Final Study Guide Notes

Question 1

A spendthrift trust includes a provision that protects the (1) and (2) from (3) and (4). It restricts the trust assets as musch as possible by law, in such a way that they do no become the beneficiary’s until (5).

Answer 1

1. trust principal
2. unpaid income
3. creditors
4. the beneficiary’s own foolishness
5. he receives income or portion of the principal

Question 2

Two basic types of stand-alone (non-testamentary) trusts

Answer 2

1. revocable (intervivos/living)

2. irrevocable trusts

Question 3

5 required trust elements

Answer 3

1. trustor
2. trustee
3. trust property
4. beneficiary/ies
5. trust purpose

Question 4

person who establishes the trust. Must have capacity. Can be a legal entity.

Answer 4

trustor

Question 5

individual or legal entity given legal title to trust property. Needs contract capacity.

Answer 5

trustee

Question 6

7 duties of trustee

Answer 6

1. General standard of care; must use special skills.
2. Must act impartially; cannot act in self-interest.
3. Must make a reasonable effort to resolve conflicts
4. Must try to verify facts (can use professionals, docs)
5. Must keep 25+ benes informed
6. May rely on previous trustee’s info
7. Special standards for uncompensated trustees

Question 7

ESSAY: Compare/contrast legal and equitable title

Answer 7

Legal title is granted to the trustee by the trustor, and is the right of ownership. It includes the right to buy, sell, mortgage, lease or do with the property other things permitted in the trust agreement. This right, however, is for, and subservient to, the equitable title granted to beneficiaries. This is the right to benefit from and enjoy the property, and can include receiving income from the trust as well as portions of the principal. No capacity is required to hold equitable title.

Question 8

If there is more than one beneficiry to a trust, they will hold equitable title as (1)

Answer 8

1. tenants in common

Question 9

A trust may be created for any (1) except if it will violate (2) or (3). It must be (4) in order for the agreement to be valid.

Answer 9

1. any lawful purpose
2. criminal laws
3. civil laws
4. clearly stated

Question 10

Express trusts are (1). They can be (2) or (3) but fail without a (4).

Answer 10

1. deliberately created by the trustor
2. written
3. oral
4. clearly stated trust purpose

Question 11

Implied trusts are created (1) and to avoid (2). The two types are (3) and (4).

Answer 11

1. by operation of law
2. unjust enrichment
3. resulting
4. constructive

Question 12

ESSAY: Compare/contrast resulting and constructive trusts.

Answer 12

Both types of trusts are implied trusts created by operation of law. Resulting trusts arise when an express trust fails, and it prevents a situation in which the trustee holds legal titlte based on the trustor’s intent, with no beneficiary holding equitable title. The court imposes a resulting trust with the former trustee and beneficiary. A constructive trust arises when a person has title to property under circumstances involving fraud or wrongdoing–for example, if the beneficiary kills the trustor to inherit sooner, the courts will impose an implied trust with a more appropriate beneficiary, to avoid unjust enrichment.

Question 13

ESSAY: Compare/contrast irrevocable, revocable and testamentary trusts

Answer 13

A testamentary trust is part of the testator’s will and is only effective upon death of the testator, and upon validation of the trust and appointment of the personal representative in probate. Revocable and irrevocable trusts are both types of intervivos/living trusts. They usually take effect during the trustor’s lifetime and upon execution. They are not part of probate proceedings. Revocable trusts can be changed, amended or terminated anytime during the trustor’s lifetime. The trustor may also be a trustee, and can maintain control of the funds. The main reason for a revocable trust is to get property out of the trustor’s name to avoid probate upon death. The reason for an irrevocable trust, by contrast, is usually to avoid federal estate taxes by relinquishing control of the property–meaning the trustor cannot also be the trustee. An irrevocable trust cannot be amended or terminated by the trustor.

Question 14

ESSAY : Compare/contrast pourover trusts and testamentary trusts

Answer 14

Testamentary trusts are part of the testator’s will and is effective upon death of the testator, and upon validation of the trust and appointment of the personal representative in probate. They are usually used to establish a trustee for maintenance of beneficiaries, such as children, who may spend the money unwisely. A pourover will is a provision in the testator’s will and also effective upon the testator’s death, but by contrast, it doles out all remaining property in a will (residuary) to a living trust that is already established, thereby taking it out of the jurisdiction of the probate court.

Question 15

3 main purposes for establishing a trust

Answer 15

1. avoid taxes
2. direct where assets go (how and to whom)
3. avoid probate (thus, time, money, publicity)

Question 16

ESSAY: 5 situations in which trusts may be terminated

Answer 16

1. trust’s purpose has been fulfilled
2. trust’s terms require termination after a period of time
3. trust allows for revocation by the trustor
4. legal title and equitable title of the trust are hold solely by the same person
5. beneficiaries agree that the trust’s purpose does not require the continuation of the trust

Question 17

3 basic advantages to sprinkling (spray, discretionary) trusts, which give the trustee discretion over distribution to a group of beneficiaries

Answer 17

1. helps for unforeseen/unforeseeable circumstances
2. built-in spendthrift provisio
3. may save estate taxes

Question 18

Marital trusts take advantage of the (1). It starts as (2) but the document allows for, upon death of one spouse, the trust assets to be (3), with the beneficiary of each as the (4) and the children as (5). One portion becomes (6) and is called the (7); it is funded with (8) and the surviving spouse has (9) to insure it will not be (10). The remainder of the assets are usually (11.)

