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Texas Bar Exam Feb. 2024 > Trusts & Future Interests > Flashcards

Trusts & Future Interests Flashcards

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1
Q

Creation of Express Trust

A
  • intent to create a trust
  • valid purpose
  • competent settlor
  • property (res or corpus)
  • trustee
  • identifiable beneficiary
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2
Q

Creation of Express Trust: Intent

A

intend for recipient to hold property for benefit of someone else.

Factors (considered in totality of circumstance):
- whether scope of property is reasonably certain enough so that duties would be imposed on identifiable property
- whether instructions about how to use property are sufficiently precise as to indicate who should benefit and how they should benefit
- language of transfer (most important): “I direct” or “I require” likely to create a trust as opposed to precatory instructions like “I wish” or “I hope”

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3
Q

Creation of Express Trust: Valid Purpose

A

any purpose that is not illegal or against public policy.

if multiple purposes, can strike individual provisions that are not valid

condition that beneficiary divorce or not marry at all is against public policy and invalid UNLESS beneficiary = settlor’s spouse

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4
Q

Creation of Express Trust: Competent Settlor

A

inter vivos trust: requires same level of competence to make a gift (create a trust during life with instructions about who beneficiaries are and how distributions should be made). Uniform Trust Code reduces level of competence required to the level required for a will (legal age, requisite mental capacity)

testamentary trust: same level required for will (lower than level required for gift)

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5
Q

Creation of Express Trust: Property

A

any property will qualify.

held in name of trustee.

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6
Q

Creation of Express Trust: Trustee

A

holds legal title to trust property, manages it for purposes of trust, and makes distributions to beneficiaries.

fiduciary and must comply with fiduciary duties.

can have more than one trustee and position is voluntary

A TRUST DOES NOT FAIL FOR LACK OF A NAMED AND WILLING TRUSTEE

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7
Q

Trustee: Court Appointed

A

if no trustee named, or trustee does not want to or cannot serve, court appoints trustee

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8
Q

Trustee: Acceptance

A

accepts
- by substantially complying with a method of acceptance provided in trust trust terms OR
- if no specified method or method not exclusive, by accepting delivery of trust property, exercising powers or performing duties as trustee, or otherwise indicating acceptance

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9
Q

Trustee: Resignation

A

if accept, can resign
- by following procedures in trust instrument
- if no procedures, by following common law procedures (court approval) or statute (notice to beneficiaries and nay named successor trustee)

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10
Q

Trustee: Liability After Resignation

A

remains liable for acts or omissions that occurred while trustee was acting as trustee

can be released from liability by asking a court to approve resignation and final account

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11
Q

Creation of Express Trust: Identifiable Beneficiary

A

must have beneficiary that is identifiable or that is a class of identifiable persons

trust can have multiple beneficiaries and beneficiaries ma have interests at the same or different times

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12
Q

Identifiable Beneficiary: Rights

A
  • right to sue trustee if trustee mismanages or benefits personally from trust property
  • right to distributions from trust as settlor provided
  • right to be kept informed about trust so that she can protect her own interests
  • right to enforce the trust by suing the trustee for breach of the trustee’s fiduciary duties
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13
Q

Creation of Express Trust: Identifiable Beneficiary - Exceptions

A

four trusts do not need a beneficiary:
- charitable trust (benefits public at large or class/group with indefinite membership)
- honorary trust: if a person attempts to create a trust with no beneficiary or charitable purpose, court may (a) permit person holding property as intended trustee to carry out trust as an honorary trust by carrying out trust purpose or (b) distribute property to settlor’s estate
- animal trust: must be authorized by state statute; should provide for trustee, trust enforcer, and remainder beneficiary to take after animal’s death ; if no state statute, treated as honorary trust or property distributed through estate
- purpose trust: created for noncharitable purpose but without identifiable beneficiary; may not be enforced for more than 21 years

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14
Q

Formalities: Common Law

A

no formalities required to create but if all necessary terms could not be proven, trust would fail

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15
Q

Formalities: Modern Law

A

today, one party can be settlor, trustee, and beneficiary but need an additional party to be either co-trustee or co-beneficiary to have a valid trust

legal title held by trustee and equitable title held by beneficiary merge when trust has only one individual in all three roles

