Trusts

Question 1

Trust Categories

Answer 1

-express
-resulting
-constructive

Question 2

Types of express trusts

Answer 2

-private
-honorary
-charitable

Question 3

Types of resulting trusts

Answer 3

-purchase money resulting trusts
-resulting trusts arising on failure of an express trust
-resulting trusts arising from an incomplete disposition of trust assets (that is, excess corpus)

Question 4

Types of constructive trusts

Answer 4

-constructive trust arising from theft or conversion
-constructive trust arising from fraud, duress, etc.
-constructive trust arising from breach of fiduciary duty
-constructive trust arising from homicide
-constructive trust arising from breach of promise

Question 5

What is a trust?

Answer 5

a fiduciary relationship in which a trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title

Question 6

What is an express trust?

Answer 6

a trust that arises from the expressed intention of the owner of property to create the relationship with respect to the property

Question 7

What is a resulting trust?

Answer 7

a trust that arises from the presumed intention of the owner of property

Question 8

What is a constructive trust?

Answer 8

an equitable remedy in cases involving wrongful conduct and unjust enrichment

Question 9

What is a purchase money resulting trust?

Answer 9

1. domestic partnership
2. domestic property is purchased by both partners
3. but the title is only in the name of one partner

Question 10

What is a resulting trust on failure of an express trust?

Answer 10

a trust fails for lack of a beneficiary = a resulting trust in favor of the settlor or his successors is presumed

Question 11

What is an excess corpus trust?

Answer 11

1. a person has created an express intentional trust
2. # the express trust does not completely dispose of the trust property.the undisposed property goes back to the settlor in a resulting trust

Question 12

Valid trust elements

Answer 12

1. Intent
2. Identifiable corpus ascertainable with certainty
3. Ascertainable beneficiaries (not a required element for a charitable express trust)
4. Proper purpose
5. Mechanics and formalities

Question 13

What is the requisite intent to create a trust?

Answer 13

The settlor must intend to split the legal and equitable title and to impose enforceable duties on the holder of the legal title

Question 14

What is a proper trust purpose?

Answer 14

Any purpose EXCEPT:
-something illegal
-Its performance requires a criminal or tortious act
-It is otherwise contrary to public policy
-It violates the Rule Against Perpetuities (except for a charitable express trust)

Question 15

What satisfies trust mechanics and formalities?

Answer 15

1. inter vivos transfer, inter vivos declaration of trust, or will (testamentary trust)
2. statute of frauds (if trust is of land)

Question 16

Mechanics and formalities for an inter vivos transfer.

Answer 16

delivery (placing the trust’s property in the settlor’s control)

Question 17

Mechanics and formalities for an inter vivos declaration of trust.

Answer 17

declaring oneself trustee

Question 18

What is the cy pres doctrine?

Answer 18

Where it is impossible to give the settlor of a charitable express trust’s intention effect (e.g., the designated charity goes out of existence), the court may redirect the trust to a purpose “as near as possible” to the charitable endeavor initially designated by the settlor

Question 19

What is an honorary express trust?

Answer 19

a trust that is not for charitable purposes and has no private beneficiaries

Question 20

What is a discretionary trust?

Answer 20

Any type of trust where the trustee is given discretion whether to apply or withhold payments of income or principal (or both) to a beneficiary

Question 21

What is a support trust?

Answer 21

Any type of trust where the trustee is required to pay or apply only so much of the income or principal (or both) as is necessary for the support of the beneficiary

Question 22

What is a revocable inter vivos trust?

Answer 22

A will in which an interest passes to the beneficiary during the settlor’s life; it merely becomes possessory on the settlor’s death

Question 23

What is a contingent beneficiary trust?

Answer 23

A type of private express trust that arises where W, owner and insured under a life insurance policy, designates the policy beneficiary as one person, H; and if H does not survive W, to B to hold in trust for X

Question 24

What is an assignment of policies trust?

Answer 24

A type of private express trust that arises where A, owner and insured under a life insurance policy, assigns the policy to B to hold in trust for C

Question 25

What is a payable to testamentary trustee trust?

