Trusts

Question 1

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

To create a trust, a settlor with capacity must:

Answer 1

1. Must intend trust to take effect immediately
2. Must express intent by words or conduct while settlor owns the property

Precatory expressions (hope, wish, suggestion) result in inference that no trust was intended, but inference may be overcome by other evidence

Question 2

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

What happens when a trust fails to name trustee (or failure of trustee to accept or qualify)?

Answer 2

does not defeat a
testamentary trust; court will appoint trustee

Question 3

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

An ___ will fail without trustee because there can be no valid delivery and
transfer of trust property

Answer 3

Inter-vivos trust

Question 4

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

Trust Property may be of any type, including ___

Answer 4

future interests

Question 5

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

Trust propertt must be proerty that the settlor has the power to___

Answer 5

Convey

Question 6

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

Trust property must be described with ___

Answer 6

Certainty

Question 7

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

2 Requirments for a Beneficiary of a Trust

Answer 7

1. Must be capable of taking and holding title to property
2. Must be definite (ascertainable within the period when all interests must vest
   under the Rule Against Perpetuities); e.g., “friends” is insufficient

Notice not required but beneficiary must accept; acceptance is presumed

Question 8

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

A trust must also have a valid:

Answer 8

Trust Purpose

Question 9

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

Trust or provision must not be:

Answer 9

a. Illegal;
b. Impossible to achieve;
c. Contrary to public policy (e.g., induce crimes, torts, divorce, child neglect,
etc.);
d. Intended to defraud settlor’s creditors; or
e. Based on illegal consideration

Question 10

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

What is the effect of an invalid condition subsequent?

Answer 10

condition stricken, but trust is valid

Question 11

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

What is the effect of an invalid condition precedent?

Answer 11

Condition stricken but ct decide whether interest is valid or fails

Question 12

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

Formalities of an intervivos trust

Answer 12

a. Declaration of trust by property owner that he holds in trust, or
b. Transfer of property by the settlor to the trustee

No writing required unless trust of land

Question 13

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

Formalities of a testamentary trust

Answer 13

Essential terms must be ascertained from will, incorporated document, facts
of independent significance, or exercise of power of appointment

Question 14

REQUIREMENTS OF AN EXPRESS PRIVATE TRUST

What happens if a settlor created a semi-secret trust in his will?

Semi-Secret Trust = gift in trust but no benef

Answer 14

The trust will be held for the testator’s/settlors heirs

Question 15

What happens if a settlor created a secret trust in his will?

Secret Trust = absolute gift but trust intended

Answer 15

a constructive trust is imposed

Question 16

TRANSFER OF BENEFICIARY’S INTEREST AND CREDITOR’S RIGHTS

A ___ provides that beneficiary may not voluntarily or involuntarily transfer his interest (i.e., cannot sell or give away interest, and creditors cannot
reach it)

Answer 16

Spendthrift Trust

Question 17

A spendthrift trust is not valid if:

Answer 17

The settlor is also a beneficiary

Question 18

A spendthrift trust is unenforceable against a claim brought by:

Answer 18

government or by child, spouse, or former
spouse with support order

Question 19

In a ___ trust, a trustee has discretion to pay or withold income or principal

Answer 19

Discretionary Trust

Question 20

A trustee’s interest can only be reached by creditors in a discretionary trust if:

Answer 20

a trustee makes discretionary payment

Question 21

A ____ Cannot Be Assigned or Reached Even Without Spendthrift Clause

Answer 21

Support Trust

Question 22

MODIFICATION AND TERMINATION OF TRUST

Under the UTC, trusts are presumed:

by settlor

Answer 22

revocable and amendable unless terms expressly state
otherwise

Question 23

MODIFICATION AND TERMINATION OF TRUST

Under the tradtional rule, a settlor must:

Answer 23

Reserve the right to revoke or modify the trust

Question 24

MODIFICATION AND TERMINATION OF TRUST

A beneficary may terminate or modify a trust if:

Answer 24

a. Settlor and all beneficiaries consent, even if it conflicts with a material purpose; or
b. All beneficiaries consent, and no material purpose would be frustrated

Examples of purposes precluding termination—distribution at specific
age, preserving property for remainderman, protecting beneficiary from own poor judgment

Question 25

# MODIFICATION AND TERMINATION OF TRUST A trustee may terminate a trust if:

Answer 25

trust property is less than $50,000 and is insufficient to justify administration cost

Question 26

# MODIFICATION AND TERMINATION OF TRUST Who makes the following modifications to a trust? 1. May modify if trust could have been modified if all beneficiaries had consented and interests of nonconsenting beneficiaries will be protected 2. May terminate or modify if circumstances unanticipated by settlor threaten trust purpose 3. May modify if continuation of trust is impracticable or wasteful 4. May modify or terminate if value is insufficient to justify administration cost or achieve tax objective 5. May reform to reflect settlor’s intent if clear and convincing evidence shows settlor’s intent and trust were affected by a mistake