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16
Q

Formalities: Oral Trusts

A

must be proven by CCE.

writing required for trust of property (SoF)

in a few states, writing required for personal property and the settlor usually needs to sign the writing

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17
Q

Formalities: Testamentary Trusts

A

when trust created under a will, will must be executed with will formalities

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18
Q

Types of Trusts

A
  • private express
  • inter vivos
  • testamentary
  • charitable
  • totten trusts
  • resulting
  • revocable
  • irrevocable
  • pour-over wills
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19
Q

Private Express Trust

A

express trust created for private, noncharitable purpose, usually with identifiable beneficiary

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20
Q

Inter Vivos Trust

A

settlor can create a trust while alive by transferring property to someone to hold in trust, with instructions about who the beneficiaries are and how distributions should be made

settlor can create inter vivos trust with settlor acting as trustee

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21
Q

Testamentary Trust

A

created in a will

when testator dies, personal representative charged with administering estate will distribute property to named trustee

subject to oversight of probate court and is public

irrevocable because settlor is dead when trust created

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22
Q

Charitable Trust

A

express trust with charitable purpose. Can last in perpetuity.

Purpose must be:
- reasonably certain (court can determine settlor’s intent and that intent was exclusively charitable)
- for relief of poverty, advancement of education or religion, promotion of health, governmental or municipal purposes, or other purposes the achievement of which is beneficial to community, and
- not intermingled with private and other noncharitable objective

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23
Q

Totten Trusts

A

revocable pay-on-death designation of a bank accuont

death beneficiary has no rights in bank account during owner’s lifetime and owner can use funds or change beneficiary whenever owner wishes

since legal and equitable titles are not separate, Totten Trust not considered a true trust

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24
Q

Resulting Trust

A

when purpose of a trust can no longer be carried out, remaining trust property held as a resulting trust

property must be returned to settlor or be distributed through settlor’s estate

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25
Q

Revocable Trust

A

revocable if settlor retains power to modify or revoke trust in trust instrument

Common law: presume trust irrevocable and settlor must expressly reserve power to revoke

UTC: trust presumed to be revocable

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26
Q

Irrevocable Trust

A

settlor cannot modify or revoke it

created in three ways:
- testamentary trust irrevocable upon creation because settlor is dead
- revocable living trust becomes irrevocable when settlor dies
- settlor can create an irrevocable trust during the settlor’s life

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27
Q

Pour-Over Wills

A

will that pours over any remaining probate assets to the trustee of revocable living trust

assets become part of trust corpus and are distributed through trust.

if settlor has no probate assets when settlor dies, pour-over will does not need to be probated. But need to probate to distribute assets to trustee of trust if settlor had probate assets upon death

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28
Q

Uniform Testamentary Additions to Trusts Act

A

if trust instrument exists, trust can be created when property transferred at death, under will, or by designating trust as a beneficiary under insurance policy

trust considered inter vivos trust

can amend trust instrument at any time pre-death and amendments to trust instrument after will’s execution are valid

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29
Q

Powers of Invasion

A

common law: trustee needed court permission to take action not authorized under trust terms

modern trend: trustee has all legal powers necessary to accomplish trust objectives (provided not inconsistent with trust instrument)

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30
Q

Mandatory Powers of Distribution

A

direction trustee must follow - no discretion to decide how much of corpus to distribute and to whom and when

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31
Q

Discretionary Powers of Distribution

A

the more discretion the settlor gives to the trustee, the greater leeway the trustee has in making distributions and the more difficult it is for beneficiary to force distribution

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32
Q

Discretionary Powers of Distribution: Ascertainable Standards

A

standard that court can determine under state law and that will be enforced (trustee must distribute “reasonable” amount within that standard)

“health, education, maintenance, support”

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33
Q

Discretionary Powers of Distribution: Nonascertainable Standards

A

court will almost never second guess decision to distribute or not if standard is nonascertainable as long as trustee actively considered whether to distribute something

“welfare and best interests”

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34
Q

Discretionary Powers of Distribution: Good Faith

A

even if trust instrument says can act in sole discretion, trustee must still act reasonably and in good faith

cannot refuse to do anything and cannot act randomly without considering all appropriate info

if fail to do this, court can overturn decision (abuse of discretion)

