Trusts (UBE Flashcards)

1
Q

What are the elements to form a valid Trust?

A

1) Definitive beneficiary;
2) Settlor with capacity;
3) Intent to create a trust;
4) Trustee;
5) Valid trust purpose
6) Trust property; AND
7) Compliance with any State formalities.

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2
Q

How is intent to create a trust established?

A

By a promise that creates enforceable rights in another person who holds these rights as Trustee. An oral promise supported by consideration is sufficient.

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3
Q

What is Precatory Language?
Does it create any legal obligation?

A

Language/words in a will/trust that merely express a settlor’s desire regarding the disposition of his property (i.e. “hope” or “request”).

Such words DO NOT create a legal obligation to act in accordance with that desire, and will not create a valid trust.

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4
Q

What are the majority and minority views on a Trust’s revocability?

A

Majority View & UTC: Trusts ARE revocable, unless stated otherwise.

Minority View: Trusts are irrevocable by default, unless expressly stated otherwise. (Trust cannot be modified or revoked after creation).

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5
Q

What is a Testamentary Trust?

A

A Trust created through the provisions of a Settlor’s Will, which does not take effect until the Settlor’s death.

To create a Testamentary Trust:

1) The will must state the essential trust terms (beneficiaries, purpose, and trust property); AND

2) Intent to create a trust must be found from either:

a. the express terms of the will, or

b. incorporation by reference of a document/writing in existence at the time the will was executed

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6
Q

What is a Pour-Over Provision?

How is it different than a Testamentary Trust?

A

It gifts property to a previously established Trust.

It is distinguished from a Testamentary Trust because it does NOT create a trust. Instead, it transfers property to a trust already in existence (must be connected to an inter vivos trust).

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7
Q

What is a Charitable Trust?

A

One created by a Settlor to confer a substantial benefit to society (charitable purpose).

(The rule against perpetuities DOES NOT apply here)

Even if a Charitable Trust fails to state a specific purpose or beneficiary, the trust will NOT fail. Instead, the court will select a purpose/beneficiary consistent with the Settlor’s intent.

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8
Q

What is a Discretionary Trust?

A

When a Trustee has absolute discretion and power to determine when and how much of the trust property is distributed to the beneficiaries of the trust.

The exercise of discretion must be in good faith.

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9
Q

What is an Illusory Trust?

A

When the Settlor retains significant control over the trust
property indicating a lack of intent to create a trust.

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10
Q

What is a Support Trust?

What can a beneficiary do if the Trust contains an Ascertainable Standard Provision?

A

A trust that contains a provision directing the trustee to pay the beneficiary as much income and principal as is necessary for the beneficiary’s support.

If it contains an ascertainable standard, a beneficiary may compel a trustee to make payments in accordance with that standard.

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11
Q

What is the Cy Pres Doctrine?

A

An equitable doctrine that applies to charitable bequests and charitable trusts.

Courts will apply it to modify a charitable trust to be consistent with and “as near as possible” with the settlor’s or testator’s intent, if the purpose of the trust or bequest is frustrated.

*Only applies if the testator had a general charitable intent.

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12
Q

What is a Spendthrift Provision?
When is it valid?

A

It prevents the transfer of a beneficiary’s interest, and it is valid ONLY IF it restrains both voluntary AND involuntary transfers.

*A spendthrift interest means that the interest CANNOT be sold or assigned by the beneficiary, nor may any creditors reach it.

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13
Q

What are the 5 exceptions allowing a creditor to reach a beneficiary’s interest despite a Spendthrift Provision?

A

1) A judgment creditor who has provided services for the
protection of a beneficiary’s interest;

2) A creditor who furnishes necessities (only in some
jurisdictions);

3) An Order for child support or alimony;

4) Any claim by the state/federal government; OR

5) A self-settled trust where the settlor retains an interest.

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14
Q

What happens if a beneficiary’s interest is NOT subject to a Spendthrift Provision?

A

Then the court may authorize a creditor to reach the beneficiary’s interest by attachment of present or future distributions to the beneficiary.

