneficiaries cannot compel distributions unless the trustee abuses discretion, and creditors may only reach assets if and when a distribution is made.

Question 7

What is a constructive trust?

Answer 7

A constructive trust is an equitable remedy imposed to prevent unjust enrichment when a person wrongfully acquires property belonging to another. The wrongful holder of the property must transfer it to the rightful owner.

Question 8

What does a trust terminate?

Answer 8

A trust terminates when the trust term expires, its purpose is fulfilled, the trust becomes unlawful or impossible to carry out, or the value of the trust is too low to justify continued administration. Courts may terminate small trusts under California Probate Code.

Question 9

What is a trustee’s duty of care?

Answer 9

A trustee must administer the trust as a reasonably prudent person would, employing due diligence and making informed decisions regarding investments, distributions, and trust management.

Question 10

What is a trustee’s duty of loyalty?

Answer 10

A trustee must act in the best interests of the beneficiaries, avoiding conflicts of interest and self-dealing. Self-dealing is a per se breach of fiduciary duty, even if the transaction benefits the trust.

Question 11

What is a trustee’s duty to distribute?

Answer 11

A trustee must distribute trust assets according to the terms of the trust. A trustee who withholds or misallocates distributions breaches this duty.

Question 12

What is a trustee’s duty to diversify?

Answer 12

A trustee is required to invest trust assets in varying classes of investments to minimize risk.

Question 13

How must a trustee treat beneficiaries?

Answer 13

A trustee must treat all beneficiaries fairly and impartially, considering the trust terms and purposes when making distributions or exercising discretion.

Question 14

Can a trustee ignore a settlor’s instructions?

Answer 14

A trustee must follow the explicit terms of the trust as expressed by the settlor. Any deviation from these instructions without legal justification constitutes a breach of fiduciary duty.

Question 15

How does a trustee breach its’ fiduciary duty?

Answer 15

A trustee breaches fiduciary duty by failing to act in the best interests of the beneficiaries, engaging in self-dealing, mismanaging trust assets, or failing to adhere to the trust’s terms. A breaching trustee may be held personally liable and may be removed by a court.

Question 16

What is the Cy Pres Doctine?

Answer 16

A charitable trust’s beneficiary may be designated by a court in situations where the original beneficiary ceases to exist.

The court will attempt to assign a charitable beneficiary whose goals are as close to the original beneficiary as possible, if none the trust res returns to the estate.

Question 17

May a settlor modify or revoke a trust ?

Answer 17

A settlor may modify or revoke a revocable trust unless the trust states that it is irrevocable.

Question 18

May beneficiaries modify a trust?

Answer 18

A trust may be modified if all beneficiaries consent and the modification does not frustrate a material purpose of the trust.

If the settlor is deceased or unavailable, a court may modify the trust if unanticipated circumstances arise that make modification necessary to further the trust’s purpose.

Question 19

How is a trust modified in CA?

Answer 19

In CA, a trust may be modified on petition by a trustee, or a court may modify a trust if the trust will be substantially impaired due to unknown or unanticipated circumstances of the settlor.

Question 20

Can a court modify a trust?

Answer 20

A court may modify or terminate a trust if continuing under its original terms becomes impracticable, wasteful, or illegal.

Question 21

What is a trustee surcharge?

Answer 21

If a trustee breaches a fiduciary duty, the court may impose a surcharge requiring the trustee to pay damages equivalent to the losses caused by the breach, including lost profits or misappropriated trust funds.

Question 22

When can a court appoint or remove a trustee?

Answer 22

If a trust fails to name a trustee or if the named trustee is unable or unwilling to serve, the court may appoint a trustee to administer the trust in accordance with its terms.

A trustee may be removed for breaching fiduciary duties, failing to administer the trust effectively, or engaging in misconduct that threatens the trust’s purpose.

Question 23

What is a pour over trust?

Answer 23

A pour-over trust is a trust that receives assets from a pour-over will upon the testator’s death, allowing the assets to be distributed according to the terms of the pre-existing trust rather than through probate.

Question 24

What is a private express trust?

Answer 24

A private express trust is a trust created by a settlor for the benefit of specific, ascertainable beneficiaries. It requires a settlor with intent, trust property (res), beneficiaries, a trustee, and a valid trust purpose.

Question 25

What is a testamentary trust?

Answer 25

A testamentary trust is created through a will and takes effect upon the testator’s death. It must comply with both the formal requirements of a valid will and trust formation requirements.

Question 26

How may a trust be revoked?

Answer 26

A trust is presumed irrevocable unless the settlor expressly reserves the right to revoke it. If a trust specifies a method of revocation, that method must be followed; otherwise, the settlor may revoke the trust by any clear expression of intent.

Question 27

Can a trustee participate is self-dealing?

Answer 27

A trustee must not engage in self-dealing, which occurs when the trustee benefits personally from trust transactions. Self-dealing is a per se breach of fiduciary duty unless expressly authorized by the trust terms or court approval.

Question 28

What is tracing in Trust law?

Answer 28

If trust assets are wrongfully transferred, the court may allow tracing to identify and recover the trust property or its proceeds, ensuring the assets remain for the benefit of the rightful beneficiaries.

Question 29

Can a settlor’s creditors reach trust assets ?

Answer 29

A settlor’s creditors can reach assets in a revocable trust during the settlor’s lifetime. Upon the settlor’s death, trust assets become irrevocable and are protected from most creditor claims unless fraudulently transferred.