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Bar Exam > Trusts > Flashcards

Trusts Flashcards

1
Q

If a guardian or conservator is appointed for the testator after the will is executed and bequeathed property is sold by guardian, the beneficiary is entitled to…

A

The sale proceeds, at least to the extent they have not been expended for the testator’s care. An exception to the ademption doctrine.

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2
Q

For majority of states, child of divorced spouse who is named beneficiary in will that predated divorce will… But under UPC…

A

…still receives benefits unless grant is revoked… not receive because divorce revokes bequests to relatives of former spouse

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3
Q

Elements required for an express, private trust (5)

A
  1. A settlor with capacity to convey
  2. A PRESENT intent to create a trust (can be oral, written, conduct, unless SOF), trust to take effect immediately
  3. A competent trustee (if inter vivos… testamentary trust will not fail for lack of trustee
  4. A definite beneficiary
  5. The same person is not the SOLE trustee and beneficiary
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4
Q

What state must property be in for trust to be created?

A

Intention to create present trust must have been externally manifested by the settlor at the time he owned the property. Can be a future interest that settlor owns.

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5
Q

Precatory expressions

A

Expressions of hopes or wishes. Presumption is that they don’t create a trust unless:

  1. Definite and precise directions
  2. Fiduciary
  3. If weren’t imposed, would result in unnatural disposition (e.g. close relative would taken nothing under will)
  4. Extrinisic E to show settlor previously supported beneficiary
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6
Q

Acceptance of trusteeship

A
  1. Substantially complies with terms OR
  2. Accepts delivery of trust property, exercises trustee duties, or indicates acceptance

If trustee doesn’t accept w/in reasonable time, presumed to be rejected.

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7
Q

Removal of trustee

A

Can remove upon request of settlor, beneficiary, co-trustee. Must show:

  1. Serious breach of trust
  2. Lack of cooperation among co-trustees
  3. Unfitness, unwillingness, or persistent failure to administer OR
  4. Substantial change in circumstances
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8
Q

Relation back of acceptance of trustee

A

If settlor dies before trustee accepts, when trustee accepts, acceptances relates back so trustee can be liable for torts btw settlor’s death and trustee’s acceptance.

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9
Q

Resignation of trustee

A
  1. Give 30 days notice to beneficiaries, settlor if living, and co-trustees OR
  2. Get court approval
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10
Q

What happens when sole trustee is also sole beneficiary?

A

Merger of title, trust terminates

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11
Q

Disclaimer by beneficiary

A

Beneficiary files a writing with trustee, and trust is treated as though beneficiary died on date of filing. Reqs:

  1. Usually must be made within 9 months of trust’s creation unless under 21 y/o
  2. Beneficiary may be estopped if has accepted a benefit under the trust
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12
Q

Divorce’s influence on a trust

A

Divorce revokes all benefits for former spouse. Read instrument as though former spouse died.

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13
Q

How definite must the beneficiaries be under private trust? Charitable trust? Class trust?

A

Bens must be definite for private trust (can include unborn), not for charitable trust. If private trust exists for benefit of class, class must be reasonably definite and trustee can exercise discretion as to who benefits.

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14
Q

If trust fails for lack of beneficiary?

A

Resulting trust in favor of settlor is created.

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15
Q

If trust purpose is against public policy (illegal, fraudulent, impossible)

A
  1. Settlor’s alternative desire controls, if expressed
  2. If illegal condition is condition subsequent, it is terminated and rest of trust is valid
  3. If illegal condition is condition precedent, hold interest valid w/o condition unless that would void beneficiary’s interest–then trust is void.
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16
Q

Inter vivos trust

A
  1. Present declaration or transfer of trust required (can declare self trustee or transfer possession to another trustee)
  2. Must manifest intent when trust property EXISTS (if doesn’t exist, trust arise when property is acquired and remanifests intent to create trust)
  3. If land, must be in writing
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17
Q

Testamentary trusts

A
  1. Will must state trust intent and essential terms (or writing incorpd by will)
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18
Q

Testamentary trust: secret trust

A

Will conveys property to someone, but that person was actually supposed to be a trustee for benefit another. Intended beneficiary can present extrinsic E of trust/intended benefit and constructive trust will be imposed. Doesn’t matter if promise made after will was created.

