Trusts and future interests

Question 1

what is the settlor, trustee, and beneficiary?

Answer 1

Settlor = the one making the trust
trustee = the one entrusted with its management
beneficiary = the one who benefits from the trust.

legal title in trustee, equitable title in beneficiary.

Question 2

4 requirements for valid trust

Answer 2

1. present intent to createa turst
2. trustee
3. beneficiary
4. trust property

in a private express trust, a beneficiary must be definite an ascertainable.

Question 3

Trust property requirements (3)

Answer 3

A> trust property must be identifiable.
2. a promise to give property in future does not suffice unless there is consideration.
3. if a trust that is invalid for lack of assets is later funded, trust arises at that time if settlor remanifests his intention to create a trust.

Question 4

what is a pourover will?

Answer 4

1. trust must be identified in testators will, and
2. terms must be incorporatesd in a writing executed before or concurrently with the will.

Question 5

beneficiary right sin discretionary trusts

Answer 5

beneficiary cannot demand any part of the income or principal and cannot ask teh court to compel a distribution unless the trustee abuses their discretion.

Question 6

What is a support trust, and the two kinds of it

Answer 6

settlor instructs trustee to pay what is necessary for beneficiaries support. support is fact dependant. more than just ncessities or essentials.
1. pure support turst - trust under which payments are limited for a beneficiary’s support. trustee has no discretion to withhold payments of income that are necessary for the support of the beneficiary.
2. discretionary support trust - trustee has discretion to withhold payments.

Question 7

Spendthrift trust defintiino and creditor rights

Answer 7

ST restrains both voluntary and involuntary transfer of a beneficiaries interest.
creditors may not reach part of a beneficiarys distribution prior to the beneficiary. favored creditors are an exception, but can only get what the beneficiary would. those are: child or spousal support, judgment creditor (legal services) state or US, necessaries.

Question 8

What is a charitable trust

Answer 8

may be created for relief of pvoerty or other charitable upurpose. must have a large number of not readily identifiable individuals. education purpose trust is a charitable trust.

Question 9

When can you modify/terminate a charitable trust

Answer 9

charitable trust fails if its purpose becomes unlawful, impractiable or impossible.
however, cy pres can save this.
if the court finds a settlor had a general charitable intent, the court may apply the doctrine and save the trust. general charitable intent is presumed under commonlaw.

Question 10

Disclaimer in trusts

Answer 10

majority rule: a beneficiary has 9 months to disclaim an interest.
UPC - may disclaim any time before acceptance.

Question 11

Revocability of trusts

Answer 11

settlor can revoke unless instrument states otherwise. revocable = amendable.

Question 12

Equitable deviation from terms of trust

Answer 12

Common law - courts may only modify administrative provisions of the trust
UTC approach - courts may modify administrative provisions and dispositive terms of the trust.

Question 13

Termination fo revocable trust by consent

Answer 13

terminated by settlor at any time, either by complying with a method stated in the trust or by any other method manifesting clear and convincing evidence of settlors intent (including a will or codicil)

Question 14

termination of irrevocable trust by consent

Answer 14

1. termination by settlor - settlor may terminate if all beneficiaries exist and agree
2. by beneficiaries - after hte settlor’s death, if income beneficiaries and remaindermen unanimously consdent and there is no material purpose yet to be formed.

Question 15

4 ways to terminate trust

Answer 15

1. consent
2. merger
3. illegality or possibility
4. trust becomes economic

Question 16

Trustee duty of loyalty

Answer 16

1. Duty of loyalty (act impartially, act for interests of beneficiaries).

the following are voidable acts that a beneficiary can void unless authorized by trust, approved by the court, consented to by the beneficiary, or if the claim is not timely brought:

a.cannot personally buy or sell trust assets,
b.profit from serving as trustee, or
c.personally profit by buying stock of ones own corporation.

the follwoing are presumptively voidable, but not strictly prohibited - having ones own family profit. can be rebutted if trustee can prove transaction was fair.

