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Bar Exam > Trusts > Flashcards

Trusts Flashcards

1
Q

What is a trust?

A

A fiduciary relationship with respect to specific property (res) wherein the trustee hold legal title to the property subject to enforceable equitable rights in a beneficiary

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2
Q

What is the creator of a trust called?

A

The settlor

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3
Q

What is required of the settelor in order to create a valid trust?

A

The settlor must:

(1) own the property at the time of trust creation; AND
(2) had the intent to create the trust

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4
Q

Does the Rule Against Perpetuties apply to future interests of the beneficiaries in a private trust?

A

Yes

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5
Q

How can a trust be created?

A

(1) created by will (a testamentary trust);
(2) inter vivos transfer of the trust property; OR
(3) inter vivos declaration that the settlor is holding property in trust

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6
Q

Must trusts involving real property be in writing?

A

Yes

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7
Q

May a settlor bequeath (by will) property to a trust created during his lifetime?

A

Yes, this is a pour-over trust

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8
Q

What are the most important ways in which a charitable trust differ from private trusts?

A

(1) a charitable trust must have indefinite beneficiaries;
(2) it may be perpetual (RAP does not apply);
(3) the cry pres doctrine applies.

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9
Q

What is the cy pres doctrine?

A

It allows a court to select an alternative charity when the purpose of the settlor becomes impracticable or impossible

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10
Q

May the attorney general of a state enforce a charitable trust?

A

Yes

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11
Q

What are the elements required to create an express trust?

A

(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 (the same person is not the sole trustee and sole beneficiary);
(5) trust property
(6) valid trust purpose

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12
Q

Must there be a present disposition in trust of specific property then owned by the settlor to create an express trust?

A

Yes

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13
Q

Must an express trust have a valid trust purpose?

A

Yes

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14
Q

Is consideration required to create an express trust?

A

No

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15
Q

What level of capacity is required in the settlor in order to create a revocable or testamentary trust?

A

The same as required to make a will:

(1) 18 years old;
(2) of sound mind

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16
Q

What is the result of a trust made by a settlor who lacks capacity?

A

It prevents a trust from arising, and undue influences, fraud, or duress renders the trust unenforceable.

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17
Q

What must the settlor have to create an irrevocable trust?

A

Legal power to coney the trust property

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18
Q

How may intent to create a trust be manifested?

A

By written or spoken words or by the conduct of the settlor—unless the statute of wills or statute of frauds requires a signed writing

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19
Q

Is an oral trust for personal property valid?

A

Yes

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20
Q

Must the intent to create a trust be communicated to the beneficiaries?

A

No

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21
Q

Is delivery of the deed to the trust property to the trustee sufficient to show intent to create a trust?

A

Yes

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22
Q

True or false: intent to create a trust must be externally manifested by the settlor at the time he owned the trust property.

A

True

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23
Q

True or false: the settlor’s intent can be to pass title to the trustee presently or in the future in order to create a valid trust.

A

False. The settlor must have intent for the trust to take effect immediately, and not at sometime in the future

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24
Q

Do precatory expressions of hope, wish, or suggestion, that the property be used in a certain way create a trust?

A

No, precatory language creates an inference that no trust was intended

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25
Q

How can the inference that precatory language does not create a trust be overcome?

A

(1) definite and precise directions;
(2) directions addressed to a fiduciary;
(3) a resulting unnatural disposition of property if no trust imposed;
(4) extrinsic evdience showing that the settlor previously supported the intended beneficiary

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26
Q

Will a trust fail if the trustee dies? refuses to accept appointment? resigns?

A

No, No, No

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27
Q

What result if the trustee dies, refuses to accept appointment or resigns?

A

The court wil appoint a successor trustee unless it clear that the settlor intended the trust to continue only so long as the particular trustee served.

NOTE: the absence of a trustee may cause an attempted inter vivos trust to faile for lackfo delivery

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28
Q

How does a person accept a trusteeship?

A

(1) substantially complying with acceptance terms in the trust instrument; OR
(2) accepting delivery of trust property, exercising powers , or performing duties as trustee; OR
(3) indication acceptance

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29
Q

What result if the trusteeship is not accepted within a reaonable time?

A

The trusteeship is presumed to be rejected

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30
Q

True or false: then settlor must intend to impose enforceable duties on the trustee?

A

True

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31
Q

Will a trust fail if a settlor does not impose any duties on a trustee in the trust instrument?

A

No, a court will imply duties if there is an intention to create a trust, a res, and an identified beneficiary

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32
Q

Who has capacity to be a trustee?

A

Anyone who has capacity to acquire and hold property for his own benefit and has capacity to administer the trust

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33
Q

Is a trustee entitled to compensation for her services?

A

Yes, the trustee is entitled to reasonable compensation or the compensation specificed in the trust instrument

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34
Q

Is a trustee entitled to reimbursement for expenses incurred in the trusts administration ?

