Trusts

Question 1

What is a trust?

Answer 1

legal device allowing legal title to be held by trustee for benefit of beneficiaries under terms and conditions imposed by settlor

Question 2

What do the beneficiaries hold in a trust?

Answer 2

equitable right in trust property

Question 3

What is needed for valid trust?

Answer 3

1) settlor who creates
2) trust property
3) trustee
4) beneficiary
5) intent to create a trust

Question 4

If a trust does not name a trustee does the trust fail?

Answer 4

No - no trust fails for lack of trustee

court can appoint

Question 5

To distinguish between a gift and a trust, look to whether?

Answer 5

settlor attached enforceable duties that be can supervised to the transfer of the property

Question 6

What is the rule against perpetuities?

Answer 6

no future interest is good unless it must vest, if it does not vest, not later than 21 years after some life in being at the creation of the interest

• VA adopted uniform statutory Rule Against Perpetuities
• VA personal property exception

Question 7

What is uniform statutory rule against perpetuities?

Answer 7

• wait 90 years until after creation of interest, then fix if there is a violation or if no problem then valid
• adopted by VA

Question 8

Are oral trusts valid?

Answer 8

Valid if the terms of the trust are proven by clear and convincing evidence
- applies to real and personal property

Question 9

In VA how much notice must a trustee give to the settlor before resigning?

Answer 9

30 days notice

Question 10

In VA a trust will fail if?

Answer 10

Enforcement involves commission of crime/tort
Created with intent to defeat the settlor’s creditors
Based on illegal consideration

Question 11

Does the Rule against Perpetuities apply to trusts?

Answer 11

Yes, unless the trust expressly states that the Rule Against Perpetuities does not apply.

Question 12

What language creates a spendthift trust?

Answer 12

“No interest of any beneficiary herein shall be transferable by the beneficiary not shall such interest be reachable by the beneficiary’s creditors by garnishment, attachment, or legal process.”

Question 13

This language creates what type of trust?
“No interest of any beneficiary herein shall be transferable by the beneficiary not shall such interest be reachable by the beneficiary’s creditors by garnishment, attachment, or legal process.”

Answer 13

Spendthrift trust

Question 14

May a trustee may be removed for unfitness, unwillingness, or persistent failure to administer the trust effectively?

Answer 14

Yes.

Question 15

Are the words “trust” or “trustee” required to express an intent to create a trust in VA?

Answer 15

No. Neither are required.

Question 16

In VA, an oral trust to both real and property personal requires what type of proof as the existence and terms?

Answer 16

clear and convincing evidence

Question 17

What are honorary trusts?

Answer 17

Trust where there is no beneficiary who can enforce a trust (such as pets or cemetery plots).

Question 18

What is cy pres?

Answer 18

If through the passage of time there is a change in circumstances for a charitable trust, the court will redirect the trust to a charitable purpose that is as close as possible to the original one.

Question 19

An intervivos trust after July 1, 2006, is?

Answer 19

revocable, unless stated otherwise

Question 20

What is a pour over device?

Answer 20

Ability to pour over assets from intervivos arrangements into a Last Will, so as to pass under probate

Question 21

Can a self-settled trust contain a spendthift clause?

Answer 21

No.

Self-declaration of trust is where settlor is the trustee and beneficiary and there is an eventual remaindermen

Question 22

The validity of a revocable must be challenged when?

Answer 22

earlier of:

1) two years after settlor’s death, or
2) six months after the trustee sent the person commencing the judicial proceeding a copy of the trust instrument

Question 23

When is a trustee subject to liability?

Answer 23

1) trustee knowns of pending judicial proceedings contesting validity of trust
2) potential contestant has notified the trustee of a possible judicial proceeding and is in fact commenced within 60 days

Question 24

What is a durable power of attorney?

Answer 24

authorizes another person to act on behalf of the principal

• durable means that it is not effected by incapacity
• springing durable power of attorney becomes effective upon disability or incapacity

Question 25

Features of charitable trusts.

Answer 25

• need to a charitable purposes
• indefinite number of beneficiaries
• attorney general enforces terms of trust

Question 26

Under slayer statute, is it required the accused only be convicted of murder?

Answer 26

Also manslaughter after 2008

Question 27

What are resulting trust?

Answer 27

Purpose of trust is impossible and money reverts back to settlor

Question 28

What is a purchase money resulting trust?

