Trusts Set

Question 1

Which of the following is LEAST likely to be found to create an enforceable trust?

A
“To Ted, in the hope that he will use the money as he sees fit to support my niece Beth.”

B “To Ted, to be used to support my cat Bathsheba.”

C “To Ted, to be used to create a scholarship fund for St. Bart’s school.”

D “To Ted, to distribute the money to my grandchildren as he deems appropriate.”

Answer 1

A

Language that expresses a settlor’s hope or wish is precatory. Courts infer no trust was intended from such language. A trust for the care of an animal alive during the settlor’s lifetime is valid. The scholarship fund for St. Bart’s school advances education and has indefinite beneficiaries. Thus, it is a valid charitable trust. Finally, leaving the distribution of trust assets to the absolute discretion of the trustee is valid—typically these are called discretionary trusts.

Question 2

Which of the following descriptions represents a sufficiently definite class of beneficiaries for a settlor’s private testamentary trust?

A The person kindest to the settlor during her illness

B
The settlor’s heirs

C
Such persons as trustee may select

D The settlor’s friendship

Answer 2

B

Beneficiaries must be susceptible of identification by the time their interests come into enjoyment. A settlor’s heirs will be ascertained by the time their interests come into enjoyment (settlor’s death). (A) is incorrect because the kindness of someone is subjective, and the description it too indefinite. Although it is permissible that members of a class are selected by the trustee, the class must be a reasonably definite one. (C) does not state a class from which the trustee is to select. Likewise, “friends” is not a sufficiently definite class.

Question 3

For purposes of establishing a charitable trust, which of the following would be considered charitable purposes?

A
A trust for the benefit of the Fraternal Order of Bison social organization

B A trust to fund the education of the children of the settlor’s neighbor, who cannot afford college tuition

C A trust for the benefit of the Republican Party and its candidates

D
A trust to advance the doctrine of unfettered Second Amendment gun rights

Answer 3

D

The purpose of a charitable trust must be one considered to benefit the public, including relief of poverty, the advancement of religion or education, the promotion of health, and the accomplishment of a governmental purpose. A trust for the dissemination of views of a political movement qualifies as educational and thus is charitable, but a trust for the benefit of a political party is not charitable. Thus, (D) is correct, and (C) is incorrect. (A) is incorrect because a gift to a fraternal order is not charitable. The group’s primary purpose is social, not charitable. (B) is incorrect because the trust does not benefit the public as a whole. It benefits only a few individuals whom the settlor wishes to benefit individually.

Question 4

Each of the following is a true statement about charitable trusts EXCEPT:

A When a trust is mixed, the rules for charitable trusts will apply.

B If the trust purpose becomes impossible, a court may redirect the trust.

C Charitable trusts are not subject to the Rule Against Perpetuities.

D
Beneficiaries of a charitable trust must be indefinite.

Answer 4

A

When the beneficiaries of a single trust are both charitable and noncharitable (mixed), the special rules for charitable trusts do not apply unless two trusts can be found. All other statements are true.

Question 5

In which of the following cases would a court be most likely to apply cy pres?

A Settlor created a testamentary trust for his son, but his son predeceased him leaving a surviving child.

B Settlor created a trust to provide scholarships to the Acme Secretarial School, which is no longer in business.

C Settlor created a trust to support his disabled niece, and at the niece’s death $100,000 remained in the trust.

D
Settlor created a trust to benefit a fledgling political party, the Reasonable Party, which has disbanded.

Answer 5

B

Under the doctrine of cy pres, when a specific charitable purpose has become impossible or impracticable, a court may direct that the trust property be applied to another charitable purpose as close as possible to the original one. (B) is the only charitable trust. Trusts that promote education are considered to benefit the public and thus are considered charitable. (A) and (C) are private trusts to benefit identified beneficiaries. (D) is a trust for a political party, which is not considered a charitable purpose.

Question 6

A settlor creates a revocable trust which provides that all income will be paid to Andy for life, and on his death, the trust corpus will be distributed to Betsy. In the absence of language in the trust instrument to the contrary, which interests may be reached by Andy’s creditors?

A Both the income and the corpus if necessary to satisfy the debt.

B No trust assets may be reached, even after they are paid to Andy.

C No trust assets, but creditors can reach the income after it has been paid to the Andy.

D The income interest of the trust.

