Trusts

Question 1

Who are the settlor, trustee, and beneficiary of a trust?

Answer 1

A Settlor is a person who creates a trust. A Trustee is a person who is the manager of the trust. A Beneficiary is a person who benefits from the trust.

Question 2

What does a settlor do?

Answer 2

A person can create a trust during their lifetime and can be the settlor and the trustee during this time period

Question 3

Does a trustee need to be named in a trust?

Answer 3

A trustee need not be named. A court will appoint a trustee if one is not named.

Question 4

What are the requirements of a beneficiary?

Answer 4

A beneficiary must be ascertainable (with the exception of trusts for grandchildren).

Question 5

What is bifurcation and some examples?

Answer 5

Trustee (holds legal title) v. Beneficiary (receive equitable interest)

Principal (corpus or res) v. Income (income generated by principal)

Possessory Estates v. Future Interests (splits “equitable interest”)

Question 6

What are the four requirements for a valid trust?

Answer 6

There are four required elements of a valid trust: there must be an intent to make a gift in a trust, property must be delivered to the trust, ascertainable beneficiaries must be included, and the trust must have a purpose that is not illegal or against public policy

Question 7

What is the intent requirement of a trust?

Answer 7

There must be an intent to transfer property to a trustee to hold and manage for a third party.

Question 8

Does precatory language count for intent of a trust?

Answer 8

Precatory language like “I wish” or “I hope” a trust is created is not adequate enough to express intent to transfer property

Question 9

Does property have any relation to a trust?

Answer 9

Property must be delivered to the trust or trustee – it cannot be provided later or illusory.

Question 10

What is an ascertainable beneficiary?

Answer 10

A trust must either name the beneficiaries or contain a formula or class description that allows the beneficiaries to objectively be ascertainable. Two exceptions allow a settlor to create an inter vivos trust for unborn children or grandchildren or a will to create a testamentary trust for unborn grandchildren

Question 11

How can a trust be used?

Answer 11

A trust cannot have a purpose that is illegal or against public policy. There must be a valid purpose.

Question 12

What is an inter-vivo trust?

Answer 12

An inter vivos trust is a trust that transfers a gift between living people

Question 13

What is a testamentary trust?

Answer 13

A testamentary trust is a trust that becomes active at the testator’s death.
Rule: A testamentary trust is created by a will, the will contains the material provisions of the trust, and the trust is activated at death of the testator.

Question 14

What is an honorary trust?

Answer 14

An honorary trust is a noncharitable trust for a specific purpose that is neither illegal nor contrary to public policy

Question 15

What is a charitable trust?

Answer 15

A charitable trust is set up to benefit society in some way or is for charitable purposes.

Question 16

How does the cy pres doctrine work with charitable trusts?

Answer 16

If a charitable objective contained in a charitable trust becomes impossible or impractical to fulfill courts can substitute another similar charitable objective

Question 17

What is a resulting trust?

Answer 17

A resulting trust transfers property back to the settlor or to the estate.
Definition: This can apply when the purpose of the trust is satisfied or ends, a trust fails, and for charitable trusts. (JUDICIAL REMEDY)

Question 18

What is a constructive trust?

Answer 18

A constructive trust prevents unjust enrichment, self-dealing, fraud in the inducement, undue influence, secret trusts or oral real estate trusts by allowing the persons who would have taken had the person predeceased the victim. (JUDICIAL REMEDY)

Question 19

Is a trust revocable?

Answer 19

Trusts are revocable unless state otherwise. (California)
CPC 15401: Requires the trust to specify the method explained is the exclusive method of revocation.

A settlor can modify or revoke the trust only if the power is expressly reserved in the trust. (Majority Rule)

Question 20

Can a trust be modified?

Answer 20

A court can modify a trust to meet the settlor’s intent, such as times of cy pres, changed circumstances due to unforeseen situations or necessity.

Question 21

What are the trustee’s powers?

Answer 21

Trustees have all enumerated powers expressed in the trust itself and pursuant to the law. Trustees have the implied powers necessary and appropriate to carry out the terms of the trust, such as to sell or lease trust property, incur reasonable expenses, borrow money, or operate a business. (CPC 16200)

Question 22

How are the trustee’s powers limited?

Answer 22

A trustee’s power is limited by the fiduciary duties the trustee owes to the trust beneficiaries.

Question 23

Duty of loyalty

Answer 23

Trustee owes a duty of loyalty and trustee may not participate in self-dealing, must avoid conflicts of interest, and must treat all beneficiaries equally.

Question 24

duty to be impartial

Answer 24

A trustee has a duty to be impartial when dealing with income beneficiary and remainder beneficiaries. If a trust has two or more beneficiaries, the trustee has a duty to deal impartially with them and shall act impartially in investing and managing the trust property, taking into account any differing interests of the beneficiaries. CPC 16003.

Question 25

duty to act prudently

Answer 25

A trustee has a duty to use due care and act as a reasonable prudent person dealing with his own affairs, which includes his duty to investigate any investment and a duty to diversify investments.

Question 26

What does UPIA do to the Duty to Act Prudently?

Answer 26

UPIA (Uniform Prudent Investor Act) provides that a prudent investor’s performance is measured in the context of the entire trust portfolio as a whole, with an overall strategy having risk and return reasonably suited to the trust.

Question 27

Duty to Segregate and Earmark Trust Funds and Not Commingle

Answer 27

A trustee has a duty to segregate and earmark trust funds and not to commingle funds with the trustee’s own funds. All trust funds must be clearly labeled as such.

Question 28

Duty to Disclose Terms of the Trust

Answer 28

A trustee must disclose the terms of a trust to the beneficiaries once the trust becomes irrevocable

Question 29

Duty to Account and Inform Beneficiaries

Answer 29

A trustee has a duty to account and inform beneficiaries with a statement of income and expenses of the trust on a regular basis, at least annually, even if not requested. (CPC 16062) (Compared to Cook v. Brateng where the trustee has a duty to inform only if significantly affect the remainder interest)

Question 30

Can a trustee delegate tasks to another person?

Answer 30

A trustee can delegate his duties only if the trustee exercises due care and skill when selecting agents.

Question 31

What does LIPSDAD stand for? (Trustee Duties)

Answer 31

Loyalty, Impartial, (act) Prudently, Segregate and Earmark trust funds and not commingle, Disclose terms of the trust, Account and inform beneficiaries, Delegate with due care