Writing Template

Question 1

Trust Formation

Answer 1

A trust is a fiduciary relationship with respect to property in which one person holds the legal title to the trust property subject to the enforceable equitable rights of another. A valid trust requires 1) settler’s intent to create a trust, 2) a trustee, 3) a definite benny, 4) trust res, 5) a valid trust purpose.

Question 2

Formation - Intent

Answer 2

Settler must intend to create a trust in the present. Here,

Question 3

Formation - Trustee

Answer 3

The trustee is the person holding legal title to the trust property and managing the assets. Here,

Question 4

Trustee Resignation

Answer 4

A trustee must refuse appointment or formally resign as trustee to relive himself of the duties and liabilities of being a trustee. If not refusal i made, the trustee is deemed to have accepted the trust appointment. Here,

Question 5

Formation - Definite Beneficiaries

Answer 5

The beneficiaries are those persons holding equitable title to the property and receiving the benefits of the assets. Here,

Question 6

Trust Property

Answer 6

The trust property must be presently existing property interest.

Question 7

Pour Over Trust

Answer 7

A pour over trust results where the testator uses his will to pour his estate into a trust. While such trusts violate the requirements that trust res be immediately delivered to the trustee, courts have sustained trust on two theories: 1) incorporation by reference and 2) acts of independent significance.

Question 8

Incorporation by Reference

Answer 8

Some courts rely on UTATA theory to allow pour over of probate assets into a trust established by the settlor during his lifetime.

Question 9

Acts of Independent Significance

Answer 9

Courts have upheld pour over truss on the theory that the act of creating a trust is an act of independent significance apart and separate from the will. Here,

Question 10

Uniform Testamentary Additions to Trust Act

Answer 10

Under the UTATA, pour over trusts are valid if the trust is identified in the will and in existence when the will was executed. Here,

Question 11

Formation - Valid Trust Purpose

Answer 11

The purpose of the trust cannot be to violate the law or public policy. Here,

Question 12

Discretionary Trusts

Answer 12

Trustee has the discretion to pay income or principal. Here,

Question 13

Mandatory Trusts

Answer 13

Trustee lacks discretion and must pay income and principal per the terms of the trust. Here,

Question 14

Spendthrift Trusts

Answer 14

A spendthrift trust is one in which the benny is unable to voluntarily or involuntarily transfer his interest in the trust, and benny creditors are unable to attache their interests to future trust payments. Here,

Question 15

Spendthrift Exception: Creation During Pending Litigation

Answer 15

A settler may not create a spendthrift trust or provision during a pending litigation in an attempt to defraud creditors from reaching the bennys interest. Such an action would render the spendthrift trust invalid. Here,

Question 16

Spendthrift Exception: Settlor is the Benny

Answer 16

A settlor may protect his own interest from creditors by creating a spendthrift trust and naming himself as benny. Here,

Question 17

Honorary Trusts

Answer 17

Not a valid trust because it lacks human bennys. However, the trustee can carry out the settlor’s wishes to care for an animal or maintain a grave. Here,

Question 18

Secret Trusts

Answer 18

A secret trust results when a gift is made in reliance upon the benny’s promise to hold the gift property in trust for another. To prevent the unjust enrichment of the named benny, courts will allow the intended trust benny to offer extrinsic evidence of the agreement. If the agreement can be proved be C and C evidence, a constructive trust will be imposed on the named beneficiary. Here,

Question 19

Semi-Secret Trusts

Answer 19

A semi-secret trust is formed when the trustee is named in the devise, but the bennys are not named and are thus “secret”. These trusts are unenforceable because they do not conform with the statute of wills. And no parol evidence will be presented regarding who the identity of the secret bennys are. Here,

Question 20

Revocable Trusts

Answer 20

Settlor retains right to amend or revoke during his lifetime. Here,

Question 21

Totten Trusts

Answer 21

Not a trust at all, but rather a bank account for the benefit of the third party. Here,

Question 22

Charitable Trusts

Answer 22

Trust for a charitable purpose that benefits a large number of unidentifiable bennys. Here,

Question 23

Cy Pres

Answer 23

The doctrine of Cy Pres comes into play when the charity the trust names as the benny is no longer in existence when the settlor dies. It allows the court to apply the trust property to another charitable purpose so long as the court finds that the settlor had a general charitable intent and wanted the property devoted to a similar use. Here,

Question 24

Trustee Powers

Answer 24

A trustee can only exercise express or implied powers. Express powers are those allocated to the trustee within the four corners of the trust. Implied powers are those that the trustee reasonably believes he has in order to properly manage the trust property. Here,

Question 25

Standard of Care

Answer 25

A trustee must exercise the degree of care, skill, and prudence that would be exercised by a reasonably prudent person in managing their own property. Here, X breached this standards because of Y and Z.

