Trusts - Texas

Question 1

Charitable trusts are favored in the law because:

Answer 1

Of their benefit to society.

Question 2

State the requirements for a charitable trust.

Answer 2

A charitable trust may be created by any of the methods for creating a private express trust. The requirements of a settlor with capacity to convey, properly expressed intent, and a specific trust res are the same.

Question 3

Rules that apply to charitable trusts.

Answer 3

1. ) Not subject to the Rule against Perpetuities (may be perpetual);
2. ) Must be a charitable purpose (confer a substantial amount of social benefit);
3. ) Must be in favor of a reasonable large segment of public at large and cannot benefit identifiable individuals;
4. ) When specific charitable purpose can no longer be accomplished, may be reformed in a judicial proceeding (cy pres).

Question 4

Pursuant to the cy pres doctrine, a charitable trust may be reformed by a court when:

Answer 4

The trust purpose has been accomplished or can no longer be accomplished, when the object of the gift has ceased to exist, or when some other change in circumstances renders the administration of the trust impossible, impracticable, or illegal.

Question 5

Define Trusts.

Answer 5

An arrangement for making gifts of property and for the management of assets, under which the trustee holds legal title to trusts assets for the benefit of the beneficiaries.

Question 6

Types of Trusts.

Answer 6

(i) Express trusts arise from the expressed intention of the owner of the property to create a trust with respect to the property; (ii) resulting trusts arise from the presumed intention of the owner of property; and (iii) constructive trusts arise in cases involving wrongful conduct and unjust enrichment.

Question 7

A trust may be created in five ways:

Answer 7

• property owner’s declaration that the owner holds the property as trustee for another person;
• a property owner’s transfer of the property to another person as trustee for the transferor or a third person;
• a property owner’s testamentary transfer to another person as trustee for a third person (will);
• an appointment under a power of appointment to another person as trustee for the donee of the power or for a third person; or
• a promise to another person whose rights under the promise are to be held in trust for a third person.

Question 8

To have a valid trust:

Answer 8

Must have a SETTLOR (grantor) with capacity, that DELIVERS title to TRUST PROPERTY (res), to a TRUSTEE, for the benefit of ascertainable BENEFICIARIES with INTENT TO CREATE A TRUST, where trust must be for a LAWFUL PURPOSE, in which no consideration is required for the creation of the trust.

Question 9

Three trust purposes prohibited by law:

Answer 9

Enforcement involves the commission of a crime or a tort; the trust calls for destruction or property, or it was based on illegal consideration that is against public policy.

Question 10

State three instances in which a trust will fail.

Answer 10

A trust will fail if it is created to defraud creditors.

An absolute prohibition on marriage by a beneficiary will fail as against public policy. Partial restraints are valid.

A trust provision that encourages a beneficiary to refrain from marrying or to obtain a divorce is invalid (except that restraints upon remarriage by the settlor’s spouse are ordinarily upheld).

Question 11

State the purpose of a spendthrift clause.

Answer 11

Created with the purpose of protecting the trust beneficiary’s interest that is not reachable by creditors and at the same time prohibiting the beneficiary from voluntarily or involuntarily transfering their interest.

Question 12

A beneficiary’s interest in a noncharitable trust is void (under the RAP) unless:

Answer 12

The interest vests, if at all, within 21 years after some life in being at the creation of the trust.

Question 13

State the Cy Pres doctrine.

Answer 13

Within the limits of the Rule Against Perpetuities, a court shall reform or construe an interest in real or personal property that violates the Rule to effect the ascertainable general intent of the creator of the interest according to the doctrine of cy pres. A court shall liberally construe and apply this provision to validate an interest to the fullest extent consistent with the creator’s intent.

Question 14

If an instrument that violates the Rule Against Perpetuities may be reformed, a court shall:

Answer 14

Enforce the provisions of the instrument that do not violate the Rule and shall reform a provision that violates or might violate the Rule.

