Trusts

Question 1

Trusts generally on bar exam

Answer 1

least heavily tested. crossed over with CP, trusts, wills*, and once, PR

Question 2

Trust (definition)

Answer 2

a fiduciary relationship where trustee holds legal title to the property for the benefit of the beneficiary

trustee has duty to manage in good faith and in best interest of a beneficiaries

Question 3

Creation of a Trust

Answer 3

1. settlors - the creator of the trust
2. intent - almost always there. present intent to create the trust and can be shown by words or conduct of the settlor
3. res- the trust property
4. delivery- when settlor places the property out of his control and hands it over to the trustee
5. beneficiary - the people who benefit from the trust. *they must be ascertainable/identifiable [except in charitable trust]
6. trustee- person who holds legal title. a trust will not fail for the lack of a trustee. If a trustee is not named then the court will appoint one
7. purpose - as long as you’re not trying to do anything illegal the purpose is all good

examiners like to see all seven

(T)rust (P)urple (BIRDS)

Question 4

a trust created by fraud, duress, or undue influence…

Answer 4

is void

check wills outline- onetimers

Question 5

Express Trust

Answer 5

a written trust for benefit of ascertainable persons

almost all are express

Question 6

Constructive trust

Answer 6

the court creates a fictitious trust to hand over property that was wrongfully obtained

(remedies outline)-one-timers- to prevent unjust enrichment

Question 7

Testamentary Trust

Answer 7

Trust created based on terms of a will and takes effect on death of testator

Question 8

Intervivos Trust

Answer 8

transfer during your lifetime
(transfer is an interest in property during settlor’s life)

do this to avoid probate (compared with testamentary trust)

Question 9

revocable trust

Answer 9

settlor has an express term that allows trust to be revoked

this means it can still be taken by creditors

Question 10

irrevocable trust

Answer 10

settlor’s creditor’s have no claim against the asset’s of this trust

Question 11

Discretionary Trust

Answer 11

gives Trustee discretion in how/when to disperse the property in the trust

high fiduciary duty.

discretion to make payments

beneficiary’s creditor’s can’t compel a trustee to make a payment to beneficiary

Question 12

**charitable Trust

Answer 12

to benefit the public at large for a charitable purpose

must be for the benefit of an indefinite class of persons 
so no definite beneficiaries

Question 13

cy pres**

Answer 13

“as near as possible”

a charitable trust may be modified if the trust’s purpose becomes impractical or impossible to achieve.
often, once the settlor passes away the practical purpose because impossible to achieve
so court will look at the settlor’s general charitable intent

if they can’t ^^–> money goes to a resulting trust

Question 14

spend thrift trusts

Answer 14

settlor has power to prevent a beneficiary from lavish spending

prevents voluntary and involuntary transfer of assets
so creditor can only attempt to collect from a B after a payment is made

settlor can’t be the beneficiary

language: “beneficiary is prohibited from transferring his interest under the trust”

Question 15

voluntary transfer

Answer 15

beneficiary can transfer his interest in the trust

Question 16

involuntary transfer

Answer 16

is an attachment by the Beneficiary’s creditor.

In a spendthrift:
*prevents beneficiary’s creditors from getting to assets of the trust

Question 17

exceptions to spendthrift trust**

Answer 17

these creditors (“preferred creditors”) CAN get assets in a spendthrift trust

• government claims
• spousal support/alimony claims
• child support
• creditors who have furnished necessary services (landlords or grocery bills)
• any amount B receives that is in excess of his station in life (any surplus of education and living expenses can be attached by creditors)

the trustee will have pay the person in the exception directly

Question 18

resulting trust

Answer 18

when an express trust or a charitable trust/cy pres fails then it goes to settlor’s estate

Question 19

Duties of Trustees***

Answer 19

1. must administer the trust according to its terms

2. duty of care*

Question 20

duties of co-trustees

Answer 20

reasonable care and must prevent a co-trustee from committing a breach of trust

Question 21

duty of care**

Answer 21

trsutee has fiduciary duty to exercise care, caution, and skill that a reasonably prudent person would

TIP: if breach of fid duty–> always breach of duty of care – mention it in essay

Question 22

prudent investor rule

Answer 22

trustee is required to invest and manage the trust assets as a prudent investor would by considering purpose, terms, and distribution circumstance of teh trust
they don’t look at each individual investment. they look at investment strategy as a whole

Question 23

duty to diversify**

Answer 23

when making investment decisions, the trustee has a futy to diversify the investments of the trust. diversification is one of the fundamental elements of prudent investing

Question 24

duty to act impartially

Answer 24

trustee can’t favor one Beneficiary more than the others

often tested: trust will have a) an income beneficiary and b) a remainderman. trustee will

Question 25

income beneficaries

Answer 25

rental income and stock dividens are generally distributed to these B

Question 26

duty to communicate

Answer 26

(duty to inform and report)
a trustee is rqrd to keep the beneficiaries rsbly informed about the administration of teh trust and of the material facts necessary for them to protect their interests
provide advance notice of transactions involving
- real estate
closely-held business interests
other assets that are difficult to value or replace
thus before making a MAJOR DECISION the trustee should check with the beneficiaries to get their input`

Question 27

duty of loyalty*

look for mainly self dealing transactions

Answer 27

trustee must not place her own interests ahead of the beneficiaries
prohibits self dealing
prohibits entering into conflicts of interst in which the trustee would benefit personally from the trust

Question 28

no further inquiry rule

Answer 28

a transaction voidable by the beneficiary when:
a transaction involving the investment of trust property for the trustee’s OWN PERSONAL ACCOUNT
it is IMMATERIAL whether the trustee was acting in good faith or pays a fair consideration

Question 29

which transactions are conflicts of interests?

Answer 29

a transaction between the trustee and:

1) the Trustee’s spouse or close fam member
2) any business which the trustee owns a significatn interest that might affect the trustee’s best judgement

Question 30

can a trustee purchase trust property in her INDIVIDUAL CAPACITY when she pays fair market value?

Answer 30

no. court will automatically apply “no further inquiry” rule

remedy: indemnify the trust for any loss and may also be removed as trustee?

Question 31

remedies for breach of trust

Answer 31

if serious breach –> may be removed as trustee

trustee is liable for ALL losses resulting from a breach

require trustee to disgorge any profit she made from the breach
set aside the transaction and impose a constructive trust

set aside the transaction unless BFP

Question 32

self dealing

Answer 32

any transaction where trustee stands to benefit

violating this is a violation of duty of loyalty

Question 33

a trust may be modified or terminated by:

Answer 33

i) by consent of the settlor and all beneficiaries or
ii) by consent of all beneficiaries UNLESS a material purpose still remains (instead of waiting this thing out). Claflin doctrine
iii) when the settlor expressly reserves the right
iv) express terms dictate the termination

Question 34

Claflin Doctrine

Answer 34

the court won’t terminate/modify a trust (even when all beneficiaries agree) if the modification would be INCONSISTENT with the settlor’s intent
(i.e. ** a spendthrift trust)

Question 35

termination by a trustee

Answer 35

only if a trustee is conferred the power to terminate,