Trusts

Question 1

A private trust requires

Answer 1

(1) settlor expresses intent (2) res (3) ascertainable beneficiaries (need not be alive yet) (4) valid purpose

Question 2

A charitable trust requires

Answer 2

(1) settlor expresses intent (2) res (3) valid charitable purpose

Question 3

For a res to be valid, the property must be

Answer 3

certain and identifiable, otherwise there is no trust. **Duty to pay a debt is not valid, but right to receive a debt payment is valid.

Question 4

An attempt to create a trust in property expected to be received by inheritance is

Answer 4

invalid and treated like a gratuitous promise unless the testator has already died and the legatee is merely waiting for the estate to distribute the property.

Question 5

Where a promise to create a trust is gratuitous, a trust arises when all the elements are eventually met only if

Answer 5

the settlor reaffirms the intent to create a trust

Question 6

No trust fails for want of a ___________ unless

Answer 6

trustee; it is super clear that the settlor wanted ONLY that person to serve as trustee (this almost never happens)

Question 7

In most states, an empty trust is valid if the trust is a named beneficiary of

Answer 7

a life insurance policy or a pension plan death benefit

Question 8

Under the traditional rule an invalid trust for want of beneficiaries _________ be turned into a power of appointment in the named trustee, but under the modern majority _______.

Answer 8

cannot; the power of appointment argument should be made and if the failed trustee does not exercise it w/in a reasonable amount of time the property returns to settlor’s estate in resulting trust

Question 9

Ascertainable beneficiaries (do/do not) need to be alive.

Answer 9

do not. If not alive, a guardian ad litem will be appointed to enforce the trust in the unborn beneficiaries interests. **If the B’s are never born, the money returns to settlor’s estate via resulting trus

Question 10

Honorary trusts at common law are _______, but in about half of states _____________.

Answer 10

invalid as violating the RAP; are valid for the life of the pet (designated enforcer, leftover money returns to estate of settlor)

Question 11

A person cannot be both trustee and beneficiary unless

Answer 11

(1) there is more than one trustee or (2) there is more than one beneficiary

Question 12

A pour over clause in a will is

Answer 12

valid and the trust that receives the pour over can be created before, concurrently, or after the will itself is created. **If T revokes the trust before T dies, the gift in the will lapses.

Question 13

A bank account created by a settlor as trustee of the money in the account for someone is

Answer 13

valid and called Totten trust. It is recovable during life. In most states it can be revoked by will, but not under the UPC. Reachable by creditors. If B predeceases S, it is revoked.

Question 14

An oral trust of ______ property is enforceable.

Answer 14

personal. Real property must have a writing that satisfies the Statute of Frauds.

Question 15

An oral trust for real property might be enforceable through constructive trust if P can show

Answer 15

(1) fraud in the inducement (T was a liar from the beginning and wrongly induced S to name him trustee) or (2) a confidential relationship between S and the purported T.

Question 16

Oral contracts to make a will are enforceable via a constructive trust only if

Answer 16

the devise is for personal property and proponent proves the terms by C&C evidence. Real property requires a writing.

Question 17

Under the UPC, oral contracts to make a will is enforceable if

Answer 17

(1) the terms are in the will itself or (2) the terms are in a written contract or (3) the will refers to the contract and extrinsic evidence proves the terms

Question 18

A secret trust occurs when

Answer 18

a B receives property under a will and had made a promise outside the will to serve as a trustee w/r/t the received property

Question 19

A secret trust is enforceable via contrustive trust if

Answer 19

proponent can show by C&C evidence the will beneficiary’s promise to be a trustee

Question 20

A semi-secret trust occurs when

Answer 20

a will devises property to a T “in trust” for purposes I have already communicated to T

Question 21

A semi-secret trust results in

Answer 21

a resulting trust of the res back to the testator’s estate. There is no trust.

Question 22

Charitable trusts _______ subject to the RAP.

Answer 22

are not (nor are they subject to the Rule Against Accumulation, whatever the fuck that is)

Question 23

A charitable trust’s charitable purpose ______ be reformed by a court under the doctrine of ______.

Answer 23

may; cy pre (as near as possible).

Question 24

Charitable trusts are enforced by the

Answer 24

(1) state attorney general in most states; (2) in UTC states, the settlor while living or an interested B

Question 25

Under cy pres, a court will look at the settlor’s

Answer 25

primary intent in creating the trust and the specific direction given by S to achieve that primary purpose

Question 26

A court can reform a trust’s terms under the doctrine of __________ because of

Answer 26

deviation; unforeseen changed circumstances.

Question 27

A creditor of a beneficiary under a mandatory distribution of income trust can

Answer 27

garnish the B’s income stream

Question 28

is an example of

Answer 28

a spendthrift clause.

Question 29

Creditors of a beneficiary of a spendthrift trust cannot reach the trust income stream unless ________

Answer 29

(1) creditor has provided necessities; (2) creditor is for alimony or child support; (3) claims by the US or states

Question 30

A trustee of a discretionary support trust has a duty to

Answer 30

support the B if B can’t support himself, but trustee may presumptively decide not to distribute if B has other resources (especially if the trust uses words like “sole”/”absolute” discretion)

Question 31

A pure discretionary trust is one that __________.

Answer 31

vests sole discretion for distributions in the trustee. The B has no right to receive distributions provided Trustee is honest and acts in good faith.