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19
Q

Testamentary trust: semi-secret trust

A

Will MAKES trust but fails to identify beneficiary. Gift fails and trustee holds property in “resulting trust” for testator’s heirs.

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20
Q

Charitable trust reqs (2)

A
  1. Trust must be for charitable purposes (to benefit public)

2. Beneficiaries must be indefinite, can’t be too narrow

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21
Q

Charitable trusts: Cy Pres

A

“as near as possible:” when original trust isn’t possible, pick a purpose as near as possible

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22
Q

Honorary trust

A

Established for pets or maintenance of burial places

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23
Q

Transfer of bens interest: Voluntary assignment

A

If allowed by trust or law, ben can freely transfer interest in trust, but benefits remain subject to all previous conditions and limits

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24
Q

Transfer of bens interest: Involuntary assignment/creditors

A

If allowed by statute/trust instrument, insolvent trust beneficiary’s creditors can levy his beneficial interest/subject it to judicial sale. To avoid, court can order trust income to creditor until debt is satisfied.

25
Q

Spendthrift trusts/restraints on alienation

A

Precludes ben from voluntarily or involuntarily transferring trust interest, creditors precluded from reaching it. Allowed even tho restraint on alienation. Creditors can still get income.

26
Q

Restraint on involuntary alienation only

A

Invalid. Allows ben to voluntarily alienate interest, but denies creditors right to reach.

27
Q

Result of spendthrift for assignees

A

Bens assignees cannot force trust to pay them directly. Trustee can choose to pay assignees, or return to paying beneficiary, whenever.

28
Q

Exceptions to spendthrift clause prevention of creditors

A
  1. Can’t be used by settlor to shield himself from creditors if settlor also beneficiary
  2. Can’t prevent child support or alimony
  3. Can’t prevent claims by gov
29
Q

Who is the settlor?

A

The person who furnished the consideration, even if the trust is created by another person.

30
Q

What is a discretionary trust?

A

Trustee is given discretion whether to apply or withhold payments of income/principal to beneficiary. Beneficiary (and creditors if spendthrift) cannot interfere w/ discretion.

31
Q

What is a support trust?

A

Directs trustee to pay only so much of income and/or principal as necessary for beneficiary’s support. Discretionary. Not assignable.

32
Q

Is “pay all income to A for his support” a support trust?

A

No bc beneficiary is not LIMITED to amt necessary for support.

33
Q

When will a trust terminate automatically?

A
  1. Expiration of specified term, all purposes have been accomplished, become unlawful, contrary to public policy, or impossible.
  2. Settlor revokes/amends. BUT trusts usually irrevocable unless settlor specifically retains power to revoke.
  3. ALL beneficiaries choose to modify or terminate trust (including unborn/remote).
  4. By the court if unanticipated circs threaten purpose, continuing is impracticable or wasteful, value of trust is insufficient to justify continuing
  5. By the trustee if property less than $50,000 and amt insufficient to cover cost of administration. Can also combine trusts as long as it doesn’t violate purposes. Doesn’t need consent but must give notice to bens.
34
Q

Sources of trustee’s power

A
  1. Express conferment in trust instrument
  2. Implied rights unmarried person has over own property
  3. Right to achieve proper investment, management, distribution of trust property
35
Q

Co-trustees who can’t agree?

A

Act by majority decision

36
Q

Duties of trustee

A
  1. Duty to administer trust (good faith, prudent manner, impartiality btw multiple beneficiaries, doesn’t delegate discretionary functions)
  2. Duty of loyalty (see other card)
37
Q

Trustee’s duty of loyalty

A
  1. Can’t buy or sell trust assets
  2. Can’t sell property of one trust to another trust of which also a trustee
  3. May not borrow trust funds nor loan her personal funds
  4. Cannot use trust assets to secure personal loan
  5. Cannot personally gain through trustee position
  6. Corporate trustee cannot invest in its own stuck as trust investment (ok to leave stock that was bought when trust created as long as it’s prudent)
  7. Pay themselves more than they deserve for trustee duties
38
Q

Self-dealing trustee

A

Doesn’t matter if in good faith or trust benefits. Can’t self deal: benefit spouse, close relatives, or corp in which she owns significant interest.

39
Q

What can beneficiary do if trustee engages in prohibited action?

