Trusts Flashcards
(143 cards)
1
Q
What is an inter vivos trust?
A
trust created during the settlor’s lifetime
2
Q
What is a trust created during a settlor’s lifetime called?
A
Inter vivos trust
3
Q
What is a testamentary trust?
A
trust created at death
4
Q
What is a trust created at a settlor’s death called?
A
Testamentary trust
5
Q
What is a settlor?
A
person creating a trust by transferring property to a trustee
6
Q
What is the person who creates a trust called?
A
Settlor
7
Q
What is a trustee?
A
Person who holds legal title to the property of a trust and manages the property for the beneficiary.
8
Q
What is the person who holds legal title to the property of a trust and manages the property for the beneficiary called?
A
Trustee
9
Q
What is a beneficiary?
A
person who holds beneficial (equitable) title to the trust property
10
Q
What is the person who holds beneficial/equitable title to property in a trust called?
A
Beneficiary
11
Q
How is a testamentary trust created?
A
By will, through the probate process (with a provision directing the personal representative of the probate estate to transfer property to the trustee, who is normally named in the will)
12
Q
Can a testamentary trust be created through a will that has not been admitted to probate?
A
No, a will must be admitted to probate for a testamentary trust to be created.
13
Q
What is a charitable trust?
A
Express trust created for a charitable purpose OR with a charity as named beneficiary
14
Q
What is a revocable trust?
A
Trust that a settlor can modify or revoke
15
Q
What type of trust can a settlor modify or revoke?
A
Revocable trust
16
Q
What is an irrevocable trust?
A
Trust that settlor may not change or revoke
17
Q
What type of trust prohibits a settlor from changing or revoking it?
A
Irrevocable trust
18
Q
What type of trust is a testamentary trust?
A
Irrevocable
19
Q
Why is a testamentary trust always irrevocable?
A
Because it is only created after a settlor’s death, and a settlor may not revoke a trust after death.
20
Q
What does the doctrine of cy pres allow?
A
A court to modify the terms of a charitable trust in order to distribute property in a manner consistent with the settlor’s intended charitable purpose if/when the purpose of a charitable trust becomes unlawful, impracticable, or impossible to achieve.
21
Q
What is the doctrine that allows modification of a charitable trust if its purpose becomes unlawful, impracticable, or impossible?
A
Cy pres
22
Q
What is a spendthrift provision?
A
Provision within a trust that prevents both voluntary and involuntary transfers of a beneficiary’s interest in trust property.
23
Q
What are the exceptions for reaching trust property despite a spendthrift provision?
A
Payment of child support/alimony/spousal support, governmental claims, services essential to protecting beneficiary’s interest in the trust
24
Q
What must a spendthrift provision contain in order to be valid?
A
Restraints on BOTH involuntary and voluntary transfers of the beneficiary’s interest in the trust
25
What type of trust provides for the care of a settlor's animal(s)?
An honorary pet trust
26
Is a pet trust considered a charitable trust?
No, it is a noncharitable, honorary trust without an ascertainable beneficiary.
27
What are the two requirements for a pet trust under the UTC?
1) animal must be alive during settlor's lifetime
2) trust must terminate upon the death of the last animal specified in the trust
28
Does a charitable trust require an ascertainable beneficiary?
No.
29
Generally, what types of actions make a charitable purpose valid in terms of a charitable trust?
Relieves poverty, advances education/religion, promotes public health/government, or otherwise benefits the community
30
May a court modify a charitable trust if its purpose becomes unlawful, impracticable, or impossible to achieve?
Yes - under the cy pres doctrine. The amendment/modification must fit the manner consistent with the settlor's intended charitable purpose.
31
If an organization is privately owned and charges fees, does that prevent them from being the beneficiary of a charitable trust?
No - as long as the organization has a valid charitable purpose, it may be the beneficiary of a charitable trust.
32
What does the merger doctrine state?
A sole beneficiary may not be the sole trustee of a trust.
