Trusts Rule Language

Question 1

Creation of Valid Trust

Answer 1

To create a valid trust, there must be a settlor who, intending to create a trust for a valid trust purpose, delivers the trust property to the trustee to hold for the benefit of one or more beneficiaries.”

Question 2

What happens if there are no trust assets when the trust instrument is executed? / Promises to create future trust.

Answer 2

If there are no trust assets when the trust instrument is executed, a trust arises in the future only if, when the assets come into existence, the settlor manifests anew an intention to create the trust.

This re-manifestation is not required if the promise is supported by valid consideration.

Question 3

Validity of a Trust Language

Answer 3

“A trust of personal property is valid if it has a trustee, a beneficiary, and trust property.”

Question 4

Trustee

Answer 4

“A trustee manages the trust property and holds it for the benefit of the beneficiaries.”

“A trustee holds LEGAL title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold EQUITABLE title.”

Question 5

Beneficiary

Answer 5

Beneficairies are the individuals for whom the trust benefit is established. In a private express trust, beneficiaries must be definite and ascertainable.

Question 6

Revocability of Trust

Answer 6

Under the Uniform Trust Code (UTC), a settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable.”

However, many states still follow the common law rule, which requires that the settlor reserve the power to revoke and amend.

In those states, a trust is irrevocable unless the instrument expressly states otherwise.

Thus, for a settlor to retain control in those states, the trust instrument should expressly state that it is revocable.

Question 7

Termination by Settlor

Answer 7

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

Question 8

Termination by Beneficiaries after settlor dies

Answer 8

Generally, even an irrevocable trust can be terminated if both the income beneficiaries and the remainder men unanimously consent and if there is no material purpose of the trust yet to be performed (Calfin v. Calfin).

Question 9

Termination by Court

Answer 9

“A court can terminate a trust prior to the time fixed in the instrument if the trust purposes are accomplished early or the trust purposes become illegal or impossible to carry out.”

Question 10

Modification of a Trust

Answer 10

per common law and the UTC, a court may order equitable deviation from the trust’s terms when an unanticipated change in circumstances would otherwise defeat or substantially impair the accomplishment of the trust.”

Question 11

Pourover Will (Both Common law and Modern)

Answer 11

“A pour over gift is a testamentary (will) gift to a trust created during the testator’s lifetime, with the testamentary assets to be administered and distributed as part of that trust.”

“Under the traditional view (CL), to create a valid pour over gift from a will to a revocable trust, the trust must be in existence or must be executed at the time of the will’s execution.

“Under the prevailing view (ML), a will may devise property to a trustee of a trust established or to be established during the testator’s lifetime.”

“Pour over gifts are valid even if the trust is unfunded during the testator’s lifetime.”

Question 12

Discretionary Trusts

Answer 12

“In a discretionary trust, the trustee is given discretion whether to apply or withhold payments of income or principal to a beneficiary.”

“This discretion actually limits the rights of the beneficiary to the amounts the trustee decides to give her.”

“The beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses his power.”

Question 13

Support Trust

Answer 13

“A support trust is one where the trustee is REQUIRED to pay or apply so much of the income or principal as is necessary for the beneficiary’s support.”

Unlike discretionary trusts, beneficiaries can compel distributions by the trustee.

Question 14

Spendthrift Trust

Answer 14

“A spendthrift trust is one in which the beneficiary is unable voluntarily or involuntarily to transfer his interest in the trust.”

“He cannot sell or give away his rights to future income or capital, and his creditors generally are unable to collect or attach such rights.”

“However, an exception is made when the settlor is a beneficiary of the trust and attempts to protect his own retained interests from his creditors by the inclusion of a spendthrift provision.”

“In that event, the settlor-beneficiary’s creditors CAN reach his right to the income just as if the spendthrift restriction did not exist.”

Question 15

Charitable Trusts

Answer 15

A charitable trust is one that may be created for a charitable purpose. It must have a large number of not readily identifiable individuals. NOTE: Not subject to the common law rule against perpetuities.