*Whether or not a trust contains a spendthrift provision, a creditor CANNOT compel a distribution that is subject to the trustee’s discretion.

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15
Q

When will a court NOT permit the invasion of trust principal, even if a beneficiary will eventually receive the trust payment?

A

When the invasion would:
a) Be contrary to the Settlor’s intent; OR

b) Adversely affect other beneficiaries.

*A Trustee cannot use trust property to pay income beneficiaries when trust income is insufficient, unless there is an express or implied power of invasion.

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16
Q

Under the majority view, how may a Trust be Modified by a Settlor?

A

It can be modified by a settlor:

a) Who expressly reserved the power to modify the trust;

OR

b) Who has power to revoke the trust (including power to amend).

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17
Q

How may a Trust be modified under the Uniform Trust Code (UTC)?

A

In any of the following instances:
1) By the settlor while alive or later with evidence of his intent.
2) With the settlor and the beneficiaries consent.
3) With the beneficiary’s consent and if modification is not inconsistent with the trust purpose.
4) If it will further the purposes of the trust.
5) The Cy Pres doctrine applies.
6) The value of the trust property is insufficient to justify the cost of administration.
7) It’s necessary to conform to the settlor’s intent.

18
Q

What does the Equitable Deviation Doctrine permit?

A

It permits the court to modify the administrative provisions or procedures of a trust if modification would further the trust purpose because of circumstances not anticipated by the settlor.

19
Q

Under the UTC, when may a trust be Terminated?

A

1) It is revoked or expires pursuant to its terms;
2) The material purpose of the trust has been achieved;
3) The trust has become unlawful, contrary to public policy, or
impossible to achieve;
4) The settlor and all beneficiaries consent;
5) All beneficiaries consent and the court decides continuation isn’t
necessary;
6) Termination will further the purpose of the trust;
7) The Cy Pres doctrine applies; OR
8) The court or trustee determines that the value of the trust
property is insufficient to justify the cost of administration.

20
Q

Generally, a condition in a Will or Trust that prohibits marriage is void. When may a restraint on marriage be upheld?

A

a) If it is a restraint on remarriage; OR
b) The language of the bequest/gift indicates that it’s intended purpose is to take care of a person’s daily needs until they are able to obtain such support through marriage.

21
Q

Under the UTC, how must a Trustee administer a Trust?

A

1) In good faith;
2) In accordance with the trust purpose and terms; AND
3) In the interests of the trust beneficiaries.

22
Q

What are the 5 exceptions to a Trustee’s Duty of Loyalty involving self-dealing?

A

Exceptions:
1) If the transaction was authorized by the terms of the trust;
2) If the transaction was approved by the court;
3) The beneficiary did not commence a judicial proceeding within the required time;
4) The beneficiary consented to the conduct, ratified the transaction, or released the trustee of liability; OR
5) The transaction occurred before the person became trustee.

23
Q

What is the No Further Inquiry Rule?

A

That a transaction involving trust property entered into by the Trustee for the Trustee’s own benefit is automatically presumed to be a conflict of interest and is voidable without further inquiry into the fairness of the transaction or possible intent or motivation for self-dealing.

24
Q

What does the Prudent Investor Rule require a Trustee to do?

A

To exercise the degree of care, skill, and prudence of a reasonable investor investing in his own property.

This includes diversifying assets, avoiding risky investments, and keeping trust assets productive.

25
Q

What is required for a Trustee to delegate a duty?

A

The Trustee must exercise reasonable care, skill, and caution in:

1) Selecting an agent;
2) Establishing the scope and terms of the delegation; AND
3) Periodically review the agent’s actions in order to monitor the agent’s performance and compliance with the
terms of the delegation.

*The trustee is NOT liable for actions of an agent if he meets the above requirements.

26
Q

What Trust disbursements and receipts must be allocated to income and principal?

A

Allocated to Income:
Receipt of rental payments from real/personal property; money received from an entity; and
ordinary expenses and repairs.

Allocated to Principal:
Proceeds from the sale of a principal asset; all other property received (other than money received from an entity); and extraordinary expenses and repairs.