Answer 18

1. unlimited marital deduction (one-time)
2. one trust
3. divided into two portions
4. surviving spouse
5. remainder benenfiaries
6. irrevocable
7. bypass trust/credit shelter trust
8. the deceased spouse’s exemption amount
9. limited control over the assets
10. taxable upon her death
11. given outright to the spouse

Question 19

A qualitifed terminable interest property trust (QTIP) is a (1) that allows the trustor to create a trust giving a (2) of all the (3) of a trust to a (4), with the (5) of the trust property passing to someone else upon (6). These are particularly useful for (7).

Answer 19

1. tax provision
2. life interest
3. income of the trust
4. surviving spouse
5. remainder
6. surviving spouse’s death
7. second marriage where the trustor wants to ensure the children are taken care of

Question 20

An ILIT is an (1) that is (2), with the trustor as the (3). Upon death, (4).

Answer 20

1. irrevocable trust
2. named beneficiary of a life insurance policy
3. the insured
4. the insurance company pays the proceeds directly to the trust

Question 21

Charitable trusts benefit (1) rather than (2) and are also called (3).

Answer 21

1. the public at large
2. individuals
3. public trusts

Question 22

3 requirements of a charitable trust

Answer 22

1. must be for religious, scientific, charitable, literary, educational purposes
2. trustor must intend to create a public trust
3. beneficiaries must be an indefinite class (no ascertainable individuals)

Question 23

The cy pres doctrine allows a (1) to find a charity with (2) to give the charitable trust (3) and (4). Use of the doctrine is dependent on whether the trustor’s intent was (5) or (6).

Answer 23

1. court
2. same/similar purpose
3. income
4. principal
5. specific
6. genereal

Question 24

Tottten trusts, aka (1), are (2) opened by a (3) for the benefit of a (4). During the depositor’s lifetime, (5). After death, (6).

Answer 24

1. pay-on-death accounts
2. savings accounts
3. depositor/trustee
4. beneficiary
5. the depositor is the rightful owner and may use the assets
6. the money automatically passes to possession of the bene and does not become part of the depositor’s estate

Question 25

Appointment of perosnal rep/executor takes place after (1) are issued.

Answer 25

1. letters testamentary (letters of appointment)

Question 26

3 basic duties of the personal rep (bundle = fiduciary duties)

Answer 26

1. collect decedent's assets and preserve them 2. pay debts, taxes, estate expenses 3. distribute assets according to the will provisions or intestate succession

Question 27

A bond, also called the (1), is the (2) by the personal rep that he will fulfill his duties. It is secured by an amount of money set by (4), which is an essentially an (5) payable if (6).

Answer 27

1. surety bond 2. written promise 4. clerk or court appointing the personal rep 5. insurance policy 6. personal rep breaches his duties

Question 28

6 reasons a court may hold a hearing and remove a personal rep.

Answer 28

1. mismanagement of estate 2. breach of fiduciary duties 3. violation of a court order 4. unsuitable/incapable of perofrming duties 5. unsound mind/incapacitated 6. under petition from benes

Question 29

Once the estate is administered and duties performed, the personal rep (1) for (2). This releases him from all (3) as long as the matters have been fully (4) to all (5) and to the (6).

Answer 29

1. petitions 2. discharge 3. liability pertaining to the administration 4. disclosed 5. involved parties 6. clerk/court

Question 30

When a decedent dies, the personal rep is repsosnsible for paying the final (1). There must be a final (2) filed on his or her behalf, as well as a final (3).

Answer 30

1. income taxes 2. federal tax return 3. state income tax return

Question 31

A personal rep is responsible for accounting for all the (1) that accrued to the (2) from the beginning of thhe (3) until the date of (4). `

Answer 31

1. income 2. decedent 3. tax year 4. decedent's death

Question 32

7 examples of estate income that must be reported by the personal rep

Answer 32

1. wages/salary 2. income from business 3. trust income 4. rents 5. royalties 6. dividends 7. gains from sale of real/personal property

Question 33

The federal estate tax form file with the IRS is the (1) which must be filed within (2) of the (3). A Form 4768 can be filed to (4).

Answer 33

1. Form 706 2. 9 months 3. decedent's death 4. extend this deadline

Question 34

The gross esate is all of the (1), as well as the value of any (2). It includes (3), (4), (5), and (6). The value is based on either (7) or (8).

Answer 34

1. property owned by the decedent at death 2. interest the decedent may have in property 3. individually owned property 4. jointly held property 5. pensions/annuities 6. life insurance 7. fair market value at date of death 8. value on an alternate valuation date (pers. rep. may make this choice)

Question 35

The taxable is the sum of value after the (1), (2), (3) are deducted. This is what (4) will be based on.

Answer 35

1. exemptions, 2. deductions 3. claims 4. federal estate tax

Question 36

Generally, only (1) have jurisdiction over probate matters. (2) determines which state court to file the probate. In addition, it can determine which court has (3) over personal property (though, not real property.

Answer 36

1. states 2. domicile 3. in rem jurisdiction

Question 37

5 eligible purposes for a charitable trust

Answer 37

1. relief of porverty 2. education 3. religion 4. promotion of health 5. accomplishment of charitable purpose