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35
Q

Factors for Distribution

A

trustee must consider:
- overall purpose of trust and interests of current and future beneficiaries
- level of discretion and guidance provided by settlor
- size of the trust
- number of beneficiaries
- beneficiaries’ needs and resources
- unless instrument provides otherwise, beneficiary’s other income and assets before making a distribution
- any direction from settlor to favor one beneficiary or one class of beneficiaries

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36
Q

Rights to Distributions and Alienability of Interests: Mandatory Trusts

A

beneficiary’s interest in a mandatory trust is freely alienable and creditors can reach interests and distributions

exceptions: creditors cannot reach if trust instrument includes a spendthrift provision unless exception applies

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37
Q

Rights to Distributions and Alienability of Interests: Discretionary Trusts

A

if assets subject to discretionary standard, not alienable by beneficiary

beneficiary cannot compel discretionary distributions and these distributions cannot be reached by creditors, even if there is no spendthrift provision

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38
Q

Discretionary Trust: Exceptions

A

court can order distribution of property subject to a discretionary standard:
- to a child, spouse, or former spouse with order for support against beneficiary
- if trustee failed to comply with standard for distribution for the beneficiary or abused discretion
- in an amount that is equitable under the circumstances (not necessarily the amount of the order for support)
- not more than the amount the trustee would have been required to distribute had the trustee complied with the standard or not abused the discretion

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39
Q

Rights to Distributions and Alienability of Interests: Protective Trusts

A

allow a settlor to provide beneficiary with right to mandatory distributions with protection against beneficiary’s creditors

settlor can direct trustee to pay income to a beneficiary but if beneficiary’s creditors or beneficiary attempt to attach the beneficiary’s interest, trust automatically transformed into a discretionary interest and creditors cannot compel distribution of any part of beneficiary’s interest

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40
Q

Rights to Distributions and Alienability of Interests: Domestic Asset Protective Trusts

A

under common law, if settlor is a beneficiary of a trust the settlor created, settlor’s creditors can reach as much of the property as can be distributed to the settlor.

some states enacted statutes that allow a settlor to create a DAPT to protect property in trust from creditors with claims arising after trust’s creation

do not protect property from known creditors and settlor cannot serve as trustee

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41
Q

Rights to Distributions and Alienability of Interests: Support Trusts

A

directs trustee to make distributions to beneficiary as needed for beneficiary’s support

support trust beneficiary cannot alienate his interest in the trust, and beneficiary’s ordinary creditors cannot reach trust assets

EXCEPTION: under common law, creditors that provide basic necessities can be paid from support trust (regardless of whether spendthrift provision)

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42
Q

Rights to Distributions and Alienability of Interests: Spendthrift Trusts

A

spendthrift provision prevents beneficiary from assigning/selling their interest and prevents beneficiary’s creditors from attaching interest

creditor cannot reach either mandatory distributions or discretionary distributions - must wait until trustee distributes property to beneficiary and then try to collect

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43
Q

Spendthrift Trust Exceptions

A

some states allow certain creditors to attach some trust assets, even with spendthrift provision in place. These creditors include:
- children or former spouse with orders for support
- creditors who provide basic necessities
- lawyers who helped beneficiary protect beneficiary’s interest in trust
- state and U.S. govt’s to extent provided by state and federal laws
- tort creditors in some circumstances (in small number of states)

can get court order regarding amount of mandatory distributions but cannot reach discretionary distributions unless exception applies

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44
Q

Powers to Modify When Settlor Alive: Revocable Trusts

A

if settlor retained power to revoke, can change provision or revoke entire trust as long substantially complies with trust provision concerning revocation and modification (writing delivered to trustee)

45
Q

Powers to Modify When Settlor Alive: Revocation by Will

A

will substitutes cannot be revoked by will except in a few states.

