Trusts & Future Interests

Question 2

What is a trust?

Answer 2

A fiduciary relationship between the trustee(s) and the trust beneficiaries.

Question 3

What are the two types of titles involved in a trust?

Answer 3

• Legal Title
• Equitable Title

Question 4

Who is the settlor in a trust?

Answer 4

The person who creates the trust and places the original assets into it.

Question 5

What is the role of a trustee?

Answer 5

The person who holds the assets of the trust for the benefit of the beneficiaries and manages the trust.

Question 6

Define beneficiary in the context of a trust.

Answer 6

The person who is entitled to the assets or profits of the trust.

Question 7

What is the difference between an express trust and an implied trust?

Answer 7

• Express Trust: Created with intent and requisite formalities.
• Implied Trust: Created by conduct, regardless of intent.

Question 8

List the five elements required to create a valid express trust.

Answer 8

• Settlor’s intent
• Trust property (res)
• Ascertainable beneficiary
• Trustee
• Compliance with formalities

Question 9

What is the ‘res’ in a trust?

Answer 9

The property that makes up the trust as a whole.

Question 10

What is precatory language?

Answer 10

Language that expresses the settlor’s wishes regarding property, not intent.

Question 11

What is a testamentary trust?

Answer 11

A trust that enters into existence upon the death of a person.

Question 12

True or False: A pourover provision creates a new trust.

Answer 12

False

Question 13

What is a charitable trust?

Answer 13

A trust that has the purpose of accomplishing social benefits to the public or a large class.

Question 14

What is a discretionary trust?

Answer 14

A trust that grants the trustee absolute power and discretion over distributions to beneficiaries.

Question 15

What is the primary function of spendthrift provisions?

Answer 15

• Prevent the beneficiary from selling or assigning their interest
• Protect the beneficiary’s interest from creditors

Question 16

What rights do creditors have regarding the trust property?

Answer 16

Creditors have no greater rights than the beneficiary; they cannot reach trust principal if prevented.

Question 17

Fill in the blank: A trustee may invade the trust principal if there is a significant _______.

Answer 17

change in circumstances

Question 18

What is the Cy Pres Doctrine?

Answer 18

Allows a court to modify a charitable trust to align with the settlor’s general intent when original purpose is impracticable.

Question 19

What is the default status of a trust regarding modification?

Answer 19

Irrevocable unless the settlor expressly retains the right to modify it.

Question 20

What are the conditions under which a trust may be terminated?

Answer 20

• Revocation or expiration
• Material purpose satisfied or unlawful
• Unanimous agreement of settlor and beneficiaries
• All beneficiaries agree with no material purposes remaining
• Unforeseen circumstances justify termination
• Court or trustee determines low value justifies termination

Question 21

What is the duty of care for a trustee?

Answer 21

To exercise the degree of care and skill as a person of ordinary prudence would with their own property.

Question 22

What constitutes a breach of the duty of loyalty for a trustee?

Answer 22

Self-dealing or obtaining personal gain from administering the trust.

Question 23

What is the duty to act impartially?

Answer 23

The duty to treat all beneficiaries fairly when managing and distributing trust property.

Question 24

What is a waiver in the context of a trustee’s duty?

Answer 24

The settlor may expressly waive the trustee’s duty of loyalty in the trust instrument

A waiver will not excuse the trustee for acts done in bad faith.

Question 25

What is the trustee's duty with respect to beneficiaries?

Answer 25

The trustee possesses a duty to be impartial with respect to ALL the beneficiaries of the trust ## Footnote This includes investing, managing, and distributing the trust property without favoring one beneficiary over another.

Question 26

What newly acquired assets must be allocated to the trust income?

Answer 26

* Receipt of rental payments from trust property * Corporate distributions (e.g., cash dividends, return on investments, etc.) ## Footnote These assets are generally considered income for the trust.

Question 27

What newly acquired assets must be allocated to the trust principal?

Answer 27

* Funds received from the sale of trust property * Repayment of loan principal ## Footnote These assets are generally considered principal for the trust.

Question 28

What is the default estate in present estates?

Answer 28

Fee simple ## Footnote A fee simple is created when the grantor uses language such as 'O to A'.

Question 29

What is a defeasible fee?

Answer 29

A conveyance in fee simple in which the grantor places express conditions on the conveyance ## Footnote It can last forever but may be terminated by the occurrence of an event.

Question 30

What are the three main types of defeasible fees?

Answer 30

* Fee Simple Determinable * Fee Simple Subject to Condition Subsequent * Fee Simple Subject to Executory Interest ## Footnote Each type has specific conditions regarding the grantor's rights and the future interests.

Question 31

What is a Fee Simple Determinable?

Answer 31

A conditional conveyance in which the grantor retains a possibility of reverter ## Footnote It is created with durational language, such as 'While the property is used for farming'.

Question 32

What is a Fee Simple Subject to Condition Subsequent?

Answer 32

A conditional conveyance in which the grantor retains a right of entry ## Footnote The right of entry does NOT vest automatically when the condition is not met.

Question 33

What is a Fee Simple Subject to Executory Interest?

Answer 33

A conditional conveyance in which a third party is granted an executory interest in the property ## Footnote An executory interest divests an earlier interest.

Question 34

What is a Life Estate?

Answer 34

A present possessory estate that is limited by a person’s life ## Footnote It terminates when the measuring life dies.

Question 35

What is a vested remainder?

Answer 35

A future interest that is given to an ascertained grantee and NOT subject to a condition precedent ## Footnote This means the grantee is readily identifiable.

Question 36

What is a contingent remainder?

Answer 36

A future interest that fails to be both given to an ascertained grantee and NOT subject to a condition precedent ## Footnote Examples include conditions that must be satisfied for the interest to vest.

Question 37

What is a power of appointment?

Answer 37

A right to appoint or distribute property left by the donor ## Footnote It does NOT grant full title to the donor’s property.

Question 38

What are the two types of powers of appointment?

Answer 38

* General power of appointment * Special power of appointment ## Footnote A general power has no restrictions, while a special power has restrictions on the appointment.

Question 39

What is acceleration of future interests?

Answer 39

A future interest may be accelerated if the present interest holder loses title or disclaims the property ## Footnote This allows the future interest holder to take possession immediately.

Question 40

What is the Rule Against Perpetuities?

Answer 40

A future interest MUST vest within 21 years of the death of a life in being ## Footnote If there is any possibility that it will not vest within this time, the interest is invalidated.

Question 41

What is the modern trend regarding the Rule Against Perpetuities?

Answer 41

Some courts reduce age contingencies exceeding 21 years to validate a conveyance ## Footnote This allows courts to rewrite the conveyance to comply with the rule.