trusts MEE most tested concepts

Question 1

A trust is considered to be valid as long as it has?

Answer 1

settlor transfers legal title of property (trust property) to a trustee for a valid trust purpose (not illegal) and imposes duties on a trustee (to manage the identifiable trust property)
for the benefit of the beneficiaries

Question 2

In a private express trust, beneficiaries must be

can the same person be the sole trustee and SOLE beneficiary?

Answer 2

definite and ascertainable.

No, the same person cannot be the sole trustee and sole beneficiary or the trust collapses. can only be a trustee and a beneficiary if there are multiple beneficiaries.

Question 3

Under the Uniform Trust Code (UTC), the default rule is that a trust is _______.

T or F An irrevocable trust cannot be terminated

Answer 3

revocable

False, An irrevocable trust can still be terminated or modified in some circumstances.

Question 4

Presumption of trust revocability: under the UTC

Answer 4

an inter vivos trust is revocable unless the instrument expressly states otherwise.

Question 5

Termination by settlor: a settlor may terminate the trust if:

Answer 5

a settlor may terminate the trust if all beneficiaries are in existence and all agree to the termination.

Question 6

Termination by beneficiaries after settlor dies: Generally, even an irrevocable trust can be terminated if

Answer 6

both the income beneficiaries and the remaindermen unanimously consent and if there is no material purpose of the trust yet to be performed. Claflin v. Claflin

Question 7

Pourover will: A will that makes a gift to a trust is valid so long as the following conditions are met:

What is the CL and Modern law approach to later made amendments made after the execution of the will?

Answer 7

• trust is identified in the will and
• the terms are incorporated in a writing
• executed before or concurrently with the execution of the will.

Under the modern approach, later made amendments to the trust are valid. Under common law, amendments made after execution of the will are not valid.

note: You are expected to articulate the differences between these two approaches on the MEE

Question 8

Discretionary trust:

Answer 8

The trustee has discretion to decide when to make a distribution to a beneficiary. The beneficiary cannot demand any part of the income or principle. Nor can a creditor, unless it shows the trustee acted dishonestly or in a state of mind “not contemplated” by the settlor. (There is an
exception under the UTC for child support or alimony.

Question 9

support trust

Answer 9

Support trust: trustee must pay what is necessary for the beneficiary’s support

Question 10

Spendthrift trust:

Answer 10

a spendthrift trust restrains “both the voluntary and involuntary transfer of a
beneficiary’s interest.”

Question 11

spend thrift trust: Right of a creditor: general rule

Answer 11

generally, a creditor may not reach (i.e.,by garnishment or attachment) part of a beneficiary’s distribution prior to the beneficiary reaching it.

Question 12

spend thrift trust exceptions to the general rule: right of a creditor

Answer 12

There are some favored creditors that are exceptions to this rule:

(1) a child or spousal support creditor (for maintenance and support),
(2) a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust (e.g., a lawyer),
(3) a claim of the state or United States (usually for taxes), and
(4) creditors with claims for necessaries in some states (this fourth category is not recognized in states that follow theUTC).

Question 13

Charitable trust:
A charitable trust may be created for a charitable purpose (including for the relief of
poverty, the advancement of education, the advancement of religion, the promotion of health, governmental or municipal purposes, or other purposes that are beneficial to the community). It must have

Answer 13

a large number of not readily identifiable individuals (rather than a few identifiable individuals).

Note that a charitable trust is not subject to the common law rule against perpetuities.

Question 14

modifying a trust: the doctrine of cy pres may save the trust. Define Cy Pres:

Answer 14

Cy pres is a common law doctrine that is also a part of the UTC.
It states: if a particular charitable purpose has become unlawful, impracticable, or impossible to achieve;
no alternative charity is named in the trust; and t
he court finds that the settlor had general, rather than specific, charitable intent,
then the court may apply cy pres to modify or terminate the trust by directing that the trust property be distributed in a manner consistent with the settlor’s general charitable intent.

Question 15

Modifying a charitable trust: A charitable trust may terminate if the charitable purpose becomes

Answer 15

unlawful, impracticable, or impossible

Question 16

Honorary trust:

under the UTC an honorary trust is valid but it may not be enforced for more than ____ years.

Under CL, such a trust would not be valid if it:

Answer 16

An honorary trust is trust that does not have a charitable purpose or a definite beneficiary.