Question 17

Duty of care - prudent investor

Answer 17

Trustee shall invest and manage assets held in a fiduciary capacity as a prudent investor would, taking into account the circumstances of the estate. Reasonable care, skill, and caution.

A trustee’s investments shoul dbe evaluation in the context of hte portfolio as a whole and as part of investment strategy.

Question 18

Duty to diversify for trustee?

Answer 18

Hallmark of prudent investing is diversification. Trustee not liable for declines in value due to a downturn resulting from general economic conditions
ex. investing 90% of stock in one fund may be imprudent, however, if done according to express will of settlor, not imprudent.

Question 19

Duty to allocate properly to principal and outcome (trustee)

Answer 19

General rule: Ordinary expenses should be allocated to income. Extraordinary expenses should be allocated to the principal.

Question 20

5 assets that should be allocated to teh principal, and 3 that hsould not

Answer 20

allocated:
1. money received from sale, exchange , or liquidation of a PRINICPAL ASSET.
2. LIFE INSURANCE proceeds
3. Eminent Domain awards.
4. all property other than money received from an entity, and
5. Distribution of stock.
not allocated:
1. rental income (but not security deposits)
2. interest
3. money received from an entity (rent, etc)

Question 21

Remedies for breach of trust of trustee?

Answer 21

1. suspending or removing a trustee or decreasing compensation,
2. compellin ga trustee to perofrm trust duties, and
3. compelling the trustee to pay damages.

in self dealing cases, trust beneficiaries may
1. rescind the transaction and ask for the self-dealing purchase to be set aside
2. recovery any profits the trustee made by reason of the breach.
(if stock value goes up, rescind, if go down, recover. eg. trsutee purchases 1.2m stock from trust worth 1.5m. economic downturn to 450k. if rescinded, trust would refund the purchase price (1.2) and get stock only worth 450k. if recovered, get the difference between 1.2 and 1.5m

Question 22

Trustee Delegation investments

Answer 22

2nd restatement: trustee cannot delgate power to select investments
utc and third: trustee can delegate duties that a prudent person of comparable skills could properly delegate.

Question 23

Power of appointment

Answer 23

A person writing a will or trust can give beneficiaries a power of appointment, which enables the beneficiary to designate who will receive trust or estate property.

Question 24

Two types of appointment powers

Answer 24

1. general power of appointment. class of people that donee can exercise a power of appointment in favor of is unlimited.
2. special power of appointment - class of people that the donee can exercise it in favor of is limited.

Question 25

RAP in trust context

Answer 25

RAP: no interest is good unless it must vest, if at all, no later than 21 years after some life in being at the creation of the interests.
applies to: contingent remainders, vested remainder subject to open (class gifts), executory interest, and powers of appointment

Question 26

Trustee Construction Divorce issue

Answer 26

provisions of will in favor of spouse automatically revoked if divorced. UPC: interest n reovcable trust in favor on an ex-spouse is automatically revoked upon divorce.

Question 27

Trustee Construction Elective Share

Answer 27

Illusory-transfer doctrine - surviving spouse can reach assets trasnferred during marriage on the theory that transfer is economically illusory because by simply exericisng revocation, deceased spouse could have recaptured assets placed in trust.
fraudulent transfer doctrine - surviving spouse can reach assets tarnsferred into a revocable trust on threat that it was fraudulent. dead spouse was defrauding living.

Question 28

Rule of convenience (trust)

Answer 28

A class gift closes when at least one member is entitled to a distribution.
e.g. if a will gives a gift to “my grandchildren”, and only oen grandchild is alive, the class closes, and any future children will not take.

Question 29

Gift to classes in trust two approaches

Answer 29

1. UPC - 2-707, when a class gift is made, each living beneficiary takes their share and the deceased beneficiary’s share will pass to their surviving descendants.
2. common law - if gift or remainder to teh deceased beneficiary has alreayd vested and there is no applicable statute, it will go: to whomever teh instrument says it should go to if hte instrument discusses death of beneficiary, or
3. to whomever teh deceased person has specified in their will or through intestacy.