Wills and Trusts

Question 1

Elements of an Express Trust (5)

Answer 1

1) SETTLOR with capacity to convey;
2) PRESENT INTENT to create a trust relationship;
3) Competent TRUSTEE with duties;
4) Definite BENEFICIARY; and
5) Same person is not the SOLE beneficiary

Also must be a PRESENT DISPOSITION in trust of SPECIFIC PROPERTY then owned by the settlor, and the trust must have a VALID TRUST PURPOSE

Consideration ≠ required

p. 1 of Trusts CMR

Question 2

What law governs express trusts?

Answer 2

Uniform Trust Code (“UTC”)

SC has adopted

p. 1 of Trusts CMR

Question 3

Settlor Must Have Capacity (What is required?)

Answer 3

One of five requirements for an express trust

Capacity requirement to create REVOCABLE or testamentary trust = same capacity required for making a will

Settlor’s lack of legal capacity to convey = NO trust
Undue influence, fraud, or duress = trust UNENFORCEABLE

For an IRREVOCABLE trust, settlor must have LEGAL POWER to convey the trust property

p. 1 of Trusts CMR

Question 4

Present Intention to Create a Trust

Answer 4

One of five requirements for an express trust

Intent = ESSENTIAL to existence of express trust

Manifested by WRITTEN or SPOKEN words, or by CONDUCT OF SETTLOR - unless S.o.W. or S.o.F. apply

ORAL trust of PERSONAL property = VALID
DELIVERY of deed to trustee = SUFFICIENT

COMMUNICATION OF INTENT to beneficiaries ≠ necessary

p. 1 of Trusts CMR

Question 5

Statute of Wills (S.o.W.)

Answer 5

Statute of Wills Requirements

1) Will must be in WRITING;
2) SIGNED by TESTATOR (the person making the will); and
3) WITNESSED by at least TWO other persons.

UPC carries forward the two witness requirement, except that a document is valid as a HOLOGRAPHIC WILL, whether or not witnessed, IF the SIGNATURE and MATERIAL PORTIONS of the document are in the TESTATOR’S HANDWRITING

Question 6

Holographic Wills

Answer 6

ENTIRELY in testator’s HANDWRITING and has NO ATTESTING WITNESSES

MUST contain testator’s signature; NOT required to be at bottom of the will

Nickname, first name, even initials = signature
GIVES EFFECT to handwritten changes made by testator AFTER will is completed

If regular will meets all requirements EXCEPT two witnesses MAY be a holographic will, IF the SIGNATURE and MATERIAL PORTIONS of the document are in the TESTATOR’S HANDWRITING (and jurisdiction allows)

NOT GIVEN EFFECT: interlineations, changes in beneficiaries, amounts, etc. made AFTER the execution of an ATTESTED will - may work as a REVOCATION

Note - Watch for a fact pattern, HOWEVER, with these changes made to an [attested will] in a jurisdiction that [recognizes holographic wills.] If requirements met, OFTEN these changes = valid holographic CODICIL

p. 8 of Wills CMR

Question 7

Interlineation

Answer 7

Legal term that signifies writing has been inserted between earlier language

It is commonly used to indicate the insertion of new language between previous sentences in a contract

Question 8

Changes in beneficiaries, interlineations, amounts, etc. AFTER EXECUTION of an [attested will] in a jurisdiction that recognizes holographic wills, where other requirements are met = ?

Answer 8

Given effect as a [valid holographic CODICIL]

p. 8 of Wills CMR

Question 9

Changes in beneficiaries, interlineations, amounts, etc. AFTER EXECUTION of an [attested will] in a jurisdiction that does not recognize holographic wills, where other requirements are met = ?

Answer 9

Not usually given effect

May work as a REVOCATION

p. 8 of Wills CMR

Question 10

Statute of Frauds (S.o.F.)

“MY LEGS”

Answer 10

Requirement that certain kinds of Ks be memorialized in

(i) WRITING,
(ii) SIGNED by the party to be CHARGED,
(iii) with SUFFICIENT CONTENT to evidence the K

Required for Ks:

• In consideration of MARRIAGE
• Cannot be performed within one YEAR
• Transfer of an interest in LAND
• EXECUTOR of a will to pay a debt of the estate with his own money.
• Sale of GOODS totaling $500.00 or more.
• One party becomes a SURETY (acts as guarantor) for another party’s debt or other obligation

“MY LEGS”

Ks of indefinite duration do not fall under S.o.F., regardless of how long the performance actually takes

Question 11

Present Intention to Create a Trust - Timing

Answer 11

Must be externally manifested while SETTLOR OWNS property and PRIOR to conveyance
(Evidence of conduct subsequent to conveyance may be evidence of earlier incident)

Settlor’s intent must be that the trust take effect IMMEDIATELY, not at some future time
(Future interest can be trust property)

p. 1 of Trusts CMR

Question 12

Precatory Expressions

Answer 12

Expressions of a HOPE, wish, or mere suggestion that the property by used in a certain way