A

Yes, and for any other expense that resulted in a benefit to the trust

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35
Q

Who can request that a court remove a trustee?

A

On its own motion or upon requires by the settlor, a beneficiary, or a co-trustee.

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36
Q

What are the grounds for removing a trustee?

A

(1) serious breach of trust;
(2) lack of cooperation amount co-trustees;
(3) unfitness, unwillingness, or persistent failure to administer; OR
(4) a substantial change in circumstances

NOTE: the overarching consideration is whether continuation in office would be detrimental to the trust

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37
Q

Can a trustee accept a trust in part a disclaim itin part?

A

No

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38
Q

When is a testamentary trust considered in existence?

A

At the settlor’s death

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39
Q

Does a trustee’s acceptance of a testamentary trust relate back to the time of the settlor’s death?

A

Yes

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40
Q

Is it possible for a trustee to be liable for tort claims arising prior to the time she accepted responsibility’s of a testamentary trust?

A

Yes, because the acceptance relates back

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41
Q

How can a trustee resign after accepting appointment?

A

(1) giving 30 days notice to the qualified benefiares, settlor (if living), AND co-trustees; OR
(2) obtaining court approval

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42
Q

What is the result if the sole trustee and sole beneficiary are the same individual and hold precisely the same interests?

A

The titles of trustee and beneficiaries merge and the trust is terminated.

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43
Q

A beneficiary is necessary to the validity of every trust except which?

A

charitable and honorary trusts

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44
Q

What is a qualified beneficiary?

A

A beneficiary who, on the date the beneficiary’s qualification is determined, is:

(1) a current beneficiary, or
(2) a first-line remainderman (ie, one who would become eligible to recieve distribution were the event triggering the termination of a benefiary’s interest or of the trust itself to cure on the qualification date).

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45
Q

Who has capacity to be a beneficiary of a private trust?

A

Any person, natural or artificial, capable of taking and holding tile to property can be a beneficiary of a private trust

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46
Q

What is required for a person to be a beneficiary of a trust?

A

The trust must operate directly to benefit the person

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47
Q

If a beneficiary is not given notice that a trust has been created for their benefit, does that invalidate the trust?

A

No, but it can be used as evidence that no trust was intended

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48
Q

Is the beneficiary required to accept the benefits of the trust?

A

Yes, but it can occur after a valid trust is created, and is generally presumed

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49
Q

how may a beneficiary disclaim an interest in a trust?

A

Filing a written instrument with the trustee, or with probate court if the trust is testamentary.

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50
Q

What is the effect of a valid disclaimer of interest by a beneficiary?

A

The trust is reasonable as though the disclaimer was ceased as of the relevant date.

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51
Q

When must a disclaimer of a trust interest be made?

A

Within 9 months of the interest’s creation; but if the beneficiary is under the age of 21, 9 months after the beneficiary reaches the age of 21

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52
Q

When will a beneficiary be estopped from making a disclaimer?

A

(1) When she has accepted any benefits under trust or

(2) exercised any dominion or control over the interest

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53
Q

Do state anti-lapse statues apply to future interests created in trusts?

A

Yes, unless the trust makes an alternate gift in case of beneficiaries nonsurvival

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54
Q

What is the effect of a divorce or annulment on an express private trust?

A

All beneficial gifts and fiduciary appointments in favor of a former spouse are revoked

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55
Q

True or false: the UPC and several states have extended the divorce revokes rule to all removable dispositions, including revocable trusts and designation of a former spouse as agent under a durable power of attorney

A

True

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56
Q

Can unacertained beneficiaries be definite for trust purposes?

A

Yes if they will be ascertainable by the time their interest are to come into enjoyment

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57
Q

Are private trusts for the benefit of a class permitted?

A

Yes, if the class is reasonably definite

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58
Q

May a settlor empower a trustee to select the beneficiaries from an indefinite class?

A

Yes under the UTC.

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59
Q

What is the result if a trustee fails to select the beneficaries from an indefinite class when empowered to do so by the settlor?

A

A resulting trust is imposed in favor of the settlor or his successors

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60
Q

What is the result if a trust fails for lack of a beneficiary?

A

A resulting trust in favor of the settlor or his successors is presumed

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61
Q

What happens when a trust does not have trust property?

A

The trust will fail because the trustee has no property to manage

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62
Q

May a future interest be held in trust?

A

Yes, but not if it is not yet in legal existence (a mere expectancy)

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63
Q

The trust res must be ______ and _______ from other property.

A

Identifiable and segregated

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64
Q

Can a debtor hold his own debt in trust?

A

No, but the debtor can declare his self trustee of particular property from which the debt is to be paid; AND the debt can be held in trust by another person

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65
Q

Can a gratuitous promise be the subject of a trust?

A

No

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66
Q

When will a trust purpose be invalid?