Question 16

Cy Pres

Answer 16

“The cy pres doctrine is a legal principle that allows a court to modify the terms of a charitable trust when the original purpose of the trust becomes impossible, impractical, or illegal to achieve.”

“This doctrine ensures that the charitable intentions of the trust’s creator are honored as closely as possible, even if the original goal cannot be met.”

Cy pres is a common law doctrine that is also party of the UTC. It states that if a particular charitable purpose has become unlawful, impracticable, or impossible to achieve; no alternative charity is named in the trust; and the 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.H

Question 17

Honorary Trust

Answer 17

This is a trust that does not have a charitable purpose or a definite beneficiary. It is often a trust to take care of a thing for a non charitable purpose. May not be enforced for more than 21 years.

Question 18

Duty of Loyalty

Answer 18

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

Question 19

Duty of Care

Answer 19

Under the Uniform Prudent Investor Act, a trustee must “administer the trust as a prudent person would using reasonable care, skill, and caution.”
-Entire estate portfolio examined to determine prudence
-Duty to diversify

Question 20

Remedies for a breach of trust by trustee

Answer 20

Remedies include: suspending or removing a trustee, decreasing compensation, compelling a trustee to perform trust duties, compelling payment of damages.

Question 21

Power of Appointment (in general)

Answer 21

“A power of appointment is an authority created in a donee enabling the donee to designate, within the limits prescribed by the donor of the power, the persons who shall take certain property and the manner in which they shall take it.”

Question 22

General power of appointment

Answer 22

“A general power of appointment is exercisable in favor of the donee, her estate, her creditors, or the creditors of her estate.”

Question 23

Special Power of Appointment

Answer 23

“A special power of appointment is exercisable in favor of a specified class of persons that does NOT include the donee, her estate, her creditors or the creditors of her estate.

Question 24

Presently Exercisable Power

Answer 24

“A presently exercisable power is exercisable by the donee during her lifetime.”

Question 25

Testamentary Power

Answer 25

“A testamentary power is one that is exercisable only by the donee’s will.”

Question 26

Rule of Convenience

Answer 26

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 27

UPC Approach to Class Gifts

Answer 27

The UPC states that when a class gift is made, each living beneficiary will take their share and the deceased beneficiary’s share will pass to their surviving descendants.
NOTE: This applies even if the beneficiary is not related to the settlor (and thus differs from most anti lapse statutes).

Question 28

Common Law Approach to Class Gifts

Answer 28

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 t o whomever the instrument says it would go to or whomever the deceased person has specified in their will or through intestacy.

Question 29

Merger of Title

Answer 29

“Merger of title results in termination of a trust where the sole trustee is also the sole beneficiary.”

Question 30

Resulting Trust

Answer 30

“A resulting trust arises when property is transferred to someone, but it is clear that the person transferring the property did not intent to give the beneficiary ownership. Instead, the property is held in trust for the transferor or someone else.”

“A resulting trust arises to ensure that property is held according to the true intentions of the person who transferred it, especially insinuations where there is no clear intention to benefit the person receiving the property.”

Question 31

Constructive Trust

Answer 31

“A constructive trust is a legal remedy used by courts to correct situations where someone has gained property unfairly. The court orders the wrongful holder to transfer the property to the rightful owner, ensuring fairness and preventing unjust enrichment.”

KEY: The victim party MUST first file an action with the court.

Question 32

Secret Trust

Answer 32

“A secret trust is a trust that is not mentioned in a will but is agreed upon provenly between the testator and the trustee. The trustee to holds the property for the benefit of someone else.”

“This allows the testator to give property to a beneficiary without it being publicly known through the will.”

Question 33

Semi-Secret Trust

Answer 33

“A semi secret trust is a trust where the will mentions that a trustee is supposed to hold property in trust, but it does not specify the beneficiary or the terms of the trust.”

Question 34

Uniform Trust Code (UTC) general language

Answer 34

“The UTC provides rules relating to the creation, modification, and termination of trusts, duties and powers of a trustee, relations among co-trustees, and the rights and interests of beneficiaries.