Creating Express Trusts | Types of Trusts Flashcards
(94 cards)
1
Q
What is a trust?
A
A fiduciary relationship where one party (the trustee) holds legal title to property for the benefit of another (the beneficiary) who holds equitable title.
2
Q
What are the two main types of trusts?
A
- Express Trusts
- Implied Trusts
3
Q
What distinguishes private express trusts from charitable trusts?
A
Private express trusts benefit private beneficiaries, while charitable trusts are created for charitable purposes.
4
Q
What are constructive trusts?
A
Implied trusts imposed by a court to deprive a wrongdoer from retaining improperly obtained property.
5
Q
Define a resulting trust.
A
Imposed irrespective of wrongdoing when circumstances require it, often arising when a settlor fails to transfer full equitable title.
6
Q
What parties are involved in a trust?
A
- Settlor
- Trustee
- Beneficiary
7
Q
What is the role of the settlor in a trust?
A
The settlor sets up the trust and transfers assets to the trustee.
8
Q
What is the difference between an income beneficiary and a remainder beneficiary?
A
- Income Beneficiary: present interest in the trust fund
- Remainder Beneficiary: future interest in the trust fund
9
Q
What is an inter vivos trust?
A
A trust created during the settlor’s lifetime.
10
Q
What is a testamentary trust?
A
A trust created in the settlor’s will.
11
Q
What happens if a sole trustee is also the sole beneficiary?
A
The trust will collapse because the interests will merge into the same person.
12
Q
What are the rights of a trustee?
A
- Legal title to the trust assets
- Obligation to adhere to the terms of the trust
13
Q
What must a valid trust have?
A
- A settlor
- Delivery of specific trust property
- An ascertainable beneficiary
- Active duties imposed on the trustee
- A proper trust purpose
- A trustee
14
Q
What is mandatory language in the context of trust creation?
A
Language that indicates the settlor’s intent to create a trust, such as ‘shall’ or ‘must’.
15
Q
What is a dry trust?
A
A trust where the trustee does not have active duties, leading to direct title transfer to beneficiaries.
16
Q
What is required for trust property?
A
Trust property must be specifically identifiable and transferred to the trustee.
17
Q
What constitutes ascertainable beneficiaries in a trust?
A
Beneficiaries must be determinable at the time of distribution.
18
Q
What is a trust purpose that violates public policy?
A
Provisions that encourage divorce or discourage marriage.
19
Q
True or False: A trust can be created for any purpose.
A
False. It cannot be for illegal, fraudulent, or public policy-violating purposes.
20
Q
Fill in the blank: A _______ trust is created during the settlor’s lifetime.
A
[inter vivos]
21
Q
What happens if a trustee does not have active duties?
A
The trust is considered ‘dry’ and title will pass directly to the beneficiaries.
22
Q
What is the legal title in a trust?
A
Held by the trustee for the benefit of the beneficiaries.
23
Q
What is the significance of the settlor’s intent?
A
It must be a present intent to create a trust and split legal from equitable title.
24
Q
What can invalidate a trust?
A
Failure to properly identify trust property or beneficiaries.
25
What is the role of co-trustees?
They share legal title and may act by majority decision.
26
What is required for a trust to exist?
Present intent and trust property must be placed into the trust
## Footnote
The trust property must be conveyed to the trustee.
27
What is the purpose of a trust?
A trust can be created for any purpose that is not illegal, fraudulent, or against public policy.
28
Give two examples of trust purposes that violate public policy.
* Provisions encouraging divorce
* Provisions discouraging marriage (except when the beneficiary is the settlor’s spouse)
29
How can a trust purpose that violates public policy be addressed?
* Delete the offending language
* Determine what the settlor would have wanted had they known the provision violated public policy
30
What is a testamentary trust?
A trust created by the testator’s valid will.
31
What is the Uniform Testamentary Additions to Trusts Act (UTATA)?
UTATA allows a will to devise assets to a trust established during the testator’s lifetime or at their death, provided the trust terms are in a written instrument.