Answer 26

Court

Question 27

# TRUST ADMNISTRATION WHAT ARE THE 4 POWERS OF A TRUSTEE?

Answer 27

1. Powers expressly conferred by trust 2. Powers an individual has over own property unless limited by trust 3. Powers appropriate to achieve investment, management, and distribution of trust property not forbidden by trust 4. Powers conferred by UTC unless limited by trust

Question 28

# TRUST ADMNISTRATION A settlor can waive which type of restrictions?

Answer 28

self-dealing restrictions

Question 29

# TRUST ADMNISTRATION If the duty of loyalty is breached, the transaction is voidable by benef unless

Answer 29

1) Transaction authorized by trust or approved by court; 2) Beneficiary failed to bring suit within prescribed time period; 3) Beneficiary consented, ratified transaction, or released trustee; or 4) Transaction involves contract or claim from before trustee became trustee

Question 30

# TRUST ADMNISTRATION The trustee owes 6 duties to the trust ## Footnote Always Loved Really Salty Egg Products

Answer 30

1. administer trust 2. loyalty (no self dealing) 3. report 4. separate trust prop 5. enforce claims and defend trust from attack 6. preserve property and make it productive

Question 31

# TRUST ADMNISTRATION Under the duty to report, a trustee must:

Answer 31

keep benefs reasonably informed

Question 32

# TRUST ADMNISTRATION Under the duty to keep separate property, a trustee must:

Answer 32

not commingle trust prop with own prop

Question 33

# TRUST ADMNISTRATION If portion of commingled assets increases in value, presumed to be:

Answer 33

Trust assets

Question 34

# TRUST ADMNISTRATION If portion of commingled assets declines in value, presumed to be

Answer 34

Trustees assets

Question 35

# TRUST ADMNISTRATION If trustee commits breach of trust, court can:

Answer 35

a. Order specific performance of trustee’s duties; b. Issue injunction against trustee; c. Compel trustee to pay money or restore property; and d. Suspend or remove trustee

Question 36

# TRUST ADMNISTRATION What are a trustee's defenses to breach of duties?

Answer 36

1. reasonable reliance on trust terms 2. benef consented, released trustee from liability or ratified transaction

Question 37

# TRUST ADMNISTRATION Exculpatory clauses are void if they:

Answer 37

relieve trustee of liability for breach committed in bad faith or reckless indifference or appear in trust because of trustee’s abuse of confidential relationship with settlo

Question 38

Trustee not liable for acts of co-trustees if:

Answer 38

1. did not join in action and 2. exercised reasonable care in preventing breach or compelling co-trustee to redress breach

Question 39

# Allocation of Receipts and Expenses Under the Uniform Principal and Income Act (“UPAIA”)

Question 40

A __ automatically terminates if the benf predeceases the depositor

Answer 40

Totten trust

Question 41

A ___ is an equitable remedy to prevent unjust enrichment

Answer 41

Constructive Trust

Question 42

A constructive trust arises in situtations of: | The Fraudster Beat Banks

Answer 42

1. Theft or conversion 2. Fraud, duress, undue influence, mistake, or interference with contract relations 3. Breach of fiduciary duty (e.g., attorney/client, director/corporation, trustee/beneficiary) 4. Breach of fraudulent promise, promise by one in confidential relationship, promise concerning will or inheritance, promise to forgo foreclosure bid

Question 43

A ___ is one where the trustee is REQUIRED to pay or apply so much of the trust as necessary for the support of the beneficiary

Answer 43

Support Trust

Question 44

In administering a ____, a trustee does not have discretion to refuse to pay bills necessary for the benef

Answer 44

Support Trust ## Footnote might need to analyze whether or not an expense is "necessary" for the benef support

Question 45

In administering a discretionary trust, the benef cannot interfere w/ the exercise of the trustees discretion unless:

Answer 45

The trustee abuses her power ## Footnote A ct will not interfere unless the trustee acts in bad faith or dishonestly

Question 46

The trustee's duty of loyalty extends to:

Answer 46

All benefs equally

Question 47

Althought permitted by the UTC, most sttes do not permit a guardian to consent to the termination of a trust on behalf of:

Answer 47

Unborn benefs

Question 48

The presence of a ___ precludes termination of a trust because it shows the settlor's ___ and manifests his lack of confiedence in the judgment and management ability of the ____

Answer 48

Spendthrift provision Purpose Benef

Question 49

Under the trad. view, to create a valid pour over gift from a will to a revocable trust, the trust must:

Answer 49

1. be in existence or 2. must be executed at the time of the will's execution ## Footnote However, under the prevailing view, the trust may be established after the will is executed but before the testator's death

Question 50

Pour over gifts are valid even if:

Answer 50

Unfunded during testator's lifetime

Question 51

A ___ is one where the benf cant transfer his interest in the trust

Answer 51

Spendthrift trust | creditors are also generally unable to collect or attach such rights

Question 52

Spendthift Trust Exception for Creditors

Answer 52

A creditor may collect or attach rights to a trust if a settlor (who is also a beneficary) included a spendthrift provision in order to protect his own interests ## Footnote In this case, creditors can reach a benefs right just as if the provision didnt exist