Trusts - MEE

Question 1

Requirements for a valid Private Trust?

Answer 1

(1) Setlor with the capacity to make a trust

(2) Intent to create trust

(3) A trustee exists or is ascertainable

(4) Beneficiaries

(5) Property for the trust (Res)

(6) Valid and legal trust purpose

Question 2

Can one person be both the exclusive trustee and exclusive beneficiary?

Answer 2

No.

Question 3

When is a promise to create a trust in the future valid and actually form a trust?

Answer 3

(1) supported by consideration

OR

(2) re-manifestation of intent for creation

Question 4

What is a support trust?

Answer 4

The trustee has no discretion and is required to use the trust, both principal and income, as much as is needed, to provide for the support of the trustee.

Question 5

What is the standard that must be met for a support trust to be terminated?

Answer 5

All beneficiaries must agree, which can be difficult if some of them are not available or unborn.

Question 6

What is a discretionary trust?

Answer 6

Trustee has discretion on when, how, what trust assets are to be used.

Question 7

What is the standard that must be met for a discretionary trust to be terminated?

Answer 7

• Abuse of power
• when the trustee acts in bad faith, to their own benefit (self dealing), or
• is dishonest.

Question 8

What is a spendthrift trust?

Answer 8

Spendthrift trusts protect the beneficiary by limiting spending and preventing the squandering of assets.

Beneficiaries cannot voluntarily or involuntarily assign or otherwise transfer their interests.

Question 9

What is the standard that must be met for a spendthrift trust to be terminated?

Answer 9

(1) all beneficiaries agree

AND

(2) termination does not undermine the intent of the settlor when creating the trust

Question 10

Appropriate grounds for removing a trustee?

Answer 10

(1) a substantial change in circumstances

(2) dishonesty

(3) inability to work with trustee

(4) trustee fails to act in accordance with duties

Question 11

Beneficiaries must be definite. What does this mean?

Answer 11

Beneficiaries don’t need to be specifically identified when the trust is created as long as they are ascertainable when their interests vest.

Question 12

Can beneficiaries be a class instead of individual people?

Answer 12

Yes, as long as sufficiently definite.

Question 13

Who takes the benefit of the trust when it fails for lack of definite beneficiaries?

Answer 13

Reverts back to the settlor or their successors.

Question 14

Under what circumstances can creditors of beneficiaries receive payment from a trust?
When . . . .

Answer 14

(1) the beneficiaries are otherwise unable to pay

(2) it is not a spendthrift trust

(3) there is no statutory prohibition to the contrary

(4) the payments do not exceed what is due to the beneficiary (i.e., the interest of the beneficiary is the only thing that can be taken, not the trust res).

Question 15

When is the Cy Pres Doctrine at issue?
When . . .

Answer 15

(1) the trust has a specific charitable intent, which is no longer possible to satisfy

(2) the settlor had generalized charitable intent when creating the trust

(3) in such cases funds may be allocated to charities that have a similar purpose to the originally indicated charity.

Question 16

Brief Summary of a support trust?

Answer 16

Trustee must use trust income and principal , to the extent needed, to support the beneficiary.

Question 17

Brief summary of a discretionary trust?

Answer 17

Trustee has discretion to use or withhold trust assets.

Question 18

General rule for the termination of a trust?

Answer 18

(1) all beneficiaries must agree

And

(2) termination does not destroy the fundamental intent of the settlor in creating the trust.

Question 19

What is a trustee?

Answer 19

A trustee is a person who receives legal title to property and has a fiduciary obligation to use the trust for the benefit of the beneficiaries.

Question 20

What is trust merger?

Answer 20

A trust merges and no long exists when the only trustee in some manner becomes the only beneficiary.

Question 21

What is the common law rule of irrevocability?

Answer 21

Irrevocability of a trust is presumed unless the trust document states otherwise.

Question 22

What is a revocable trust?

Answer 22

The settlor has the right to amend, cancel, alter the trust.

Question 23

What is the power of appointment?

Answer 23

The receiver of trust funds has the right to assign benefits / payments to OTHERS as they see fit.

Question 24

What is the general power of appointment?

Answer 24

The receiver of trust funds has the right to assign benefits / payments to OTHERS OR THEMSELVES (including their estate, creditors, etc.) as they see fit.

Question 25

What is the special power of appointment?

Answer 25

Receiver of trust funds can only distribute to specific classes of persons which do not include the receiver.

Question 26

Again, what is an irrevocable trust?

Answer 26

The trustee, settlor, and beneficiaries cannot amend or revoke the trust once settled. The settlor is not allowed to take back the property from the trust.

Question 27

Who has legal title and equitable title to a trust?

Answer 27

Legal title => trustee

Equitable title => beneficiaries

Question 28

What is a settlor?

Answer 28

The settlor is the party that creates a trust, usually the donor.
The settlor transfers legal title in some assets to the trustee.
The settlor then provides in the trust instrument how that trust property is to be used for the beneficiaries.
In the case of the inter vivos trust, the settlor can also be the beneficiary.