Answer 6

D

If the debtor is neither the sole beneficiary nor the settlor of a revocable trust, a creditor reaches only the interest of the debtor, not the trust property itself. Thus, Andy’s creditors can reach only his income interest in the trust. It is even possible for the creditors to sell Andy’s beneficial interest to satisfy their claims. (B) and (C) are incorrect because Andy’s creditors can reach his interest before and after the income is paid.

Question 7

A spendthrift trust:

A Prevents a beneficiary from transferring her interest in the trust.

B Can be drafted so as to allow the beneficiary to voluntarily transfer her interest.

C Limits the creditors’ remedies to the income interest of the trust.

D Is an effective way for a settlor to protect assets from creditors while providing herself with income.

Answer 7

A

A spendthrift trust is one in which the beneficiary is unable to transfer her interest—either voluntarily or involuntarily. She cannot sell or give away her right to income or corpus, and her creditors cannot attach these rights. (B) is incorrect because a restraint that prohibits creditors from reaching the beneficiary’s interest but does not prevent the beneficiary from voluntarily transferring her interest violates public policy and is invalid. (C) is incorrect because it misstates how spendthrift trusts work. A spendthrift restriction does not limit creditors’ remedies to the income interest. Creditors are prohibited from attaching any interest to which a spendthrift restriction has been applied. (D) is incorrect because a settlor cannot create a spendthrift trust for her own benefit to avoid creditors’ claims

Question 8

Despite spendthrift protection, trust assets may be reached by the beneficiary’s creditors for all of the following debts EXCEPT:

A
Spousal support.

B
Child support.

C
Attorney’s fees for estate planning.

D
Federal income taxes.

Answer 8

C

A spendthrift clause does not preclude claims for dependents’ support (e.g., child support and spousal support) or claims made by the state or federal government, including taxes.

Question 9

Settlor creates an irrevocable trust under which Trustee is to make distributions as she sees fit to comfortably support Daughter for life. Which of the following statements is true?

A Daughter’s creditors can compel distribution..

B Daughter can compel distribution.

C Settlor’s creditors can compel distribution.

D Trustee must make any distributions first to Daughter’s creditors who have served Trustee with notice of a claim

Answer 9

D

In a discretionary trust, under which the trustee is given discretion to make or withhold distributions of income and or principal, neither the beneficiary, the beneficiary’s creditors, nor the settlor can compel the trustee to make a distribution. However, once the trustee has been served with process, she cannot exercise her power in favor of the beneficiary without first satisfying the creditor’s claim.

Question 10

An irrevocable trust may be terminated by:

A Consent of the settlor and all existing beneficiaries.

B Consent of all existing and potential beneficiaries if no material purpose of the trust would be frustrated.

C Consent of the settlor and the trustee.

D
Only by the trust terms.

Answer 10

B

An irrevocable trust may be terminated or modified by the consent of all existing and potential beneficiaries as long as no material purpose of the trust will be frustrated. It may also be modified or terminated upon the consent of the settlor and all beneficiaries, including potential beneficiaries. (A) is wrong because it includes only existing beneficiaries. (C) misstates the rule. A trust cannot be modified or terminated upon the consent of the settlor and trustee. The trustee can terminate an uneconomic trust himself, but his consent to other types of terminations or modifications is irrelevant.

Question 11

For purpose of terminating a trust, which of the following trust language indicates a material purpose of the settlor that will likely prevent early termination by consent of the beneficiaries?

A
“Income to Abigail until she turns 35, then the corpus is to be distributed to her.”

B
“Income to Settlor for life, remainder to Abigail.”

C
“Income to Abigail for life, remainder to Ben.”

D
“Income to Abigail for 10 years, remainder to the Red Cross.”

Answer 11

A

A trust may be terminated early by the agreement of all beneficiaries as long as doing so would not violate a material purpose of the settlor in creating the trust. (A) indicates a settlor’s material purpose to keep the property out of Abigail’s hands until age 35. Thus, Abigail would be unable to terminate the trust. (B) includes the settlor as a beneficiary. A trust may be terminated on the consent of the settlor and all beneficiaries. If Settlor and Abigail agree to terminate, it does not frustrate a material purpose of Settlor. (C) indicates a purpose to provide for successive enjoyment by a life tenant and remainderman. However, because Abigail could terminate the trust by conveying her interest to Benjamin (or vice versa), this is usually found not to be a material purpose, and they can terminate the trust by agreement. The same is true with (D). The fact that the remainderman is a charity has no effect.