A

(1) it is illegal;
(2) contrary to public policy;
(3) impossible to achieve; OR
(4) intended to defraud the settlor’s creditors or based on illegal consideration

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67
Q

When will a trust purpose be invalidated for public policy reasons?

A

its purpose is to:

(1) induce others to engage in criminal or tortious acts;
(2) encourage immorality;
(3) induce a person to neglect parental familiar or civic duties;

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68
Q

What is the result if the trust purpose is invalidated as against public policy?

A

(1) the settlor’s alternative desires control if expressed;
(2) If the illegal condition is condition subsequent, the condition is invalidated but the trust is valid;
(3) if the illegal condition is condition precedent, the preferred view is to hold the interest valid unless there is evidence that the settlor’s wish would be to void the beneficiary’s interest altogether if the condition is unenforceable

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69
Q

How can an inter vivos trusts be created?

A

(1) by a person declaring himself trustee for another; OR

(2) by the transfer of property to another as trustee

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70
Q

How can the present intent to create a trust be manifested?

A

(1) conduct (delivery of the trust property); or

2) words (declaring oneself trustee

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71
Q

What is delivery?

A

Placing the trust property out of the settlor’s control (unless the settlor serves as trustee)

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72
Q

Does failure to name a trustee or a promise to name a trustee in the future evidence a lack of present intent and prevent delivery of the res

A

Yes

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73
Q

What is the result if a present trust is not established because there is no trust res?

A

The trust arises when the settlor subsequently acquires the res and remanifests trust intent

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74
Q

What standard must an oral trust for personal property be established by?

A

Clear and convincing evidence

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75
Q

What result if a settlor attempts to create an oral trust of land?

A

The court can enforce the trust by imposing a construction trust

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76
Q

Will parol evdience rule bar extrinsic evidence where there is ambiguity on the fact of the trust instrument?

A

No

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77
Q

What are the formalities required for creation of a testamentary trusts?

A

Trust intent and the essential terms of the trust must be ascertained from the will itself, from a writing incorporated by reference into the will, or from the exercise of a power of appointment created by the will

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78
Q

What is a secret trust?

A

A constructive trust that is imposed when 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.

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79
Q

How may an intended beneficiary enforce a secret trust?

A

By presenting clear and convincing evidence that the promise to hold the property in trust was made.

NOTE: it is irrelevant whether the will beneficiary intended to perform the promise when he made it

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80
Q

What is a semi-secret trust?

A

The will makes a gift in trust but fails to name the beneficiary

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81
Q

What is the result if a will makes a gift in trust but fails to identify the beneficiary?

A

The gift fails and the named trustee holds the property on a resulting trust for the testator’s heirs

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82
Q

Is extrinsic evdience allowed to prove an intended beneficiary of a semi-secret trust?

A

No

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83
Q

What is a charitable purpose sufficient for a charitable trust?

A

It must have purpose considered to benefit the public

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84
Q

What are the common types of charitable purposes?

A

(1) relief of poverty
(2) advancement of education or religion
(3) the promotion of health
(4) accomplishment of governmental purposes

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85
Q

May a class of beneficiaries under a charitable trust be limited?

A

Yes, but not so limited as to benefit a few individuals who the settlor wishes to aide personally

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86
Q

True or false: the court can select a charitable purpose or beneficiary if none is specified in the trust instrument, so long as the selection is consisten with the settlor’s ascertainable intention

A

True

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87
Q

Who may bring suit to enforce a charitable trust?

A

(1) the settlor;
(2) a qualified beneficiary; or
(3) the state attorney general

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88
Q

Does the rule against perpetuties apply to charitable trusts?

A

No

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89
Q

Does the rule apply to shifts between private and charitable uses of trust property?

A

Yes

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90
Q

What does the doctrine of cy pres allow a court to do with respect to a charitable trust?

A

If the charitable purpose selected but the settlor is impractical, unlawful, impossible to achieve or wasteful, the court may select an alternative.

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91
Q

How does a court select an alternative purpose under cy pres?

A

By choosing a purpose as near as possible by ascertaining the settlor’s primary purpose

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92
Q

What are honorary trusts?

A

They are trusts established for the benefit of pets or for the maintenance of burial places

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93
Q

Who can enforce an honorary trust under the UTC?

A

By someone named in the trust instrument, or by someone appointed by the courts

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94
Q

How is excess trust property distrubted in a honorary trust?

A

To the settlor or his successors unless the governing instrument provides otherwise

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95
Q

When does a honorary trust (not for the care of animal) terminated?

A

Many jurisdictions will invalidate the honorary trust on the basis of the Rule Against Perpetuties if its duration may be more than a human life in being plus 21 years; BUT

Under the UTC, however, expressly provides that an honorary trust may not be enforced for more than 21 years

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96
Q

When will an honorary trust for the care of an animal be terminated?

A

When the animal dies

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97
Q

May a beneficiary transfer his interest in the trust?