Question 32

Creditors of the beneficiary of a pure discretionary trust have the following rights

Answer 32

Creditors cannot force distributions, but can attach to any future distributions. Under UTC, a claim by a child, spouse, or former spouse can compel a distribution out of the trust for child support or alimony

Question 33

A self-settled trust created for settlor’s benefit _______ reachable by creditors.

Answer 33

is. Spendthrift clauses are unenforceable. Income stream is always reachable, assets are reachable if the trust is revocable OR trustee has discretionary authority to make distributions.

Question 34

If settlor creates an irrevocable trust for a third person, settlor’s creditors have

Answer 34

no rights unless there was a fraudulent transfer under fraudulent transfer law.

Question 35

Under a trustee’s duty of loyalty, the trustee cannot

Answer 35

(1) buy or sell trust assets to itself (2) borrow trust funds (3) sell assets from one trust to another (4) corp. trustee cannot purchase own stock as trust investment (but can maintain if part of original res) (5) engage in a transaction for personal gain

Question 36

Under a trustee’s duty to invest prudently, the trustee must

Answer 36

(1) not commingle trust property with other property (2) balance return with potential risk (3) diversify investments (4) keep trust productive

Question 37

A trustee’s compliance with the prudent investor rule is measured a

Answer 37

portfolio view, so if one or more assets underperform that’s okay as long as total return is reasonable

Question 38

A trustee’s ancillary duties are

Answer 38

(1) preserve and protect trust property (i.e. casualty insurance) (2) impartiality (3) account and inform

Question 39

Under modern statutes, trustee’s ______ invest in common trust funds.

Answer 39

can. Allows greater economy and diversification.

Question 40

When there is more than one trustee, traditionally any action requires _________ but the modern majority rule requires

Answer 40

unanimity; a majority

Question 41

A beneficiary’s options for breach of trust are

Answer 41

(1) ratify the transaction and waive the breach (2) sue for the resulting loss (3) for self-dealing cases, trace the property and recover it for the trust

Question 42

An exculpation clause is unenforceable if

Answer 42

(1) to the extent it relieves the trustee of liability for reckless or bad faith action or (2) the clause was drafted by or at direction of trustee and settlor did not have independent counsel

Question 43

Trustee liability for torts

Answer 43

Traditional rule: personally liable on all torts of self and agents, but can be reimbursed from trust estate if not personally at fault. UTC: only if trustee was personally at fault, otherwise must sue trustee in representative capacity.

Question 44

Trustee liability for contracts

Answer 44

Traditional rule: trustee perosnally liable on Ks unless stipulation in K that relieves T of personal liability. UTC: claimant must sue T in representative capacity UNLESS T failed to reveal her representative capacity when entering the K

Question 45

A co-trustee can be liable for breaches by other trustees if

Answer 45

(1) he participated in the breach
(2) failed to use resaonble care to prevent it
(3) neglected to take proper steps to compel his co-trustee to redress the breach

Question 46

A successor trustee that becomes aware of a breach by a previous trustee must

Answer 46

take proper steps to compel the former trustee to redress the breach, otherwise she herself is in breach

Question 47

In most states, a trustee can delegate investment decisions so long as

Answer 47

(1) SELECTING (2) DEFINING (3) REVIEWING trustee uses reasonable care to
(1) select the agent
(2) define the scope and terms of the delegation and
(3) periodically reviews the actions and decisions of the agent

Question 48

A trustee of a revocable trust that gets consent of the settlor for a breach ______ liable.

Answer 48

is not.

Question 49

Trust accounting rules:

Answer 49

income Bs get net income, remaindermen get corpus at termination. Receipts: interest rents, dividends on stock paid in cash are income. Proceeds from sale of trust assets, stock splits, and dividends paid in stock are principal. Expenses: Ordinary expenses (repairs, taxes, interst, etc.) are charged to income. Extraorindary items (capital improvements, income tax on sale of property) are charged to the principal. Trustee fee is charged half to income, half to principal. A T may adjust the normal classification rules if necessary to comply with duty of impartiality

Question 50

A trust can be terminated early if

Answer 50

(1) all Bs consent and (2) there is no further trust purpose to be served.

Question 51

Revocability: In many states, trusts by default are _________, but under the UTC and a growing number of states, trusts are _________.

Answer 51

irrevocable unless settlor expressly reserves right to revoke; revocable unless instrument expressly stipulates that it is irrevocable.

Question 52

A resulting trust arises when

Answer 52

(1) semi-secret trust (2) trust has leftover corpus after purpose is served (3) express trust fails and trust is silent was to what to do in the event of failure

Question 53

A purchase money resulting trust arises when

Answer 53

???

Question 54

A sale or exhange by a trustee of a resulting or constructive trust cuts off B’s rights to the transferred asset if the purchaser is a

Answer 54

BFP. But trustee holds any consideration received in trust for B. If purchaser is not a BFP, B can elect to impose a trust on either the consideration received by trustee OR on the original property in the NON-BFP’s hands

Question 55

Powers of appointment vocab:

Answer 55

donor: creator of the power of appointment donee: holder of the power of appointment general power: no limits on class of beneficiaries of the appointment power (i.e. donee can appoint to herself, her estate, or her creditors) takers in default: people who get the property if donee declines to exercise the power permissible objects: people to whom the donee can give property under the terms of the power of appointment

Question 56

In order to exercise a power of appointment in a will, the will must

Answer 56

refer in some way to the power. The reference can be general (“and any property under which I have a power of appointment), unless the power of appointment requires a SPECIFIC REFERENCE.