Question 12

Which of the following statements represent a circumstance that would justify a court’s modification of a trust due to unanticipated circumstances?

A The trust requires the trustee to distribute profits to an experimental theatre group that has been the focus of recent community protests.

B
The trust requires the trustee to keep the trust assets invested in Acme Corp. Acme Corp. manufactures cassette tapes and its stock has been in sharp decline.

C
The trust places the settlor’s cattle farm in trust and to pay profit made on sale of beef to Daughter. Daughter has become vegan and wants the trust to invest elsewhere.

D
The trust forbids the sale of certain investments. Trustee has discovered that companies represented by these investments employ labor practices that Trustee finds repugnant.

Answer 12

B

A court will generally permit termination of a trust or modification of its administrative or dispositive terms if circumstances unanticipated by the settlor threaten the purposes of the trust. In the case of the Acme Corp. stock, if the court does not permit deviation from the terms, the trust will likely lose all of its assets, thus defeating the settlor’s purpose. The community’s objections to the theatre group is not an unanticipated circumstance as it does not threaten the settlor’s intent to help fund the arts. Therefore, the court would not deviate from the trust’s terms. Similarly, Daughter’s change of personal eating choices to vegan is not a change in circumstance that would threaten the settlor’s primary intent to provide for Daughter. Trustee’s views and recent discovery of certain labor practices does not constitute a change of circumstances that would warrant a court modification.

Question 13

The trustee’s exercise of discretionary powers:

A May be reviewed by the court for abuse.

B Must be reviewed by the court if it involves business judgment.

C Are immune from judicial review if they are absolute.

D Cannot be reviewed by the court.

Answer 13

A

A trustee’s exercise of discretionary power is subject to judicial review for abuse of discretion even if the trust instrument grants the trustee absolute discretion. The trustee must exercise discretionary power in good faith. To the extent that the exercise of discretion involves business judgment, a court will generally refuse to interfere.

Question 14

Under a revocable trust, a trustee’s duties are owed:

A
To the settlor and beneficiaries equally.

B Exclusively to the settlor.

C Exclusively to the beneficiaries.

D Primarily to the settlor, and secondarily to the beneficiaries.

Answer 14

B

Under a revocable trust, a trustee’s duties are owed exclusively to the settlor. For an irrevocable trust, a trustees duties are owed exclusively to the trust beneficiaries.

Question 15

Under the trustee’s duty to administer the trust, a trustee of a trust that has both life tenants and remaindermen must administer the trust:
A So as to maximize the amount of income for the income beneficiaries.

B So as to protect and grow the trust corpus.

C So as to take into account the differing interests of the beneficiaries.

D Without regard to the interests of individual beneficiaries.

Answer 15

C

If there is more than one beneficiary, the trustee must act impartially, taking into account any differing interests of the beneficiaries. The goals of present income and appreciation of the corpus must be balanced when there are life tenants and remainder holders.

Question 16

Which of the following actions does NOT breach the trustee’s duty of loyalty?

A Deciding to diversify the trust’s investments, Trustee purchases Acme stock from the trust at an above-market rate.

B
Trustee lends the trust money at a reasonable rate.

C
Trustee borrows trust funds, invests in a risky startup company, and restores the money to the trust along with a sizeable return.

D
Trustee, who is a lawyer, renders legal services to the trust for an additional fee.

Answer 16

D

A trustee owes an undivided duty of loyalty to the trust and its beneficiaries. Ordinarily, a trustee may not employ herself in service to the trust. However, most courts allow a trustee who is a lawyer to be fairly compensated for extraordinary services rendered to the trust. (A) is incorrect because a trustee may not purchase any property from the trust even if she pays full value or above. Likewise, a trustee may not borrow funds from the trust or loan funds to the trust, no matter how fair the return or how secure the loan. Thus, (B) and (C) are incorrect.

Question 17

Trustee placed $10,000 of his own money and $10,000 of trust money into a single investment account that required a $20,000 minimum investment. The investments were successful, and the account is now worth $40,000. Which of the following best describes how the money should be allotted?

