Trusts

Question 1

Which of the following is NOT a duty owed by the trustee to the trust?

A: A duty to collect all claims due the trust.
B: A duty to manage or lease land.
C: A duty to obtain insurance on the trust property.
D: A duty to avoid all investments of trust funds.

Answer 1

D A duty to avoid all investments of trust funds.

Question 2

Under which of the following conditions can a trustee deal in an individual capacity with the trust?

A: If he fairly compensates the trust in the transaction.
B: If he does so under a good faith belief that his actions are in the trust’s best interests.
C: If his dealings are only with another trust for which he also serves as the trustee.
D: If he is authorized to do so by either the court or the trust instrument.

Answer 2

D If he is authorized to do so by either the court or the trust instrument.

Question 3

A trustee has a duty to administer a trust ____________________, ____________________, and ____________________.

A: Prudently; quickly; in the interests of the beneficiaries.
B: Prudently; quickly; in good faith.
C: Prudently; in good faith; in the interests of the beneficiaries.
D: Quickly; in good faith; in the interests of the beneficiaries.

Answer 3

C Prudently; in good faith; in the interests of the beneficiaries.

Question 4

To whom does a trustee owe duties under a revocable trust?

Answer 4

The settlor exclusively.

Question 5

In whose interest must a trustee of a revocable trust make his decisions?

Answer 5

In the sole interest of the beneficiaries.

Question 6

In order for beneficiaries to compel modification or termination of the trust, how many of the beneficiaries must consent to the change?

A: One-half.
B: A majority.
C: All beneficiaries.
D: Beneficiaries cannot compel modification or termination of a trust.

Answer 6

C All beneficiaries.

Question 7

Unless explicitly disclaimed, which of the following is implicitly read into a trust?

A: Revocability by the settlor.
B: Good faith requirement of the trustee.
C: A spendthrift provision.
D: A charitable purpose.

Answer 7

A Revocability by the settlor.

Question 8

When are trusts presumed transferrable?

Answer 8

Always, unless restricted by statute or spendthrift provision.

Question 9

If a debtor is a beneficiary under an absolute discretionary trust, how can her creditors be repaid?

A: The creditors can demand payment from the trustee, up to the amount owed them if the trustee decides to issue money to the debtor beneficiary.
B: The creditors can demand that the trustee distribute the amount owed them immediately.
C: The creditors can be named additional beneficiaries under the trust.
D: The creditors will have to wait until the debtor beneficiary is issued money in order to reach the money.

Answer 9

A The creditors can demand payment from the trustee, up to the amount owed them if the trustee decides to issue money to the debtor beneficiary.

Question 10

Under an absolute discretionary trust, how much discretion is granted a trustee over how to distribute trust assets to each beneficiary?

Answer 10

Under an absolute discretionary trust, a trustee has absolute discretion over how to distribute trust assets to each beneficiary; he can distribute all or none of the trust assets to any beneficiary.

Question 11

At what point may general creditors reach a spendthrift trust beneficiary’s interest?

A: Upon the creation of the trust.
B: Upon the payment of the trust income to the debtor beneficiary.
C: Upon the issuance of a court order invalidating the spendthrift provision.
D: Upon the payment of trust income to any trust beneficiary.

Answer 11

B Upon the payment of the trust income to the debtor beneficiary.

Question 12

A trust is to provide two beneficiaries income for life and, on their death, the corpus is to be distributed to their children in equal shares. The corpus of the trust is worth $6 million. If one of the trust’s beneficiaries has no present assets but owes her creditors $500,000, what actions can creditors take to obtain payment from the beneficiary?

A: The creditors can obtain a judgment to garnish the beneficiary’s trust income until her debt is satisfied.
B: The creditors can obtain a judgment requiring the trustee distribute $500,000 from the beneficiary’s one-half of the trust corpus.
C: The creditors can petition the court to be named additional beneficiaries under the trust.
D: The creditors can reach any of the trust assets because the trust is revocable.

Answer 12

A The creditors can obtain a judgment to garnish the beneficiary’s trust income until her debt is satisfied.

Question 13

May creditors of a trust beneficiary be named by the court as additional beneficiaries under the trust?

Answer 13

No.

Question 14

In which of the following scenarios would a resulting trust NOT be implied or presumed?

A: Alton lends Benson money so that Benson can purchase a house.
B: Alton lends Benson money so that Benson can repair his boat.
C: Alton creates a trust, the purpose of which is fully satisfied before all the trust property is distributed to beneficiaries.
D: Alton creates a charitable trust, the purpose of which is impossible, and a court determines the cy pres doctrine cannot be applied

Answer 14

B Alton lends Benson money so that Benson can repair his boat.

Question 15

What happens if a settlor creates a trust, the purpose of which is fully satisfied before all the trust property is distributed to beneficiaries?

Answer 15

A resulting trust in favor of the settlor is implied.

Question 16

What result if a settlor creates a charitable trust, the purpose of which is impossible?

Answer 16

A court determines whether the cy pres doctrine can be applied. If not, the court will terminate the express trust, and the settlor will become the beneficiary of a resulting trust.

Question 17

Mack creates a testamentary trust for the benefit of the preservation of the lake near his home so that the residents of his hometown will have fresh drinking water. After Mack’s death, the lake is sold and public access is closed. The court directs the trustee to reallocate the trust funds to cleaning up the river that runs through the town, but which had been too contaminated beforehand for drinking. Is the reallocation of the money valid?

A: Yes, because it is as near as possible to the original purpose of the trust.
B: Yes, because Mack is dead, his intent cannot be discerned, and therefore the court is obligated to insert its own interpretation of Mack’s intent so that the trust can continue.
C: No, because the trustee can still use the trust funds to preserve the lake, and the trust specifically named that lake as the target of the funds.
D: No, because Mack is dead and cannot approve the changed plan.

Answer 17

A Yes, because it is as near as possible to the original purpose of the trust.

Question 18

Which of the following facts, if true, will NOT prevent the creation of a valid trust?

A: The trust is being created for a purpose that is unlawful.
B: The trust is being created for a purpose that is contrary to public policy.
C: The trust is being created for a purpose that is impossible to achieve.
D: The trust is being created without consideration.

Answer 18

D The trust is being created without consideration.

Question 19

Which of the following would be a valid charitable trust?

A: A trust for the benefit of all the settlor’s descendants.
B: A trust for the benefit of all the settlor’s descendants then alive.
C: A trust for the benefit of the settlor’s neighbors.
D: A trust for the benefit of the settlor’s church.

Answer 19

D A trust for the benefit of the settlor’s church.

Question 20

In order for a pour-over gift to be valid, when must the trust be created?

Answer 20

At any time before, concurrently with, or after the will’s execution.

Question 21

Which of the following describes a charitable trust?

A: A gift made by will to a trust.
B: A trust for the benefit of the settlor’s descendants.
C: A gift made by trust to a trust beneficiary’s estate.
D: A trust for the benefit of the settlor’s church.

Answer 21

D A trust for the benefit of the settlor’s church.

Question 22

Which of the following is true of a settlor’s ability to revoke or amend a trust?

A: In order to revoke or amend a trust, a settlor must express his intent in writing.
B: In order to revoke or amend a trust, a settlor must express his intent using the same method through which he created the trust.
C: A settlor may use any procedure manifesting clear and convincing evidence of the settlor’s intent to revoke or amend the trust.
D: A settlor cannot revoke or amend a trust once it has been executed.

Answer 22

C A settlor may use any procedure manifesting clear and convincing evidence of the settlor’s intent to revoke or amend the trust.