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CA Bar Exam > Trusts > Flashcards

Trusts Flashcards

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1
Q

What is the definition of a private express trust?

A

A fiduciary relationship with respect to property whereby one person holds legal title for the benefit of another. The grantor must have the intent to create the trust for a legal purpose.

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2
Q

What property can be held in a trust?

A

Any presently existing interest in property that can be transferred. For example, fee simple absolute, remainder, life insurance policy, stocks, bonds, etc.

NOT: future profits to a business, debts, or a mere expectancy

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3
Q

Who can be a beneficiary?

A

Any ascertainable natural person or entity, including groups and classes of people

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4
Q

Are class gifts valid?

A

Yes, but not if the class is too large for administration (e.g., citizens of CA)

Watch out for RAP!

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5
Q

Does a trust require a trustee?

A

Yes, but a court will not allow a trust to fail because there is no trustee, or because a trustee refuses to serve. In that case, the court will appoint a trustee.

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6
Q

Does a grantor require a present intent? Are precatory words sufficient?

A

Yes, there must be a manifestation of intent.

Mere precatory words are not sufficient (e.g., hope, desire, etc)

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7
Q

Does a trust require a writing?

A

No, not for a personal property trust

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8
Q

What is a testamentary trust?

A

An instrument that takes effect upon the settlor’s death

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9
Q

What is an inter-vivos trust?

A

An instrument that takes effect during the settlor’s life

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10
Q

How does a settlor transfer real property to a trust?

A

The statute of frauds requires a deed to be executed in order to transfer title validly

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11
Q

What is a declaration in trust?

A

Settlor herself is the trustee. As always, if there is a transfer of real property you must satisfy SOF.

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12
Q

What satisfies the requirement that a trust have a legal purpose?

A

Any legal purpose. It just can’t be illegal.

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13
Q

When must trust satisfy legal purpose requirement? What are the consequences of an illegal purpose?

A

Always. If illegal at formation, court may invalidate the trust from its inception or allow the trustee to keep the property.

If illegal at some LATER date, the court will decree a resulting trust, and the trustee will have to transfer the trust back to the settlor

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14
Q

What is a charitable trust under the Statute of Elizabeth and the Restatement of Trusts?

A

The Statute of Elizabeth authorizes trusts for eduction, alleviation of poverty, alleviation of sickness, and to help orphans. The Restatement of trusts is even broader.

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15
Q

What is required to create a charitable trust?

A

There must be a manifestation of intent to transfer a present interest in property for a charitable purpose. The intent can be present, e.g., in a will, a declaration of trust, or a transfer in trust.

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16
Q

Who is the required beneficiary of a charitable trust?

A

Society at large

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17
Q

What is the result of a charitable trust that benefits only a small group?

A

One line of authority takes the view that it is a private express trust. Another line takes the view that it qualifies as a charitable trust because society benefits ANYTIME poverty is alleviated.

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18
Q

Does RAP apply to charitable trusts?

A

No

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19
Q

What will a court do if a charitable trust fails?

A

SPECIFIC INTENT: Court creates a resulting trust in favor of settlor or his estate.

GENERAL INTENT: Court may use the doctrine of cy pres to modify the trust’s method of achieving that intent. Cy pres means “as nearly as possible”

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20
Q

What are the three ways to validate a pour over will provision?

A
  1. Incorporation by reference.
  2. Facts of independent significance
  3. UTATA
21
Q

What is an honorary trust?

A

It is not a legal trust because it does not have ascertainable beneficiaries or create a societal benefit? Thus, it just asks that beneficiaries honor the settlor’s wishes. Typical examples are a pet trust or grave site trust.

Note they usually violate RAP, so courts sometime strike the gift or let them last for 21 years.

22
Q

What is a Totten Trust? How do you analyze it?

A

Not typically a legal trust. Just a will substitute where a named beneficiary takes whatever is left in a bank account.

Analyze whether the settlor had a present intent to create a trust with respect to the assets in the account. If so, may be a private express trust.

23
Q

Can trust beneficiaries alienate their interst in trust property?

A

Yes, absent limitations, a beneficiary can alienate his interest and creditors can involuntarily alienate a beneficiary’s interest.

24
Q

What is the result of a spendthrift trust provision?

A

A beneficiary cannot voluntarily transfer his interest in the trust, and a creditor cannot involuntarily attach to such interest.

25
Q

Will a court recognize an assignment by a beneficiary under a spendthrift trust?

A

Sometimes, on the theory that the beneficiary has merely given the trustee a direction to pay the B’s agent or representative.

26
Q

What creditors are permitted to attach to interests in a spendthrift trust?