A Trustee is entitled to $10,000, and the trust is entitled to $30,000

B Trustee is entitled to $20,000, and the trust is entitled to $20,000

C The trust is entitled to $40,000

D Trustee is entitled to $15,000, and the trust is entitled to $35,000

Answer 17

A

A trustee may not commingle trust property with his own property. If a portion of commingled assets increase in value, it is presumed that the assets belonging to the trust increased in value. Here, the entire amount of increase, $20,000, will be allotted to the trust. Trustee will get his initial investment back. Thus, Trustee is entitled to $10,000, and the trust is entitled to $30,000.

Question 18

A

A trustee may not commingle trust property with his own property. If a portion of commingled assets increase in value, it is presumed that the assets belonging to the trust increased in value. Here, the entire amount of increase, $20,000, will be allotted to the trust. Trustee will get his initial investment back. Thus, Trustee is entitled to $10,000, and the trust is entitled to $30,000.

Answer 18

C

The UPIA requires the trustee to tailor an investment strategy that incorporates risk and return objectives suited to the particular trust. Modern investment practices reflect sensitivity to the risk/return curve. Returns correlate strongly with risk, but tolerance for risk varies greatly with the purposes of the trust and the relevant circumstances of the beneficiaries. (A) is incorrect because the UPIA is based on the modern portfolio theory of investing. Thus, each investment decision must be evaluated, not in isolation, but in the context of the entire trust portfolio (corpus) and as part of an overall investment strategy that has risk and return objectives reasonably suited to the particular trust. (B) is incorrect because under the UPIA, investment returns are measured by the “overall return” concept rather than the production of ordinary income. (D) is incorrect because the UPIA permits a trustee to invest in any kind of property or any type of investment “consistent with the standards of this Act”; therefore, no particular type of investment is inherently imprudent. The overriding concern is the risk/return objective of the investment, rather than the classification of investments as prudent or imprudent.

Question 19

C

The UPIA requires the trustee to tailor an investment strategy that incorporates risk and return objectives suited to the particular trust. Modern investment practices reflect sensitivity to the risk/return curve. Returns correlate strongly with risk, but tolerance for risk varies greatly with the purposes of the trust and the relevant circumstances of the beneficiaries. (A) is incorrect because the UPIA is based on the modern portfolio theory of investing. Thus, each investment decision must be evaluated, not in isolation, but in the context of the entire trust portfolio (corpus) and as part of an overall investment strategy that has risk and return objectives reasonably suited to the particular trust. (B) is incorrect because under the UPIA, investment returns are measured by the “overall return” concept rather than the production of ordinary income. (D) is incorrect because the UPIA permits a trustee to invest in any kind of property or any type of investment “consistent with the standards of this Act”; therefore, no particular type of investment is inherently imprudent. The overriding concern is the risk/return objective of the investment, rather than the classification of investments as prudent or imprudent.

Answer 19

B

A trustee must diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversification. While a trust is revocable, the trustee owes his duties only to the settlor, and the settlor’s direction to hold the stock constitutes a special circumstance that would relieve the trustee of his duty to diversify. This is a revocable trust and the settlor wants to keep the investment in the ABC stock; thus, the trustee is relieved of his duty to diversify. (A) is therefore incorrect. (C) is incorrect because the fact that the trust property was initially invested in particular investment does not relieve a trustee of his duty to diversify, (D) is incorrect because the trustee’s discretion is limited by his duties to the trust, including the duty to diversify.

Question 20

The trustee of a sizeable trust has limited investing experience. The trustee:

A May not delegate investment decisions because that is a discretionary function.

B May delegate investment decisions, but the trustee cannot be relieved of liability for those decisions.

C May delegate the investment decisions, but the trustee must monitor the agent’s performance.

D May not delegate the investment decisions without court permission.

Answer 20

C

A trustee may delegate investment and management functions that a prudent trustee of comparable skill could properly delegate under the circumstances. The trustee must exercise reasonable care, skill, and caution in selecting an agent, establishing the scope of the delegation, and must periodically review the agent’s performance. (B) is incorrect because if the trustee exercises the above care in making the delegation, the trustee is not liable for the decisions or actions of the agent. (D) is incorrect because a court order is not needed to delegate these decisions.

Question 21

If a trustee commits a breach of trust, the trustee is liable to:

A The settlor for any profits arising from the breach.

B The settlor for any profits arising from administering the trust, and to the beneficiaries for any losses arising from a breach.

C The beneficiaries for the lesser of the amount needed to restore the trust property and distributions and the trustee’s profit from the breach.

D The beneficiaries for the greater of the amount needed to restore the trust property and distributions and the trustee’s profit from the breach.