DOES NOT CREATE A TRUST

UNLESS -

1) DEFINITE and PRECISE directions;
2) Directions addressed to a FIDUCIARY (e.g.: executor under a will);
3) A resulting “UNNATURAL” DISPOSITION of property (e.g.: close relative will otherwise take nothing) if no trust imposed; OR
4) Extrinsic evidence showing that the settlor PREVIOUSLY SUPPORTED the intended beneficiary

p. 1 of Trusts CMR

Question 13

Trustee - Appointment

Answer 13

Established trust ≠ fail because trustee dies, refuses to accept appointment, or resigns

Ct. will appoint successor trustee, UNLESS clear that settlor only wanted the trust to continue if that particular trustee served

Absence of a trustee may cause ATTEMPTED INTER VIVOS TRUST to fail for LACK OF DELIVERY

p. 2 of Trusts CMR

Question 14

Acceptance of Trusteeship

Answer 14

Person accepts by:

(i) SUBSTANTIALLY COMPLYING with the acceptance terms in the trust instrument; or
(ii) ACCEPTING delivery of trust property, EXERCISING POWERS or PERFORMING DUTIES as trustee, or INDICATING acceptance

Person designated to serve as trustee may still preserve trust property WITHOUT accepting trusteeship, provided he sends NOTICE OF REJECTION to the settlor or a qualified beneficiary

Trusteeship NOT accepted within a REASONABLE TIME, presumed to be REJECTED

p. 2 of Trusts CMR

Question 15

Trustee Must Have Duties

Answer 15

Settlor must INTEND to impose enforceable duties on the trustee

Duties not spelled out in trust instrument ➝ Ct. implies duties if there is INTENTION to create a trust, a RES, and an identified BENEFICIARY

p. 2 of Trusts CMR

Question 16

Qualifications of Trustee

Answer 16

Anyone who has (i) CAPACITY TO ACQUIRE AND HOLD property for HIS OWN benefit, and has (ii) CAPACITY TO ADMINISTER the trust may be a trustee

Minors and insane persons can HOLD property, but CANNOT administer

State statutes limit the right of some persons or corporations to serve as trustee (e.g.: foreign corporations)

p. 2 of Trusts CMR

Question 17

Compensation and Reimbursement of Trustee

Answer 17

Trustee is entitled to REASONABLE compensation or to compensation SPECIFIED in the TRUST instrument

Also entitled to REIMBURSEMENT for expenses incurred in [trust’s administration] and any other expenses that resulted in a [benefit to the trust]

p. 2 of Trusts CMR

Question 18

Removal of Trustee - Who Can Remove

Answer 18

(i) Ct. can remove a trustee on its OWN motion, or upon REQUEST by the (ii) SETTLOR, (iii) a BENEFICIARY, or (iv) a CO-TRUSTEE
p. 2 of Trusts CMR

Question 19

Disclaimer or Resignation by Trustee

Answer 19

BEFORE acceptance, a trustee can disclaim or refuse appointment for ANY reason

Trustee CANNOT accept a trust in part and disclaim it in part

p. 2 of Trusts CMR

Question 20

Successor Trustees

Answer 20

Successor trustee succeeds to ALL of the RIGHTS, POWERS, and PRIVILEGES of the original trustee, and ALL of the original trustee’s DUTIES, LIABILITIES, and RESPONSIBILITIES

p. 3 of Trusts CMR

Question 21

Merger of Title Where Sole Trustee is Also Sole Beneficiary

Answer 21

Sole Trustee = Sole Beneficiary
Same individual and hold the same interests ∴
titles MERGE ➝ trust TERMINATES

p. 3 of Trusts CMR

Question 22

Res

Answer 22

Legal term for PROPERTY

Required element for a trust; trust w/o res FAILS

Question 23

Removal of Trustee - Grounds for Removal (4)

Answer 23

Grounds for removal of a trustee include:

1) A serious BREACH OF TRUST;
2) LACK OF COOPERATION among co-trustees;
3) UNFITNESS, UNWILLINGNESS, or PERSISTENT FAILURE to administer; or
4) A SUBSTANTIAL CHANGE IN CIRCUMSTANCES

Basic factor considered ➝ continuation in office detrimental to trust?

p. 2 of Trusts CMR

Question 24

Removal of Trustee - What is Considered?

Answer 24

Basic factor considered = whether continuation in office would be DETRIMENTAL to the trust

p. 2 of Trusts CMR

Question 25

Relation Back of Acceptance of Trusteeship

Answer 25

Testamentary trust is treated in existence as of SETTLOR'S DEATH and trustee's acceptance "relates back" to THAT DATE ∴ possible for trustee, by accepting, to become LIABLE (in his fiduciary capacity) on TORT CLAIMS arising PRIOR to the time he accepted p. 2 of Trusts CMR

Question 26

Resignation by Trustee

Answer 26

Once appointment ACCEPTED, trustee can resign by either: 1) Giving 30 DAYS NOTICE to the qualified beneficiaries, settlor (if living), and co-trustees; OR 2) Obtaining COURT APPROVAL p. 2-3 of Trusts CMR