33
Can a trustee be a beneficiary of the same trust?
Yes - as long as there is at least one other trustee, or one other beneficiary.
34
May a trust designate beneficiaries by their membership in a class? (Ex: children, grandchildren, nieces & nephews, etc.)
Yes - as long as the identity of the people in the class is ascertainable at the time the trust is created or in the future.
35
May the beneficiary of a trust be "my friends?"
No - my friends is not a class of persons who are ascertainable.
36
How is an express trust created?
When a settlor transfers property to a trustee, to hold and manage for a beneficiary.
37
What are the elements for the creation of a trust?
1) Settlor must have capacity
2) Settlor must have intent to create a trust
3) Trust must have a valid purpose
4) trust must have ascertainable beneficiaries
5) settlor must convey legal title to trust property to a trustee who has duties to perform
38
What are the requirements for a trust to have a valid purpose?
Must be lawful, not contrary to public policy, and possible to achieve
39
What are the requirements for a trust to not be void?
Must not have been created under fraud, duress, or undue influence
40
When may a court approve a modification of an irrevocable trust?
1) If all the beneficiaries AND either the settlor or the trustee also consent to the change
2) if all beneficiaries consent (but neither settlor nor trustee), and the modification is consistent with a material purpose of the trust
3) when unanticipated circumstances arise
41
What is a material purpose of a trust?
A significant objective that motivated the trust's creation
42
Can the court modify an irrevocable trust if the settlor doesn't consent?
Yes, if all the beneficiaries consent and the modification is consistent with the material purpose of the trust.
43
Under common law, is a trust assumed to be irrevocable or revocable?
Irrevocable - unless its terms provide otherwise
44
Under the UTC, is a trust assumed to be irrevocable or revocable?
Revocable - unless its terms provide otherwise
45
What is the difference between common law and UTC regarding the presumption of spendthrift provisions?
Common law = presumed to represent a material purpose of the trust
UTC = examines trust language to determine whether the spendthrift provision is included in the material purpose
46
Does a settlor need court approval or the agreement of the trustee to terminate/modify a revocable trust?
No - a settlor may terminate or modify a revocable trust at any reason, at any time without needing approval.
47
What are the duties of a trustee?
1) Duty of Obedience to Terms & Purposes of Trust, Statutory & Common Law
2) Duties of Loyalty & Impartiality
3) Duty of Prudence (Care)
48
What are the UTC 4 exceptions to the general rule that self-dealing transactions are voidable?
1) trust's terms authorize self-dealing
2) court approves
3) beneficiary failed to bring action against the trustee within the SoL
4) beneficiary consented to the self-dealing
49
What is self-dealing?
Any time a trust enters into a transaction with a trustee, in their personal capacity, or with the trustee's agent or close relative
50
What is the common law Rule against Perpetuities in regard to trusts?
A trust interest must vest within 21 years of a measuring life
51
What is the statutory Rule against Perpetuities in regard to trusts?
A trust interest must actually vest within 90 years after the trust interest is created
52
In general, when does the common law perpetuities period begin to run?
When the trust becomes effective
53
Are charitable trusts subject to the Rule against Perpetuities?
No.
54
If a trustee commits a non-serious breach of trust, are any cotrustees liable (answer as if the cotrustees agreed/disagreed with the action)
If a cotrustee does not join in an action constituting a nonserious breach, they are not liable if they have notified the other cotrustees of their dissent.
If a cotrustee does consent to an action constituting a nonserious breach, they are liable.
55
What is the general rule regarding a trustee's power to unilaterally modify a trust?
There is no such power - generally, a trustee lacks power to unilaterally change a trust's terms UNLESS the trust expressly grants a modification power to the trustee.
If a trustee feels a trust's terms are inconsistent with the trust's purpose (for ex: in light of an unexpected death of a beneficiary, etc.) they may petition a court to modify the trust's terms.