32
What is a Totten Trust?
An arrangement with a bank allowing the depositor to open a bank account as trustee for other parties.
33
What is the Rule Against Perpetuities (RAP)?
No interest is valid unless it must vest not later than 21 years after some life in being at the creation of the interest.
34
What are common red flags indicating a potential violation of the RAP?
* Age contingencies beyond age 21
* Double contingencies
* Interests that shift upon uncertain occurrences
35
True or False: The RAP applies to charitable trusts.
False. The RAP does not apply to completely charitable trusts.
36
What must a trustee's actions concerning trust matters adhere to?
The trustee must act with utmost loyalty and good faith towards the beneficiaries.
37
What is self-dealing in the context of a trustee?
A trustee engages in self-dealing if they buy assets from the trust.
38
What is the Prudent Business Person Rule?
Trustees must use the degree of skill, care, and prudence that a reasonable business person would use in their own affairs.
39
What is the duty of a trustee regarding trust property?
A trustee has an affirmative duty to preserve and enhance trust property.
40
How are rents and cash dividends treated under the Uniform Principal and Income Act (UPIA)?
Rents and cash dividends received are allocated to trust income.
41
What happens if a trustee breaches their duty of care?
The trustee must personally recompense the trust for its losses.
42
What is an exculpatory clause in a trust instrument?
A provision that relieves the trustee of liability for potentially wrongful acts.
43
Fill in the blank: A __________ trust is created by the testator’s valid will.
[testamentary]
44
What must a trustee do before delegating investment functions?
A trustee must be diligent in selecting and supervising the advisor.
45
What is the consequence of a trustee using trust assets to buy property that increases in value?
The trustee must return both the trust property and the appreciation in value to the trust fund.
46
True or False: A trustee is liable for decline in value due to general economic conditions.
False. A trustee is not liable for decline in value due to general economic conditions.
47
What is a trustee responsible for regarding lost interest?
A trustee will be responsible for any lost interest.
48
Under what conditions does a successor trustee have liability for breaches of duty by prior trustees?
If the successor trustee knew or should have known of the prior trustee’s breach and failed to undertake appropriate action.
49
What is an exculpatory clause?
A provision in the trust instrument that relieves the trustee of liability for potentially wrongful acts.
50
What happens if a beneficiary has full knowledge of a trustee's breach and approves of the action?
The beneficiary may be deemed to have waived the trustee’s breach or be estopped from asserting an action.
51
What are the grounds for removing a trustee?
A trustee may be removed for cause, such as a breach of duty or trustee incapacitation.
52
Can a trustee resign after accepting the appointment?
Yes, a trustee can resign at any time.
53
What rights and duties does a successor trustee have?
A successor trustee has all the rights and duties of the predecessor.
54
What can a trust beneficiary do with their equitable title absent a restrictive provision?
A trust beneficiary may freely assign the equitable title or right to receive income or principal from a trust.
55
What must restrictive covenants on a beneficiary's right to inherit be?
Reasonable and cannot violate public policy.
56
Are restrictive covenants that condition a beneficiary’s income interest on marriage or divorce enforceable?
Generally held void on public policy grounds, except when the beneficiary is the settlor’s spouse.
57
What is a support provision in a trust?
A provision directing the trustee to provide only so much as is necessary for the beneficiary’s support.
58
What does a discretionary trust allow the trustee to do?
The trustee pays as much income as the trustee believes desirable.
59
What constitutes abuse of discretion in a discretionary trust?
An abuse of discretion occurs if the trustee acts in bad faith or fails to exercise discretion.
60
What is a spendthrift provision?
A provision in a trust that prevents the beneficiary from transferring their property and protects it from creditors.
61
What claims can bypass a spendthrift provision?
* Alimony or child support owed by the beneficiary
* Provision of necessities to the beneficiary
* Government claims against the beneficiary
62
Does a settlor have an interest in the trust by default?