Question 27

Beneficiaries

Answer 27

Trust cannot exist w/o someone to enforce ∴ beneficiary NECESSARY to the validity of EVERY trust, EXCEPT charitable and honorary trusts p. 3 of Trusts CMR

Question 28

Qualified Beneficiary

Answer 28

Beneficiary who, on the date the beneficiary's qualification is determined, is:(i) a CURRENT BENEFICIARY, or (ii) a FIRST-LINE REMAINDERMAN p. 3 of Trusts CMR

Question 29

First-Line Remainderman

Answer 29

One who would BECOME ELIGIBLE to receive distributions IF the EVENT triggering the TERMINATION of a BENEFICIARY'S INTEREST, or of the TRUST itself, OCCURS ON THE QUALIFICATION DATE p. 3 of Trusts CMR

Question 30

Beneficiaries - Capacity

Answer 30

Any person, natural or artificial, capable of TAKING and HOLDING title to property can be the beneficiary of a private trust p. 3 of Trusts CMR

Question 31

Incidental and Indirect Beneficiaries

Answer 31

Trust must operate DIRECTLY to the BENEFIT of the person to be a beneficiary ∴ not everyone who benefits from the trust is a beneficiary (e.g.: attorney designated by trust instrument ≠ beneficiary) p. 3 of Trusts CMR

Question 32

Notice to and Acceptance by Beneficiary

Answer 32

Notice to beneficiary NOT essential to validity of trust Acceptance by beneficiary is REQUIRED; can take place AFTER valid trust created Acceptance may be EXPRESS or IMPLIED, and is generally PRESUMED (Lack of notice may indicate no trust intended) p. 3 of Trusts CMR

Question 33

Disclaimer by Beneficiary

Answer 33

Beneficiary MAY DISCLAIM an interest by FILING a WRITTEN INSTRUMENT with the trustee (or, trust created by will involved, w/ the probate ct.) Valid disclaimer made ➝ trust read as though disclaimant was deceased as of the relevant date No one can be compelled to accept interest in a trust against her will p. 3 of Trusts CMR

Question 34

Disclaimer by Beneficiary - Timing

Answer 34

Require disclaimer to be made WITHIN 9 MONTHS of interest's CREATION (also relevant period for federal gift tax purposes) Beneficiary under 21? Time limit does not apply Disclaimer timely made if WITHIN 9 MONTHS AFTER beneficiary attains age 21 p. 3 of Trusts CMR

Question 35

Disclaimer by Beneficiary - Where to File

Answer 35

Beneficiary may disclaim (i) an interest by filing with the TRUSTEE or, (ii) if a trust created by a [will] is involved, with the PROBATE COURT p. 3 of Trusts CMR

Question 36

Disclaimer by Beneficiary - Estoppel

Answer 36

Beneficiary may be estopped from making a disclaimer IF she has EXERCISED any dominion or control over the interest, or ACCEPTED any benefits under the trust p. 4 of Trusts CMR

Question 37

Disclaimer by Beneficiary - Disclaimant's Creditors

Answer 37

Disclaimer relates back to the DATE OF THE TRANSFER for ALL purposes Disclaimer by INSOLVENT BENEFICIARY can be used to DEFEAT CREDITOR'S CLAIMS, but NOT a FEDERAL TAX LIEN p. 4 of Trusts CMR

Question 38

Beneficiaries - Anti-Lapse Statutes

Answer 38

Most states ➝ only applies to wills; come into play ONLY if will beneficiary within certain degree of relationship PREDECEASES the testator UPC ➝ applies to FUTURE INTERESTS created in trusts - even to future interests EXPRESSLY made contingent on SURVIVAL - UNLESS the trust makes an ALTERNATE gift in case of a beneficiary's nonsurvivial p. 4 of Trusts CMR

Question 39

Beneficiaries - Effect of Divorce

Answer 39

Final decree of divorce or annulment REVOKES ALL beneficial gifts and fiduciary appointments IN FAVOR of a former spouse UPC ➝ extended "Divorce Revokes" Rule to ALL revocable dispositions, including revocable trusts and designation of a former spouse as AGENT under a DURABLE POWER OF ATTORNEY Governing instrument read AS IF former spouse (and his relatives) DECEASED p. 4 of Trusts CMR

Question 40

Definiteness of Beneficiaries Under Private Trust

Answer 40

Must have DEFINITE beneficiaries in order to have a PRIVATE trust NOT required for CHARITABLE trusts p. 4 of Trusts CMR

Question 41

Resulting Trust Remedy for Lack of Beneficiary

Answer 41

Trust fails for LACK OF BENEFICIARY ➝ resulting trust IN FAVOR of the SETTLOR or his successors is PRESUMED p. 4 of Trusts CMR

Question 42

Definiteness of Unascertained Beneficiaries Under Private Trust

Answer 42

Beneficiaries may be "DEFINITE" even though not yet ascertained (e.g.: unborn beneficiaries) Beneficiaries MUST be ASCERTAINABLE by the TIME their interests come into enjoyment p. 4 of Trusts CMR