Answer 25

A type of private express trust that arises where A, owner and insured under a life insurance policy, designates as beneficiary “the trustee named in my will.” In A’s will, she names B as trustee of her property for the benefit of C

Question 26

What is a totten trust?

Answer 26

the name given to a bank account in the depositor’s name “as trustee” for a named beneficiary (e.g., “A, trustee for B”). Under such a bank account, A, the depositor, retains the passbook and continues to make deposits and withdrawals during her lifetime. B has no beneficial interest in the account during A’s lifetime, but succeeds to whatever is on deposit at A’s death

Question 27

What are a trustee's powers?

Answer 27

-those powers expressly conferred by: The trust instrument, State law, and Court decree -all powers that are necessary or appropriate to carry out the terms of the trust if those powers are not expressly forbidden by the trust instrument

Question 28

What are a trustee's duties?

Answer 28

-to administer trust -loyalty -to account -separate and earmark trust property -perform personally -defend trust from attack -preserve trust property and make it productive -care -impartiality

Question 29

Trustee's contract liability to third parties

Answer 29

a trustee is personally liable to third parties on contracts made in the course of trust administration. A trustee is entitled to reimbursement (indemnification) from the trust, however, if the contract was within their powers and the trustee acted with reasonable prudence.

Question 30

Trustee's tort liability to third parties

Answer 30

A trustee is personally liable for torts committed in the course of the trust administration, including those committed by the trustee’s agents. There is indemnification only if the trustee was not personally at fault and the tort occurred as a normal incident to activity in which the trustee was properly engaged. If the trustee is entitled to indemnification, creditors to whom the trustee is liable can reach trust assets to satisfy claims. Note that under the UTC, a trustee is liable only if they are personally at fault; the doctrine of respondeat superior does not apply.

Question 31

What are the methods of trust modification/termination?

Answer 31

-by terms of trust -by the settlor -by the beneficiaries -by operation of law -by the court

Question 32

What is necessary for trust modification/termination by the settlor?

Answer 32

1. settlor revokes or amends the trust 2. the terms do not expressly state that he can't

Question 33

What is necessary for trust modification/termination by the beneficiaries?

Answer 33

1. The beneficiaries agree to modify or terminate the trust if all of the following are true: 2. All beneficiaries agree (note that the existence of unborn or unascertainable beneficiaries may make this impossible to achieve). 3. All beneficiaries are legally competent. 4. The settlor consents OR Modification or termination will not impair any material trust purpose (“Claflin Rule”)

Question 34

What is necessary for trust modification/termination by operation of law?

Answer 34

-the property has been exhausted -the legal and equitable titles have merged

Question 35

When may a court modify or terminate a trust?

Answer 35

-trust’s purpose has been completed or has become illegal or impossible -upon a change of circumstances unanticipated by the settlor

Question 36

What does the Uniform Principal and Income Act do?

Answer 36

It gives the trustee or personal representative an adjustment power to reallocate investment portfolio return. This adjustment power authorizes the trustee to characterize items such as capital gains, stock dividends, etc., as income if the trustee deems it appropriate or necessary to carry out the trust purposes.

Question 37

Must a designee accept an appointment as trustee?

Answer 37

No.

Question 38

Once a trustee, can you resign?

Answer 38

Not without: -beneficiary's consent -court order -trust authorization

Question 39

What happens if a trustee resigns?

Answer 39

-If impermissibly, they have violated their duty of loyalty to administer -trust's backup trustee steps in -If no such backup trustee was set up, the court appoints a new trustee

Question 40

What is a trustee's duty of care?

Answer 40

To exercise that degree of care, skill, and caution that a reasonably prudent person would in managing her own property?

Question 41

What is the remedy for a trustee's breach of a duty

Answer 41

The amount necessary to restore the trust property and distribution to what it would've been without the breach.

Question 42

Defenses to breach of trustee's duty

Answer 42

-equity will not enforce a trust if the beneficiaries expressly or impliedly consented to the breach -laches -statutes of limitations