Trusts (Bar)

Question 1

Trust

Answer 1

An arrangement under which a trustee holds legal title to property for the benefit of beneficiaries. The trustee has burdens and is subject to fiduciary standards. He is not privileged to use the property as his own and there are harsh self-dealing rules.

Question 2

Creation of a Trust

Answer 2

Creator/Setlor delivers to the trustee;
legal title of trust assets;
for the benefit of beneficiaries;
with the intent to create a trust;
for a valid purpose.

Question 3

Delivery Standard

Answer 3

The delivery requirement does not apply to self-declaration of a trust or a testamentary trust. But for inter vivos trusts with a third party as a trustee, there must be delivery of the subject matter of the trust.

Question 4

Effect of Title on Delivery

Answer 4

If the property is titled in the beneficiaries name and not the trustees, it is not a trust. It may be escrow or a gift.

Question 5

Creation of a Gift

Answer 5

Delivery of property to the donee or their agent. Furthermore, the donor must have the intent that the gift is irrevocable.

Delivery may be actual or constructive and when constructive delivery is not available, it may be symbolic (i.e. delivering a signed writing telling the donee about the gift).

Question 6

Showing adequate intent

Answer 6

The statement of intent must be such that it is clear how the money is to be used. Phrases like “it is my desire or wish that…” will not create a trust.

Question 7

Res

Answer 7

The subject matter (property) of the trust. The subject matter must be certain and identifiable.

Question 8

Expectancy

Answer 8

The property interest someone is expecting or hoping to get from a will but that they don’t have yet. It is not considered a property interest yet because the person whose will it is has not yet died, so it has not yet ripened.

Question 9

Lack of Trustee

Answer 9

No trust fails for lack of a trustee unless the court finds the settlor intended for the trust is so specific that the trust should fail without them.

Question 10

Legatee

Answer 10

A beneficiary of a trust

Question 11

Honorary Trust

Answer 11

A trust which fails to name a human. They are allowable for animals and graves. In Nevada, an honorary trust is valid for the life of the animal and 21 years for a grave.

Question 12

What is the effect of a trust that names one of the beneficiaries as the trustee?

Answer 12

No problem. While the sole benficiary of a trust cannot be the sole trustee, as long as there are two or more trustees or two or more beneficiaries, its okay to have one person named as both.

Question 13

Totten Trust

Answer 13

(also referred to as a “Payable on Death” account)

A form of trust in the United States in which one party (the settlor or “grantor” of the trust) places money in a bank account or security with instructions that upon the settlor’s death, whatever is in that account will pass to a named beneficiary.

Nevada does not allow a payable on death account to be revoked by will.

Question 14

Oral Promises to Hold in Trust

Answer 14

An oral trust is enforceable so long as its terms can be established by clear and convicing evidence. However, trusts involving land must be written to satisfy SOF.

Question 15

Oral Promise, Supported by Consideration, to Make a Will Devise

Answer 15

A contract to make a will, not make a will, or to refrain from revoking a will must:

Have the terms in the will itself, or
Have terms in a written contraact, or
the will must refer to the contract and extrinsic evidence is available to prove the terms.

Question 16

Charitable Trusts

Answer 16

No subject to RAP or the Rule Against Accumulations.
Must be for a charitable purpose.
Must be in favor of a reasonably large number of beneficiaries.

When the purpose of a charitable trust can no longer be accomplished, it may be reformed under the doctrine of cy pres (old french for as near as possible).

Question 17

Who can reach a trust?

Answer 17

Creditors with claims for necessities.
Alimony and child support obligations.
Claims by the US government or a state.

Question 18

Fraudulent Transfer Doctrine

Answer 18

A transfer made with the intent to defraud creditors is invalid.

Question 19

Duty of Loyalty

Answer 19

A trustee cannot buy or sell trust assets to himself.
A trustee cannot borrow trust funds.
A trustee cannot sell assets from one trust to another.
Trustees cannot engage in any transaction where she seeks to secure a personal gain.

Corporate trustees (usually bank trustees) cannot purchase its own stock as a trust investment, but it can retain its own sotck if part of the original trust property, provided its a prudent and premissible investment.

Question 20

Duty to Invest Prudently

Answer 20

Except as otherwise provided by the terms of the trust, a trustee must manage the property as a prudent investor would. A trustee must adhere to a standard of reasonable care, slill, and caution in making investment decisions. Furtheremore, they have a duty to:

Refrain from commingling.
Balance return with potential risk
Diversify Investments (this is by far the most frequent breach)
To keep trust productive.

Question 21

Portfolio View

Answer 21

he rule by which the Prudent Investory Rule is measured. It says that the fact that one or more assets held by the trust are underperforming is not a proble so long as the total return of the overall portfolio is reasonable.

Question 22

Duty to Preserve and Protect Trust Property

Answer 22

The trustee must insure the trust property against casaulty losses.

Question 23

Duty of Impartiality

Answer 23

Absent a trust provision permitted the trustee to prefer on beneficiary over the other, a trustee must be fair and impartial to all beneficiaries.

Question 24

Duty to Account and Inform

Answer 24

A trustee has a duty to account periodically to the beneficiaries and to keep them reasonably informed about the administration of a trust.

Question 25

List of Duties of the Trustee

Answer 25

Duty of Loyalty
Duty to Invest Prudently (measured using portfolio view)
Duty to Preserve and Protect Trust Property
Duty of Impartiality
Duty to Account and Inform

Question 26

Liability for Breach of Trust

Answer 26

Whenever a trustee breaches a duty, the beneficiaries have a choice of options:

Ratify the conduct and waive the breach.
Sue for resulting loss via an action called a surcharge.
In self-dealing cases, trace and recover the proprety.

Each breach is judged seperately when doing this. You can ratify one breach and sue on another.

Question 27

Termination of Trusts

Answer 27

Beneficiaries can terminate the trust if they all consent and there is no further purpose for the trust to serve. However, interests in minors and unborn beneficiares preclude termination.

A spendthrift clause in a trust makes the trust irrevocable unless all beneficiaries and the setlor (who must still be alive) consent.

A setlor can terminate or modify a trust if he has expresly reserved the right to do so and he complies with all provisions in the trust instrument pertaining to how revocation should take place.

Question 28

Trusts Imposed by Operation of Law

Answer 28

Resulting Trusts

Constructive Trusts

Question 29

Resulting Trusts

Answer 29

May arise upon the failure of an express trust or when an express trust’s purpose has been accomplish and the corpus has not yet been exhausted.

Examples include an express trust that fails and is silent as to what happens then or a trust that gives money for a project and then there is money leftover.

Question 30

Constructive Trusts

Answer 30

Implied in a variety of circumstances where a person acquires title to property wrongfully.

Question 31

Powers of Appointment

Answer 31

A person writing a will or trust can give his or her beneficiaries a power of appointment, which enables them to direct where their share of the estate or trust goes at their death. A power of appointment provides flexibility for transferring property to children and grandchildren. The setlor creating the trust can restrict appointments, for example, limitting them to the children of the beneficiaries.