UTC permits settlor of revocable trust to revoke by will either:
- by expressly referring to that trust or trust property
- by giving away property that had been in trust and held by trustee or
- by executing a will and delivering that writing to trustee

46
Q

Powers to Modify When Settlor Alive: Revocation if Settlor Loses Capacity

A

under some circumstances, agent acting under power of attorney or conservator or guardian may exercise settlor’s power to revoke

47
Q

Powers to Modify When Settlor Alive: Irrevocable Trusts

A

to revoke or modify irrevocable trust, current and future beneficiaries, including unborn and unascertained beneficiaries, must consent to modification or revocation

48
Q

Settlor’s Death

A

trust becomes irrevocable upon death of settlor and modification authorized in three circumstances:
- material purpose + consent
- doctrine of equitable deviation
- cy pres doctrine

49
Q

Powers to Modify When Settlor Not Alive: Material Purpose + Consent

A

court will grant modification if:
- will not impair a material purpose of settlor in creating the trust and
- all beneficiaries consent or court determines that interests of any beneficiary who dos not consent will be adequately protected

50
Q

Representation of Beneficiaries

A

if beneficiary minor, unborn, unascertained, incapacitated, or cannot be located, following types of representation allowed:
- parent can represent unborn or minor child
- conservator or guardian can represent protected person
- person with substantially identical interest can represent a beneficiary with respect to that interest
- court can appoint a representative for beneficiary

51
Q

Powers to Modify When Settlor Not Alive: Doctrine of Equitable Deviation

A

court will grant modification if
- circumstances have changed or unanticipated circumstances have arisen and
- compliance with original terms would thwart or considerably impair the trust purpose

for charitable trusts, courts more willing to grant deviation if restriction is ADMINISTRATIVE as opposed to restriction that impacts purpose (because want to facilitate trustee’s ability to carry out the purpose)

52
Q

Powers to Modify When Settlor Not Alive: Cy Pres Doctrine

A

court will grant modification if
- restriction on use of property in charitable trust becomes impossible, impracticable, illegal, or wasteful
- restriction involves a charitable purpose
- appropriate modification that will be consistent with settlor’s objectives when creating trust and
- settlor had general charitable interest. if specific charitable interest, cy pres will not apply and property reverts via a resulting trust to settlor’s estate

53
Q

Cy Pres Doctrine: Specific Charitable Intent

A

settlor wanted property used only for a specified charitable purpose and that specified purpose becomes impossible

54
Q

Cy Pres Doctrine: Presumption

A

rebuttable presumption that settlor had general charitable intent

overcome only if
- terms of trust provide for reversion or a gift to a noncharitable beneficiary and
- reversion happens while settlor still alive or gift to another beneficiary occurs within 21 years after creation of trust

55
Q

Other Ways to Modify a Trust

A
  • naming a trust director or protector who is given power to modify
  • trust decanting
56
Q

Trust Decanting

A

process by which trustee pours assets of trust from old trust to new trust with different terms

if trustee had limited (ascertainable) discretion to distribute trust property, then trustee can modify only administrative provisions

if trustee had broad (nonascertainable) discretion, new trust can have new dispositive provisions

57
Q

Termination

A

if trust instrument does not say what happens to remaining assets, then trust is a resulting trust, and assets are returned to settlor or settlor’s estate

terminates:
- on its terms
- when it has no more assets
- if its purpose is completed
- no longer has valid purpose
- by modification that results in termination
- by merger (legal and equitable interests of a trust are held by same party)

58
Q

Breach of Trust

A

trustee responsible for carrying out terms of trust (settlor’s instructions). if fail to carry out fiduciary duties, in breach of trust

59
Q

Remedies for Breach of Trust

A

court may:
- compel trustee to carry out their duties
- enjoin trustee from committing breach of trust
- require trustee to fix breach
- require trustee to prepare an accounting of receipts and disbursements
- reduce or deny the trustee’s compensation
- demand that trustee pay damages
- remove trustee

60
Q

Exculpatory Provision

A

provisions that relieve a trustee of liability for a breach are generally unenforceable as to actions constituting gross negligence or actions taken in bad faith or with reckless indifference to trust purposes or interests of beneficiaries

61
Q

Trustee Fiduciary Duties

A
  • duty of obedience
  • duty of loyalty
  • duty of care (duty to keep proper records, duty not to commingle, duty to earmark)
  • duty to be a prudent investor
  • duty of impartiality
  • duty to inform and report
62
Q

Duty of Obedience

A

trustee must carry out terms of trust and comply with laws affecting trust

63
Q

Duty of Loyalty

A

must act in sole interest of beneficiaries

important issues: self-dealing, conflict of interest

64
Q

Duty of Loyalty: Self-Dealing

A

if self-dealing (trustee on both sides of transaction), no further inquiry and beneficiary can void even if it was fair to trust and beneficiaries.

