Trusts Flashcards
What are the three essential elements to create a valid trust?
Intent, delivery, and acceptance.
Additionally, there must be trust property, a trustee, and one or more beneficiaries.
What is the requirement for beneficiaries under common law of trust?
Beneficiaries must be ascertainable.
A trust for indefinite beneficiaries is invalid to ensure enforcement of the trust terms.
What is the Section 409 exception under the Uniform Trust Code?
A trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary.
This can include a trust for a benevolent general noncharitable purpose.
List the six charitable purposes recognized for charitable trusts.
- Relief of poverty
- Advancement of education
- Advancement of religion
- Promotion of health
- Governmental or municipal purposes
- Other community beneficial purposes
What is the duration of a charitable trust?
A charitable trust can last in perpetuity.
It is not subject to the rule against perpetuities.
What is the primary function of a discretionary support trust?
To permit distributions that enable the beneficiary to maintain their accustomed standard of living.
What does a spendthrift clause do?
Prevents a beneficiary’s creditors from reaching trust assets until they are distributed to the beneficiary.
However, it does not prevent the beneficiary from reaching trust assets if the trustee abuses discretion.
What is the common law rule regarding the ineffectiveness of appointments to non-objects?
The ineffectiveness of appointments to non-objects does not affect the appointments to the objects.
What is the default status of a trust under the Uniform Trust Code?
A trust is revocable and amendable unless the trust instrument expressly provides otherwise.
What is the illusory-transfer doctrine?
A surviving spouse can reach assets transferred into a revocable trust by the deceased spouse because the transfer is economically ‘illusory’.
What is the fraudulent-transfer doctrine?
A surviving spouse can reach assets in a revocable trust on the basis that the transfer was ‘fraudulent’ against their expectancy.
What is required for the termination of an irrevocable trust?
Unanimous consent of both income beneficiaries and remaindermen, unless a material purpose of the trust remains to be performed.
What is a class gift?
A gift to a group of persons described collectively, typically by their relationship to a common ancestor.
According to the Uniform Probate Code, what happens if a beneficiary does not survive to the distribution date?
The beneficiary’s interest passes to their issue unless the trust instrument specifies otherwise.
What is the common law rule regarding vested remainders in class members?
A remainder is divested only if the deceased remainder person has a child; if childless, it passes to their estate.
What is equitable deviation?
A court may order deviation from administrative terms of a trust when unanticipated changes would defeat the trust’s purposes.
What does the cy pres doctrine allow a court to do?
It allows a court to redirect a charitable gift to another similar charity when the original purpose cannot be fulfilled.
What constitutes an abuse of discretion by a trustee?
Acting in bad faith or with improper motive.
Abuse of discretion also depends on the terms of the trust and the trustee’s duties.
What duty does a trustee owe to trust beneficiaries?
A duty of loyalty.
Under what circumstances can a trust be amended or revoked according to the Uniform Trust Code?
The power to revoke or amend is exercisable by will unless the trust instrument provides otherwise.
What is the significance of the Rule Against Perpetuities in relation to trusts?
Interests must vest within 21 years plus lives in being from the date the power of revocation lapses.
What is the duty of care in trust management?
A trustee must exercise reasonable care, skill, and caution.
What entitlements do beneficiaries have regarding a trustee’s discretionary judgments?
Beneficiaries are entitled to general information concerning the bases for the trustee’s discretionary judgments.
What constitutes an abuse of discretion by a trustee?
Acting in bad faith or with improper motive.
What is the duty of loyalty owed by a trustee?
A trustee is prohibited from placing their own interests above those of the trust beneficiaries.
What are the two types of transactions prohibited under the duty of loyalty?
- Self-dealing
- Conflict of interest
What is self-dealing in the context of trust management?
When a trustee deals with trust property for their own personal benefit.
What is the significance of the no-further-inquiry rule?
It renders self-dealing transactions voidable regardless of good faith or fairness.
What remedies do beneficiaries have for a trustee’s self-dealing?
- Set aside the transaction
- Obtain a damages award
What happens when a beneficiary chooses to set aside a self-dealing transaction?
The trust property purchased is returned and the amount paid is refunded by the trust.
How are damages calculated for a self-dealing transaction?
Based on the difference in fair market value at the time of the transaction and the amount paid by the trustee.
What is the duty to administer the trust diligently?
A trustee must administer the trust in good faith according to its terms and applicable law.
How are ordinary and extraordinary expenses allocated under the Uniform Principal and Income Act?
- Ordinary expenses to income
- Extraordinary expenses to trust principal
What defines an extraordinary expense?
An expense related to unusual or unforeseen occurrences that does not destroy the asset.
What is a hallmark of prudent investing for a trustee?
Diversification.
What is the effect of diversification in trust investment?
It reduces aggregate risk by investing in different categories.
Under what conditions is a trustee not liable for declines in asset value?
Due to downturns resulting from general economic conditions.
Fill in the blank: A trustee must take reasonable steps to ______ trust property.
[protect]
True or False: A trustee can prioritize their own interests over those of the beneficiaries.
False