Question 43

Definiteness of Class Gifts Under Private Trust

Answer 43

CL ➝ Private trust exists for benefit of a class, class must be REASONABLY DEFINITE ``` As long as class reasonably definite, trust MAY AUTHORIZE trustee to exercise his DISCRETION in selecting members to be benefited, or may provide that only those who meet certain requirements will benefit (Broad power to choose beneficiaries may constitute a GIFT or POWER OF APPOINTMENT rather than a trust) ``` ``` UTC ➝ Settlor MAY EMPOWER the trustee to SELECT the beneficiaries from an INDEFINITE class Failure to exercise power ➝ resulting trust IN FAVOR of the SETTLOR or his successors ``` p. 4 of Trusts CMR

Question 44

No Res?

Answer 44

No res = no trust No trust property, trust FAILS because trustee has no property to manage p. 5 of Trusts CMR

Question 45

Trust Property Must Be Existing Interest in Existing Property

Answer 45

Future interest MAY be held in trust, but an interest not yet in LEGAL EXISTENCE (i.e.: mere expectancy) CANNOT be held in trust Future PROFITS from an existing K can be a trust res p. 5 of Trusts CMR

Question 46

Property that Settlor Has Power to Convey Can Be Subject of Trust

Answer 46

Trust res must be EXISTING PROPERTY that the settlor has the POWER TO CONVEY, including INTANGIBLES in which the settlor has an ASSIGNABLE INTEREST (e.g.: promissory notes) p. 5 of Trusts CMR

Question 47

Trust Res Must Be Segregated from Other Property

Answer 47

Res MUST be IDENTIFIABLE and SEGREGATED Res MAY be a FRACTIONAL or UNDIVIDED interest in specific property p. 5 of Trusts CMR

Question 48

Debtor Cannot Hold Own Debt in Trust

Answer 48

Debtor CANNOT hold his OWN debt in trust The debtor CAN declare himself TRUSTEE of particular PROPERTY from which the debt is to be paid The debt can be held in trust by ANOTHER PERSON p. 5 of Trusts CMR

Question 49

Invalid Trust Purposes (4)

Answer 49

Trust purpose is invalid if it is: (i) Illegal; (ii) Contrary to public policy (e.g.: encourages immorality); (iii) Impossible to achieve; or (iv) Intended to defraud the settlor's creditors or based on illegal consideration p. 5 of Trusts CMR

Question 50

Invalid Trust Purposes - Acts Contrary to Public Policy

Answer 50

Public policy violated if purpose of trust is to: (i) Induce others to engage in criminal or tortious acts; (ii) Encourage immorality; or (iii) Induce a person to neglect parental, familial, or civic duties If condition attached to an interest is against public policy: 1) The settlor's ALTERNATIVE DESIRE controls, if expressed 2) If the illegal condition is a condition SUBSEQUENT, the condition is invalidated, but the TRUST IS VALID 3) If the illegal condition is a condition PRECEDENT, hold interest VALID, unless evidence that settlor's wish would be to VOID the beneficiary's interest altogether if the condition is unenforceable p. 5 of Trusts CMR

Question 51

Rule Against Perpetuities - Trust Purposes

Answer 51

CL Rule Against Perpetuities (RAP) ➝ Nonvested property interest INVALID unless it is CERTAIN TO VEST or FAIL no later than 21 YEARS after the death of a person WHO IS ALIVE when it is created Most states ➝ "Wait-and-See" Approach, or an alternative 90-year vesting period that would save the interest p. 6 of Trusts CMR

Question 52

Unenforceable Gratuitous Promise Cannot Be Trust Res

Answer 52

Unenforceable gratuitous promise CANNOT be subject of a trust p. 5 of Trusts CMR

Question 53

Wait-and-See Approach

Answer 53

The Rule Against Perpetuities (RAP) DOES affect an estate or interest in property UNLESS AND UNTIL it becomes CERTAIN that the estate or interest WILL NOT VEST WITHIN THE PERPETUITIES PERIOD p. 6 of Trusts CMR

Question 54

Creation of Express Trusts

Answer 54

Can be created by a) Inter vivos transfer b) Inter vivos declaration of trust c) By will (testamentary trust) p. 6 of Trusts CMR

Question 55

Inter Vivos Trusts - Present Declaration or Transfer of Trust

Answer 55

Present declaration or transfer of trust REQUIRED for inter vivos trust Trust created either by: a) person declaring himself trustee for another; or b) by the transfer of property to another trustee Present INTENT required must be manifested BY CONDUCT (delivery) or WORDS (declaring oneself trustee) Delivery means placing the trust property OUT OF the settlor's control (UNLESS settlor serves as a trustee) p. 6 of Trusts CMR

Question 56

Inter Vivos Trusts - Failure to Name Trustee

Answer 56

Failure to name trustee, or a promise to name trustee in the future may evidence a LACK OF PRESENT INTENT and PREVENT DELIVERY OF RES p. 6 of Trusts CMR

