Trusts

Question 1

What is the key for distinguishing a trust from a will?

Answer 1

The test is whether the transfer creates some PRESENT gift, even if that gift is of a future interest subject to divestment (like a revocable trust which is valid because interest passes to the beneficiary during the settlor’s lifetime it merely becomes possesory upon the settlor’s death.

Question 2

What are the duties of the trustee? And what are the remedies for the breach of each?

Answer 2

1. Administer the trust - remedy for breach = trustee may be ordered to comply with his duties, enjoined from committing a breach, compelled to pay money or restore property or suspended.
2. Loyalty = beneficiary may be able to void the transaction
3. Report - Trustee may be ordered to comply with his duties
4. Separate and Earmark Property - Trustee is liable for any resulting losses or profits
5. Preserve and Make trust property productive - Trustee is liable for losses resulting from breahc and for any profit that would have accrued to the trust but for the breach plus interest.

Question 3

Favoring some beneficiaries over others is an example of a breach of which duty of the trustee?

Answer 3

Duty to administer the trust

Question 4

Buying or selling trust assets or another trust, borrowing from or making loans to trust, personal gains through position as trustee are examples of breach of which duty of the trustee?

Answer 4

Duty of loyalty

Question 5

Denying beneficiary a copy of the trust instrument is an example of a breach of which duty of the trustee?

Answer 5

Duty to report

Question 6

Placing personal and trust funds in teh same account is an example of a breach of which duty of the trustee?

Answer 6

Duty to separate and earmark property

Question 7

Failure to diversify in making investments, to obtain reasonable yield on investments, to promptly review investments, to insure property, etc is an example of a breach of which duty of the trustee?

Answer 7

Duty to preserve and make trust property productive

Question 8

What does teh duty to administer the trust require?

Answer 8

Trustee must act prudently, in good faith, and impartially This duty generally cannot be delegated.

Question 9

What does the duty of loyalty require?

Answer 9

Trustee cannot represent both his personal interest and the interest of the trust NO SELF DEALING

Question 10

What does the duty to report require?

Answer 10

Trustee must respond to beneficiaries’ requests and provide an annual accounting

Question 11

What does the duty to separate and earmark property require?

Answer 11

Trust assets must be kept physically separate from trustee’s personal assets and assets of other trusts (no commingling)

Question 12

What does the duty to preserve and make trust property productive require?

Answer 12

Trustee must use reasonable care to invest the property (prudent investor rule) collect claims due, lease or manage land, record documents, pay taxes, and secure insurance.

Question 13

Does the trustee also have a duty to defend trusts from attack and defend claims?

Answer 13

Yes

Question 14

A trustee can only properly exercise the powers that are expressly or impliedly conferred upon her, these powers include:

Answer 14

1) expressly conferred upon her by the terms of the trust
2) that an unmarried individual has over her own property
3) that are appropriate to achieve the proper investment, management, and distribution of the trust property
4) conferred upon her by the UTC

Question 15

What are the elements required for an express trust?

Answer 15

1) a settlor with capacity to convey
2. a present intent to create a trust relationship
3) a competent trustee with duties
4) a definite beneficiary
5) the same person is not the sole trustee and the sole beneficiary
6) Additionally, there must be a present disposition in trust of specific property then owned by the settlor, and the trust must have a valid trust purpose.

Question 16

IS consideration required for a trust?

Answer 16

No

Question 17

What if the settlor’s intent is for the trust to take effect at some future time?

Answer 17

Not a trust. Settlor’s intent must be that the trust take effect immediately.

Question 18

When does a resulting trust occur?

Answer 18

1. purchase money resulting trust
2. resulting trust arising on failure of an express trust
3. resulting trusts arising from an incomplete disposition of trust assets

Question 19

What are the circumstances giving rise to a resulting trust on failure of express trust?

Answer 19

Where a settlor has conveyed property to a trustee under an express trust and 1) the trust is void or unenforceable or 2) the beneficiary is dead or cannot be located. 3) failure of a charitable trust where cy pres is inapplicable.
When this happens, the express trust terminates and the settlor becomes the beneficiary of the resulting trust.

