Trusts

Question 1

What are the execution requirements to create a valid trust?

Answer 1

1. signed writing
2. signed by settlor and trustee
3. acknowledged before a notary public OR witnessed by two witnesses

Question 2

What must settlor transfer to trustee to create a valid trust?

Answer 2

Must deliver legal title to the res (property) to the trustee for the benefit of named beneficiaries with intent to create a trust with legal purpose

Question 3

What must be true of trust property (res)?

Answer 3

Must be owned by settlor at the time of the transfer to trustee

Question 4

What is the main distinction between a lifetime/inter vivos trust and a testamentary trust?

Answer 4

Lifetime: created during settlor’s lifetime, no court is involved in it creation

Testamentary: created by will at settlor’s death, arise in probate proceedings in court

Question 5

Who cannot be a trustee of a testamentary trust?

Answer 5

1. under 18
2. incompetent
3. convicted felons
4. incapable b/c of drunkenness, dishonesty, lack of understanding, or improvidence

Question 6

Generally, what must be true of an identified beneficiary?

Answer 6

beneficiaries must be definite and ascertainable with no ambiguity (if ambiguous, trustee holds for residuary beneficiary)

Question 7

What factors can render a trust unenforceable for a lack of intent?

Answer 7

1. Precatory language (hopes, wishes, desires)

2. Trustee is given no duties

Question 8

What is the main difference between charitable trusts and other types of trusts?

Answer 8

Charitable trusts cannot have ascertained members/beneficiaries and are established for charitable purpose (education, relief of poverty, religion etc.)
R.A.P. does not apply

Question 9

What is the Cy Pres Doctrine?

Answer 9

If circumstances have changed making a trust’s directions impracticable (or has been accomplished ) court may redirect benefit in a manner that serves testator/settlor’s charitable intent

Question 10

What is a constructive trust?

Answer 10

Equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct

Question 11

For joint bank accounts, what 2 showings must be made for survivorship language to be set aside?

Answer 11

C+C evidence that:

1. survivorship was not intended when account was established, AND
2. account was only opened as a matter of convenience to the depositor

Question 12

What is Totten Trust?

Answer 12

Trust where settlor deposits money in a bank account with instructions that money should go to named beneficiary upon settlor’s death

Question 13

What are the 4 ways to revoke a Totten Trust?

Answer 13

1. withdraw all the money
2. express revocation – in writing, notarized and delivered to bank
3. revocation in a will
4. beneficiaries death

Question 14

What are the 3 key duties of a custodian under the Uniform Transfers to Minors Act (UTMA)?

Answer 14

1. hold, manage, invest property as a prudent person
2. pay minor part of property deemed advisable
3. pay minor what is left of property when minor turns 21

Question 15

Do transfers under the UTMA create trusts?

Answer 15

NO, title to property does not pass to a custodian like it does to a trustee

Question 16

What kinds of interests/benefits can pour over into lifetime and testamentary trusts?

Answer 16

1. life insurance proceeds
2. savings accounts
3. pension benefits

Question 17

What is the general rule regarding the alienability of trust interests?

Answer 17

Interest in income or principal may be voluntarily assigned and may be subject to claims of a beneficiaries judgment creditors

Question 18

What is a Spendthrift Provision?

Answer 18

prohibits a beneficiary from transferring their trust interest and makes trust funds unreachable to creditors

Question 19

What does that power of invasion grant a trustee?

Answer 19

Trustee can invade the trust principal for the living beneficiary’s support – generally the trust document must grant this power

Question 20

When can a trust be amended/modified?

Answer 20

ONLY when the objectives of the trust would be defeated or substantially impaired if the trust is not modified.
**may be modified by trustee or beneficiary

Question 21

What are main factors a trustee must consider when investing on behalf of the trust?

Answer 21

1. consider the role each investment plays within overall trust portfolio
2. consider expected total return from income and capital gain

Question 22

What are the 5 prohibitions under the trustee’s general duty to refrain from self-dealing?

Answer 22

Trustee CANNOT:

1. buy or sell trusts assets to himself
2. borrow trust funds from trust
3. lend money to trust
4. profit from serving as trustee (aside from appropriate trustee fees) – cant take advantage of confidential info
5. corp. trustee cannot by corps stock as trust investment

Question 23

What are the remedies for a breach of trustee fiduciary responsibilities?

Answer 23

1. sue for removal of trustee
2. sue for any losses
   * *can also ratify/waive breach (acquiesce)

Question 24

When can a 3rd party NOT be sued by a beneficiary due to a prohibited transaction by a trustee?

Answer 24

When the 3rd party is a bona fide purchaser for value without notice

Question 25

When will a 3rd party purchaser NOT qualify as a Bona Fide purchaser?

Answer 25

When 3rd party purchaser:

1. knows they are dealing with a self-dealing trustee
2. is a relative of the trustee
3. is a business in which the trustee is involved

Question 26

When will a trustee have personal liability for contracts or torts?

Answer 26

When the trustee signs personally and merely mentions the trust
**vice versa is true – if trustee signs on behalf of the trust no personal liability attaches

Question 27

What happens if a trustee uses commingled funds to purchase a trust asset?

Answer 27

If the asset decreases in value the trustee must account (pay) for all losses, if the asset increases in value the trustee must pay all profits to the trust