Question 57

Inter Vivos Trusts - Manifestation of Intent

Answer 57

Must manifest intent when TRUST RES EXISTS If present trust not established bc there is no trust res, trust arises when settlor SUBSEQUENTLY ACQUIRES RES and REMANIFESTS TRUST INTENT p. 6 of Trusts CMR

Question 58

Inter Vivos Trusts - Formal Requirements

Answer 58

Statute of Frauds (S.o.F.) Writing requirement for trusts of LAND Written instrument signed by person entitled to impress the trust upon the property is commonly required under S.o.F. Most states do NOT require writing for trust of PERSONAL PROPERTY Oral trust may be established ONLY by [clear and convincing evidence] Note - otherwise invalid oral trust of land may be enforced by imposing CONSTRUCTIVE TRUST p. 7 of Trusts CMR

Question 59

Inter Vivos Trusts - Parol Evidence Rule

Answer 59

Most states ALLOW extrinsic evidence where an AMBIGUITY appears on the face of the writing p. 7 of Trusts CMR

Question 60

Testamentary Trusts - Formalities

Answer 60

Trust INTENT and the ESSENTIAL TERMS of the trust (trust res, beneficiaries, and trust purpose) must be ascertained from: a) the WILL ITSELF; b) from a WRITING INCORPORATED by reference into the will; or c) from exercise of POWER OF APPOINTMENT created by the will p. 7 of Trusts CMR

Question 61

Testamentary Trusts - "Secret Trusts"

Answer 61

Secret Trust ➝ Constructive Trust imposed Will makes gift that is absolute on its face, but was IN FACT made in RELIANCE on the beneficiary's PROMISE to hold the property in trust for ANOTHER - intended trust beneficiary MAY present extrinsic evidence of the promise Promise can be proven by [clear and convincing evidence] If proven, CONSTRUCTIVE TRUST imposed on property in favor of intended trust beneficiary Constructive trust imposed EVEN IF the will beneficiary did not make the promise until AFTER the will was executed Does not matter whether the will beneficiary INTENDED to perform the promise when he made it Only matters is that TESTATOR RELIED on the promise p. 7 of Trusts CMR

Question 62

Testamentary Trusts - "Semi-Secret Trusts"

Answer 62

Semi-Secret Trust ➝ Resulting Trust implied Semi-secret trust, will makes gift in trust but FAILS TO NAME beneficiary Gift FAILS and named trustee holds property on a resulting trust for TESTATOR'S HEIRS p. 7 of Trusts CMR

Question 63

Charitable Trusts - Distinctive Rules

Answer 63

Differ from rules for private trusts in 3 important ways: 1) Charitable trust must have INDEFINITE BENEFICIARIES; 2) It may be PERPETUAL; and 3) The CY PRES DOCTRINE applies p. 8 of Trusts CMR

Question 64

Charitable Trust - Purposes

Answer 64

Must have a purpose considered to BENEFIT THE PUBLIC Include the relief of poverty, advancement of education or religion, promotion of health, and accomplishment of govt. purposes (e.g.: parks, museums) Class to be benefited may be limited, but MAY NOT be so narrow as to only benefit a FEW individuals whom the settlor wishes to aid personally p. 8 of Trusts CMR

Question 65

Charitable Trusts - Indefinite Beneficiaries

Answer 65

Beneficiaries of charitable trust must be INDEFINITE Ct. can select a charitable purpose or beneficiary if none specified in trust instrument, so long as selection consistent w settlor's ascertainable intention (Does not mean beneficiary cannot be specific entity like Red Cross or ASPCA; ultimate beneficiaries are indefinite, even though entity is specific) p. 8 of Trusts CMR

Question 66

Charitable Trusts - Enforcement

Answer 66

Suit to enforce can be brought by the SETTLOR, a qualified BENEFICIARY, or the STATE'S AG p. 8 of Trusts CMR

Question 67

Charitable Trusts - Rule Against Perpetuities

Answer 67

May be PERPETUAL Rule Against Perpetuities (RAP) DOES NOT APPLY to the shifting of the beneficial interest in a trust from one charity to another on the happening of a condition (Charity-to-Charity Exception) Rule DOES apply to shifts between private and charitable uses p. 9 of Trusts CMR

Question 68

Charitable Trusts - Cy Pres

Answer 68

Charitable purpose selected by settlor = impracticable, unlawful, impossible to achieve, or wasteful, ct. may select ALTERNATIVE under the doctrine of cy pres by ascertaining the settlor's PRIMARY PURPOSE Doctrine applies to outright charitable gifts AND charitable trusts Cy Pres = "as near as possible" p. 9 of Trusts CMR

Question 69

Honorary Trusts

Answer 69

Commonly established for benefit of PETS or maintenance of BURIAL places CL ➝ no human beneficiary to enforce the trust, trustee is "on her honor" to carryout its terms UTC ➝ trust is enforceable by someone named in the trust instrument or appointed by the ct. Trust property may ONLY be applied to carryout terms of the trust Excess property distributed to the settlor of his successors, unless governing instrument provides otherwise p. 9 of Trusts CMR