A

Yes, in the absense of statutory restrictions or contracts provision in the trust agreement.

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98
Q

If a beneficaries interest in a trust is transferred, does it remain subject to all previous conditions and limitations?

A

Yes, in the absense of statutory restrictions or contracts provision in the trust agreement.

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99
Q

May an insolvent trust beneficiary’s creditors levy on his benefical interest?

A

Yes, in the absense of statutory restrictions or contracts provision in the trust agreement.

100
Q

May a court order the trustee to pay the beneficary’s creditors in lieu of a judicial sale?

A

Yes

101
Q

What does a spendthrift trust do?

A

It 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.

102
Q

What is the purpose of a spendthrift trust?

A

To protect the beneficiary from his own improvidence

103
Q

Will a spendthrift trust be struck down as a restraint on alienation?

A

No, most courts will uphold the restrictions

104
Q

When can a beneficiary’s creditors reach his interest in a spendthrift trust?

A

When income is paid to him

105
Q

Can a party’s assignees of interest in a spendthrift clause enforce the assignement against the trustee?

A

No

106
Q

Will a restriction permitting the beneficiary to voluntarily alienate his interest, but purporting to deny creditors the right to reach the interest be upheld?

A

Probably not

107
Q

What are the limitations on a spendthrift clause?

A

It cannot be used to shield the beneficiary from:

(1) his own creditors where the beneficiary is the settlor;
(2) judgments or court orders for support or maintenance of the beneficiary’s child spouse or former spouse;
(3) claims by the government

108
Q

If it is unclear, how do you determine whether the beneficiary is the settlor?

A

Look to who furnished the consideration for the creation of the trust. If a person furnishes consideration for a trust, he is the settlor even if the trust is created by another person

109
Q

What is a discretionary trust?

A

A trust where the trustee is given the discretion whether to apply or withhold payments of income or principal or both to a beneficiary

110
Q

May creditors attach to a beneficiary’s interest in a discretionary trust?

A

Yes, but they may not compel distribution from the trustee

NOTE: exception for child or spousal support allows a court to force a trustee to satisfy a judgment or order against be beneficiary

111
Q

What is the trustee’s duty if he knows of a creditor’s attachement to a beneficiary’s interest and he decides to make a distribution ina discretionary trust?

A

He must make the payment directly to the creditor unless the interest is protected by a spendthrift provision

112
Q

Does a beneficiary have a right to payment that he can enforce against the trustee in a discretionary trust?

A

No

113
Q

What is a support trust?

A

It directs the trustee to pay only so much of the income or principle or both as necessary for the beneficiary’s support

114
Q

What are the creditor’s rights under a support trust?

A

The same as all other discretionary trusts

115
Q

Is a beneficiary’s interest in a support trust assignable if there is no spendthrift clause in the trust instrument?

A

No

116
Q

If a trust instrument states “to pay all of the income to A for his support” is it a support trust?

A

No, there is no discretion and the beneficiary is not limited to amounts necessary for his support

117
Q

Can creditors of the trustee reach the trust property?

A

No

118
Q

When will a trust terminate?

A

Automatically upon:

(1) the expiration of therm specificed in the instrument; or
(2) when all the purposes of the trust have been accomplished;
(3) when the purposes of the trust have become unlawful, contrary to public policy, or impossible to achieve

119
Q

When can a settlor revoke or amend a trust under the UTC?

A

Under the UTC, the settlor can always revoke or amend unless the terms explicitly state that the trust is irrevocable

120
Q

When can a settlor revoke or amend a trust under the traditional rule?

A

a trust is irrevocable unless the settlor expressly reserves the power to revoke or modify the trust

121
Q

May a trust be terminated or modded upon the consent of the settlor and all beneficiaries?

A

Yes, even if the modification conflicts with the material purpose of the trust

122
Q

May a trust be terminated without the consent of the settlor at common law?

A

Yes if all beneficiaries consent, but only if no material purpose of the trust would thereby be frustrated

123
Q

May a trust be terminated without the consent of all beneficiaries under the UTC?

A

Yes if:

(1) the trust could have been terminated had all of the beneficiaries consented; AND
(2) the interest of a beneficiary who does not consent will be adequately protected

124
Q

Must unborn or unascertained beneficiaries consent to the modification of a trust?

A

Yes, a party must be appointed to represent their interests or no modification can be had

125
Q

What are indicators of material purpose that may prevent beneficiaries from terminating a trust?

A

(1) distributing property to a beneficiary at a designated age, which shows a purpose to keep property out of the beneficiary hand until the designated age; and
(2) a spendthrift provision, which shows a purpose to protect the beneficiary from creditors claims

126
Q

When may a court terminate a trust if not all beneficiaries consent to the modification?

A

(1) the trust could have been modified if all beneficiaries had consented;
(2) the interest of any nonconsenting parties are adequately protected;

OR

(1) unanticipated circumstances threaten the purposes of the trust
(2) the value of trust is insuffcient to justify the cost of administration or to achieve the settlor’s tax objectives

127
Q

When can a trustee terminate a trust?