56
Is it necessary for a trust to have a living beneficiary at the time of creation?
No - as long as a beneficiary will become ascertainable in the future within the perpetuities period, it is not necessary to have a living beneficiary at the time a trust is created.
57
If a proposed modification of an irrevocable trust is inconsistent with a material purpose of the trust, who must consent to the modification?
The settlor and all beneficiaries.
58
How is a trust created?
A person (settlor) creates a trust by transferring property to that title to that property is split into legal and equitable interests, and fiduciary duties are imposed onto the holder of legal title (trustee) to manage that property for the benefit of the holder of equitable title (beneficiary)
59
How may a beneficiary receive benefits from the trust?
By the manner specified by the settlor in the trust instrument
60
What are some purposes/uses for trusts?
1) provide for and protect beneficiaries
2) flexible distribution of assets
3) professional management of property
4) probate avoidance
5) tax benefits
6) avoid conflicts of interest
61
Is property in an inter vivos trust part of the decedent's probate estate?
No
62
How does property in an inter vivos trust get administered when the settlor dies?
According to the terms of the trust - it does not pass under intestate or will succession.
63
What is the main difference between the property in an inter vivos trust and a testamentary trust in regard to the settlor's death?
Property in an inter vivos trust does NOT become part of the probate estate. Property in a testamentary trust must first pass through the probate estate as the trust was created in the settlor's will.
64
What is an express trust?
A trust created based on the expressed intent of the settlor
65
How can a settlor show intent to create a trust?
By dividing title to the trust property into legal and equitable components, and imposing enforceable duties on the trustee
66
Must a settlor's instructions regarding the disposition of trust property be mandatory to create a trust?
Yes
67
What is merger?
When legal and equitable title to the trust property are held by the same person
68
What happens to a trust if merger occurs?
The trust is destroyed
69
Is a testamentary trust automatically valid if the will is valid?
No
70
What are the requirements for settlor capacity to make a revocable inter vivos trust, irrevocable inter vivos trust, and testamentary trust?
1) Revocable inter vivos/testamentary = execute a will
2) Irrevocable inter vivos = enter into a contract & understand trust's effects
71
Does the UPC require trusts to be in writing?
No, but oral trusts must be established by clear and convincing evidence
72
What is the intent approach for determining the legality of a trust's purpose?
Focused on the settlor's intent and the effect of the trust's existence on the behavior of other people. A trust is illegal if the existence of the trust could induce another person to commit a crime even if the trustee does not have to perform an illegal act.
73
What is the use approach for determining the legality of a trust's purpose?
Focus on how the trust property is used, not on the motive of the settlor. If the property's use is unquestionably appropriate, the trust would be valid even if the settlor's intent would make it invalid.
74
What happens when the there is no more property in the trust?
The trust terminates
75
What type of property can be used as trust property?
Any property for which the settlor can transfer title to the property.
76
Can anticipated earnings be used as trust property?
No - trust property must be in existence and clearly ascertainable at the time of the trust's formation
77
How can a trustee accept their duties?
1) By complying with the method of acceptance dictated in the trust instrument
2) Signing a written acceptance
3) Implied from exercise of their trust powers/performance of trust duties
78
Will a trust fail if the named trustee does not accept?
No - the trust instrument can provide directions for appointing a new trustee, or the court may appoint one if the instrument does not provide a solution
79
How does the UPC approach multiple trustees?
A majority of the trustees may make decisions regarding the trust, departing from the unanimity rule.
80
Do co-trustees have a responsibility to prevent breaches by other co-trustees and compel redress for discovered breaches?
Yes
81
Who can be named a beneficiary of a trust (do not consider merger)?
Any human who is alive, or legal entity under the appropriate conditions.
82
How must a settlor define a beneficiary?
So that their identity is definitively stated or clearly ascertainable
83
Can a settlor name beneficiaries as "my children"?
Yes - class designations are sufficient as long as the individual members of the specified class are readily ascertainable
84
What happens if a beneficiary disclaims trust property?