Question 70

Honorary Trusts - Duration

Answer 70

Many jurisdictions will VOID honorary trust (not for care of animals) on basis of RAP if its duration may be more than a human life in being plus 21 years UTC ➝ expressly provides that honorary trust (not for care of animals) MAY NOT be enforced for more than 21 years p. 9 of Trusts CMR

Question 71

Honorary Trusts - Trust for the Care of an Animal

Answer 71

Trust for the care of an animal alive during the settlor's lifetime is VALID Trust terminates when animal DIES p. 9 of Trusts CMR

Question 72

Voluntary Assignment

Answer 72

Beneficiary may FREELY TRANSFER his interest in trust (absent restriction by statute or instrument) Assigned interest remains subject to all previous conditions and limitations p. 9 of Trusts CMR

Question 73

Involuntary Transfer - Rights of Creditors

Answer 73

Insolvent trust beneficiary's creditors MAY LEVY on his beneficial interest (absent restriction by statute or instrument) Interest is subject to JUDICIAL SALE Ct. may ORDER TRUSTEE to pay BENEFICIARY'S INCOME to the CREDITORS until debt satisfied to avoid judicial sale p. 9 of Trusts CMR

Question 74

Restraints on Alienation - Spendthrift Trusts

Answer 74

Spendthrift trust PRECLUDES beneficiary from voluntarily OR involuntarily TRANSFERRING HIS INTEREST in the trust, and his CREDITORS are PRECLUDED from reaching it to satisfy their claims Purpose is to protect beneficiary from his own improvidence (lacking foresight) Spendthrift trust = restraint on alienation, most courts uphold spendthrift restrictions p. 9 of Trusts CMR

Question 75

Spendthrift Trusts - Rights of Creditors

Answer 75

Beneficiary's creditors CANNOT reach his interest UNTIL income has been paid to him p. 10 of Trusts CMR

Question 76

Restraint on Involuntary Alienation ONLY

Answer 76

Restriction permitting beneficiary to voluntarily alienate his interest, but purporting to DENY CREDITORS the right to reach the beneficiary's interest = probably INVALID p. 10 of Trusts CMR

Question 77

Effect of Spendthrift Clause

Answer 77

Effect = Assignments are UNENFORCEABLE Beneficiary's assignees CANNOT force the trustee to pay them DIRECTLY Trustee may CHOOSE to honor a purported assignment by the beneficiary, but the trustee may recommence payments to the beneficiary at ANY TIME, and the beneficiary may WITHDRAW his discretion to pay the assignee Beneficiary's creditors CANNOT force trustee to pay them p. 10 of Trusts CMR

Question 78

Spendthrift Clause - Exceptions

Answer 78

Cannot be used to shield beneficiary from: (i) his OWN creditors where the beneficiary is the SETTLOR; (ii) JUDGMENTS or ct. orders for support or maintenance of the beneficiary's child, spouse, or former spouse; or (iii) claims by the GOVT. Creditor can reach mandatory distribution of income or principal IF trustee does not make it within a reasonable time When unclear whether beneficiary = settlor, determine who FURNISHED THE CONSIDERATION for the creation of the trust Person who furnishes consideration = SETTLOR, EVEN IF trust created by another person p. 10 of Trusts CMR

Question 79

Discretionary Trusts

Answer 79

Trust where trustee is given DISCRETION whether to apply or withhold PAYMENTS of income or principal (or both) to a beneficiary p. 10 of Trusts CMR

Question 80

Discretionary Trusts - Creditor's Rights

Answer 80

Before trustee exercises discretion to make payments to beneficiary, beneficiary's interest NOT assignable and CANNOT be reached by creditors Creditors allowed to attach beneficiary's INTEREST, but MAY NOT COMPEL trustee to make a distribution If trustee has NOTICE of attachment by creditors and decides to make payments to the beneficiary, must make those payments DIRECTLY to creditors UNLESS interest protected by spendthrift provision p. 10 of Trusts CMR

Question 81

Discretionary Trusts - Exceptions to Creditor's Rights

Answer 81

Ct. can ENFORCE TRUSTEE to satisfy a judgment order against the beneficiary for the SUPPORT or maintenance of the beneficiary's child, spouse, or former spouse p. 10 of Trusts CMR

Question 82

Discretionary Trusts - Beneficiary's Rights

Answer 82

Beneficiary has NO RIGHT to payment that he can enforce against the trustee ∴ beneficiary cannot interfere w exercise of trustee's discretion, UNLESS trustee ABUSES his power (ct. will intervene) p. 10 of Trusts CMR

Question 83

Support Trusts

Answer 83

Trust that directs trustee to pay ONLY SO MUCH of the income or principal (or both) as is NECESSARY for the beneficiary's SUPPORT = discretionary trust w support standard Creditors' rights = same for support trust as for discretionary trust Even w/o spendthrift clause, beneficiary's interest in support trust NOT assignable In DETERMINING SUPPORT needs, look at settlor's INTENT as to whether beneficiary's OTHER RESOURCES should be considered Trust to "pay all of the income to A for his support" ≠ support trust When whole of income is to paid to A for his support, words "for his support" merely state MOTIVE for transfer Beneficiary NOT LIMITED to amounts necessary for his support p. 10-11 of Trusts CMR

