Trusts

Question 1

Express Trust

Answer 1

Type of trust
(1) intent
(2) trust property
(3) valid trust purpose
(4) ascertainable beneficiaries
challenging the validity

Question 2

Inter vivos trust

Answer 2

An inter vivos trust is a trust created while the trustor is living that transfers some or all of the trustor’s property into a trust. The trustor can designate himself as the trustee or a third party

Question 3

Testamentary Trust

Answer 3

A testamentary trust is created in writing in a will or in a document incorporated by reference into a will. The will containing the trust must meet the attested or holographic will requirements

Question 4

Intent

Answer 4

The settlor may manifest intent to make a gift orally, in writing, or by conduct; manifestation of intent must occur prior to or simultaneously with transfer of property

Question 5

Trustee

Answer 5

A court will appoint a trustee if settlor fails to designate one

Question 6

Trust property

Answer 6

Trust must be funded with identifiable trust property (res); described with reasonable certainty

Question 7

Valid trust purpose

Answer 7

A trust can be created for any purpose as long as it is not illegal or contrary to public policy; if one of trust terms violates public policy, alternative terms will be honored, or, if none, term will be stricken.

Question 8

Ascertainable beneficiaries

Answer 8

The beneficiaries must be identifiable so that the equitable interest can be transferred
automatically by operation of law and directly benefit the person.
o The settlor may refer to outside writings or acts to identify beneficiaries.
o Exceptions to Identifiable Beneficiaries:
▪ Class Gifts: Trusts for a reasonably definite class (such as “my brothers”, or “my grandchildren”) will be upheld
-Charitable trust

Question 9

Omitted Children

Answer 9

A child who is omitted from the trust can force an intestate share (see Wills outline, Intestacy) if certain requirements are met:
o The child is born or adopted after the trust is created, or the settlor mistakenly believed the child was dead, or did not know the child existed; and

o The child is unintentionally omitted from the trust.

o Limitations: A share will not be forced if the child has been provided for outside of the trust, or if the settlor had other children at the time the trust was executed and left substantially all of his estate to the omitted child’s parent.

Question 10

Charitable Trust & Cy Pres Doctrine

Answer 10

Purpose—benefiting the community at large (e.g., relief of poverty, advancement of
education/religion, good health, governmental purposes, and other purposes)
* Indefinite beneficiaries—beneficiaries must be in the community at large (directly or indirectly)
* Failure to follow trust terms—trustee can sue for return of the funds

• Cy Pres Doctrine—court may modify charitable trust to seek an alternative charitable purpose if
  original charity becomes illegal, impracticable, or impossible to perform
• specific, general

Question 11

Income Beneficiary

Answer 11

Receives income from the trust

Question 12

Remainder Beneficiary

Answer 12

Entitled to the trust principal upon termination of trust

Question 13

Lapse and Anti-Lapse

Answer 13

Under Common Law, if a beneficiary dies before the settlor (creator) of the trust dies, the
gift to the beneficiary lapses (fails).

o Under modern Anti-Lapse statutes (applicable in CA), if the beneficiary was blood-related to
the settlor, the beneficiary’s surviving issue (child) will take the gift.

Limitation: class gifts

Question 14

Discretionary Trust

Answer 14

Trustee is given complete discretion to apply payments of income or principal to the
beneficiary

Creditors have the same rights as a beneficiary if trustee exercises discretion to pay.

Question 15

Mandatory Trust

Answer 15

-Trust has no discretion
- The trust governs when and how trust property is to be distributed

Question 16

Alienation

Answer 16

• A beneficiary can assign their equitable interest in trust property to third parties

-Interest is freely alienable unless a statute or spendthrift provision prevents it

Question 17

Support Trust

Answer 17

• Directs trustee to pay income or principal as necessary to support trust beneficiary
• Creditors cannot reach these assets unless providing a necessity to beneficiary

Question 18

Spendthrift Trust

Answer 18

• Expressly restricts beneficiary’s power to voluntarily or involuntary transfer equitable interest
• Creditors usually cannot reach the trust interest unless money is owed for children or spousal support, basic necessities, or tax lien holders

Question 19

Types of Types

Answer 19

Discretionary
Mandatory
Alienation
Support Trust
Spendthrift Trust

Question 20

Trust Termination by type

Answer 20

• Revocable: Settlor has the right to modify or terminate a trust
• Irrevocable: Modification or termination while settlor is still alive can occur only with the
  consent of all beneficiaries and if the proposed change will not interfere with a primary
  purpose of the trust

Question 21

Termination

Answer 21

1. automatically when the trust purpose had been accomplished
2. If settlor is deceased or has no remaining interest, and all the beneficiaries consent

Unfulfilled Material Purpose: a trustee can block a premature trust termination by the beneficiaries if the trust is shown to have an unfulfilled material purpose

3. By the court if purpose becomes illegal, impracticable, or impossible

Question 22

Trustee’s Powers

Answer 22

Power to terminate: none unless the trust contains express termination provision

Removal: a court can remove a trustee if purpose of the trust would be frustrated by the trustee’s continuance in office or if the trustee violated a fiduciary duty

Question 23

Duty of Care

Answer 23

General duty to act as a reasonable prudent person and treat the trust property as if it was his/her own

• Duty to follow the trust directions and carry them out in accordance with the trust
• Prudent Investor Rule
• Duty to Diversify
• Duty to Make Property Productive
• Duty to be impartial (balance interest of beneficiaries)

Question 24

Duty of Loyalty

Answer 24

Duty to administer trust in good faith (subjective standard) and to act reasonably (objective
standard) when investing property and otherwise managing the trust solely in the best interests
of the beneficiaries.

• no self dealing
  -Duty to disclose
• duty to account