EXCEPTIONS: not voidable if
- terms of trust authorize trustee to engage in particular transactions with trust
- beneficiaries consent to transaction or
- trustee received court approval for transaction (court will review fairness but even if financially fair, may not approve if beneficiary opposes it)

65
Q

Duty of Loyalty: Conflict of Interest

A

COI transaction voidable only if transaction is not fair

arises when trustee engages in a transaction with a family member or with a business with which the trustee is connected

66
Q

Duty of Care

A

trustee must manage and care for trust property, with reasonable care, skill, and caution

includes:
- duty to keep proper records
- duty not to commingle
- duty to earmark

67
Q

Duty of Care: Duty to Keep Proper Records

A

trustee must keep accurate records of the trust property, keeping track of receipts and disbursements

68
Q

Duty of Care: Duty Not to Commingle

A

trustee should not combine trust assets with trustee’s own personal assets. If trustee is a corporate trustee, trustee can place trust property in a shared fund for purpose of investment but trust interest must still be capable of being identified as actual trust property later

69
Q

Duty of Care: Duty to Earmark

A

trustee must hold assets as trustee, labeling property as property held in trustee’s fiduciary capacity and not in individual capacity

70
Q

Duty to be a Prudent Investor

A

must invest property as a prudent investor would

two goals
- generate income for income beneficiaries
- increase value of trust assets for remainder beneficiaries

can delegate ministerial duties and powers to a 3P. at common law, could not delegate discretionary duties but under modern practice can transfer power to make investment decisions to a person with greater expertise (obligation to exercise reasonable care in both selecting person who will manage funds and in monitoring activities of tha tperson)

71
Q

Duty to be a Prudent Investor: Considerations for Investments

A

trustee should consider:
- general economic conditions and financial information investors typically consider
- trust’s purpose and any specific instruments on investments from settlor
- size of the trust
- needs of current and future beneficiaries, their other income and assets, and the timing of distributions from trust
- diversification (unless reasonably determines that trust purposes better served by not diversifying because of special circumstances)
- how to minimize fees associated with investing
- whether trustee is chosen for special expertise in investing

72
Q

Duty of Impartiality

A

trustee must act fairly and impartially toward all beneficiaries

must consider interests and needs of all trust beneficiaries, both current and future

duty to act impartially is not the duty to treat the beneficiaries equally.

DUTY TO BE FAIR, GUIDED BY THE TRUST TERMS

73
Q

Duty to Inform and Report

A

duty to provide information about trust to beneficiaries and keep them reasonably informed about trust property and distributions, trust administration, and material facts necessary for them to protect interests

two key duties
- trustee must respond to a reasonable request for information
- trustee must proactively provide information about trust to a more limited group of beneficiaries but need not provide information to remote beneficiaries unless they ask

74
Q

Principal and Income Allocations

A

if directed to pay income to beneficiary, must pa the amount in the income account to that beneficiary

if authorized to make distributions from principal, those distributions come from principal account

75
Q

Trust Receipts

A
  • interests, dividends, rents, and business profits received by trust are TRUST INCOME
  • contributions of assets to trust by settlor and capital gains on sale of trust assets are allocated to TRUST PRINCIPAL
76
Q

Trust Disbursements

A
  • ordinary expenses incurred from management of trust property, expenses related to rental properties and other investments, distributions to income beneficiaries are made from TRUST INCOME
  • extraordinary expenses and capital improvements to rental properties are made from TRUST PRINCIPAL
  • one half of trustee’s regular compensation for services performed for income beneficiary is made from trust income while remainder half of trustee’s compensation is from principal
77
Q

Power to Adjust

A

when investing, trustee can adjust between income and principal as long as investing as prudent investor, complying with duty of impartiality, and carrying out settlor’s intentions for distributions to beneficiaries