Question 84

Creditors of Trustee

Answer 84

Cannot reach trust property to satisfy claims Only have personal claim against trustee p. 11 of Trusts CMR

Question 85

Modification and Termination of Trust - Generally

Answer 85

Trust will terminate AUTOMATICALLY upon expiration of term specified in instrument or when all purposes have been accomplished or unlawful, contrary to public policy, or impossible to achieve p. 11 of Trusts CMR

Question 86

Modification and Termination of Trust - By the Settlor

Answer 86

UTC ➝ settlor can revoke or amend trust UNLESS terms expressly state it is IRREVOCABLE Many states (even some UTC) follow [traditional rule] ➝ trust is IRREVOCABLE unless settlor EXPRESSLY RESERVES power to revoke or modify the trust p. 11 of Trusts CMR

Question 87

Modification and Termination of Trust - By the Beneficiaries

Answer 87

May be modified or terminated upon CONSENT or the SETTLOR (or agent, conservator, guardian) AND ALL BENEFICIARIES, even if modification conflicts w [material purpose] of the trust May be modified or terminated on CONSENT of ONLY ALL BENEFICIARIES, but only if NO MATERIAL PURPOSE of the trust frustrated UTC ➝ Ct. may modify trust even w/o consent of all beneficiaries if (i) trust could have been TERMINATED had all beneficiaries consented, and (ii) interest of a beneficiary who does not consent will be adequately PROTECTED Note - Watch for remote/contingent beneficiaries on early termination or modification Q. ALL BENEFICIARIES MUST CONSENT, INCLUDING UNBORN AND UNASCERTAINED BENEFICIARIES, as well as beneficiaries of future interests - no matter how uncertain or contingent. Any beneficiaries unborn or unascertained must have party appointed to represent their interests; otherwise, trust may NOT be modified or terminated p. 11 of Trusts CMR

Question 88

Modification and Termination of Trust By the Beneficiaries - Material Purpose

Answer 88

Indicators of material purposes that may prevent beneficiaries from terminating a trust include: (i) distributing property to a beneficiary at a DESIGNATED AGE (shows purpose to keep property out of beneficiary's hands until designated age); and (ii) a SPENDTHRIFT provision (shows a purpose to protect the beneficiary from creditor's claims) p. 11-12 of Trusts CMR

Question 89

Modification and Termination of Trust By the Beneficiaries - Distribution of Property and Liability of Trustee

Answer 89

Trust terminated by agreement of all beneficiaries Trustee distributes trust property as agreed by beneficiaries Where ALL beneficiaries consent to termination, trustee NOT LIABLE if he accommodates them by distributing trust assets, EVEN IF termination violates material purpose of settlor p. 12 of Trusts CMR

Question 90

Modification and Termination of Trust By the Beneficiaries - Role of Settlor in Terminating Inter Vivos Trust

Answer 90

As long as beneficiaries have right to terminate, settlor's objections are NOT a bar (may be evidence to whether termination would defeat trust purposes) Joinder of settlor may be deemed WAIVER of material purpose that would otherwise block termination p. 12 of Trusts CMR

Question 91

Modification and Termination of Trust - By the Court

Answer 91

Termination/modification not available bc not all beneficiaries consent, ct. may terminate/modify trust IF: (i) trust could have been modified if all beneficiaries had consented; and (ii) interests of any nonconsenting beneficiaries will be adequately protected Additionally, ct.may terminate/modify trust IF: (i) UNANTICIPATED CIRCUMSTANCES threaten purpose of trust; (ii) continuation of the trust on its existing terms is IMPRACTICABLE OR WASTEFUL; or (iii) the value of the trust is INSUFFICIENT to justify the cost of administration to achieve settlor's TAX OBJECTIVES Ct. may reform terms of trust to reflect settlor's intent if mistake in terms shown by [clear and convincing evidence] = REFORMATION p. 12 of Trusts CMR

Question 92

Modification and Termination of Uneconomic Trust - By the Trustee

Answer 92

Trustee can terminate trust if trust property LESS THAN $50,000 and amount is INSUFFICIENT to justify cost of administration, as long as trustee provides qualified beneficiaries w NOTICE p. 12 of Trusts CMR

Question 93

Modification and Termination of Trust - Combination and Division of Trusts by Trustee

Answer 93

Absent contrary terms, trustee can COMBINE several trusts into one trust or DIVIDE one trust into several trusts, provided doing so DOES NOT frustrate purpose of trust or IMPAIR rights of any beneficiary Trustee NOT required to obtain consent of qualified beneficiaries prior to combining or dividing trusts Trustee MUST provide beneficiaries w NOTICE p. 12 of Trusts CMR

Question 94

Powers of the Trustee - Sources (4)

