Trusts

Question 1

what is a spendthrift trust?

Answer 1

A trust that includes a spendthrift clause, which prohibits a beneficiary from alienating his or her interest in the trust. Usually, prohibits the voluntary and involuntary alienation.

does not prohibit a creditor from reaching money that is already in the beneficiary’s hands

Question 2

What is the VA default rule for spendthrift trusts?

Answer 2

Default rule is against spendthrift protection, meaning a beneficiary can alienate their interest and the creditors can reach the assets of the trust. This allows a creditor to attach the beneficiary’s distributions from the trust and/or compel the sale of the beneficiaries interest in the trust.

Question 3

What are the requirements for a valid spendthrift clause?

Answer 3

prohibits voluntary and involuntary alienation, either by doing so or stating that its a spendthrift trust.

Spendthrift protection only extends to a beneficiary who is not also the settlor of the trust.

Question 4

if a trust is discretionary for the support and maitenance of one individual, can that individual demand payments and must the trustee comply?

Answer 4

No, comply with the plain language of the trust

intent of grantor controls. ascertain intent by the language the settlor used. If plain, then no result to rules of construction or settlor’s reasoning.

Question 5

What does modification or termination of a trust depend on?

Answer 5

Who is in agreement

Question 6

Trust termination and modification

The settlor and all the beneficiaries of a non-charitable trust consent to the modification:

Answer 6

A court may modify or terminate the trust, even if inconsistent with the material purpose of the trust.

Question 7

Trust termination and modification

All the beneficiaries of a non-charitable trust consent but the settlor does not consent.

Answer 7

Termination: the court can temrinate the trust if continuin the trust is not necessary to achieve a material purpose of the trust.
Modification: Can modify if not inconsistent with a material purpose

a spendthrift provision is considered material

Question 8

Trust termination and modification

Notall the beneficiaries of a non-charitable trust consent:

Answer 8

A court may order modification or temrinatio nof a non-charitable trust if the court determines that the interest of the non-consenting beneficiaries will be adequately protected.

May include the following situations:
1. unanticipated circumstances arise
2. when the continued administration of the trust becomes uneconomic
3. when necessary to achieve the settlor’s tax objectives;or
4. when necessary to reform the trust to conform to the settlors intentions. If terms are unambiguous, requires clear and coniving evidence tha tboth the settlor’s intent and terms were affected by a mistake of fact or law.

Question 8

When real property is held in trust for the benefit of a beneficiary, who has title? What is the nature of the beneficiary’s interest; what exactly is it in? Therefore, can a beneficiries judgment creditor obtain a lien on real property held in trust?

Answer 8

1. The trustee has legal title
2. Is a beneficial interest in personal property
3. No

Question 9

What duties does a trustee owe beneficiaries? Define them

Answer 9

1. Loyalty: act in the interests of the beneficiaries
2. Impartiality: act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries’ respective interests.
3. Prudence: administer the trust as a prudent person would, by considering this standard, trustee shall exercise reasonable care, skill, and caution.

Question 9

Who is a trust beneficiary?

Answer 9

A person with a present or future beneficial interest in the trust, vested or contingent

Question 10

Which rule: trust terms or VA UTC rules?

Answer 10

Trust terms generally trump VA UTC Rules

Question 11

Despite trust terms often trump VA UTC Rules what are some rules that always reign (mandatory rules)?

Answer 11

1. the trustee must make distributions in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries
2. requirements for creating a valid trust
3. requirement that the trust and its terms be for the benefit of its beneficiaries and have a lawful purpose, not contrary to public policy and not impossible to achieve
4. power of the court to mofify or terminate
5. power of court to adjust unreasonable payment to trustee
6. SoL
7. third-party liability rules
8. The power of the court to take such action and to exercise such Jurisdiction as may be necessary
   in the interests of justice

Think of trust giving trust absolute discretion

Question 12

Grounds for removal of a trustee?

Answer 12

1. committing a serious beach of trust
2. unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively

Question 13

How can a trust be proven?

Answer 13

By clear and convincing evidence. It need not be put down in a written instrument. It can be oral

Question 14

Imagine settlor writing that x property will be given for the benefit of B, to be held in trust by A. Later, oral inter vivos gift to A that could be interpreted as oral trust for benefit of B because gift lacking an element. What result?

Answer 14

Arguable that the gift was given merely in a fiduciary capacity, and therefore oral modification of a trust would need to be proven, meaning by clear and convincing evidence.

Question 15

If a will sets up a testamentary trust, and a life insurance policy distributes the proceeds to X as beneficiary, “as trustee for the education and support of Y,” does the life insurance policy operate as an independent trust?

Answer 15

Likely depends on the language of the testamentary trust. If is says “all real and personal property,” then the Will provisions will control.