The disclaimed property passes under the terms of the trust as if the beneficiary had predeceased the settlor.
85
How does a spendthrift provision affect a beneficiary?
Prevents them from transferring or assigning their interests (and protects from creditors)
86
What are the two purposes of a spendthrift clause?
1) prohibits beneficiary from selling, giving away, or transferring their interest in the trust property
2) prevents beneficiary's creditors from reaching the beneficiary's interest in the trust
87
Does a settlor need to use specific language to create a trust or a spendthrift provision?
No - as long a their intent is clear.
88
How are spendthrift clauses treated if the settlor is also the beneficiary on a revocable trust?
Creditors can reach the full amount in trust during life or death - spendthrift clause is irrelevant
89
What are supercreditors?
Creditors upon which a spendthrift provision is unenforceable
90
What are some examples of supercreditors?
1) Beneficiary's child/spouse/former spouse (for support)
2) Service provider for the protection of the beneficiary's interest in the trust (necessaries)
3) Government claim
91
What is a discretionary provision?
Where settlors give trustees the discretion to determine which beneficiaries to pay and how much to pay them
92
What is a support trust?
A trust that restricts the use of trust income, principal, or both to the beneficiary's basic needs (food, clothing, medical care, education, etc.)
93
What is a pour over provision?
A clause in a will that makes a gift to an inter vivos trust
94
May a trust be named as a beneficiary of a life insurance policy?
Yes
95
How does the RAP affect trusts?
prohibits trusts where the ability to ascertain the identity of a beneficiary is delayed beyond 21 years
96
When does the time period for RAP begin to run on irrevocable inter vivos trusts?
When the settlor declares the trust or conveys the trust property
97
When does the time period for RAP begin to run for a revocable inter vivos trust?
When the trust is no longer revocable (usually when settlor dies)
98
When does the time period for RAP begin to run for a testamentary trust?
When the settlor dies
99
Is a charitable trust subject to RAP?
No
100
Who makes the determination if a settlor's purpose is charitable?
The court
101
What is a trustee's duty of loyalty?
Where the trustee must refrain from self-dealing and avoid being in a position to serve interests other than the trust's interest
102
Can a trustee be held liable for losses on trust investments?
Yes, if their conduct fell beneath the standard of care.
103
What is the prudent investor standard?
The standard by which a trustee is judged for their investments of trust property - judges the appropriateness of the entire trust portfolio instead of individual investments
104
Is a trustee who has a higher level of skill required to exercise that skill?
Yes
105
What is the duty to diversify?
A trustee has a duty to diversify trust investments
106
What is an exculpation clause?
Where a settlor reduces the applicable standard of care instead of expressly authorizing otherwise improper conduct
107
Is a trustee liable for the negligence of the acts of agents?
No - there is no respondeat superior liability between a Trustee and the trust for the acts of agents, unless the Trustee committed a wrongdoing on behalf of the trust.
108
May a trustee purchase trust assets for their personal use and/or sell their personal assets to the trust?
No
109
May a trustee sell property to another trust for which they are also acting as a trustee?
No
110
May a beneficiary or a trustee petition the court to modify a trust?
Yes
111
What is deviation?
When the court authorizes administrative revisions to trust instructions if the court is convinced the settlor would have consented to the change had they anticipated the current situation
112
Can cy pres be applied to charitable trusts?
Yes
113
Are trusts presumed revocable or irrevocable under modern law and the UTC?
Revocable
114
What happens to trust property upon the termination of a trust?
Legal and equitable title to any remaining property becomes "reunited" and given to the remainder beneficiaries
115
If a material purpose of a trust remains, will a court usually allow beneficiaries to terminate the trust if they are in full agreement?
No
116
Who has standing to bring an action to enforce a trust?
Beneficiaries and trustees because they hold title to trust property. Sometimes settlors if they are also the beneficiary, can revoke, or serve as trustee.
