Trusts

Question 1

used to control assets

Answer 1

(anytime you want to control property, a trust is the tool to use)
§ Beneficiary is a minor, incompetent, or spendthrift
§ Beneficiary is a charit

Question 2

probate avoidance

Answer 2

Living or revocable trust

Question 3

minimize taxes

Answer 3

§ Marital share trusts
§ Charitable remainder trusts
§ Clifford Trusts- for small businesses.

Question 4

Trusts are critical devices for…

Answer 4

• Estate running
• Tax work
• Charities

Question 5

3 steps to create a trust

Answer 5

establish intent, transfer the res,identify the beneficiaries

Question 6

establishing intent: (step 1)

Answer 6

-The creation of a trust depends on the intent of the party giving the assets — the settler
-The intent needed is that one party hold property for another’s benefit. (Absent a completed gift of the equitable title, no trust is created)
o The statute of frauds does not directly apply to the creation of a trust
§ The transfer of some assets into a trust, i.e., real estate, does require a writing

Question 7

transfer the res: (step 2)

Answer 7

For a trust to exist, the property that is to be held in trust (the “res”) must be
§ Identified so that it is known
§ Delivered into the possession of the trustee

Question 8

identify the beneficiaries (step 3)

Answer 8

o   A private, non-charitable trust cannot exist if the beneficiaries cannot be determined. (in charitable trust, no need  for this)
o   A class of beneficiaries can be named as long as the class is capable of objective definition

Question 9

why is the administrative burden so high on the trustee?

Answer 9

• Annual reports (an “accounting”) are often required-

- Tax returns must be prepared (it’s the beneficiaries who usually pay taxes)

Question 10

what if trusts assets are too low….

Answer 10

prohibits running the trust, too expensive

Question 11

what are the general obligations of the trustee?

Answer 11

The trustee must put the beneficiary’s interest above the trustee’s
· “Prudence and reasonableness, not caprice or careless good nature, much less a desire on the part of the trustee to be relieved from trouble … furnish the standard of conduct” p. 15, ¶ 2
· (trustee must be aware of the circumstances involving the trust and canno be passive.)

Question 12

3 primary obligations of a Fiduciary:

Answer 12

• Loyalty — The trustee must act for the beneficiaries, not anyone else (including the trustee)
• Duty to inform — The trustee must tell the beneficiaries about the status of the trust
• Prudence — The trustee must be reasonably careful in managing the trust
• • (fiduciary obligations are also seen in cotenancies)

Question 13

a trustee cannot self -deal….

Answer 13

without the prior informed consent of the beneficiaries or prior approval from a supervising court

Question 14

If a trustee violates the self-deal rule….

Answer 14

The transaction will be undone, if possible

-Otherwise, the trustee is personally liable for damages

Question 15

Who is a trustee’s primary obligation to?

Answer 15

the beneficiary (not the settlor)

Question 16

Duty of the trustee

Answer 16

duty to inform the beneficiary

Question 17

the settlor…

Answer 17

A settlor can limit the scope of the obligation with specific instructions, but cannot prevent the beneficiary from understanding his or her rights (cos after transfer, settlor becomes a stranger to the trust)

Question 18

a trustee must routinely inform the beneficiary

Answer 18

about the status of the trust including a full accounting for the trust res, income received, and expenses incurred. (trustee must know what is going on with the beneficiary). (even if trustee takes his retainer from the trust he must let the trustee know)

Question 19

Inactivity is NOT allowed…

Answer 19

investments of a trust must be constantly examined
§ Generally, a lack of diversification is problematic
§ Holding an asset that continues to decline is problematic
§ Holding an investment that is speculative is Problematic

Question 20

Terminating The Trust

Answer 20

The beneficiaries do not control the termination of a trust, the intent of the settler does
· A trust that has fully achieved the settlor’s purposes can be terminated with court approval
· (If the purposes that the settlor desired have been accomplished, the trust terminates)
§ (This can be express — e.g., a child reaches adulthood
§ This can be practical — e.g., the trust becomes so small that its administrative expenses would use up the assets)

Question 21

charitable purposes may include:

Answer 21

(a) the relief of poverty;
(b) the advancement of education;
(c) the advancement of religion;
(d) the promotion of health;
(e) governmental or municipal purposes; and
(f) other purposes the accomplishment of which is beneficial to the community

Question 22

charitable trusts & RAP

Answer 22

they are an exception, they can last forever

Question 23

Controlling a charitable trust

Answer 23

· A charitable limitation on a gift is enforceable. It cannot be enforced by the donor/settlor, however, unless the right to do so was expressly created in the gift instrument. (so if trustee misuses the trust settlor cant sue)
· The power of enforcement for a public charity belongs to the public — the attorney general or other appropriate governmental official.( although this does not mean the trustee is without control)

Question 24

Cy Pres means what?

Answer 24

as near as possible

Question 25

When the particular charitable purpose in trust is not possible…

Answer 25

cy Pres..
          If property is given in trust to be applied to a particular charitable purpose, and it is or becomes impossible or impracticable or illegal to carry out the particular purpose, and if the settlor manifested a more general intention to devote the property to charitable purposes, the trust will not fail but the court will direct the application of the property to some charitable purpose which falls within the general charitable intention of the settlor
o   Restatement (2d) of Trusts § 399