Answer 21

D

If a trustee commits a breach of trust, the trustee is liable to the beneficiaries, not the settlor, for the greater of: (i) the amount needed to restore the trust property and distributions to what they would have been without the breach, and (ii) the trustee’s profit from the breach. Likewise, a trustee is liable to the beneficiaries, not the settlor, for any profit arising from the administration of the trust, even if there was no breach.

Question 22

A trustee of an irrevocable trust is relieved of liability for breach of trust in each of the following instances EXCEPT:

A The trustee reasonably relied on the terms of the trust.

B The settlor waived the material purpose and consented to the conduct.

C The beneficiary ratified the transaction.

D The trust contains an exculpatory clause.

Answer 22

B

Other than including an exculpatory clause in the trust instrument, the settlor of an irrevocable trust has no ability to affect the trustee’s liability for a breach of trust. A trustee is not liable for a breach of trust if he acted in reasonable reliance on the trust terms and the breach resulted from that reliance. A trustee is also relieved of liability for breach if the beneficiary consented to the conduct, released the trustee from liability, or ratified the transaction. An exculpatory clause in the trust instrument relieves the trustee of liability or lowers the standard the conduct required. These clauses are valid unless they relieve a trustee of liability for breach committed in bad faith or with reckless indifference, or the clause was included because the trustee abused a confidential relationship with the settlor.

Question 23

Which of the following grants made in a revocable inter vivos trust violates the common law Rule Against Perpetuities?

A
“Trustee is to pay the trust income to Settlor for life and, upon her death, to pay the trust income to Settlor’s brother, Brother, for his life and, upon his death, to distribute the trust principal to Cousin’s children who attain age 21.”

B
“Trustee is to pay income to Settlor for life. Upon Settlor’s death, the trust income shall be paid, in equal shares, to Settlor’s surviving children for their lives. Upon the death of the last surviving child, the trust income shall be paid, in equal shares, to Settlor’s then-living grandchildren for their lives.”

C
“Trustee to hold Redacre in trust for the benefit of A so long as A chooses to live there, and then for the benefit of the then-living descendants of A.”

D
“Trustee to hold Greenacre in trust “for the benefit of my son John, whose house was destroyed by the Decatur Earthquake, and when his house has been rebuilt, then for the benefit of the American Red Cross.”

Answer 23

D

The common law Rule Against Perpetuities provides that for a property interest to be valid it must vest or fail not later than 21 years after one or more lives in being at the creation of the interest. (D) violates the Rule because the interest of the Red Cross may not vest until more than 21 years after the death of any person living when the trust is created. Although charities are not subject to the rule, the fact that the Red Cross is a charity will not save this gift because the first beneficiary, John, is a private, definite beneficiary. (A) does not violate the Rule because Cousin is a life in being when the interest is created and the gift to Cousin’s children who attain 21 will vest or fail within 21 years after Cousin’s death. (B) does not violate the Rule because the Rule does not apply to grants in a revocable trust until the settlor’s death. So here, when the Rule is applied at Settlor’s death, Settlor’s children become the lives in being, and the interests of their children (Settlor’s grandchildren) will vest or fail at the death of the last measuring life. (C) does not violate the rule because A will cease living on Redacre at her death (at the latest). Thus the interest of her descendants will vest or fail at that time (at the end of a life in being).

Question 24

Which of the following is true regarding a pour-over gift from a will to an inter vivos trust?

A The trust must be established during the testator’s lifetime.

B The trust must be in existence at the will’s execution.

C The trust must be funded during the testator’s lifetime.

D The trust must be irrevocable.

Answer 24

A

A pour-over gift from a will to an inter vivos trust is valid if the trust is established during the testator’s lifetime. At common law, a pour-over gift was invalid if the trust was not in existence at the will’s execution. However, under the Uniform Testamentary Additions to Trusts Act, adopted by most states, a will may devise property to a trustee of a trust to be established during the testator’s lifetime. The Act also authorizes pour-over gifts to a trust that is unfunded during the testator’s lifetime and whose sole purpose is to receive such a testamentary gift. A pour-over gift is valid even though the inter vivos trust is amendable and revocable. The gift is to the trust as it exists at the testator’s death, including amendments to the trust made after the will’s execution.

Question 25

If a depositor deposits funds in an account “in trust for” a beneficiary, which of the following events does NOT revoke the trust?

