Trusts

Question 1

Elements of an express trust

Answer 1

1) settlor with capacity to convey
2) present intent to create a trust relationship
3) contacted trustee with duties
4) indefinite beneficiary
5) same person is not the sole trustee and the sole beneficiary
6) present disposition entrust a specific property owned by settlor
7) valid trust purpose

Question 2

Capacity for a revocable trust

Answer 2

Capacity required to create a revocable or testamentary trust is the same as that required to make a will.

Question 3

Capacity to create an irrevocable trust

Answer 3

Settlor must have legal power to convey the trust property.

Question 4

Lack of capacity

Answer 4

Settler lacks capacity when he enters into a trust as a result of undue influence, fraud, or duress.

Question 5

Precatory expressions

Answer 5

Settlers expression of a hope, wish, or mere suggestion that the property had been used in a certain way is called precatory language. The usual inference is that precatory expressions do not create a trust.

Question 6

Trustee

Answer 6

A trust will not fail because the trustee dies, refuses to except appointment, or resigns.

Court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee survived.

Question 7

Acceptance of trusteeship

Answer 7

A person accepts a trusteeship by substantially complying with the acceptance terms in the trust instrument or accepting delivery of trust property, exercising powers or performing duties as trustee or indicating acceptance.

Question 8

Trustee must have duties

Answer 8

Settlor must intend to impose enforceable duties on the trustee.

Court will usually imply duties if there is an intention to create a trust, a res, and an identified beneficiary

Question 9

Grounds for removal of a trustee

Answer 9

1) serious breach of trust
2) lack of cooperation among cotrustee
3) unfitness, unwillingness, or persistent failure to administer
4) substantial change in circumstances
5) continuation in office would be detrimental to the trust

Question 10

Resignation of trustee

Answer 10

Trustee can resign by either giving 30 days notice to the qualified beneficiaries, settlor if living, and co-trustees; or obtaining court approval.

Question 11

Successor trustees

Answer 11

Successor trustee succeeds to all of the rights, powers, and privileges of the original trustee and is subject to all of the original trustee’s duties, liabilities, and responsibilities.

Question 12

Qualified beneficiary

Answer 12

Beneficiary who, on the date of the beneficiary’s qualification is determined is a current beneficiary or a first-line remainder man.

Question 13

Definiteness of beneficiaries under private trust

Answer 13

There must be definite beneficiaries in order to have a private trust.

Beneficiaries may be definite even though not yet ascertained but they must be ascertainable by the time their interests are to come into enjoyment.

If a private trust exist for the benefit of the class the class must be reasonably definite.

Question 14

Resulting trust for lack of a beneficiary

Answer 14

If a trust fails for lack of a beneficiary, resulting trust in favor of the settlor or his successors is presumed.

Question 15

Trust property requirement

Answer 15

Where there is no trust property, the trust fails because the trustee has no property to manage.

Question 16

Trust purposes

Answer 16

A trust is invalid if it is illegal, contrary to public policy, impossible to achieve, or intended to defraud the settlor’s creditors or based on the illegal consideration.

Question 17

Secret trust

Answer 17

Where a will makes a gift that is absolute on its face but was in fact made in reliance on the beneficiary’s promise to hold the property in trust for another, the intended trust beneficiary may present extrinsic evidence of the promise.

If the promise can be proven by clear and convincing evidence, a constructive trust will be imposed on the property in favor of the intended beneficiary.

Question 18

Semi-secret trust

Answer 18

If a will makes a gift in trust but fails to name the beneficiary the gift fails and the named trustee holds the property on the resulting trust for the testator’s heirs.

Question 19

Distinctive rules that apply to charitable trusts

Answer 19

Charitable trust must have indefinite beneficiaries, it may be perpetual, and the cy pres doctrine applies.

Question 20

Charitable purposes

Answer 20

Include the relief of poverty, the advancement of education or religion, the promotion of health, and the accomplishment of governmental purposes.

Question 21

Enforcing charitable trusts

Answer 21

Suits to enforce a charitable trust can be brought by the settlor, a qualified beneficiary, or the state’s attorney general.

Question 22

Rule against perpetuities and charitable trusts

Answer 22

Rule against perpetuities does not apply to the shifting of the beneficial interest in a trust from one charity to another on the happening of the condition.

Question 23

Cy pres

Answer 23

When a charitable purpose selected by the settlor is impracticable, unlawful, impossible to achieve, or wasteful, court may select an alternative under the doctrine of cy pres which means as nearest as possible by ascertaining the settlor’s primary purpose.

Question 24

Spendthrift trusts

Answer 24

Precludes the beneficiary from voluntarily or involuntarily transferring his interest in the trust, and his creditors are precluded from reaching it to satisfy their claims.

Question 25

Exceptions to the spendthrift clause trust

Answer 25

Spendthrift clause cannot be used to shield the beneficiary from:

1) his own creditors where the beneficiary is the settlor
2) claims for support, alimony, and necessities
3) claims by the government

Question 26

Termination of the trust

Answer 26

Trust will terminate automatically upon expiration of the term specified in the instrument or when all of the purposes of the trusts have been accomplished or have become unlawful, contrary to public policy, or impossible to achieve.