A

Void the transaction unless

  1. Court says it was fine
  2. Doesn’t bring suit fast enough
  3. Gave consent originally to the action
  4. Involves a contract that arose before trustee became trustee
40
Q

Trustee’s duties + remedies

A
  1. Duty to administer faithfully/prudently (court order, pay back)
  2. Duty of loyalty (ben can avoid transaction)
  3. Duty to report to beneficiary (court order)
  4. Duty to separate trust property and keep records (liable for resulting losses)
  5. Duty to enforce claims and defend trust
  6. Duty to preserve trust property/make it productive (liable for losses + benefits that would have accrued but for breach)
41
Q

Reqs for trust investment (Uniform Prudent Investor Act):

A
  1. Reasonable care, skill, caution
  2. Loyalty
  3. Impartiality
  4. Diversify
42
Q

Revocable trust + settlor’s instruction not to diversify

A

If it’s a revocable trust, trustee’s duty is to settlor. Must follow directions and not diversify.

43
Q

Improper investments

A
  1. Unsecured loans and second mortgages
  2. Corporate stocks
  3. Unproductive land
  4. Testator’s business
44
Q

Exculpatory clauses in trust for trustee breach of trust

A

Void if they relieve trustee of liability for breach committed in bad faith or with reckless indifference or appear in the trust language because of duress imposed by trustee

45
Q

Liability btw co-trustees

A

not liable for co trustees if didn’t join in action and exercised reasonable care to prevent or encourage redress

46
Q

How can trustee be liable to third party

A

In tort or contract in personal (if didn’t disclose trust relationship) or fiduciary capacity

47
Q

Liability of third parties to trust

A

Beneficiary or trustee can set aside transaction to non-BFP. If BFP, can’t get property back. Third parties can’t knowingly participate in breach of trust. Trustees (not beneficiaries) can sue third parties for damage to trust property (unless trustee participated in breach, has left jdx, or fails to sue liable third party).

48
Q

Trustee adjustment power

A

Trustee has power to adjust division/distribution of income/principal btw beneficiaries

49
Q

Distinguishing trust and will

A

Whether transfer creates some present gift (even if a future interest like money from a will that won’t be dispersed until settlor dies, life insurance payouts)

50
Q

Revocable trust

A

Living trust, gives settlor/trustee great power over management

51
Q

Totten trust bank account

A

Bank account depositor declares himself a trustee of the account for a person who is to receive the money in teh account at the time of the depositor’s death (not really a trust)

52
Q

Gift Causa Mortis

A

A gift in view of impending death (donor must be suffering from condition that realistically confronts her with fear of death). Same delivery and acceptance as inter vivos gifts. Is revocable by an intent to revest ownership, if donor recovers, or donee predeceases donor. Valid as long as donor fails to recover even if donor dies of different cause.

53
Q

Resulting trust types (4)

A
  1. Purchase money
  2. Arising on failure of express trust
  3. incomplete disposition of trust assets (excess corpus)
  4. Failure of express trust unless express trust explicitly says it will terminate upon failure
54
Q

Purchase money resulting trusts

A

Presumed whenever beneficiary furnishes consideration for acquisition of title, but with bens consent, title is later given to trustee. Must be to acquire title/purchase, not improve etc. BOP on beneficiary to show he supplied consideration, then trust is presumed.

55
Q

When are purchase money resulting trusts not presumed?

A
  1. When the beneficiary and the trustee are closely related. Viewed as a gift.
  2. Unlawful purpose btw X and Y
56
Q

Constructive trust

A

Prevents unjust enrichment from wrongful conduct. Intent to convey property to person who would have owned it but for unlawful conduct.

57
Q

Types of unlawful conduct resulting in constructive trust:

A
  1. Theft or conversion
  2. Fraud, duress
  3. Breach of fiduciary duty
  4. Homicide (if JTWROS, killer can hold half property)
58
Q

A transfers real property to B on B’s oral promise to hold for C… constructive trust?

A

Usually no constructive trust implied for breach of promise. EXCEPTIONS:

  1. The promise was fraudulent (B never intended to keep promise)
  2. Breach fo promise by one in confidential relationship
  3. Breach by decedent’s devisee or heir to hold property for benefit of third person
  4. Breach of promise by decedent to devise property to to one rendering services, and person relies on promise
  5. Breach of promise to debtor by buyer at foreclosure sale to hold property for debtor
59
Q

Trustee’s sole duty under constructive trust

A

Convey legal title to beneficiary. That’s all.

Bar Exam (13 decks)

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