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Flashcards in FL Trusts Deck (12)
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1

Which individual gets first priority when a trusteeship vacancy is filled?

A A person appointed by the court.

B A person designated in the trust agreement as successor trustee.

C A person appointed by unanimous agreement of the qualified beneficiaries (noncharitable trust).

D A person appointed by majority agreement of the qualified beneficiaries (noncharitable trust).

B A person designated in the trust agreement as successor trustee.

B is correct. A vacancy in the trusteeship is filled in the following order of priority: (1) a person designated in the trust agreement as successor trustee; (2) a person appointed by unanimous consent of the qualified beneficiaries (for a noncharitable trust) or a person selected by the charitable organizations expressly designated to receive distributions from the trust (for a charitable trust); and (3) a court-appointed person or corporate fiduciary.

2

All of the following can be subject matter of a trust except:

A A contract.

B An inheritance one thinks he may receive from his wealthy uncle.

C A promissory note.

D A future interest.

B An inheritance one thinks he may receive from his wealthy uncle.

B is correct. Trust res must be existing property that the settlor actually has the power to transfer. The trust res need not be tangible so long as the settlor has an assignable interest. Therefore, contracts, promissory notes, and future interests can all be the subject matter of a trust. An interest that has not yet come into legal existence, however, cannot be held in trust. Therefore, the mere possibility of inheriting property cannot be subject matter of a trust.

3

In 2010, Sidney created a nonvested property interest in a trust that will not vest, if at all, before 350 years from the date of creation (2360). Does this trust violate the Rule Against Perpetuates?

A No, as long as it actually vests before 2370.

B No, as long as it actually vests before 2365.

C Yes, because it could not vest before 21 years after the death of a life in being.

D Yes, because it could not vest before 2100.

A No, as long as it actually vests before 2370.

A is correct. Under Florida’s Uniform Statutory Rule Against Perpetuities, nonvested property in a trust is valid if either: (1) when the interest is created it is certain to vest or terminate within 21 years after the death of a life in being; or (2) it actually vests or terminates within 360 years after its creation. Because the trust was created in 2010, if it actually vests before 2370 (360 years after creation), the trust will not violate the Rule Against Perpetuities. Additionally, trusts created before December 31, 2000 must actually vest within 90 years of creation. Here, the trust was created in 2010, and is not constrained by the 90-year vesting period.

4

Svetlana elects not to create her trust in writing. By what standard will the court uphold an oral trust?

A Preponderance of evidence.

B Clear and Convincing Evidence.

C Beyond a Reasonable Doubt.

D None of the above. Oral trusts are per se invalid.

B Clear and Convincing Evidence.

B is correct. Generally, trusts need not be in writing. Nonetheless, the creation of an oral trusts and the controlling terms must be established by clear and convincing evidence.

5

Which of the following accurately describes the restraints on alienation in a spendthrift trust?

A A beneficiary cannot transfer his right to future capital or income, but his creditors may collect or attach such rights.

B A beneficiary can transfer his right to future capital or income, but his creditors may not collect or attach such rights.

C A beneficiary cannot transfer his right to future capital or income, and his creditors may not collect or attach such rights.

D A beneficiary can transfer his right to future capital or income, and his creditors may collect or attach such rights.

C A beneficiary cannot transfer his right to future capital or income, and his creditors may not collect or attach such rights.

C is correct. A spendthrift trust prevents the beneficiary from both voluntary and involuntary transfer of his interest in the trust. Hence, he cannot transfer his rights to future income or capital. Likewise, his creditors cannot collect or attach such rights.

6

A trustee elects to terminate a trust because it is no longer economically viable. Does this termination also apply to a spendthrift trust?

A No. Spendthrift provisions provide heightened scrutiny because they are created for the sole purpose of protecting the beneficiary’s interests.

B No. Only a settlor has the power to terminate a trust, even though it is no longer economically viable to manage the trust

C Yes. A trustee may terminate a spendthrift trust unless expressly prohibited by a clause in the trust.

D Yes. A trustee may terminate a spendthrift trust even if expressly prohibited by a clause in the trust.

C Yes. A trustee may terminate a spendthrift trust unless expressly prohibited by a clause in the trust.

C is correct. Upon providing proper notice to the qualified beneficiaries, a trustee may terminate a trust whose property is less than $50,000 and the amount is insufficient to justify the cost of administration. This power to terminate also applies to spendthrift trusts unless the clause in the trust explicitly prohibits such termination. Although spendthrift provisions are set up to protect a beneficiary from voluntary and involuntary transfer of trust income, when it is no longer economically feasible to maintain the trust, the trustee may revoke a spendthrift trust.

7

Billy is a beneficiary of a spendthrift trust. He attempts to terminate the trust, asserting a common law right. Is he correct?