A

If the property is less than $50,000 and the amount is insufficient to justify the cost of admintration as long as the trustee provides the qualified beneficaries with notice

128
Q

Can a trustee combine several trusts into one, or divide a trust into smaller trusts?

A

Yes so long as doing so does not frustrate any purpose of the trust or impair the rights of any beneficiary.

129
Q

Must the trustee get permission from the beneficiaries before dividing or combining trusts?

A

No, but she must give notice

130
Q

What powers can a trustee properly exercise?

A

(1) those expressly conferred upon her by the terms of trust (which control);
(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

131
Q

What powers are conferred on a trustee by the UTC?

A 
Power to:
Collect and hold trust assets;
Operate a business;
Acquire an undivided interest in a trust asset;
Invest trust assets;
Buy, sell, or encumber a trust asset;
Enter into a lease;
Vote securities
 Pay taxes and assessments;
Insure assets;
Make distributions; prosecute and defend actions
132
Q

What level of agreement is required for co-trustees to take an action?

A

Majority decision

133
Q

What is an imperative power?

A

One that the trust instrument requires to be exercised

134
Q

If a trustee fails to execute an impartive power, what result?

A

The court, upon petition, will order the trustee to exercise the power as required by the trust instrument

135
Q

What will the trustee’s actions under a discretionary power be reviewed for?

A

Abuse of discretion

136
Q

True or false: if a trustee is given uncontrolled/absolute discretion in the exercise of a discretionary power, then the exercise of that discretion is not reviewable

A

False, the court will intervene if the trustee fails to exercise any judgement at all

137
Q

Who does a trustee owe a duty to under a revocable trust?

A

Exclusively to the settlor

138
Q

Who does a trustee owe a duty to under an irrevocable trust?

A

All of the trust beneficiaries

139
Q

What must a trustee’s do under her duty to administer the trust?

A

Personally administer the trust in good faith and in a prudent manner, in accordance with the terms and purposes of the trust instruments and the interests of the beneficiaries

140
Q

Will a trustee be held to a higher standard if she has special skills or expertise?

A

Yes

141
Q

If there is more than one beneficiary, the trustee must act _________, taking into account any of their differing interests

A

Impartially

142
Q

May a trustee delegate any of her discretionary functions?

A

No

143
Q

What is the result if a trustee delegates a discretionary function?

A

She becomes a guarantor for any losses caused by the improper delegation

144
Q

To whom does a trustee owe w duty of undivided loyalty?

A

The trust and its beneficaries

145
Q

Under a trustee’s duty of loyalty, may a trustee buy or sell trust assets?

A

No, even if the price is fair

146
Q

Under a trustee’s duty of loyalty, May a trustee sell property of one trust to another trust of which she is also a trustee?

A

No

147
Q

May a trustee ever borrow trust funds?

A

No

148
Q

May a trustee ever loan her personal funds to the trust?

A

Yes, but only if it is to protect the trust

NOTE: any interest paid on such a loan must be requested to the trust

149
Q

May a trustee ever use trust assets to secure a personal loan?

A

No

150
Q

Can a trustee ever personally gain through her position as trustee?

A

No

151
Q

May a corporate trustee invest in its own stock?

A

No

152
Q

May a corporate trustee retain its own stock?

A

Yes, if it was part of the original trust res when the trust was established and the region of the stock meets the prudent investor standard

153
Q

Can self-employment ever constitute a breach of a trustee’s duty of loyalty?

A

Yes

154
Q

True or false: when there is a question regarding a trustee’s duty of loyalty, the trstee’s good faith or actual benefit to the trust is irrelevant

A

True

155
Q

Whom, if a trustee enters a deal with them, will it be presumed that the trustee has breached her duty of loyalty?

A

Her spouse; close relatives; or any attorney or corporation in which she owns a significant interest

156
Q

May a trust instrument indicate that the duty of loyalty is owed differently to different beneficiaries?

A

Yes

157
Q

A transaction involving a self-dealing trustee is [void/voiable]?

A

Voidable, at the election of the beneficiary affected by the transaction unless:

(1) A court or the terms of the trust approved it;
(2) the beneficiary failed to bring suit in the prescribed time period;
(3) the beneficiary gave her consent, ratification, or release;
(4) it involves a contract or claim arising before the trustee became trustee

158
Q

What is required under a trustee’s duty to report?

A

The trustee must

(1) provide the beneficiaries with her name address and telephone number;
(2) respond to beneficiary requests for information about the trusts administration and provide a copy of the trust instrument; AND
(3) furnish an annual accounting of the trust

159
Q

Does a trustee have a duty to separate trust property from her personal property or other trust property and keep records?

A

Yes

160
Q

Does a trustee have a duty to enforce claims of the trustee and to defend the trust?

