Trusts Flashcards
What is required for valid trust formation?
[SPIRIT B]
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.
What is a Revocable Inter Vivos Trust?
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.
What is a charitable trust?
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.
What is a support trust?
A support trust directs the trustee to make distributions necessary for the beneficiary’s health, education, maintenance, or support.
What are the limits on a trustee’s exercise of discretion?
The trustee’s discretion is limited by the trust’s purpose.
What is a discretionary trust?
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.
What is a constructive trust?
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.
When does a trust terminate?
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.
What is a trustee’s duty of care?
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.
What is a trustee’s duty of loyalty?
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.
What is a trustee’s duty to distribute?
A trustee must distribute trust assets according to the terms of the trust. A trustee who withholds or misallocates distributions breaches this duty.
What is a trustee’s duty to diversify?
A trustee is required to invest trust assets in varying classes of investments to minimize risk.
How must a trustee treat beneficiaries?
A trustee must treat all beneficiaries fairly and impartially, considering the trust terms and purposes when making distributions or exercising discretion.
Can a trustee ignore a settlor’s instructions?
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.
How does a trustee breach its’ fiduciary duty?
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.
What is the Cy Pres Doctine?
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.
May a settlor modify or revoke a trust ?
A settlor may modify or revoke a revocable trust unless the trust states that it is irrevocable.
May beneficiaries modify a trust?
A trust may be modified if all beneficiaries consent and the modification does not frustrate a material purpose of the trust.
What is a trustee surcharge?
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.
When can a court appoint or remove a trustee?
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.
What is a pour over trust?
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.
What is a private express trust?
A private express trust is a trust created by a settlor for the benefit of specific, ascertainable beneficiaries.
What is a testamentary trust?
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.
Can a trust be revoked?
A trust is revocable if the settlor expressly reserves the power to revoke in the trust instrument. If the trust does not specify its revocability, it is presumed irrevocable under common law, but many states following the Uniform Trust Code (UTC) presume trusts to be revocable unless stated otherwise.
Can a trustee participate is self-dealing?
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.
What is tracing in Trust law?
If trust assets are wrongfully transferred, the court may allow tracing to identify and recover the trust property or its proceeds.
Can a settlor’s creditors reach trust assets ?
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.
How is a revokable trust revoked?
A revocable trust may be revoked by the settlor using:
- The method expressly provided in the trust, if any; or
- Any other method that provides clear and convincing evidence of the settlor’s intent to revoke.
If multiple settlors contribute to a revocable trust, each settlor may revoke only as to the portion of the trust property they contributed.
When can an irrevocable trust be revoked?
An irrevocable trust may only be revoked if:
All beneficiaries and the settlor consent, or
All beneficiaries consent, and revocation is not inconsistent with a material trust purpose
When can a court revoke or modify a trust?
A court may revoke or modify a trust if:
Unanticipated circumstances arise that defeat the trust’s purpose,
The trust’s purpose becomes illegal or against public policy, or
Continuing the trust would be impracticable, wasteful, or impair administration.