A The depositor withdraws funds from the account during her lifetime.

B
The depositor expressly revokes all “in trust for” accounts in a writing delivered only to her attorney.

C
The depositor leaves a will bequeathing all funds held in her “in trust for” accounts to someone other than the beneficiary.

D The depositor predeceases the beneficiary.

Answer 25

D

If a depositor deposits funds in an account “in trust for” a beneficiary, the depositor’s predeceasing the beneficiary does not revoke the trust. A Totten trust is a deposit of money in the depositor’s own bank account in trust for another person. The majority rule is that such a transfer creates a valid revocable trust, even though the depositor retains complete control over the account during her lifetime and the transfer is complete only upon her death. The trust is revoked to the extent of withdrawals made by the depositor during her lifetime. It may also be revoked by any lifetime act that manifests an intent to revoke. Thus, a writing expressly revoking all in-trust-for accounts delivered to an attorney is a valid revocation, even though the revoking instrument was not delivered to the bank. If the depositor’s will bequeaths all funds held in her “in trust for” accounts to someone other than the trust beneficiary, the trust is revoked and the funds pass to the will beneficiaries. If the trust beneficiary predeceases the depositor, the trust automatically terminates; the funds belong to the depositor absolutely and do not pass to the beneficiary’s estate. However, if the depositor predeceases the beneficiary, the funds pass to the beneficiary pursuant to the terms of the trust.

Question 26

In which of the following situations is a court most likely to impose a constructive trust?

A
A grantor conveys real property to a grantee in reliance on his oral promise to hold it in trust for the grantor’s daughter; the grantee subsequently conveys the property to his son.

B A testator bequeaths all of her property to a beneficiary in reliance on his oral promise to bequeath it to the testator’s daughter upon his death; the testator dies and the beneficiary bequeaths all of his property to his son.

C A party obtains property from the owner by fraud and sells it to a bona fide purchaser.

D
A thief steals property from the owner.

Answer 26

B

A court is most likely to impose a constructive trust where a testator bequeaths all of her property to a beneficiary in reliance on his oral promise to bequeath it to the testator’s daughter upon his death, and after the testator’s death the beneficiary bequeaths all of his property to his son. A constructive trust is a flexible equitable remedy imposed by a court to prevent unjust enrichment of one person at the expense of another as the result of wrongful conduct, such as fraud, undue influence, or breach of a fiduciary duty. The constructive trustee’s only duty is to convey the property to the person who would have owned it but for the wrongful conduct. Generally, a person’s mere breach of a promise is not a sufficient basis for implying a constructive trust. Thus, where a grantor conveys real property to a grantee in reliance on his oral promise to hold it in trust for the grantor’s daughter and the grantee subsequently conveys the property to his son, there is no constructive trust. (To hold otherwise would frustrate the purpose of the Statute of Frauds.) However, broken promises to a decedent concerning devolution of her property on death are a major exception to the rule: a constructive trust will be imposed because the promisee is dead and unable to personally seek enforcement. Although a constructive trust could be imposed where a fraudster obtains property from the owner and conveys it to a third party who is not a bona fide purchaser (the third party would be the trustee), this equitable remedy is not available when the transferee is a bona fide purchaser; the owner’s recovery is limited to the fraudster. If a thief steals property from the owner, title remains in the owner, so there is no need to imply a trust to restore title to the owner. But if the thief uses the stolen goods to buy other property, the owner can have a constructive trust imposed against the other property to prevent the thief from profiting from his wrong.

Question 27

If a will bequeaths money in trust, but does not name any beneficiary of the trust, what is the likely result?

A The trustee holds the money on a resulting trust for the settlor’s heirs or residuary legatees.

B A valid testamentary trust is created provided that the intended beneficiaries can be determined by extrinsic evidence.

C The trustee takes the money in fee simple.

D A valid testamentary trust is created, and the settlor’s heirs are the beneficiaries.

Answer 27

A

A resulting trust will be imposed in favor of the settlor’s heirs or residuary legatees. Because a trust, and not a gift, was clearly intended from the face of the will, the trustee cannot take the money. A semi secret trust, such as the one here, is generally unenforceable because it would violate the policy of the Statute of Wills to permit the beneficiaries to be identified through parol testimony. With no identifiable beneficiaries, the trust fails.

