Types of Trusts

Question 1

Revocable Trust

Answer 1

A revocable trust becomes irrevocable upon death or incapacity of the settlor

Majroity & UTC –> Trust is revocable by default

Question 2

Irrevocable Trust

Answer 2

Cannot be modified or revoked by the settlor after its creation

Minority View: this is default

Question 3

Testamentary Trust

Answer 3

is created through provisions of a settlor’s will and does not take effect until the settlor’s death

Question 4

Pour-Over Provision in a Will

Answer 4

Gifts property to a previously established trust.

does not create trust, transfers property to existing trust

must be connected to an inter vivos trust

Question 5

Charitable Trust

Answer 5

Is created by the settlor to confer a substantial benefit to society

Question 6

Charitable Purpose

Answer 6

1) relief of poverty
2) advancement of education/religion
3) promotion of health
4) governmental/municipal purposes
5) other purposes that benefit community

City Aesthetics = Charitable
Political Party = Not Charitable

Question 7

Illusory Trust

Answer 7

When the settlor retains significant control over the trust property, indicating a lack of intent to create a trust –> illusory and invalid

Question 8

Resulting Trust

Answer 8

If a trust fails for lack of a beneficiary, a Resulting Trust is implied by law, and all trust property returns to the settlor.

Question 9

Discretionary Trust

Answer 9

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

* must exercise in good faith

Question 10

Abuse of Discretionary Trust

Answer 10

Courts generally will not interfere with a trustee’s exercise of discretion, unless the trustee is abusing such power.

Factors considering abuse:
1) terms of trust instrument
2) other duties of trustee

Question 11

Support Trust

Answer 11

A support trust is 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.

- measured by beneficiary’s accustomed lifestyle

Question 12

Spendthrift Trust

Answer 12

A spendthrift trust contains provisions designed to protect beneficiaries from their own carelessness.

Question 13

Validity of Spendthrift Provision

Answer 13

A spendthrift provision in a trust is only valid if it restrains both voluntary and involuntary transfeers

Question 14

Creditor Exception to Spendthrift

Answer 14

1) judgment creditor who provided services to protect interest in trust
2) creditor who furnishes necessities (minor jx)
3) order for child support/alimony
4) claims by state/federal gov (tax liens)
5) self-settled trust where settlor retains interest

Question 15

Cy Pres Doctrine

Answer 15

Courts apply cy pres to modify charitable trust to be consistent with and as near as possible with the settlor’s intent.

- only applies if had general charitable intent

• UTC and Majority presume general charitable intent

Question 16

Rights of Creditors

Answer 16

Creditors of the beneficiary have no greater rights to trust property than the beneficiary.

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

*unless spendthrift –> then only after payment made

Question 17

Creditors & Discretionary Trusts

Answer 17

A creditor cannot compel a distribution to a beneficiary that is subject to the trustee’s discretion, even if:
1) the discretion is expressed in form of a standard distribution, or
2) trustee has abused discretion

Question 18

Discretionary Trust & Child Support

Answer 18

If a judgment or order exists against beneficiary for unpaid support, court may order a distribution to satisfy the judgment and direct trustee to pay.