Answer 28

Person purchases land and title is taken in another’s name.
Person may demand return of the land if not familial related, which can be rebutted by clear and convincing evidence to show it was a gift.

Question 29

How can a settlor restrict the creditor from reaching the trust assets?

Answer 29

add a spendthrift clause

• cannot be a self-settled trust or violate public policy (Child support or tax avoidance)
• creditor can reach a mandatory distribution

Question 30

Can a spendthrift clause be effective to bar claims by a creditors of the settlor?

Answer 30

No. Only to the creditor’s of the beneficiary.

Question 31

How can a trustee avoid an allegation of self-dealing?

Answer 31

Make complete and full disclosure to beneficiary who consents to action of trustee.
Release is only effective is not induced by improper conduct

Question 32

Can a trustee buy or sell trust assets to himself even if it results in a large windfall?

Answer 32

No, breach of duty of loyalty by self-dealing

Question 33

Can a trustee borrow trust funds?

Answer 33

No, violates duty of loyalty and is self-dealing.

Even though it may benefit the trust.

Question 34

Can corporate trustee buy its own stock as a trust investment?

Answer 34

No, but retain stock if part of trust when created provided that retention of stock is prudent.

Question 35

When trustee engages in self-dealing by selling trust assets to a third party, what are the rights of beneficiary against the third party?

Answer 35

If third party was a bona fide purchaser then cannot go after third party.
- exception if the third party was related to trustee.

Question 36

When can beneficiary bring an action against trustee for a breach of duty of loyalty?

Answer 36

accounting - 1 year from notice

termination - 5 years, with no notice, of first to occur: 1) trustee resigns/dies; 2) termination of interest or trust

Question 37

What things can the settlor not waive in a trust for the trustee?

Answer 37

1) reckless indifference to purpose of interest;

2) acts resulting from an abuse of a confidential relationship

Question 38

What are duties of trustee?

Answer 38

1) act prudently; 2) impartiality; 3) control and protect trust property; 4) enforce and defend trust claims; 5) segregate trust property; 6) keep adequate records; 7) reasonably inform beneficiary; 8) furnish copies of trust instruments; 9) accounting

Question 39

Can a trustee of a property give a lease that extends pass terms of trust?

Answer 39

Yes if the trust is the fee simple owner of the property.

Question 40

Under the Uniform Prudent Investor Act what does a trustee act?

Answer 40

portfolio theory of diversity investment.
deemed prudent when viewed in the entire portfolio.
judge at the time of the investment, not in hindsight.
assets that are always prudent include bonds and obligations.

Question 41

Items to consider when judging a trustee’s actions under the modern portfolio theory of investing?

Answer 41

general economic conditions
expected tax consequence
role each investment plays in the overall trust portfolio
need for liquidity
assets special relationship to purpose of trust
differing interest of the income beneficiaries and remainderman

Question 42

How can trustee act impartially to current beneficiaries and future remainderman?

Answer 42

• allocation (active management by trustee)

- unitrust (passive management by trustee)

Question 43

Is court approval needed for unitrust?

Answer 43

No.
Trustee must give notice to beneficiaries.
Applies a uniform percentage, such as 4%

Question 44

When is a trustee personally liability under contract?

Answer 44

Trustee’s fiduciary capacity is not disclosed in contract and other party does not know that he is dealing with a trustee

Question 45

Can a irrevocable trust be revoked?

Answer 45

If all beneficiaries and settlor consent to modify or terminate trust

Question 46

When may the court terminate or modify a trust?

Answer 46

1) unanticipated circumstances
2) tax advantages to achieve settlor’s tax advantages
3) no trust purpose remains to be achieved or purpose has become illegal
4) uneconomic - less than $100,000

Question 47

What is the standard of proof to reform terms of trust?

Answer 47

Clear and convincing evidence

Question 48

Limitations on a purchase money resulting trust?

Answer 48

1) purchaser prove by clear and convincing evidence that he did not pay money in capacity of lender; and
2) parties cannot be related (then it is presumed to be gift)

Question 49

Purchase money resulting trust

Answer 49

purchaser pays the purchase price of the property and causes title to be taken in another’s name

Question 50

Is a court likely to grant an unilateral application to terminate a trust for a disabled beneficiary?

Answer 50

No - rarely terminated before the express state trust purpose has been accomplished.
Need: consent of all parties and no further purposes to be achieved.

Question 51

What duties does a trustee own the beneficiaries?

Answer 51

Duty of loyalty, impartiality, and prudence