117
What are the four methods a court uses to determine money damages when holding a trustee personally liable for a breach?
1) Lost Value
2) Profit made by trustee
3) Lost profits
4) punitive damages
118
What are some reasons for removing a trustee?
1) Breach of trust
2) Incompetence
3) Insolvency
4) Other causes
119
What are some pre-breach remedies that beneficiaries can employ if they think a trustee will breach their duties?
1) Enjoin trustee from committing breach
2) Compel trustee to pay for loss cause by breach
3) Require trustee to restore trust property
4) Order trustee to account
5) Remove trustee
6) Reduce or deny compensation owed to trustee
120
What is a resulting/implied trust?
Equitable remedy that is used when an express trust fails because it no longer has a valid purpose - property returns to settlor or settlor's estate
121
What is a semi secret trust?
Face of the will reveals the intent to create a trust, but terms of the trust are not disclosed. Court can avoid unjust enrichment by allowing the trust to fail.
122
What is a constructive trust?
An equitable remedy that allows the court to transfer title as required by law to the legal owner, but direct the legal owner to hold the property subject to a constructive trust, with the duty to transfer the property to the rightful owner
123
What must a plaintiff identify in order to obtain a constructive trust remedy?
Particular property to which the defendant's improper conduct related
124
What are the three types of conduct that give rise to a constructive trust?
1) Fraudulent
2) Abuse of confidential relationships
3) Unperformed promises made in contemplation of death
125
What is a secret trust?
Face of the will looks like an outright gift, but terms of the trust and existence of the trust are not disclosed. Court must allow extrinsic evidence to avoid unjust enrichment and can apply constructive trust remedy.
126
How can a settlor show intent?
Separate legal and equitable title and impose fiduciary duties upon the trustee
127
What is a mandatory provision?
Where settlor mandates that trustee must pay funds to a beneficiary
128
What are ascertainable standards?
Theoretically objectively determinable and a beneficiary may ask a court to compel a trustee to make a distribution covered by the standard
129
What are some examples of ascertainable standards?
1) Support & maintenance
2) Education
3) Health
4) Emergency
130
What are nonascertainable standards?
Standards by which the trustee must still act reasonably and in good faith, but difficult for a beneficiary to convince a court to override a trustee exercise of discretion
131
What are examples of nonascertainable standards?
1) Welfare
2) Best interests
3) Happiness
132
May the creditor of a beneficiary go after mandatory payments where there is no spendthrift clause?
Yes - they can get a court order attaching to present or future mandatory distributions
133
May the creditor of a beneficiary go after discretionary distributions where there is no spendthrift clause?
No - creditor generally cannot compel a distribution
134
Can creditors reach trust property in an irrevocable trust where the settlor is a beneficiary?
Yes - creditors can reach property to the maximum extent distributions could be made to the settlor
135
What are a trustee's fiduciary duties?
1) Obedience to trust
2) loyalty & impartiality
3) care
4) inform & report
5) impartiality
136
What is the duty of obedience?
Trustee must carry out terms of the trust, act as settlor directed, and comply with laws affecting trust property
137
What is the duty of loyalty?
Administer the trust solely in the interest of the beneficiaries
138
What is the duty of care?
Administer the trust as a prudent person would, exercise reasonable care, skill, and caution
139
What is the duty of impartiality?
If a trust has two or more beneficiaries, trustee shall act impartial in distributing trust property with regard to respective interests
140
What is the duty to inform and report?
Inform beneficiaries of the administration of the trust and the material facts necessary to protect their interests
141
What is the material purpose doctrine? (Claflin)
if modification or termination of a trust would be inconsistent with or contrary to one of the trust's material purposes, the court will not allow modification
142
May an inter vivos trust be reformed to fix a mistake of fact or law?
Yes - UTC extends to testamentary as well
143
What is decanting?
Where a trustee moves assets from one trust to a new trust with different terms to accomplish a modification
