Trusts

Question 1

Revocable Presumption

Answer 1

Presumption in TX in favor of a revocable trust.

Question 2

Duty of loyalty

Answer 2

1) Did the trustee act reasonably?
2) Did the trustee act in good faith?

-No self-dealing, even if fair.

Question 3

Uniform Principal and Income Act

Answer 3

Trustee should focus on the “total return” of the trust portfolio in allocating principal and interest. Allocations must be reasonable.

Question 4

Oral Trusts

Answer 4

Valid in TX for personal property with a third party trustee.

Question 5

Mandatory Trust

Answer 5

Trustee does not have discretion.

Question 6

Powers of the trustee

Answer 6

1) Start with the trust instrument

2) Otherwise grants the trustee all those powers necessary to act as a reasonably prudent person in managing the trust.

Question 7

Settlor

Answer 7

The person who creates the trust

Question 8

Administrative duties

Answer 8

Duty to inform the beneficiaries about the trust property.

Duty to account for actions taken on behalf of the trust.

Question 9

Standing for charitable trusts

Answer 9

Only settlor and the attorney general have standing.

Question 10

Claflin doctrine

Answer 10

So long as the trust is serving an unfulfilled material purpose, the trustee can block a premature termination.

Question 11

Doctrine of Merger

Answer 11

If sole trustee and sole beneficiary (no future interests), then the trust ends and that person/entity gets legal and equitable title.

Question 12

Cy pres

Answer 12

A court can modify a trust if the trust’s charitable purpose is no longer possible.

Question 13

Dynasty Trust

Answer 13

A trust that can continue for 100 years or longer, not subject to RAP or taxes.

Question 14

Duty of care

Answer 14

Standard of care is that which a person of ordinary prudence would practice in the care of his own estate.

Question 15

Creditor’s reach

Answer 15

• Creditor can reach rights the beneficiary can alienate.
• Creditor cannot reach property until the amounts become payable to the beneficiary or subject to the beneficiary’s demand.

Question 16

Modification by beneficiaries

Answer 16

If the settlor is dead and all the beneficiaries agree to modify, a court can modify a trust if an unforeseen event frustrates the purpose of the trust.

Question 17

Pour-over trust

Answer 17

Created for devise of property through a will, only trust that may exist for a time without trust res.

Question 18

Duty of impartiality

Answer 18

In a trust with successive interests, trustee has a duty to balance the competing interests.

Question 19

Duties of the trustee

Answer 19

Duty of loyalty

Duty of care

Question 20

Purchase-money resulting trust

Answer 20

Person 1 pays for property but title taken in person 2’s name. If person 2 is not the natural object of person 1’s bounty, then court will create a resulting trust.

Question 21

Constructive Trust

Answer 21

Looks like a testamentary gift, but created in reliance of the beneficiary holding the property for another - intended beneficiary can testify.

Also used to prevent unjust enrichment in the event a third party takes advantage of the settlor (fraud, duress, undue influence, breach of duty, etc.)

Question 22

Elements of a private express trust

Answer 22

1) Intend to make a gift in a trust
2) Trust res (must be identifiable and segregated)
3) Trust purpose
4) Ascertained beneficiaries

Question 23

Resulting Trust

Answer 23

Testator fails to name a beneficiary, the trust fails and the trustee holds title to be delivered back to the estate.

Question 24

Declaration of trust

Answer 24

Settlor declares himself as the holder of the property, in trust, for beneficiaries. Settlor is also the trustee.

Question 25

Exceptions to the protection of a spendthrift clause

Answer 25

• Spouses and children entitled to support
• Those providing basic necessities to the beneficiary
• Holders of federal or state tax liens

-Will not be valid if the beneficiary is also the settlor.

Question 26

Allocation Factors

Answer 26

• Intent of the settlor and language of the trust instrument;
• Nature, duration, and purpose of the trust
• Identities and circumstances of the beneficiaries
• Anticipated effect of economic conditions
• Anticipated tax consequences