Answer 94

Trustee can properly exercise powers EXPRESSLY or IMPLIEDLY conferred upon her Powers include: (i) expressly conferred upon her by TERMS of trust (which control); (ii) that an UNMARRIED individual has over her own property; (iii) that are appropriate to achieve proper INVESTMENT, MANAGEMENT, and DISTRIBUTION of trust property; and (iv) conferred upon her by UTC p. 12-13 of Trusts CMR

Question 95

Powers of the Trustee - Joint Powers

Answer 95

Co-trustees unable to reach UNANIMOUS decision may act by MAJORITY DECISION If co-trustee cannot perform bc e.g., absence or illness, remaining co-trustees may act for the trust p. 13 of Trusts CMR

Question 96

Powers of the Trustee - Imperative and Discretionary Powers

Answer 96

IMPERATIVE POWER = power that trust instrument requires to exercise Trustee fails or refuses to perform under imperative power, ct. will, upon petition, order trustee to exercise power as required by trust instrument (provided not against law or public policy) DISCRETIONARY POWER = power that trustee may or may not perform Exercise of discretionary power is subject to final judicial review for abuse of discretion Trustee NOT IMMUNE from review even if given "uncontrolled" discretion Ct. will intervene if trustee fails to exercise any judgment at all p. 13 of Trusts CMR

Question 97

Duties of the Trustee

Answer 97

Trustee of REVOCABLE trust owes her duties EXCLUSIVELY to settlor Trustee of IRREVOCABLE trust owes her duties to all trust beneficiaries p. 13 of Trusts CMR

Question 98

Duty of Trustee to Administer Trust

Answer 98

Trustee has duty to PERSONALLY administer the trust in GOOD FAITH and in a PRUDENT MANNER, in accordance w terms and purposes of trust instrument and interests of beneficiaries Trustee w special skills/expertise held to higher standard More than one beneficiary, trustee must act IMPARTIALLY, taking into account differing interests Trustee MAY NOT DELEGATE discretionary functions (such as decision to make distributions) Doing so makes trustee a GUARANTOR for any losses caused by the improper delegation p. 13 of Trusts CMR

Question 99

Duties of Loyalty Owed by Trustee to Beneficiaries (7)

Answer 99

Absent ct. approval or express waiver in trust instrument, trustee CANNOT enter into any transaction in which she is dealing w the trust in her INDIVIDUAL CAPACITY Trustee owes a DUTY OF UNDIVIDED LOYALTY to trust and beneficiaries (i) Trustee CANNOT BUY OR SELL TRUST ASSETS (even if price is fair); (ii) Trustee MAY NOT SELL PROPERTY OF ONE TRUST TO ANOTHER TRUST of which she is ALSO trustee; (iii) Trustee MAY NOT BORROW TRUST FUNDS NOR LOAN HER PERSONAL FUNDS to the trust (except to protect the trust), and any INTEREST paid on such a loan must be RETURNED to the trust; (iv) Trustee CANNOT USE TRUST ASSETS TO SECURE A PERSONAL LOAN; (v) Trustee CANNOT PERSONALLY GAIN through her position as a trustee; (vi) Corporate trustee CANNOT INVEST IN ITS OWN STOCK as a trust investment; can RETAIN its own stock if such stock part of original trust res when trust established (provided that retention meets prudent investor standard); (vii) SELF-EMPLOYMENT can constitute a form of PROHIBITED dealing; if trustee renders EXTRAORDINARY services to the trust, she may be entitled to ADDITIONAL COMPENSATION Note - Q re: self-dealing trustee, good faith/actual benefit to trust = IRRELEVANT p. 13-14 of Trusts CMR

Question 100

Powers of the Trustee Given by UTC (10+)

Answer 100

Confers many powers on trustee Powers include power to: (i) collect and hold trust assets; (ii) operate a business; (iii) acquire an undivided interest in a trust asset; (iv) invest trust assets; (v) buy, sell, or encumber trust assets; (vi) enter into a lease; (vii) vote securities; (viii) pay taxes and assessments; (ix) insure assets; (x) make distributions; (xi) prosecute and defend actions, etc. p. 13 of Trusts CMR

Question 101

Types of Trustee Duties (6)

Answer 101

1) Duty to administer trust 2) Duty of loyalty 3) Duty to report 4) Duty to separate trust property and keep records (no commingling) 5) Duty to enforce claims and defend trust from attack 6) Duty to preserve trust property and make it productive p. 13-15 of Trusts CMR

Question 102

Investments - Uniform Prudent Investor Act

Answer 102

Trustee's investment responsibilities governed by UPIA or statutory "legal lists" UPIA provisions apply ONLY if there is no contrary provision in the trust instrument Instrument allows discretion, question if power expanded beyond UPIA or legal list Language STRICTLY construed SC has adopted UPIA ➝ PRUDENT INVESTOR jurisdiction ➝ only prudent investments permissible regardless of trust's terms Legal List Jurisdiction ➝ trust language giving trustee broad discretion is likely to free trustee from list and permit investment similar to prudent investor rule p. 15 of Trusts CMR