It is often a trust to take care of a thing (e.g. cemetery plot) for a non charitable purpose.

Under the UTC, this is valid but may not be enforced for more than 21 years.

Under common law, such a trust would not be valid if it violates the rule against perpetuities, but a court may characterize the trust as a “power” and allow the trustee to exercise that power in accordance with the trust terms for 21 years

Question 17

Duty of loyalty:

Answer 17

a trustee has a duty of loyalty to act in the best interest of the beneficiaries.

Question 18

Duty of care—prudent administration

Uniform Prudent Investor Act (UPIA): Almost all states have adopted a form of the UPIA. The UPIA states that a trustee must

Answer 18

administer the trust as a prudent person would . . . using reasonable care, skill, and caution.”

Question 19

Trustee’s duty to diversify

Answer 19

Duty to diversify: This is one of the hallmarks of prudent investing. The trustee is not liable for declines in value due to a downturn resulting from general economic conditions—but is liable for failure to diversify absent directions to the contrary.

Question 20

how should a trustee’s management and investment decisions be evaluated in terms of evaluating a trustee’s prudent investing?

Answer 20

Entire estate portfolio examined to determine prudence: the portfolio as a whole and as a part of an overall investment strategy rather than in a trustee’s investment and isolation.

Question 21

Remedies for a breach of trust: The remedies include:

Answer 21

Suspending or removing a trustee,
decreasing compensation,
compelling a trustee to perform trust duties,
compelling payment of damages, etc. (There are several other remedies, including asking the court to “order any other appropriate relief.

Question 22

In a self-dealing case, the trust beneficiaries may? (as a remedy)

Answer 22

In a self-dealing case, the trust beneficiaries may rescind the transaction and ask for the self-dealing purchase to be set aside (the trust property is returned to the trust and the amount paid is refunded by the trust) or recover any profits the trustee made by reason of the breach.

Question 23

Purpose: a person writing a will or trust can give her beneficiaries a power of appointment, which enables the beneficiary

Answer 23

to designate who will receive specific property

Question 24

what is the main difference between the general and special power to appoint?

Answer 24

general power is the power of appointment that the beneficiary has that is unlimited over a class of people whereas in a special appointment power the beneficiary’s power is limited.

Question 25

General power of appointment: the class of people that the beneficiary can exercise the power of appointment in favor of is unlimited (she can use it for herself, her creditors, or someone else). Wills and power of appointment: Majority view: w Minority view:

Answer 25

§ Majority view: In most states, a general residuary clause in a will(“I give all of myestate... ”) does not exercise a power of appointment. However, if the general residuary clause is coupled with a blanket exercise clause (e.g., “including all property over which I have a power of appointment”), any power of appointment held by the donee is exercised, unless the donor of the power specifically requires reference to it. § Minority view: a general testamentary power of appointment can be exercised by general language in the beneficiary’s will (such as the residuary clause) even if it makes no reference to the power in the instrument (e.g., “Everything to my husband”—the husband will get it), unless the creating instrument of the power made an express gift in default or the instrument stated that the power needed to be specifically mentioned.

Question 26

Special (or limited) power of appointment:

Answer 26

The class of people that the beneficiary can exercise the power in favor of is limited. A special testamentary power needs to be specifically exercised. The Uniform Probate Code (UPC) adopts a substantial compliance rule which says that if it could be shown that the power holder intended to exercise a power, a blanket exercise clause may be sufficient.

Question 27

explain the rule of convenience: gift to a class

Answer 27

Rule of convenience: when a gift is made to a group, such as “my children,” the class closes when at least one member is entitled to distribution

Question 28

UPC approach: The UPC states that when a class gift is made, each living beneficiary will take?

Answer 28

will take their share and the deceased beneficiary’s share will pass to their surviving descendants. (If there are no surviving descendants then the gift will fail.) Note: this applies even if the beneficiary is not related to the settlor (and thus differs from most antilapse statutes)

Question 29

Common law approach: Under the common law, if the gift or remainder to a deceased beneficiary has already vested and there is no applicable statute, then it will go to

Answer 29

whomever the instrument says it should go to or whomever the deceased person has specified in their will or through intestacy. (This also applies to gifts that are not made to classes.

Question 30

if a testator gives a gift to a group of unrelated individuals and one predeceased him, the deceased would not take, and neither would his descendants, unless

Answer 30

the antilapse statute saved the gift.