A
  1. Government creditors
  2. Those who provide necessities of life
  3. Child seeking child support
  4. Spouse seeking spousal support
  5. Ex-spouse seeking alimony
  6. Tort judgment creditor
27
Q

What is surplus in a spendthrift trust?

A

Many jurisdictions will permit a creditor to attach surplus, as measured by a beneficiary’s station in life. Court conducts a subjective analysis to determine what is required to maintain the beneficiary’s qualify of life.

28
Q

Will courts respect a spendthrift trust you create for yourself?

A

Some jurisdictions will, and others won’t.

29
Q

What is a trustee’s duty in a support trust?

A

Trustee must use only so much of the income or principal as necessary for the beneficiary’s health, support, maintenance or education.

30
Q

What rights are there in support trusts to alienation?

A

Same as spendthrift trusts

31
Q

What is a discretionary trust?

A

Trustee has discretion in determining when, if ever, and how much, if anything, to pay the beneficiary.

32
Q

What rights are there in discretionary trusts to alienation?

A

Beneficiaries and creditors typically don’t have alienation rights, because the beneficiary may never receive anything.

However, if beneficiary/creditor does make an assignment/attachment of his interest, then the assignee steps into the shoes of the beneficiary.

33
Q

Do you need to analyze whether a trust is a discretionary or a support trust?

A

YES!

34
Q

What is a resulting trust?

A

An implied-in-fact trust based on the presumed intent of the parties.

35
Q

How is property transferred to a resulting trust? To who?

A

By court decree. To the settlor if alive. To his estate if not. By intestacy if no estate.

36
Q

What are the six ways a resulting trust can be created?

A
  1. Private express trust ends on its own terms
  2. Private express trust fails because there is no beneficiary or becomes illegal
  3. Charitable trust fails, and cy pres cannot be used
  4. Trust has excess corpus for its purpose
  5. Purchase money resulting trust
  6. Semi-secret trusts (i.e., will makes a gift to a trust but doesn’t name a beneficiary - parol evidence permitted)
37
Q

What is a constructive trust?

A

Not a legal trust - just a remedy against unjust enrichment.

38
Q

What is a trustee’s duty in a constructive trust?

A

Wrongdoer must simply transfer property to the intended beneficiary, as determined by the court

39
Q

What are the four situations where a constructive trust arises?

A
  1. Self-Dealing Trustee
  2. Will created with fraud in the inducement or undue influence
  3. Semi-Secret Trust
  4. Real Estate Trust that fails SOF
40
Q

What are the trustee’s powers?

A

All express powers. All implied powers, which are those that are helpful and appropriate to carry out the trust’s purpose (e.g., sell property, incur expenses, enter into leases, borrow money)

41
Q

What are trustee’s seven primary duties?

A
  1. Duty of loyalty
  2. Duty to invest
  3. Duty to earmark (label property)
  4. Duty to segregate (can’t commingle own funds)
  5. Duty not to delegate (decision-making power)
  6. Duty to Account (regularly provide statement of income and expenses)
  7. Duty of Due Care (act as reasonably prudent person)
42
Q

What are the three alternative theories for the duty to invest standard?

A
  1. Some states permit only limited investments in ultra-safe instruments (e.g. federal bonds and CODs)
  2. Common law prudent person standard: duty to invest as a reasonably prudent person investing his own property, trying to maximize income and preserve principal. Tested on investment by investment basis.
  3. Uniform prudent investor standard: adopted by most states and requires prudent investing, tested on a portfolio-wide basis.
43
Q

What are the five remedies for a trustee’s breach?

A
  1. Damages
  2. Constructive trust
  3. Tracing and equitable lien on property
  4. Ratify the transaction, if it is favorable to B
  5. Remove trustee
44
Q

What is liability of trustee in contract?

A

Common law: he is sued in his personal capacity. Personal assets are at stake, but he can be indemnified under the trust instrument.

Modern trend: he is only sued in his representative capacity

45
Q

What is liability of trustee in tort?

A

Common law: sued in personal capacity, but can be indemnified by trust.

Modern trend: trustee can only be sued personally if he would be personally liable for the breach

46
Q

Can settlor modify a trust?

A

Yes, if he expressly reserves the power

47
Q

Can court modify a trust?

A

Private Trust: Yes, under the doctrine of changed circumstances

Charitable Trust: Yes, under the doctrine of changed circumstances

48
Q

Can a settlor terminate a revocable trust?

A

Majority Rule: yes, if power is express in trust.

Minority Rule: Yes, unless trust says otherwise

49
Q

Can a settlor terminate an irrevocable trust?

A
  1. If all beneficiaries agree
  2. If all B’s agree, and all material purposes have been accomplished
  3. By operation of law

CA Bar Exam (15 decks)

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