78
Q

Unitrust

A

eliminates need to distinguish between principal and income because pays a beneficiary a fixed percentage of the fair market value of the trust

79
Q

Life Insurance Proceeds

A

life insurance policy or other contract naming the trust or trustee as beneficiary will be allocated to principal

exceptions: contracts that insure trustee against a loss of occupancy or other use sustained by income beneficiary

80
Q

Principal and Income Allocations: Termination

A

when trust terminates, remaining principal is paid to remainder beneficiaries

81
Q

Future Interests

A

owner of property can create a legal life estate and legal remainder in property (legal interests) but usually the owner transfers the property into a trust and creates equitable interests (interests in trust)

terminology for legal interests and interests in trust is the same

82
Q

Acceleration

A

common law: vested remainder accelerates into possession when prior interest ends. contingent remainder will not accelerate into possession until condition occurs

83
Q

Disclaimer

A

beneficiary can refuse to accept her interest in trust property
- under common law, disclaimer of prior estate did not result in acceleration of contingent remainder
- today, in about half the states, person disclaiming an interest will be treated as if they died immediately before time of distribution of interest. If remainder beneficiaries must survive the disclaimant to take, then that condition is treated as having occurred

Disclaimer must be in writing signed by disclaimant and must be executed within 9 months after event that renders disclaimant’s interest indefeasibly vested

84
Q

Powers of Appointment: Trust v. Will

A

powers of appointment are typically created over property held in trust, but a testator can give someone power to distribute probate property by including a power in a will

85
Q

Powers of Appointment: General v. Nongeneral

A

general power is power that can be exercised in favor of powerholder, powerholder’s estate, powerholder’s creditors, or creditors of powerholder’s estate

nongeneral power is a power that cannot be exercised in favor of anyone in those categories

86
Q

Powers of Appointment: Creation

A

donor must intend to create power of appointment. if does so intend, powerholder does not take title to property but has power to direct where it goes

do not need to use specific words but precatory words like “desire” and “wish” make it less likely that it’s a power of appointment

87
Q

Powers of Appointment: Exercising the Power

A

powerholder can choose how and whether to exercise power

unless donor of a nongeneral power expresses a contrary intent, powerholder has same discretion in making an appointment as the donor had in disposing of the property

88
Q

Powers of Appointment: Permissible Appointees

A

powerholder can exercise power (appoint property) only for permissible appointees, also known as objects of power

permissible appointees can be individuals, a class, or a category (like charities)

89
Q

Powers of Appointment: Takers in Default

A

a person who will take the property subject to the power if the powerholder does not exercise the power

90
Q

Powers of Appointment: Impermissible Appointees

A

if donee appoints property to someone who is not permissible, appointment ineffective and property passes to taker in default.

if partially effective, effective part can remain unless scheme of disposition is more closely approximated by deciding that some or all of the effective part should be redacted as well

91
Q

Powers of Appointment: Factors to Determine if Effective

A
  • if donor requires specific reference to power to avoid inadvertent exercise of power, powerholder must refer to power when exercising it
  • blanket-exercise clause may not be sufficient to exercise power if donor required a specific reference to the pwer
  • residuary clause without more will not exercise a power unless (a) power is a general power and (b) the will has no gift-in-default clause or the gift-in-default clause is ineffective
  • if evidence shows that the powerholder knew about power and intended to exercise the power, then an attempt to exercise the power may be sufficient even if it does not comply with a specific reference requirement
92
Q

Powers of Appointment: Failing to Exercise the Power

A

if grant of power does not indicate takers in default, then
- for a general power, taker is powerholder’s estate
- for a nongeneral power, takers are eithers (a) permissible appointees if they are a defined and limited class or (b) the taker is the donor’s estate if the permissible appointees cannot be determined

93
Q

Powerholder Fiduciary Duties

A

no fiduciary duties apply to a powerholder

94
Q

Powers of Appointment: Rights of Creditors

A

common law: creditors of holder of general power had no rights

today, in minority of states, creditors can reach property subject to general power
- general power will be treated as nongeneral power if powerholder’s power to appoint to herself was created by someone else and is subject to an ascertainable standard

creditors of holder of nongeneral power of appointment have no rights in appointive property