A

Yes

161
Q

What is implied a trustee’s duty to preserve trust property and make it productive?

A

The power to invest; lease land, collect claims,

162
Q

What is the measure of damages for breach of a trustee’s duty to preserve trust property and make it productive?

A

The amount of income that would normally accrue from proper investments

163
Q

What two sources of law govern a trsutee’s Investment responsibilities?

A

Uniform Prudent Investor Act (UPIA) or statutory “legal lists”

164
Q

May a trust instrument broaden or limit the trustee’s investment powers beyond that included in the UPIA or statutory legal lists?

A

Yes

165
Q

True or false: in a prudent investor jurisdiction, only prudent investments are permissible regardless of the trust terms, whereas in a legal list jurisdiction trust language giving the trustee broad discretion is likely to permit investment similar to that under the prudent investor jurisdiction

A

True

166
Q

What standard of care is required of a trustee when he is investing?

A

Exercise of reasonable care, skill, and caution when investing and managing the trust assets.

NOTE: must use any special skills that she has represented herself as having

167
Q

How is the prudence of an investment decision evaluated?

A

In context of the entire trust portfolio and as part of an overall investment strategy

168
Q

What types of investements are inherently imprudent?

A

None, UPIA permits a trustee to invest in any kind of property or any type of investments

169
Q

Must a trustee diversify the investments of the trust?

A

Yes unless the trustee determines that diversification does not best serve the trust purpose

170
Q

When will a settlor’s direction not to diversify the trust relieve the trustee of his duty to diversify?

A

When the trust is revocable because the trustee owes his duty exclusively to the settlor

171
Q

What is required for a trustee to delegate investment and management functions?

A

He must act prudently in:

(1) selection an agent;
(2) establishing the scope and terms of the delegation; AND
(3) periodically reviewing the agent’s decisions

172
Q

What is a statutory legal list?

A

It sets forth approve incests for trust assets

173
Q

True or false: if a statutory legal list applies, it is exclusive and the trustee may never invest outside of the list

A

False,

Statutory legal lists may be permissive (allowing investment outside the list), or mandatory (probable breach of trust if investments outside the list are made)

174
Q

If a trustee invests in property included an stuatutory legal list, is that investment per se reaonable?

A

No, the trustee must still exercise ordinary care in investing

175
Q

What are typically proper investments under most statutory legal lists

A

Government securities, first mortgages on land with adequate security, and high grade corporate bonds

176
Q

What types of investments are generally improper?

A

Second mortgages and unsecured loans

177
Q

Can a trustee carry on the testator’s business?

A

No, unless expressly authorized by the trust

178
Q

What are the remedies for breach of trust?

A

(1) specific performance of the trustee’s duties;
(2) injunction prohibiting the trustee from breaching;
(3) compel the trustee to pay money or restore property; OR
(4) suspend or remove the trustee

179
Q

What damages are the beficiares entitled to if a trustee breaches?

A

The greater of (1) the amount necessary to restore the trust property and distributions to what they would have been absent the breach; or (2) the trstee’s profit from the breach

180
Q

True or false: a trustee is liable to a beneficiary for any profit arising from administration of the trust even if there was no breach of trust

A

True

181
Q

When will a trustee not be liable for breach of trust?

A

(1) he acted in reaonable reliance on the terms of the trust; OR
(2) the beneficiary consented to the conduct, released the trustee from liability, or ratified the transaction

182
Q

When will an exculpatory clause be invalid?

A

When (1) it relieves the trustee for breach of trust committed in ad faith or reckless indifference; OR
(2) appear in the trust induction because of the trustees abuse of a confidential relationship with the settlor

183
Q

Is a trustee liable for the acts of other co-trustees?

A

Generally no as long as:

(1) she did not join in the acts ; AND
(2) she exercised reaonable care in prevention the breach of trust or compelling the co-trustee to redress the breach

184
Q

May a trustee be sued personally on a theory of respondent superior for actions of the trust?

A

No

185
Q

Can a beneficiary or successor trustee set aside transactions that are breaches of trust if the property is not in the hands of a BFP?

A

Yes

186
Q

Can a beneficiary or successor trustee set aside transactions that are breaches of trust if the property is in the hands of a BFP?

A

No.

187
Q

Is a donee of trust property liable for damages if they acquire property invalidly, which is subject to the trust?

A

No, but they must give back the trust property

188
Q

Does a beneficiary have the right to directly sue a third party who damages trust property?

A

No, the trustee alone can sue, subject to some exceptions

NOTE: the beneficiary may bring a suit in equity to compel the trustee to enforce the rights of the trust

189
Q

When are direct suits by the beneficiaries permitted?

A

(1) participated in the breach;
(2) has left the jurisdiction and no successor trustee is appointed; OR
(3) fails to sue a third person liable in tort or contract

190
Q

True or false: a majority of statesa have enacted the Uniform Principal and Income Act

A

True

191
Q

What does the UPAIA apply to?

