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MEE COPY (use this one!) > Trusts > Flashcards

Trusts Flashcards

1
Q

Trust requirements

A
  1. Grantor / settlor
  2. Intent to create a trust
  3. Trustee
  4. Ascertainable beneficiary
  5. Trust assets
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2
Q

Grantor / settlor

A

Creator of a trust

-may also be trustee and/or beneficiary

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3
Q

Trustee

A

Holds legal interest or title to trust property

Court will appoint trustee if settlor fails to designate one

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4
Q

Beneficiary

A

Holds equitable title to the trust property

Must impliedly or expressly accept his interest

Has right to receive income or principal from the trust (subject to the trust instrument)

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5
Q

Trust assets

A
  1. Cash
  2. Securities
  3. Real estate
  4. Life insurance policies
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6
Q

Private express trust

A

Clearly states intention of settlor to transfer property to a trustee for the benefit of one or more ascertainable beneficiaries

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7
Q

Requirements for private express trust

A
  1. Intent
  2. Trust property
  3. Valid trust purpose
  4. Ascertainable beneficiaries
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8
Q

Rule: intent required for creation of a private express trust

A
  • Settlor with capacity must manifest the present intent to transfer to trustee for a valid purpose
  • Manifestation of intent must occur prior to or simultaneously with the transfer of property
  • Use of common trust terms creates presumption of intent
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9
Q

Rule: trust property for private express trust

A
  • A trust must be funded with identifiable trust property

- must be identifiable & segregated + must be described with reasonable certainty

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10
Q

Effect of trust with no assets

A

Invalid

BUT, if a trust that is invalid for lack of assets is later funded —> trust arises if settlor re-manifests the intent to create a trust

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11
Q

Rule: valid trust purpose

A

A trust can be created for any purpose as long as it is not illegal or contrary to public policy & possible to achieve + is for the benefit of beneficiaries

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12
Q

Effect of trust terms violating public policy

A

Alternative terms will be honored

  • if none: term will be stricken
  • trust will not fail unless removal of the term is fatal
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13
Q

Rule: ascertainable beneficiaries

A

Beneficiaries must be identifiable by name so that the equitable interest can be transferred automatically by operation of law & directly benefit the person
- settlor may refer to acts of independent significance to identify the beneficiaries

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14
Q

Exceptions to rule of ascertainable beneficiaries

A
  • for benefit of unborn children
  • to reasonably definite class
  • charitable trusts
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15
Q

Inter vivos trust

A

a living trust created to hold assets of settlor

can be revocable or irrevocable

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16
Q

Pour-over trust

A

a pour-over devise is a provision in a will that directs the distribution of property to a trust upon the happening of an event, so that the property passes according to the terms of the trust without the necessity of the will reciting the entire trust

if trust is revoked –> pour-over provision in will must fail

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17
Q

Life-insurance trust

A

Proceeds go to trust upon insured’s death
Trust is owner of policy
Irrevocable

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18
Q

Living / revocable trust

A

created primarily to avoid probate of a decedent’s property upon decedent’s death

settlor transfers ownership of some/all of his assets to a revocable trust

  • -> settlor generally names himself as trustee of trust + is primary current beneficiary of trust
  • -> upon settlor’s death, successor trustee named in trust is responsible for distributing trust assets in accord with terms of trust

trust does NOT protect trust property from settlor’s creditors + does NOT avoid federal estate tax on trust property

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19
Q

Testamentary trust

A

Occurs when terms of trust are contained in writing in a will or in a document incorporated by reference into a will

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20
Q

“Secret” trust

A
  • looks like testamentary gift, but is created in reliance on named b’s promise to hold & administer the property for another
  • i.e. a constructive trust is imposed on the property for the intended b
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21
Q

“Semi-secret trust”

A

Occurs when a gift is directed in a will to be held in trust, but testator fails to name a b or specify the terms or purpose of the trust
- a resulting trust is imposed on the property to be held for T’s heirs

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22
Q

Modern trend for secret & semi-secret trusts

A

Impose a constructive trust in favor of the intended b’s (if known)

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23
Q

Charitable trust

A

Trust created for purpose of . . .

