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Flashcards in Trusts Deck (51):

What is a trust?

legal device allowing legal title to be held by trustee for benefit of beneficiaries under terms and conditions imposed by settlor


What do the beneficiaries hold in a trust?

equitable right in trust property


What is needed for valid trust?

1) settlor who creates
2) trust property
3) trustee
4) beneficiary
5) intent to create a trust


If a trust does not name a trustee does the trust fail?

No - no trust fails for lack of trustee
court can appoint


To distinguish between a gift and a trust, look to whether?

settlor attached enforceable duties that be can supervised to the transfer of the property


What is the rule against perpetuities?

no future interest is good unless it must vest, if it does not vest, not later than 21 years after some life in being at the creation of the interest
- VA adopted uniform statutory Rule Against Perpetuities
- VA personal property exception


What is uniform statutory rule against perpetuities?

- wait 90 years until after creation of interest, then fix if there is a violation or if no problem then valid
- adopted by VA


Are oral trusts valid?

Valid if the terms of the trust are proven by clear and convincing evidence
- applies to real and personal property


In VA how much notice must a trustee give to the settlor before resigning?

30 days notice


In VA a trust will fail if?

Enforcement involves commission of crime/tort
Created with intent to defeat the settlor's creditors
Based on illegal consideration


Does the Rule against Perpetuities apply to trusts?

Yes, unless the trust expressly states that the Rule Against Perpetuities does not apply.


What language creates a spendthift trust?

"No interest of any beneficiary herein shall be transferable by the beneficiary not shall such interest be reachable by the beneficiary's creditors by garnishment, attachment, or legal process."


This language creates what type of trust?
"No interest of any beneficiary herein shall be transferable by the beneficiary not shall such interest be reachable by the beneficiary's creditors by garnishment, attachment, or legal process."

Spendthrift trust


May a trustee may be removed for unfitness, unwillingness, or persistent failure to administer the trust effectively?



Are the words "trust" or "trustee" required to express an intent to create a trust in VA?

No. Neither are required.


In VA, an oral trust to both real and property personal requires what type of proof as the existence and terms?

clear and convincing evidence


What are honorary trusts?

Trust where there is no beneficiary who can enforce a trust (such as pets or cemetery plots).


What is cy pres?

If through the passage of time there is a change in circumstances for a charitable trust, the court will redirect the trust to a charitable purpose that is as close as possible to the original one.


An intervivos trust after July 1, 2006, is?

revocable, unless stated otherwise


What is a pour over device?

Ability to pour over assets from intervivos arrangements into a Last Will, so as to pass under probate


Can a self-settled trust contain a spendthift clause?

Self-declaration of trust is where settlor is the trustee and beneficiary and there is an eventual remaindermen


The validity of a revocable must be challenged when?

earlier of:
1) two years after settlor's death, or
2) six months after the trustee sent the person commencing the judicial proceeding a copy of the trust instrument


When is a trustee subject to liability?

1) trustee knowns of pending judicial proceedings contesting validity of trust
2) potential contestant has notified the trustee of a possible judicial proceeding and is in fact commenced within 60 days


What is a durable power of attorney?

authorizes another person to act on behalf of the principal
- durable means that it is not effected by incapacity
- springing durable power of attorney becomes effective upon disability or incapacity


Features of charitable trusts.

- need to a charitable purposes
- indefinite number of beneficiaries
- attorney general enforces terms of trust


Under slayer statute, is it required the accused only be convicted of murder?

Also manslaughter after 2008


What are resulting trust?

Purpose of trust is impossible and money reverts back to settlor


What is a purchase money resulting trust?

Person purchases land and title is taken in another's name.
Person may demand return of the land if not familial related, which can be rebutted by clear and convincing evidence to show it was a gift.


How can a settlor restrict the creditor from reaching the trust assets?

add a spendthrift clause
- cannot be a self-settled trust or violate public policy (Child support or tax avoidance)
- creditor can reach a mandatory distribution


Can a spendthrift clause be effective to bar claims by a creditors of the settlor?

No. Only to the creditor's of the beneficiary.


How can a trustee avoid an allegation of self-dealing?

Make complete and full disclosure to beneficiary who consents to action of trustee.
Release is only effective is not induced by improper conduct


Can a trustee buy or sell trust assets to himself even if it results in a large windfall?

No, breach of duty of loyalty by self-dealing


Can a trustee borrow trust funds?

No, violates duty of loyalty and is self-dealing.
Even though it may benefit the trust.


Can corporate trustee buy its own stock as a trust investment?

No, but retain stock if part of trust when created provided that retention of stock is prudent.


When trustee engages in self-dealing by selling trust assets to a third party, what are the rights of beneficiary against the third party?

If third party was a bona fide purchaser then cannot go after third party.
- exception if the third party was related to trustee.


When can beneficiary bring an action against trustee for a breach of duty of loyalty?

accounting - 1 year from notice
termination - 5 years, with no notice, of first to occur: 1) trustee resigns/dies; 2) termination of interest or trust


What things can the settlor not waive in a trust for the trustee?

1) reckless indifference to purpose of interest;
2) acts resulting from an abuse of a confidential relationship


What are duties of trustee?

1) act prudently; 2) impartiality; 3) control and protect trust property; 4) enforce and defend trust claims; 5) segregate trust property; 6) keep adequate records; 7) reasonably inform beneficiary; 8) furnish copies of trust instruments; 9) accounting


Can a trustee of a property give a lease that extends pass terms of trust?

Yes if the trust is the fee simple owner of the property.


Under the Uniform Prudent Investor Act what does a trustee act?

portfolio theory of diversity investment.
deemed prudent when viewed in the entire portfolio.
judge at the time of the investment, not in hindsight.
assets that are always prudent include bonds and obligations.


Items to consider when judging a trustee's actions under the modern portfolio theory of investing?

general economic conditions
expected tax consequence
role each investment plays in the overall trust portfolio
need for liquidity
assets special relationship to purpose of trust
differing interest of the income beneficiaries and remainderman


How can trustee act impartially to current beneficiaries and future remainderman?

- allocation (active management by trustee)
- unitrust (passive management by trustee)


Is court approval needed for unitrust?

Trustee must give notice to beneficiaries.
Applies a uniform percentage, such as 4%


When is a trustee personally liability under contract?

Trustee's fiduciary capacity is not disclosed in contract and other party does not know that he is dealing with a trustee


Can a irrevocable trust be revoked?

If all beneficiaries and settlor consent to modify or terminate trust


When may the court terminate or modify a trust?

1) unanticipated circumstances
2) tax advantages to achieve settlor's tax advantages
3) no trust purpose remains to be achieved or purpose has become illegal
4) uneconomic - less than $100,000


What is the standard of proof to reform terms of trust?

Clear and convincing evidence


Limitations on a purchase money resulting trust?

1) purchaser prove by clear and convincing evidence that he did not pay money in capacity of lender; and
2) parties cannot be related (then it is presumed to be gift)


Purchase money resulting trust

purchaser pays the purchase price of the property and causes title to be taken in another's name


Is a court likely to grant an unilateral application to terminate a trust for a disabled beneficiary?

No - rarely terminated before the express state trust purpose has been accomplished.
Need: consent of all parties and no further purposes to be achieved.


What duties does a trustee own the beneficiaries?

Duty of loyalty, impartiality, and prudence