Question 26

Duty of Loyalty: Self Dealings

Answer 26

Trustee cannot buy or sell trust assets for his own benefit, further, trustee cannot borrow trust funds. The trustee’s good faith or the reasonableness of the transaction are irrelevant. Here,

Question 27

Breach of Duty of Self Dealings Remedy

Answer 27

If the trustee engages in self dealing, courts may apply no further inquiry rule, and the bennys can either 1) ratify the transaction and waive the breach if the outcome is beneficial, 2) surcharge the trustee and sue for any resulting losses, or 3) trace and recover the property, except if the purchaser of the trust property is a BFP without notice of the breach. Here,

Question 28

Duty of Loyalty to Residuary Bennys

Answer 28

Trustee breaches duty of loyalty by not acting in the best interest of the bennys. Here,

Question 29

Breach of loyalty to resid bennys : Remedies

Answer 29

If the trustee breaches his duty of loyalty, the bennys may either 1) ratify the transaction and waive the breach if the outcome is beneficial, or 2) surcharge the trustee and sue for any resulting losses. here,

Question 30

Duty of Care: Accounting - Allocation of Principal, Income, and Expenses

Answer 30

Traditionally, cash dividends on corporate stock are treated as income, while stock dividends are allocable to the trust principal. Additionally, an increase in the value of a trust asset should also be credited to principal. However, under the Uniform Principal and Income Act, the trustee has an adjustment power to reallocated investment portfolio returns. Here,

Question 31

Duty of Care: Preserve Trust Property

Answer 31

A trustee has a duty to preserve trust property. Implied in this duty is a duty to make the trust property productive and invest it with reasonable care. Here,

Question 32

Prudent Investor Rule

Answer 32

The soundness of the trustee’s investments is measured by the prudent investor rule, which requires that a trustee adhere to the standard of good faith, reasonable prudence, sound discretion, and care in making trust investment. He must invest as would a prudent investor in making an investment of his own funds, considering the probable income and probable risks. Here,

Question 33

Duty of Care: Earmark Trust Property

Answer 33

Trust assets must be kept physically separate from the trustee’s personal assets and from the assets of other trusts. Here,

Question 34

Duty of Care: Diversify Investment

Answer 34

Trustee has a duty to diversify the trust investment and should not invest a large portion of the trust assets in a single, risky investment. Trustee should purchase several investment which are certain to produce income and grown in value. Here,

Question 35

Trustee Liabilities

Answer 35

A trustee is liable for any and all losses to the trust res resulting from a breach of her duty as trustee . Here,

Question 36

Co-Trustee Liability

Answer 36

A co-trustee to the trust is liable for any breach of trust if he improperly delegated his authority as trustee to his co-trustee or negligently disregarded his own duties of administration so as to facilitate the breach by the co-trustee. Here,

Question 37

Innocent Donee

Answer 37

An innocent donee is one who inadvertently receives trust res. An innocent donee is not liable for damages caused by the trustee, but must restore any trust funds that have come into his possession. Here,

Question 38

Modification and Termination

Answer 38

If a settlor and all bennys consent, the trust may be modified or terminated. Here,

Question 39

Claflin Doctrine

Answer 39

Trust cannot be modified or terminated, even if all bennys agree, if to do would be contrary to a material purpose of the settlor. A material purpose includes spendthrift provisions, support provisions, and discretionary trusts. Here,

Question 40

Changed Circumstances

Answer 40

In CA, a court may modify of terminate a trust (upon petition by trustee or benny) if changed circumstances mean continuation in the same manner would defeat the purpose of the trust. Here,

Question 41

Spendthrift Provisions

Answer 41

A settler may modify the trust to include a spendthrift provision, but he may not add a spendthrift provision in an attempt to defraud creditors during the course of pending litigation. Here,