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24
Q

Cy pres doctrine

A

A ct may modify a charitable trust to seek an alternative charitable purpose if the original one becomes illegal, impracticable, or impossible to perform

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25
Q

Honorary trust

A

H

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26
Q

Alienation of b’s interest

A

A b’s equitable interest in trust property is freely alienable unless a statute or trust instrument limits that right

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27
Q

Support trust

A

Directs the trustee to pay income or principal as necessary to support the trust b & maintain lifestyle

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28
Q

Can creditors reach a support trust

A

Creditors cannot reach assets unless providing a necessity to the b
(I.e. trustee can pay directly)

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29
Q

Constructive trust

A

Used to prevent unjust enrichment if the settlor causes fraud, duress, undue influence, breach of duty, or detrimental reliance by a third party on a false representation

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30
Q

Discretionary trust

A

Trustee is given complete discretion regarding whether or not to apply payments of income or principal the b

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31
Q

Can creditors reach a discretionary trust

A

Creditors have the same rights as a b if the trustee exercises discretion to pay

32
Q

Mandatory trust

A

Trustee has no discretion regarding payments of trust property
Trust document explains in detail how & when trust property is to be distributed

33
Q

Spendthrift trust

A

Expressly restricts the b’s power to voluntarily or involuntarily transfer his equitable interest

34
Q

Can creditors reach a spendthrift trust

A

Creditors usually cannot reach the trust interest if the governing instrument contains a spendthrift clause

Exceptions: child or spousal support; tax lien holders; sometimes basic necessities providers

35
Q

Trust termination - automatic

A

A trust terminates automatically only when the trust purpose has been accomplished

36
Q

Trust termination - by consent

A

A trust may terminate by consent if the settlor is deceased or has no remaining interest + all b’s & the trustee consent

37
Q

Trust termination - by court

A

Trust may terminate by a court if the purpose has been achieved or becomes illegal, impracticable, or impossible

38
Q

Termination of revocable trust vs irrevocable trust

A

Revocable trust: can be terminated by the settlor at any time
Irrevocable trust: usually cannot be terminated

39
Q

Majority/UTC rule vs minority rule for revocable/irrevocable trusts

A

Majority/UTC: a trust is presumed to be revocable unless it expressly states otherwise

Minority: a trust is presumed to be irrevocable unless it expressly states otherwise

40
Q

Method of revocation by settlor

A

Settlor may amend or revoke according to trust terms, or if silent, by manifesting clear & convincing evidence of intent (e.g. will or codicil)

41
Q

Trustee’s power to terminate

A

Trustee has no power to terminate acting alone, unless trust contains express termination provisions

42
Q

Principal and income allocations - generally (beneficiaries? Remaindermen?)

“All assets received by a trustee must . . .”

A

Life beneficiaries: entitled to trust income
Remaindermen: entitled to trust principal

All assets received by a trustee must be allocated to either income or principal

43
Q

Rule: balancing allocation of principal/income

A

Allocation must be balanced so as to treat present & future trust bs fairly unless otherwise authorized

44
Q

Traditional approach re: money generated by trust property

A
  • Money generated by trust property is income
45
Q

Allocation of expenses

A

1/2 of trustee’s compensation + 1/2 of accounting & other costs is charged to income
Remaining 1/2 of those expenses is charged to principal

46
Q

Rule: trustee powers

A

The trustee has the powers necessary to act as a reasonably prudent person in managing the trust
e.g. revoke; withdraw; modify
Includes the implied power to contract, sell, lease, or transfer the trust property

47
Q

Duties of trustee

A

Duty to administer the trust in good faith (subjective standard)
Duty to act reasonably (objective standard) when investing property & otherwise managing the trust solely in the best inererests of the bs

48
Q

Rule: Self-dealing (trustee)

A

When the trustee personally engages in a transaction involving trust property, a conflict of interest arises between the trustee’s duties to the bs & her own personal interest

49
Q

Prohibited actions by trustee

A
  1. Buying or selling trust assets
  2. Selling property between trusts that trustee manages
  3. Borrowing from or making loans to the trust
  4. Using trust assets to secure a personal loan
  5. Engaging in prohibited transactions with friends or relatives
  6. Otherwise acting for personal gain through the trustee position
50
Q

Effect of trustee’s self-dealing

A

Irrebuttable presumption that trustee breached duty of loyalty when self-dealing is an issue
- no further inquiry into trustee’s reasonableness or good faith is required - per se breach

51
Q

Exception to rule for self-dealing by trustee

A

Even when self-dealing is authorized (by settlor, court order, or bs), the transaction must still be reasonable & fair to avoid liability for breach

52
Q

Standard for trustee conflicts of interest that are not self-dealing

A

Assessed under “reasonable and in good faith” standard if an alleged conflict of interest cannot be characterized as self-dealing

53
Q

Duty of prudence (trustee)

A

The trustee may delegate responsibilities if it would be unreasonable for the settlor to require the trustee to perform such tasks
However, a critical function concerning the property is discretionary + not delegate