Question 20

What is a constructive trust?

Answer 20

Not really a trust, rather a flexible equitable remedy to prevent unjust enrichment resulting from wrongful conduct, such as fraud, undue influence, or breach of a fiduciary duty. Constructive trustee’s only duty is convey the property to the person who would have owned it but for the wrongful conduct. Proof of facts necessary to establish a constructive trust must be made by C&C evidence.

Question 21

What is the general rule to constructive trusts arising from a breach of promise?

Answer 21

The general rule is that a mere breach of a promise will not raise a constructive trust.

Question 22

What are the exceptions to the general rule that a mere breach of promise will not raise a constructive trust?

Answer 22

A constructive trust WILL be imposed where:

1) fraudulent promise
2) breach of promise by 1 in a confidential relationship
3) Breach of promise by decedent’s devisee or heir to hold property for the benefit of 3rd person
4) Breach of promise by the decedent to devise property one rendering services in reliance thereon (but not if dmg adequate)
5) Breach of promise to the debtor by the buyer at the foreclosure sale to hold the property for the debtor, causing the debtor to forgo bidding at the sale (not if damages adequate)

Question 23

If Y steals property from X, how does constructive trust come into play?

Answer 23

Title remains in X, but if Y uses the property to acquire other items, Y takes title to the items and holds them in constructive trust for X.

Question 24

if Y acquires property from X by fraud, duress, mistake of fact or by breach of a fiduciary duty owed to X, how does constructive trust apply?

Answer 24

Y hold the property in constructive trust for X’s benefit. IF property is conveyed to a 3rd party who is not a BFP, the 3rd party can be declared a constructive trustee.

Question 25

If Y takes property under a forged or fraudulent will, how does constructive trust apply?

Answer 25

Y holds it in constructive trust for its rightful inheritor, even if Y is innocent.

Question 26

If Y kills X an is convicted, he hold any property acquire from X by will or intestacy as constructive trustee in favor of whom?

Answer 26

in favor of whomever would have taken the property had Y predeceased X.

Question 27

Is there a duty of a constructive or resulting trustee to invest the property?

Answer 27

No

Question 28

What duties does a constructive or resulting trustee have?

Answer 28

Sole duty is to convey legal title to the beneficiary

Question 29

Resulting trusts involve what kind of interests?

Answer 29

Reversionary interests - and are based on the presumed intent of the settlor

Question 30

Constructive trusts are used to prevent what?

Answer 30

Unjust enrichment - they arise either where there is no valid express declaration of trust, or frequently, when no trust was even intended.

Question 31

What is a purchase money resulting trust?

Answer 31

It is presumed whenever beneficiary furnishes teh consideration for the acquisition(purchase) of real or personal property but, with beneficiarie’s consent title is taken in the name of trustee.

Question 32

What are the exceptions to the presumption of purchase money resulting rusts?

Answer 32

1) Where there is a close personal relationship between the parties, a gift is presumed rather than a trust. This presumption is also rebuttable.
2) Unlawful purpose
3) Transferee obtained title wrongfully (tho a constructive trust may be imposed)

Question 33

What happens when the trust purpose is fully satisfied and some trust property remains?

Answer 33

A resulting trust in favor of the settlor.

Question 34

In an express trust, the trust property must be _____ and ___

Answer 34

must be identifiable and segregated - it must be described with such certainty that it can be ascertained from existing facts.

Question 35

What requirements make modification by the court appropriate?

Answer 35

1) the trust could have been modified if all beneficiaries had consented AND
2) the interests of any nonconsenting beneficiaries will be adequately protected.

Question 36

In what circumstances does modification by the court occur?

Answer 36

1) Unanticipated Circumstances
2) Uneconomic Trust or Tax purposes
3) Reformation

Question 37

What is the doctrine of reformation under modification by the court?

Answer 37

The court can reform the terms of a trust to reflect the settlor’s intent if by clear and convincing evidence it is shown that the settlor’s intent and the trust’s terms were affected by a mistake.