27
Q

What is the liability of a Trustee who wrongfully invades trust assets?

A

Liable to the beneficiaries for the greater of:

a) The amount required to restore the value of the trust property and distributions; OR

b) Any profit made by the Trustee from the breach.

28
Q

When are Remainder Beneficiaries entitled to receive Trust property?

A

At the termination of the trust

29
Q

When is a Substitute Gift created in the deceased beneficiary’s surviving descendants?

A

If:
1) The beneficiary of a future interest does not survive the distribution date; AND

2) A State’s anti-lapse statute applies to trusts (most DO NOT apply).

30
Q

Under the UPC, what happens if a beneficiary of a future interest DOES NOT survive the distribution date?

A

The following applies:
a) If the gift is not a class gift, a substitute gift is created in the deceased beneficiary’s surviving descendants who take the property the beneficiary would have received;

OR

b) If the gift is a single generation class gift, a substitute gift is created in the surviving descendants of any deceased beneficiary.

31
Q

Under Common Law, what happens if a Remainder Person dies before a Life Tenant?

A

The remainder interest vests in the remainder person’s heirs (if no heirs, the interest passes to the remainder person’s estate).

32
Q

How may a person’s Future Remainder Interest be Accelerated?

A

If the present holder:
a) Loses his legal right to the property; OR

b) Disclaims his present interest in the property.

33
Q

What is a Power of Appointment, and how is it granted?

A

When a testator/settlor gives another person the power to decide where and to whom the testator’s property will go (that person then has power of appointment).

It is granted when the testator DOES NOT leave any conditions or restrictions as to the appointment of the property – therefore the donee may grant the appointment to anyone (including himself).

34
Q

How is Donee’s Power of Appointment effectively exercised in a written instrument?

A

Only if:
1) The instrument is valid under State law;
2) The terms indicate the holder’s intent to exercise thepower and are consistent with the conditions imposed by the testator; AND
3) The appointment is permissible.

35
Q

A General Residuary Clause expresses an intention to exercise a Power of Appointment ONLY if what?

A

Only if:

a) The testator’s Will manifests an intention to include the
property subject to the power; OR

b) The power is a general power AND the creating instrument does not contain a gift if the power is not
exercised.

36
Q

What is a Special Power of Appointment?

A

When the donee may only appoint property to those authorized by the donor. The donor MUST indicate certain individuals or definite groups.

*Appointments made to those NOT authorized by the donor are
ineffective.

37
Q

When is an interest valid under the common law Rule Against Perpetuities (RAP)?

A

The interest MUST vest within a life in being at the time of the grant plus 21 years. RAP invalidates any interest that will not vest during the time period AND those that hypothetically may not vest within the time period.

Priority: HIGH

38
Q

What are the modern modifications to the Rule Against Perpetuities adopted in some States?

A

A non-vested property interest is invalid ONLY IF it actually DOES NOT vest within 21 years after the death of a life in being at the time the interest was created.

Rather than invalidate the interest on the possibility that it will not vest, this approach waits to see if the interest will actually not vest.

Some statutes modify an age contingency to 21 years if it
violates RAP.

39
Q

When does a Class Gift vest under the Rule Against Perpetuities?

A

Class gifts vest under RAP when:
1) The class closes; AND
2) All conditions for every member of the class are satisfied.

40
Q

A Class Gift is a gift to a group of persons described collectively. When do Class Gifts close?

A

Class gifts generally close at the death of the testator/settlor.

Under the Rule of Convenience, the class is closed when any member of the class is entitled to possession of the gift.

41
Q

Class Gifts to Predeceased Members

Class Specifically Named
vs.
Class Members Named as a Group

A

Whether the gift to a predeceased member of the class will go into the residuary estate or be divided amongst the other class members depends on:

Specifically Named: The gift will lapse and fall into the residuary estate UNLESS an anti-lapse statute applies.

Named as a Group: The predeceased member’s share will be divided amongst the other members, UNLESS there is a
provision to the contrary or an anti-lapse statute applies.