Trusts Flashcards
What is required to create a private express trust?
- Intent
- Property
- Legitimate purpose
- A beneficiary
Does precatory language create a trust?
No
Can an unborn child be a beneficiary?
Yes, if part of a definite class gift.
When can one establish a charitable trust?
When it has a charitable purpose
What is the cy pres doctrine?
It allows a court to modify a trust if it has a general (not specific!) charitable purpose
If a court cannot modify a charitable trust under the cy pres doctrine, where does the property go?
A resulting trust
What is a remedial trust?
An equitable remedy created by law, either a resulting or a constructive trust.
What is a resulting trust?
It is a trust that conveys property back to the settlor or his estate so to avoid unjust enrichment.
What is a constructive trust?
It is created when there is wrongful conduct directed toward the settlor that caused the creation of the trust.
What is a mandatory trust?
The trustee has no discretion to distribute
What is a discretionary trust?
The trustee has complete discretion to distribute
What is a support trust?
The trustee must distribute so to support the beneficiary
Can a beneficiary transfer her equitable interest?
Yes, unless the trust or statute limits this
When can a creditor reach trust principal or income?
- Spousal or child support
- Basic necessities
- Federal or state tax liens
What is a pour-over trust?
Testator’s creditors cannot reach the testator’s assets
What is a spendthrift clause?
The beneficiary cannot transfer her equitable interest
When can a creditor reach the beneficiary’s equitable interest?
When paid
What the is the unfulfilled material purpose doctrine?
A trustee can block premature termination of a trust if it is still serving some unfulfilled material purpose.
When can a trust be terminated?
Either by express terms, or if the settlor and all beneficiaries consent.
If the settlor is alive, when can a trust be modified?
If he expressly reserved it, or if all beneficiaries agree and it does not interfere with a primary purpose of the trust
If a settlor has died, when can a trust be modified?
If all beneficiaries agree, and an unforeseen event has frustrated the purpose of the trust
Can a trustee unilaterally terminate or modify a trust?
No
When can a trustee be removed?
- Incapacity (jail, ill, etc.)
- Breach of fiduciary duties
- Underperformance of the trust
What is the common law rule on income and principal?
The beneficiary is entitled to income, and the holder of the remainder interest is entitled to the principal.
What is the unproductive property rule?
If a property in a trust has produced little to no income, an income beneficiary was entitled to some portion of the proceeds
Are distributions of stock principal or income?
Principal
What is the modern approach to income and principal?
Under the Uniform Principal and Income Act (UPAIA), evaluate the total return of the trust portfolio without regard to classification.
A trustee may allocate as necessary, provided allocations are reasonable and in accord with the trust instrument.
What is the future interest for a fee simple determinable?
Possibility of reverter
What is the future interest for a fee simple subject to condition subsequent?
Right of entry
What is the future interest for a life estate?
Reversion
What is a remainder interest?
A future interest capable of becoming possessory at the natural termination of the prior estate
What is a vested remainder?
The remainderman is ascertained and there is no condition precedent
What is vested as a class gift?
There is a class who will take, and the gift has vested in at least one person
What is a contingent remainder?
A taker is either unascertained or is subject to a condition precedent
If the instrument is silent, what are the trustee’s powers?
Whatever is necessary to act as a reasonably prudent person
Does the trustee have legal title?
Yes, he is effectively the owner
What is the duty of loyalty for a trustee?
Must act in the best interests of the beneficiaries. Determined by both an objective and subjective test.
What is the no further inquiry rule?
If a trustee has been found to be self-dealing, courts do not evaluate reasonableness or good faith unless the trust permits self-dealing
If a trust instrument permits self-dealing, what is the inquiry?
Evaluate whether it is reasonable and fair for the trustee to avoid liability
What is the trustee’s duty of care?
The care that a person of ordinary prudence would practice in the administration of his own estate.
If a trustee has special skills, does that factor into the duty of care?
Yes, the trustee is held to a heightened standard
Under the common law, could a trustee delegate authority?
No
Under the modern approach, is delegation permitted?
Yes, if unreasonable for the settlor to expect the trustee to perform certain functions. The trustee must still oversee decision-making.
Under the common law, what investments could a trustee make?
Only those enumerated in specific lists of acceptable investments.
Under the modern approach, what investments can a trustee make?
The prudent investor rule governs, and diversification is expected.
What is the duty of impartiality?
A trustee has a duty to balance the competing interests of present and future beneficiaries
What administrative duties does a trustee have?
The duty to inform beneficiaries and the duty to account