A

All trusts and estates

192
Q

What is authorized under UPAIA?

A

It gives the trustee or personal rep an adjustment power to reallocate investment portfolio return

193
Q

Are proceeds of sale of a trust asset considered principle or income?

A

Principle

194
Q

Is money recieved from an entity (ie. A corporation’s cash dividends) considered principle or income.

A

Income

195
Q

True or false: all property (other than money) recieved from an entity is considered trust principle

A

True

196
Q

Are proceeds from a life insurance policy or other contract in which the trust or trustee is named beneficiary principal or income?

A

Principal

197
Q

What is a liquidating asset?

A

An asset whose value will diminish over time because the asset is exprect to produce receipts over a limited period

EXAMPLE: patents, copyrights

198
Q

How are the proceeds from a liquidating asset allocated?

A

10% income, 90% principle

199
Q

How are the receipts from mineral interests allocated?

A

10% income, 90% principle

200
Q

What expenses are charged to the income of the trust?

A

(1) 1/2 for he regular compensation of the trustee and any person providing investment advice or custodial services to the trustee
(2) 1/2 of all expenses for accounting, judicial proceedings and other matter affecting both income and remainder interests;
(3) the entire cost of ordinary expenses; AND
(4) insurance premiums cover the loss of a principal asset

201
Q

What expenses are charged against the trust principal?

A

(1) remaining 1/2 of the compensation of the trustee and any person providing investment advisory or custodial advice to the trustee;
2) 1/2 of all expenses for accounting, judicial proceedings and other matter affecting both income and remainder interests;
(3) other matter affect both income and remainder interests;
(4) Payments on the principle of trust debt;
(5) expenses of aproceeding that concerns primarily an interest in principal;
(6) estate taxes; AND
(7) disbursement’s treating to environmental matters

202
Q

What is the test to distinguish a trust from a will?

A

does the transfer create some present gift? If yes, then it is a trust.

NOTE: still a trust even if the present gift is a future interest subject to divestment

203
Q

True or false: a trust will likely be upheld even if the settlor retains great powers and rights over the trust property.

A

True

204
Q

May a settlor make gifts by will to a trust established during his lifetime if that trust goes unfounded during the settlor’s lifetime?

A

Yes, but the trust must be clearly idenfied from language in the will

205
Q

Will a life insurance trust be upheld even though there is no significant trust property prior to the settlor’s death?

A

Yes

206
Q

What is a Totten trust?

A

A trust in a bank account where the depositor declares himself trustee of the account for a person is to recieve the money the account at the time of the depoistor’s Death

207
Q

Does the depositor retain full control over a Totten account during the settlor’s lifetime?

A

Yes

208
Q

How is a Totten trust revoked?

A

(1) by the withdrawal of money;
(2) any lifetime act manifesting intent to revoke;
(3) specific contradictory provisions in a will (compare with joint accounts)

209
Q

Does a Totten account protect dust in the account from creditors claims?

A

No

210
Q

What result if the beneficiary to a Totten account predeceases the depositor?

A

The Totten trust terminates

211
Q

What is a gift causa mortis?

A

A gift of personal property made in contemplation of immediately approaching death

212
Q

Will an abstract fear of death be sufficient to make a gift causa mortis?

A

No, the donor must be suffering from a condition that realistically confronts her with a fear of death

213
Q

Are gifts causa mortis subject to delivery and acceptance requirements?

A

Yes

214
Q

How may delivery of a gift causa mortis be accomplished?

A

Actual delivery (donee recieves control over the gift)

(2) constructive delivery of an item that would be impossible or impracticable to manually deliver (i.e. giving keys to the car)
(3) Symbolic delivery, which is most commonly effected buy delivery of a written instrument that evidences ownership.

215
Q

True or false: symbolic delivery is insufficient to accomplish a gift in a few states

A

False: it is insufficient in many states

216
Q

Is a gift causa mortis revocable?

A

Yes

217
Q

How is a gift causa mortis revoked?

A

(1) affirmative act indicating an intent to revert ownership in the donor
(2) by operation of law if the donor recovers from the condition that put the donor in fear of impending death;
(3) by operation of law if the donee predeceases the donor

218
Q

Is a gift causa mortise subject to claims of creditors of the donor’s estate?

A

Yes

219
Q

How are resulting and constructive trusts created?

A

They are implied in law or imposed by the courts

220
Q

What do resulting trusts involve?

A

Reversionary interests, and it is base on the presumed intent of the settlor

221
Q

What are constructive trusts designed to do?

A

Prevent unjust enrichment

222
Q

Is the statute of frauds applicable to a resulting or constructive trust?

A

No

223
Q

What are the three types of resulting trusts?

A

(1) purchase money resulting trust;
(2) resulting trusts arising on failure of an express trust;
(3) resulting trusts arising form an incomplete disposition of trust assets (ie. Excess trust corpus)

224
Q

What is a purchase money resulting trust?

