Trusts

Question 1

What is required to create a private express trust?

Answer 1

1. Intent
2. Property
3. Legitimate purpose
4. A beneficiary

Question 2

Does precatory language create a trust?

Answer 2

No

Question 3

Can an unborn child be a beneficiary?

Answer 3

Yes, if part of a definite class gift.

Question 4

When can one establish a charitable trust?

Answer 4

When it has a charitable purpose

Question 5

What is the cy pres doctrine?

Answer 5

It allows a court to modify a trust if it has a general (not specific!) charitable purpose

Question 6

If a court cannot modify a charitable trust under the cy pres doctrine, where does the property go?

Answer 6

A resulting trust

Question 7

What is a remedial trust?

Answer 7

An equitable remedy created by law, either a resulting or a constructive trust.

Question 8

What is a resulting trust?

Answer 8

It is a trust that conveys property back to the settlor or his estate so to avoid unjust enrichment.

Question 9

What is a constructive trust?

Answer 9

It is created when there is wrongful conduct directed toward the settlor that caused the creation of the trust.

Question 10

What is a mandatory trust?

Answer 10

The trustee has no discretion to distribute

Question 11

What is a discretionary trust?

Answer 11

The trustee has complete discretion to distribute

Question 12

What is a support trust?

Answer 12

The trustee must distribute so to support the beneficiary

Question 13

Can a beneficiary transfer her equitable interest?

Answer 13

Yes, unless the trust or statute limits this

Question 14

When can a creditor reach trust principal or income?

Answer 14

1. Spousal or child support
2. Basic necessities
3. Federal or state tax liens

Question 15

What is a pour-over trust?

Answer 15

Testator’s creditors cannot reach the testator’s assets

Question 16

What is a spendthrift clause?

Answer 16

The beneficiary cannot transfer her equitable interest

Question 17

When can a creditor reach the beneficiary’s equitable interest?

Answer 17

When paid

Question 18

What the is the unfulfilled material purpose doctrine?

Answer 18

A trustee can block premature termination of a trust if it is still serving some unfulfilled material purpose.

Question 19

When can a trust be terminated?

Answer 19

Either by express terms, or if the settlor and all beneficiaries consent.

Question 20

If the settlor is alive, when can a trust be modified?

Answer 20

If he expressly reserved it, or if all beneficiaries agree and it does not interfere with a primary purpose of the trust

Question 21

If a settlor has died, when can a trust be modified?

Answer 21

If all beneficiaries agree, and an unforeseen event has frustrated the purpose of the trust

Question 22

Can a trustee unilaterally terminate or modify a trust?

Answer 22

No

Question 23

When can a trustee be removed?

Answer 23

1. Incapacity (jail, ill, etc.)
2. Breach of fiduciary duties
3. Underperformance of the trust

Question 24

What is the common law rule on income and principal?

Answer 24

The beneficiary is entitled to income, and the holder of the remainder interest is entitled to the principal.

Question 25

What is the unproductive property rule?

Answer 25

If a property in a trust has produced little to no income, an income beneficiary was entitled to some portion of the proceeds

Question 26

Are distributions of stock principal or income?

Answer 26

Principal

Question 27

What is the modern approach to income and principal?

Answer 27

Under the Uniform Principal and Income Act (UPAIA), evaluate the total return of the trust portfolio without regard to classification. A trustee may allocate as necessary, provided allocations are reasonable and in accord with the trust instrument.

Question 28

What is the future interest for a fee simple determinable?

Answer 28

Possibility of reverter

Question 29

What is the future interest for a fee simple subject to condition subsequent?

Answer 29

Right of entry

Question 30

What is the future interest for a life estate?

Answer 30

Reversion

Question 31

What is a remainder interest?

Answer 31

A future interest capable of becoming possessory at the natural termination of the prior estate

Question 32

What is a vested remainder?

Answer 32

The remainderman is ascertained and there is no condition precedent

Question 33

What is vested as a class gift?

Answer 33

There is a class who will take, and the gift has vested in at least one person

Question 34

What is a contingent remainder?

Answer 34

A taker is either unascertained or is subject to a condition precedent

Question 35

If the instrument is silent, what are the trustee's powers?

Answer 35

Whatever is necessary to act as a reasonably prudent person

Question 36

Does the trustee have legal title?

Answer 36

Yes, he is effectively the owner

Question 37

What is the duty of loyalty for a trustee?

Answer 37

Must act in the best interests of the beneficiaries. Determined by both an objective and subjective test.

Question 38

What is the no further inquiry rule?

Answer 38

If a trustee has been found to be self-dealing, courts do not evaluate reasonableness or good faith unless the trust permits self-dealing

Question 39

If a trust instrument permits self-dealing, what is the inquiry?

Answer 39

Evaluate whether it is reasonable and fair for the trustee to avoid liability

Question 40

What is the trustee's duty of care?

Answer 40

The care that a person of ordinary prudence would practice in the administration of his own estate.

Question 41

If a trustee has special skills, does that factor into the duty of care?

Answer 41

Yes, the trustee is held to a heightened standard

Question 42

Under the common law, could a trustee delegate authority?

Answer 42

No

Question 43

Under the modern approach, is delegation permitted?

Answer 43

Yes, if unreasonable for the settlor to expect the trustee to perform certain functions. The trustee must still oversee decision-making.

Question 44

Under the common law, what investments could a trustee make?

Answer 44

Only those enumerated in specific lists of acceptable investments.

Question 45

Under the modern approach, what investments can a trustee make?

Answer 45

The prudent investor rule governs, and diversification is expected.

Question 46

What is the duty of impartiality?

Answer 46

A trustee has a duty to balance the competing interests of present and future beneficiaries

Question 47

What administrative duties does a trustee have?

Answer 47

The duty to inform beneficiaries and the duty to account