Question 27

Modification or termination by the settlor

Answer 27

A settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable.

Question 28

Modification and termination of the trust by the beneficiaries

Answer 28

A trust may be terminated or modified upon the consent of the settlor and all beneficiaries even if the modification or termination conflicts with the material purpose of the trust.

Trust also may be modified or terminated on the consent of only all beneficiaries but only if no material purpose of the trust would thereby be frustrated.

Question 29

Modification or termination of a trust by the court

Answer 29

A court may terminate or modify the trust if the trust could have been modified if all beneficiaries had consented and the interest of any nonconsenting beneficiaries will be adequately protected.

Court may also terminate or modify the trust if unanticipated circumstances threaten the purposes of the trusts, continuation of the trust on its existing terms is impracticable or wasteful, or the value of the trust is insufficient to justify the cost of administration or to achieve the settlor’s tax objectives.

Question 30

Termination or modification of the trust by the trustee

Answer 30

The trustee can terminate a trust if the trust property is less than $50,000 and the amount is insufficient to justify the cost of administration.

Question 31

Sources of trustee’s power

Answer 31

Trustee can properly exercise only such powers as are expressly or impliedly conferred upon her.

Question 32

Duty to administer trust

Answer 32

Trustee has a duty to administer the trust in good faith and in a prudent manner in accordance with the terms and purposes of the trust instrument and the interest of the beneficiary.

Question 33

Duty of loyalty

Answer 33

Trustee cannot enter into any transaction in which she is dealing with the trust in her individual capacity.

Question 34

Beneficiary’s rights in case of prohibited transaction

Answer 34

Transaction involving trustee self-dealing is voidable by the beneficiary affected by the transaction unless a court or the terms of the trust approved it, beneficiary failed to bring suit within the prescribed time period, beneficiary gave her consent, or it involves a contract or claim arising before the trustee became trustee.

Question 35

Duty to report

Answer 35

A trustee must provide a qualified beneficiaries with her name, address, and telephone number; respond to beneficiary request for information about the trust’s administration; and provide a copy of the trust instrument if requested; and furnish an annual accounting of the trust.

Question 36

UPIA standard of care

Answer 36

Trustee must exercise reasonable care, skill, and caution when investing and managing trust assets.

Trustee with special skills or expertise, or who has represented herself as having such knowledge, has a duty to use those skills or expertise.

Question 37

Prudence evaluated

Answer 37

Investment decisions must be evaluated in the context of the entire trust portfolio and as part of an overall investment strategy that has risk and return objectives reasonably suited to the particular trust.

Question 38

Diversification of investments

Answer 38

Trustee must diversify the investments of the trust unless she reasonably determines that the purposes of the trust are better served without diversification

Question 39

Reviewing trustee decisions

Answer 39

Determined in light of the facts and circumstances existing at the time of the trustee’s decision or action.

Question 40

Remedies for breach of trust

Answer 40

Is the trustee committee, or is about to commit a breach of his trust duties, the court may:

1) order specific performance of the trustee’s duties
2) enjoin the trustee from committing a breach of trust
3) compel trustee to pay money or restore property
4) suspend the trustee

Question 41

Damages to beneficiaries for breach

Answer 41

Trustee is liable to the beneficiaries for the greater of the amount necessary to restore the trust property and distributions to what they would have been absent the breach or the trustee’s profit from the breach.

Question 42

When trustee is not liable for breach

Answer 42

Trustee is not liable to a beneficiary for a breach of trust if he acted in reasonable reliance on the terms of the trust or the beneficiary ratified the transaction so long as he was not improperly induced

Question 43

Trustee exculpatory clauses

Answer 43

Exculpatory clauses are void if they relieve the trustee of liability for breach of trust committed in bad faith or with reckless indifference or appear in the trust instrument because of the trustee’s abuse of a confidential relationship with the settlor.

Question 44

Liability of co-trustees

Answer 44

Trustee will not be liable for the action of co-trustees if he do not join the action and he exercised reasonable care in preventing the breach of trust or compelling the cotrustee to redress the breach

Question 45

Property improperly transferred to bona fide purchaser

Answer 45

A beneficiary or successor trustee cannot set-aside transactions that are breaches of trust and the property is in the hands of a bona fide purchaser.

Question 46

Adjustment power

Answer 46

Trustee or personal representative has an adjustment power to reallocate portfolio return between income and principal beneficiaries.

Question 47

Duty of fairness to all beneficiaries

Answer 47

Trustee is under a duty to administer the trust impartially, except to the extent that the trust or the will manifests an intent to benefit one or more of the beneficiaries over the others.

Question 48

Purchase money resulting trust

Answer 48

Presumed whenever a beneficiary furnishes the consideration for the acquisition of a real or personal property and takes title in someone else’s name.

Presumption does not arise when there is a close relationship between the parties.

Question 49

Resulting trust on failure of express trust

Answer 49

Resulting trust arises where settlor has conveyed property to a trustee under an express trust and the trust is void or unenforceable or the beneficiary is dead or cannot be located.

Question 50

Constructive trust

Answer 50

Flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct such as fraud, undue influence, or breach of a fiduciary duty.

Must show this by clear and convincing evidence.