Question 28

All of the following are duties of the trustee of a constructive or resulting trust EXCEPT:

A To account to the beneficiary for all profits taken from the property.

B To invest the trust property and make it productive.

C To preserve and protect the trust property.

D To convey legal title to the beneficiary.

Answer 28

B

The trustee of a constructive or resulting trust has no duty to invest the trust property or make it productive. That duty is reserved for trustees of express trusts. From the time the court declares a constructive or resulting trust to exist, the trustee’s sole duty is to convey legal title to the beneficiary. Because such a trust is retroactive to the date the trustee took title or the time of the wrongful conduct, whichever is later, from that date forward the trustee is accountable to the beneficiary for all profits taken from the property and may be held liable for failing to preserve and protect the trust property.

Question 29

If termination or modification is not available because all of the beneficiaries do not or cannot consent, or because a material purpose will be frustrated, the parties may seek modification by the court if: (i) the trust could have been modified if all beneficiaries had consented, and (ii):

A The interests of nonconsenting beneficiaries will be protected.

B The settlor consents, waiving the material purpose.

C The settlor is dead.

D There is no spendthrift restriction.

Answer 29

A

If termination or modification is not available because all of the beneficiaries do not or cannot consent or because a material purpose will be frustrated, the parties may seek modification by the court if: (i) the trust could have been modified if all beneficiaries had consented, and (ii) the interests of nonconsenting beneficiaries will be protected. Because the court may modify even if it might frustrate a material purpose of the settlor, the settlor’s consent, whether the settlor is dead, and lack of a spendthrift restriction will not affect the court’s ability to modify the trust if the beneficiaries are all represented.

Question 30

Each of the following is a true statement EXCEPT:

A A court will terminate or modify a trust if changed circumstances threaten the trust’s purpose.

B A court may modify a trust’s terms if they become impracticable or wasteful.

C A court may modify or terminate a trust if it determines that the interests of justice so require.

D
A court may modify the terms of the trust if it is shown by clear and convincing evidence that the settlor’s intent and the trust terms were affected by mistake.

Answer 30

C

The Trust Code does not provide for the court to have sweeping powers to modify or terminate a trust in the interests of justice. A settlor is free to dispose of his property as he wishes, even if it is unjust.

Question 31

Which of the following is a true statement about cy pres?

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A A gift given “on condition” that it be used for a particular charitable purpose precludes application of cy pres.

B To formulate an alternative use for the property, the court must consider the recommendation of the trustee.

C
Cy pres applies to both trusts and outright gifts.

D
Specific charitable intent must be proven before the doctrine will be applied.

Answer 31

C

Cy pres applies to outright gifts in a will, as well as to trusts. (A) is incorrect because the fact that a gift is given “on condition” that it be used for a particular charitable purpose does not preclude a finding of general charitable intent. Thus, it does not preclude application of cy pres. (B) is incorrect because the court need not consider the trustee’s recommendation. In formulating an alternative use for the trust property, generally, cy pres dictates that the court must determine the settlor’s primary purpose, although other purposes should be taken into account. (D) is incorrect because cy pres requires general, not specific, charitable intent. However, under the UTC, general charitable intent is conclusively presumed. Thus, there is no requirement of proof of intent, and application of cy pres is mandatory unless the instrument provides otherwise.

Question 32

A trust for the care of an animal is:

A Unenforceable because there is no beneficiary capable of enforcing the trust.

B Limited to 21 years.

C
Void and a resulting trust is imposed in favor of the settlor or his successors.

D
Valid and terminates at the animal’s death.

Answer 32

D

A trust for the care of an animal alive during the settlor’s lifetime is valid. The trust terminates when the animal dies. (A) states the common law view, which was that the trustee was on his honor to carry out the trust because it could not be enforced. (B) is incorrect because it states the rule for honorary trusts other than those for the care of animals. (C) misstates the law. However, if a trust for the care of an animal exceeds what is needed for its intended use, the excess property will be distributed to the settlor or his successors.

Question 33

If a settlor creates a trust but its terms are silent as to whether it is amendable or revocable, the settlor:

A May revoke the trust but may not amend it.

B May amend the trust but may not revoke it.

C May both amend and revoke the trust.

D May neither amend nor revoke the trust.

Answer 33

C

A settlor can revoke or amend a trust unless the terms expressly state that it is irrevocable. The power to revoke includes the power to amend. Thus, a trust that is silent as to revocability is both amendable and revocable.