A

It is presumed whenever the X (the “beneficiary”) furnishes the consideration (usually money) for the acquisition of real or personal property but, with X’s consent title is taken in the name of “Y” (the “trustee”)

225
Q

Must the consideration paid by X be fore the purchase of the property in order for a resulting trust to be implied?

A

Yes

226
Q

When must consideration be paid in order for the courts to imply a resulting trust?

A

Before to at the time Y takes title

227
Q

Who bears the burden of establishing a resulting trust?

A

the burden is on X, the party claiming to be the benefiary of a resulting trust.

NOTE: must prove that he supplied the consideration by clear and convincing evidence

228
Q

What is the result if X (the “beneficiary”) proves that he furnished consideration by clear and convincing evidence?

A

A resulting trust is presumed.

NOTE: Y can rebut the presumption

229
Q

What are the exceptions that will prevent the implication of a resulting trust?

A

(1) where the parties are closely related (gift is presumed);
(2) parties take title for an unlawful purpose (but modern trend to allow the trust when X’s misconduct is slight compared to the enrichment to Y);
(3) Transferee obtained title wrongfully (constructive trust may be imposed)

230
Q

What is a pro rata resulting trust?

A

Arises when X only supplies part of the consideration, then the resulting trust in his favor is only for a pro rata portion of the property

231
Q

When does a resulting trust on failure of express trust arise?

A

Where the settlor has conveyed trust property to a trustee under an express trust and:

(1) the trust is void or unenforceable;
(2) the beneficiary is dead or cannot be located;
(3) where a charitable trust fails and cy pres is unavailable

232
Q

What are the consequence of a resulting trust on failure of express trust?

A

The express trust terminate a the the settlor becomes the beneficiary of the resulting trust

233
Q

Where will a resulting trust not be implied upon failure of an express trust?

A

(1) the trust instrument specifically or implicitly proves for disposition of thrust property when he trust has failed or been completed;
(2) the settlor was given consideration for his original transfer in trust;
(3) the settlor created the trust for an illegal purpose; OR
(4) cy pres is applicable in cases of a charitable trust

234
Q

What is a constructive trust?

A

A flexible equitable remedy to prevent injections enrichment resulting from wrongful conduct such: as fraud, undue influence, or breach of fiduciary duty

235
Q

What is the constructive trustee’s duty?

A

To convey the property to the person who would have owned it but for the wrongful conduct

236
Q

What is the burden of proof necessary to establish a construction trust?

A

Clear and convincing evidence

237
Q

Under what scenario will Y hold property in a constructive trust for X because of theft or conversion? What is the result?

A

(1) Y steals property from X;
(2) Y uses the property to acquire other items;

Result: Y holds the other items in constructive trust for X

238
Q

Under what scenario will Y hold property in a constructive trust for X because of fraud, duress, etc? What is the result?

A

(1) Y acquires property from X by fraud;

Y holds that property in constructive trust for X

239
Q

What result if Y acquires property from X by fraud and then subsequently conveys the property to a third party?

A

(1) if the third party is a BFP, then no constructive trust can be applied;
(2) if the third party is not a BFP, then the third party can be declared a constructive trustee;

240
Q

True or false: If Y takes property under a forged or fraudulent will, he holds it in constructive trust for its rightful inheritor, unless Y is innocent in the matter.

A

False: Y will hold the property in constructive trust even if Y is innocent in the matter

241
Q

Will a court order a constructive trust where a fiduciary sexed for himself an opportunity to acquire property that comes to him in his capacity as fiduciary?

A

Yes

242
Q

Does a breach of a promise raise generally raise a constructive trust?

A

No

243
Q

What are the exceptions which allow a constructive trust to be imposed for breach of promise?

A

(1) fraudulent promises;
(2) breach of promise by one in a confidential relationship;
(3) breach of promise by the decedents devisee or heir to hold property for the benefit of a third person
(4) breach of promise by the decedent to devise property to one rendering services in reliance thereon (no constructive trust if damages are adequate)
(5) breach of promise to debtor by the buyer at the foreclosure sale to hold the property for the debtor, causing the debtor to forgo bidding at the sale (no constructive trust if damages are adequate)

244
Q

Who bears the burden of proof for establishing a constructive trust is appropriate for a breach of promise?

A

On the party seeking the constructive trust, by clear and convincing evidence

245
Q

Must the constructive trustee account for profits taken from the property or fair rental value of his use of air from the time of the occurrence raising the implied trust?

A

Yes

246
Q

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

A

No

247
Q

Generally, is the equitable defense of an adequate remedy at law appalicable to defend against the creation of a constructive or resulting trust?

A

No, subject to exceptions for breach of oral promise to make a will or to hold property purchases at a foreclosure sale for the benefit of the promisee.

Bar Exam (14 decks)

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