95
Q

Survival (Common Law)

A

nonprobate transfers do not automatically require survival.

if trust instrument or other nonprobate document does not explicitly require a beneficiary to survive to take, then requirement of survival will not be read into documented unless gift is to multigenerational class

96
Q

Multigenerational Class Gift

A

gift to descendants or to issue implies requirement of survival for class members.

person in one generation represents descendants of that person so that if person survives to the date of distribution, then that person takes gift. If that person does not survive until that time, person’s descendants take instead

97
Q

Construction Problems: Survival (Common Law) - Silent on Survival

A

If trust instrument silent on survival, named beneficiary will take property under the trust, even if beneficiary died long before time for distribution (distributed through beneficiary’s estate)

98
Q

Survival (Common Law): Date for Survival

A

if trust provides gift to remainder beneficiary, with a gift to remainder beneficiary’s “surviving children”, if remainder beneficiary is not alive at date of distribution, prevailing view is that children must survive until distribution date

if remainder beneficiary dies without descendants and gift does not clarify whether substitute gift occurs only if remainder beneficiary dies before income beneficiary or substitute gift could occur if remainder beneficiary survives time of distribution but later dies without descendants, prevailing view is that condition is determined as of the time of distribution

99
Q

Survival (Common Law): Survival to a Specific Age

A

if trust requires beneficiary to reach a specific age and does not explain what happens if beneficiary dies before reaching specified age, property will be distributed to beneficiary’s estate

Restatement view: beneficiary’s estate will not receive the property. will revert to settlor if trust instrument does not provide other instructions

100
Q

Survival (Statutory Approach)

A

statutes adopted in some states do imply survival requirement unless grant explicitly says survival not required

in these states, beneficiary of future interest must survive until time the beneficiary could come into possession or enjoyment of interest

120-hour rule applies so beneficiary must survive for five days after distribution date

101
Q

Survival (Statutory Approach): Effect

A

if beneficiary fails to survive, interest distributed to beneficiary’s descendants

if no descendant living at distribution date, interest reverts to settlor and passes through settlor’s estate to residuary devisees named in settlor’s will, or if settlor did not leave a will, to the settlor’s heirs

these states apply rules of lapse and antilapse from wills law to future interests

102
Q

Class Gifts

A

common law: if one class member predeceases distribution, other class member divide gift. if gift is a gift to individuals (and not a class), each individual has a separate interest and the individual’s interest is vested so distributed to individual’s estate

103
Q

Factors to Determine If Class Gift

A
  • whether settlor used a group term
  • whether named beneficiaries are related to settlor in the same way
  • whether property is a piece of land that the settlor wants to keep in the family
104
Q

Class Gifts: Gifts of Income

A

if trust instrument is silent about what happens when one class member dies, traditional rule is that the surviving members of the class divide the income

Restatement: remainder will pass to all income beneficiaries’ descendants when last income beneficiary dies, then when one income beneficiary dies, beneficiary’s share of income will be paid to beneficiary’s descendants

105
Q

Class Gifts: Gifts to Children

A

gift to “my children” means that descendants of a deceased child will not take

if settlor intends a gift to descendants, should use the term descendants

106
Q

Class Gifts: Gifts to Descendants

A

courts have created a rebuttable presumption that descendants take by representation but language in document may suggest that settlor intended a per capita distribution instead

107
Q

Class Gifts: Gifts to Heirs

A

traditional rule of construction is that a person’s heirs are determined at the date of the person’s death

some states follow modern rule which provides that if a designated person’s heirs receive a remainder interest following a life estate, then a determination of the designated person’s heirs is made on the distribution date as if the designated person had died intestate

108
Q

Class Gift: Class Closing Rules

A

gift to a class will close and no more class members will be added on the earlier to occur of:
- death of person whose children form the class and
- date any beneficiary is entitled to take possession of the beneficiary’s share of the gift

109
Q

Definition of Family

A

if trust instrument includes definition of family members, that definition control

if no definition, use legal definition (usually definition found in intestacy statutes)

Texas Bar Exam Feb. 2024 (16 decks)

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