54
Q

Duty to oversee decisions

A

The trustee can delegate the determination of management & investment strategies, BUT must oversee the decision-making process

55
Q

Prudent investor rule

A

Requires trustee to act as a prudent investor would act when investing his own property
- trustee must exercise reasonable case, caution, & skill when investing & managing trust assets

56
Q

Factors to consider for prudent investor rule

A
  1. Trust’s distribution requirements
  2. General economic conditions
  3. Investment of relation to trust’s overall investment portfolio
  4. Trust’s need for liquidity, income regularity, & preservation or appreciation of capital
57
Q

Duty to diversify

A

Trustee must adequately diversify the trust investments in order to spread the risk of loss under a total performance portfolio approach
- BUT, not if administrative costs would outweigh the benefits

58
Q

Duty to make property productive

A

By:

  1. pursuing all possible claims
  2. deriving the max amount of income from investments
  3. Selling assets when appropriate
  4. Securing insurance
  5. Paying expenses
  6. Acting within a reasonable period of time in all matters
59
Q

Duty to be impartial

A
  • Does not require that trustee treat each b equally, BUT does require a trustee not be influenced by favoritism or animosity
  • Trustee must balance interests of present & future bs by investing property so that it produces a reasonable income while preserving the principal for the remaindermen
  • Must sell property within a reasonable time if a failure to diversify would be inconsistent with the total performance portfolio approach
60
Q

Duty to disclose

A

Complete & accurate information about the nature & extent of the trust property
- includes allowing access to trust records & accounts, if trustee intends to sell a significant portion of the trust assets

61
Q

Duty to account

A

Must periodically account for actions taken on behalf of the trust so that the trustee’s performance can be assessed against the terms of the trust

62
Q

Duty of a prudent administrator

A

Duty to administer the trust as a prudent person

  • must exercise reasonable case, skill, & caution with regard to trust property
  • includes duties to secure possession of property within a reasonable time; to maintain real property; to segregate personal property from trust assets
63
Q

Powers of appointment

A

Usually given to the b
Enables holder to direct trustee to distribute some/all of the trust property without regard to the provisions of the trust

64
Q

Beneficiaries’ right of enforcement

A

Lost profits, interests, & other losses resulting from a breach of trust are the trustee’s responsibility
Bs may sue the trustee + seek damages or removal of trustee for breach

65
Q

Liabilities for others’ acts

A

Co-trustees are jointly liable

  • trustee is liable for a predecessor’s breach if he failed to address it or was negligent in delivering property
  • generally, trustee is liable for an agent’s breach if trustee directs or conceals agent’s act or fails to exercise reasonable supervision over agent
66
Q

Trustee’s liabilities for acts of third parties

A

Trustee is personally liable on Ks entered into & for tortious acts committed while acting as trustee
- can seek indemnity from trust if trustee was acting within scope of trustee’s duties

67
Q

Effect of property being improperly transferred as result of breach of trust to third party who is not a bona ride purchaser

A

B or successor trustee may have transaction set aside

68
Q

Modern approach re: allocation of trust assets to income / principal

A

UPAIA: trustee is empowered to re-characterize items & reallocate investment returns as he deems necessary to fulfill the trust purposes, AS LONG AS his allocations are:

  1. Reasonable, &
  2. In keeping with the trust instrument
69
Q

How is a distribution of stock treated under UPAIA

A

As a distribution of principal

70
Q

Class gift

A

A gift to a group of individuals with an automatic right of survivorship

71
Q

When does a class remain open until?

A

A class remains open & may admit new members until at least one class member is entitled to obtain possession of the gift

72
Q

When does a vested remainder created by class gift accelerate into possession

A

As soon as the preceding estate ends for any reason - such as the disclaiming of the estate by its holder

73
Q

What happens if the income beneficiary of a trust disclaims her interest?

A

The trust principal becomes immediately distributable to the presumptive remainder bs of the trust
- provided no one would be harmed by making a distribution to them earlier than it would have been made had the income b not disclaimed

74
Q

State statutes stance on beneficiary disclaiming trust interest?

A

Almost all states have enacted statutes that permit bs of trusts to disclaim their interest in the trust property (usually with rules for doing so)

75
Q

advantages of inter vivos trust

A
  1. avoids the costs & delays of probate process
  2. lifetime asset management by a third party
  3. privacy
  4. choice of law
76
Q

Traditional approach re: money generated in connection with conveyance of trust property

A

Money generated in connection with a conveyance of trust property is principal

77
Q

Are distribution of cash dividends traditionally characterized as trust income or principal?

A

Cash dividends constitute money that is generated by trust property - thus, it is characterized as trust income

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