No, a settlor has no interest unless reserved or made a beneficiary.
63
Can a settlor make their interest subject to a spendthrift provision?
No, a settlor cannot make their interest subject to a spendthrift provision.
64
Under what conditions can a settlor revoke an irrevocable trust?
Only with the consent of all beneficiaries who must be living at the time.
65
What is the default status of trusts under the Uniform Trust Code (UTC)?
Trusts are fully revocable or amendable unless expressly stated otherwise.
66
What leads to the termination of a trust by merger?
If a sole trustee becomes the only beneficiary.
67
What terminates a trust by operation of law?
* The trust res has been consumed, destroyed, or lost
* The trust’s purposes have been fully accomplished
* Accomplishment of the trust's purposes has become illegal, impossible, or impractical
68
What is the Clafflin Doctrine?
After the settlor’s death, the trust cannot be terminated before the time specified by the settlor if material purpose has not been accomplished.
69
What is natural expiration in the context of trusts?
The trust terminates when a specified number of years has elapsed or a prescribed event has occurred.
70
What occurs when a resulting or constructive trust arises?
The trustee will transfer legal title to those with equitable rights.
71
What is a resulting trust?
It arises when an express trust makes an incomplete disposition of assets or fails after property has been conveyed.
72
What is a purchase money resulting trust?
A rebuttable presumption that the grantee holds the property in trust for the payor if they paid the original purchase price but directed title to another.
73
What is a constructive trust?
An equitable remedy to redress wrongdoing or prevent unjust enrichment.
74
What distinguishes a charitable trust from a private trust?
A charitable trust cannot have ascertainable beneficiaries unless they are qualified charitable organizations.
75
What are the major categories of charitable purposes?
* Relief of poverty
* Advancement of education
* Advancement of religion
* Promotion of health
* Performance of governmental and municipal purposes
* Other purposes beneficial to the community
76
What is the cy pres doctrine?
A court may direct the application of trust property to another charitable purpose if the original purpose becomes impossible or impracticable.
77
What happens if a charitable purpose cannot be accomplished according to the settlor's intent?
It is viewed as an indication that the settlor lacked a general charitable intent.
78
What is likely to happen to a non-charitable gift-over?
It will likely fail as violating the Rule Against Perpetuities.
79
What occurs if title comes back to the settlor as a resulting trust?
It is vested at its inception and will not violate the Rule Against Perpetuities.
80
What is a charitable lead trust?
A type of trust that benefits a charity for a specified term before the remainder goes to non-charitable beneficiaries.
81
What is the doctrine of cy pres?
It allows a court to modify a charitable trust to effectuate the original intent of the settlor when the original purpose is no longer achievable.
82
What type of trust does not qualify as a charitable trust but lacks definite beneficiaries?
Honorary Trusts.
83
What is the duration of a trust created for the care of an animal?
It terminates upon the death of the animal or the last surviving animal.
84
What is a key characteristic of honorary trusts?
They ordinarily violate the rules of trust creation for lack of a definite beneficiary.
85
What are the basic future interest categories?
Future Interests Retained by the Transferor and Future Interests Held by Someone Other Than the Transferor.
86
What is a power of appointment?
It enables an individual (donee) to designate transferees of property and the shares they are to receive.
87
What qualifies as a power of appointment?
A power of attorney.
88
What is a general power of appointment?
The donee may appoint to anyone, including themselves or their estate.
89
What is a special power of appointment?
The donee is limited by the donor’s selection of ultimate takers.
90
What is a testamentary power?
A power only exercisable by will.
91
What is an inter vivos power?
A power exercisable at any time by deed.
92
What happens if a power of appointment is exercised impermissibly?
Any property thus appointed passes to the taker in default.
93
What distinguishes the release of a power from failure to exercise it?
A release involves taking action to effect the release of the power.
94
Fill in the blank: A trust may be created to provide for the care of an animal alive during the settlor’s lifetime, and it terminates upon the death of the _______.
[animal]