Question 34

A private trust may exist for the benefit of members of a class. All of the following statements about class gifts are true EXCEPT:

A If the class is too broad, the trust may be unenforceable.

B The class will be considered too broad if the trustee, in his discretion, may select the members of the class.

C At common law, the class must be sufficiently definite.

D The trust may be enforceable if the trustee holds the property for such members of the class that meet certain requirements.

Answer 34

B

As long as the class is a reasonably definite one, it is permissible that the members of the class are to be selected by the trustee in his discretion, or that the property is to be held for such members of the class as the trustee finds meet certain requirements.

Question 35

Which of the following statements is true regarding anti-lapse statutes and trusts?

A Anti-lapse statutes operate to redirect the trust to a purpose as near as possible to the charitable purpose initially designated by the settlor.

B Anti-lapse statutes never apply to trusts.

C
Anti-lapse statutes apply even if a trust makes an alternate gift in case of a beneficiary’s nonsurvival.

D Anti-lapse statutes may apply to future interests created in trusts.

Answer 35

D

Anti-lapse statutes may apply to future interests created in trusts. (A) is incorrect because it describes the doctrine of cy pres. Anti-lapse statutes operate to save a gift when a beneficiary dies during the settlor’s lifetime by giving the gift to the beneficiary’s descendants. (B) is incorrect because several states apply their anti-lapse statutes to future interests created in trusts. (C) is incorrect because anti-lapse statutes do not apply if the trust makes an alternate gift in case of a beneficiary’s nonsurvival.

Question 36

All of the following statements regarding disclaimer are true EXCEPT:

A A beneficiary named in a testamentary trust generally must file a written disclaimer within nine months after the testator’s death.

B If a beneficiary has accepted any benefits under the trust, she may be estopped from making a disclaimer.

C A beneficiary named in a revocable trust must file a written disclaimer within nine months after the trust is established.

D If a valid disclaimer is made, the trust is read as though the disclaimant was deceased.

Answer 36

C

A beneficiary named in a revocable trust must file a written disclaimer within nine months after the trust becomes irrevocable. This will be at the settlor’s death, unless the settlor amends the trust to make it irrevocable during his lifetime.

Question 37

Assets received by the trustee must be allocated to either principal or income. According to the Uniform Principal and Income Act (“UPAIA”), how are receipts from a corporation generally allocated?

A All money and property from a corporation is characterized as income.

B Money from a corporation is characterized as income; all property other than money is characterized as principal.

C All money and property from a corporation is characterized as principal.

D Money from a corporation is characterized as principal; all property other than money is characterized as income.

Answer 37

B

Money received from a corporation is generally characterized as income (unless the money is characterized as a capital gain for federal income tax purposes or is received in partial or total liquidation of the entity). All property other than money is characterized as principal. These rules also apply to other entities such as partnerships and real estate investment trusts.

Question 38

Which of following statements regarding the creation of an inter vivos trust is true?

A Most states do not require a writing for a trust of personal property.

B A trust must be in writing in almost all circumstances.

C An oral trust is valid only if the settlor created it during her last sickness.

D A trust involving land does not fall within the Statute of Frauds.

Answer 38

A

Most states do not require a writing for a trust of personal property. (B) is incorrect because, generally, a trust does not have to be in writing. (C) is incorrect because, as stated above, oral trusts of personal property are valid in most states. Note that the creation of an oral trust and its terms may be established only by clear and convincing evidence. (D) is incorrect because a written instrument is commonly required under the Statute of Frauds to make a trust of land effective. The writing must be signed by the person entitled to impress the trust upon the property.

Question 39

Which of the following statements regarding support trusts is true?

A The beneficiary’s interest in a support trust is assignable.

B A support trust is created by this language: “pay all of the income to A for his support.”

C Support trusts are discretionary trusts with a support standard.

D The trustee may only pay income, not principal, to the beneficiary.

Answer 39

C

Support trusts are discretionary trusts with a support standard. In a support trust, the trustee is required to pay or apply only so much of the income or principal as is necessary for the support of the beneficiary. (A) is incorrect because the beneficiary’s interest is not assignable; no one but the beneficiary can enjoy it. (B) is incorrect because the words “for his support” state the motive for the transfer and do not limit the beneficiary to amounts necessary for his support. (D) is incorrect because the trustee may pay income, principal, or both to the beneficiary of a support trust.