Question 15

The powers and duties of the trustee are established by the trust instrument and by statute. These include:

Answer 15

The power of sale; power to invest; power of appointment, and the power to invade principal.

Question 16

The trustee has six basic responsibilities with regard to the trust:

Answer 16

A duty of loyalty and good faith; a duty of reasonable care and skill; a duty to collect, preserve, and segregate trust property; a duty to make property productive; a duty to account; and a duty to defend suit.

Question 17

Note whether a settlor may revoke or amend the trust.

Answer 17

The settlor may revoke the trust unless it is made irrevocable by express terms in the instrument creating it or in an instrument modifying it. The settlor may modify or amend a trust that is revocable. If the trust was created by a written instrument, a revocation must be in writing; a provision in a will may serve this purpose.

Question 18

On the petition of the trustee or a beneficiary, the court may order that the trust be terminated if:

Answer 18

The purposes of the trust have been fulfilled or have become illegal or impossible to fulfill; or there have been changed circumstances rendering continuance of the trust unnecessary to achieve any material purpose of the trust.

Question 19

The court may not terminate the trust, however, unless:

Answer 19

All beneficiaries of the trust have consented to the order.

Question 20

The individual named as the trustee of a trust:

Answer 20

May be a beneficiary, as long as they are not the sole trustee or sole beneficiary.

Question 21

A noncharitable trust must have:

Answer 21

Definite and ascertainable beneficiaries and cannot be provided by oral testimony.

(ex. “my friends” has been held to too indefinite)

Question 22

Presumption of Purchase Money Resulting Trust:

Answer 22

A presumption of a purchase money resulting trust arises when one person purchases and pays for property and the name of another person is on the title.

Question 23

A presumption of a purchase money resulting trust can be rebutted:

Answer 23

By clear and convincing evidence showing that a gift or a loan of the purchase price was intended.

Question 24

Spendthrift clause exceptions.

Answer 24

1. ) Contracts for necessaries;
2. ) Child support obligations;
3. ) Any interest retained by the Settlor;
4. ) Revocable Trust;
5. ) Federal tax liens.

Question 25

Pursuant to the Uniform Prudent Investor Act (UPIA):

Answer 25

A trustee can exercise adjustment power in favor of income beneficiary and can allocate capital gain and principal to income. Prudence is measured by conduct at the time the investment decision is made.

Question 26

A trust instrument may deviate from or modify the UPIA:

Answer 26

As long as the trust language is specific.

Question 27

Absent a contrary trust provision or court approval:

Answer 27

A trustee may not represent both her personal interests and the interests of the trust in the same transaction because a trustee owes a duty of undivided loyalty to the trust (no self-dealing).

Question 28

Prohibited transactions of self-dealing.

Answer 28

Trustee cannot borrow trust funds;
Trustee cannot buy or sell trusts assets to itself;
Trustee cannot loan funds to the trust;
Trustee cannot profit from serving as trustee; OR
Corporate trustee cannot buy its own stock as trust asset.

Question 29

To remedy a breach of trust, the beneficiary has the option:

Answer 29

To ratify the transaction and waive the breach of trust or hold the trustee personally liable, OR bring a surcharge action for the resulting loss, OR can petition for the imposition of constructive trust.

Question 30

Six powers a trustee may exercise in managing real property held in trust.

Answer 30

Sell the property at a public or private sale; lease the property for any term the trustee deems appropriate; give a mortgage; make improvements; make repairs; give mineral leases; partition and subdivide property.

Question 31

In any action involving a charitable trust:

Answer 31

Only the attorney general and the trust settlor have standing to bring suit. No other person or entity has standing. A certified copy of the petition must be sent to the attorney general by registered or certified mail

Question 32

If a named charitable beneficiary under a trust ceases to exist, the trustee may:

Answer 32

Name a new charitable beneficiary upon giving notice to the attorney general, but only when the replacement charitable beneficiary has the same or similar charitable purpose as the failed beneficiary.