A Yes. Florida’s trust statute provides that provisions for termination of a trust do not derogate common law rights.

B Yes. A spendthrift trust beneficiary has the common law right to terminate if he feels that it is in his best interests.

C No. A spendthrift trust beneficiary has no common law right to terminate the trust.

D No. There is no common law right for a beneficiary to terminate trusts.

C No. A spendthrift trust beneficiary has no common law right to terminate the trust.

C is correct. Unlike other beneficiaries (who possess a common law right to terminate a trust), a beneficiary of a spendthrift trust is not permitted to terminate the trust in this manner. The rationale behind this is that the settlor’s material purpose was to give the beneficiary an income interest that will protect against the beneficiary’s indiscretions and the reach of creditors. Thus, Billy had no common law right to terminate the spendthrift trust.

8

In Florida, which of the following powers may a settlor retain in a valid inter vivos trust?

A The power to remove trustees and appoint new ones.

B The power to act as sole trustee.

C Both the power to remove trustees and appoint new ones, and the power to act as sole trustee.

D Neither the power to remove trustees and appoint new ones nor the power to act as sole trustee.

C Both the power to remove trustees and appoint new ones, and the power to act as sole trustee.

C is correct. In Florida, an otherwise valid inter vivos trust does not become invalid because the settlor retains certain powers, including but not limited to: the power to remove trustees and appoint new ones and the power to act as sole trustee.

9

Selena lives in Florida, which grants Desmond, her surviving spouse, a 30% “forced share” in Selena’s estate upon her death. How can Selena prevent David from sharing in her property?

A By putting her assets in an irrevocable trust and removing them from her estate.

B By disinheriting David from her will.

C By putting her assets in a revocable trust and removing them from her estate, but most states do not allow a surviving spouse’s “forced share” to be defeated.

D By putting her assets in a revocable trust and removing them from her estate.

C By putting her assets in a revocable trust and removing them from her estate, but most states do not allow a surviving spouse’s “forced share” to be defeated.

C is correct. In most common law states, the surviving spouse is given a forced share (in Florida, 30%) in the decedent’s estate at death. By putting her assets in a revocable inter vivos trust and removing them from her estate, a settlor (in some states) may prevent her spouse from sharing in her property. However, in most states, a revocable trust is considered to be an illusory transfer and can be set aside to the extent that it interferes with the surviving spouse’s forced share.

10

Tony Trustee makes a risky investment. Under the Uniform Prudent Investor Act (“UPIA”), was Tony’s investment prudent?

A No, because risky investments by a trustee are imprudent under the UPIA.

B No, unless the beneficiaries consented in writing to Tony’s risky investment.

C Yes, if the risky investment is undertaken in relation to other, more conservative investments.

D Yes, if the risky investment is undertaken in relation to other, more conservative investments, and the beneficiaries consented in writing.

C Yes, if the risky investment is undertaken in relation to other, more conservative investments.

C is correct. The UPIA analyzes each investment decision in the context of the entire trust portfolio and as part of an overall investment strategy that has risk and return strategies reasonably suited to the particular trust. Thus, an investment that by itself appears to be too risky and imprudent may actually be prudent if undertaken in relation to other, more conservative investments. A beneficiary’s consent or lack thereof does not implicate the UPIA’s prudent investment standards.

11

Which of the following duties is implied from a trustee’s duty to preserve and protect the trust property?

A A trustee’s duty to separate trust property and keep records.

B A trustee’s duty to enforce claims and protect the trust from attack.

C A trustee’s duty to make the trust property productive, including the duty to invest.

D A trustee’s duty to report and keep beneficiaries informed of the trust’s administration.

C A trustee’s duty to make the trust property productive, including the duty to invest.

C is correct. A trustee is charged with the duty to preserve and protect trust property. Generally, there is an implied duty to make the trust property productive, which includes the duty to invest.

12

Which administrative duties may a trustee delegate to another person?

A None. She is under a duty to personally administer the trust, and hence she cannot delegate.

B She may delegate only to the extent and in a manner that a reasonably prudent trustee would.

C She may delegate only to the extent and in a manner that a reasonably prudent trustee would, but she cannot delegate discretionary duties.

D She may delegate any administrative duty so long as she bears liability for any subsequent damage caused by the delegatee’s incompetence.

C She may delegate only to the extent and in a manner that a reasonably prudent trustee would, but she cannot delegate discretionary duties.

C is correct. Although a trustee is under a duty to personally administer the trust, she may delegate duties only to the extent and in a manner that a reasonably prudent trustee would. Still, she generally cannot delegate discretionary functions such as whether or not to make distributions. A trustee’s liability for her delegatee’s incompetent administration of the trust is a separate issue, irrespective of whether or not the trustee has the authority to delegate.