1
Q
What is a trust?
A
A fiduciary relationship where a trustee holds legal title to property for the benefit of designated beneficiaries who hold equitable title.
The trustee has a fiduciary duty to manage, invest, safeguard, and administer the trust assets.
2
Q
Who holds the legal interest in a trust?
A
The trustee.
The trustee has the responsibility of ownership but receives no benefit from the legal title except possibly a fee.
3
Q
What are the three duties of a trustee?
A
- Deal with the property with reasonable care
- Maintain utmost loyalty
- Be personally responsible for conduct falling below required standards
4
Q
Who holds the equitable interest in a trust?
A
The beneficiary.
The beneficiary receives the benefits of ownership as set forth in the trust and usually has little or no control over the trust property.
5
Q
What is a settlor?
A
The person who causes the trust to come into existence by supplying the initial trust property.
Other terms for settlor include trustor, grantor, and donor.
6
Q
What are some purposes of creating a trust?
A
- Providing for and protecting trust beneficiaries
- Flexibility of asset distribution
- Protection against settlor’s incompetence
- Professional management of property
- Probate avoidance
- Tax benefits
7
Q
What is probate avoidance in the context of trusts?
A
Property in an inter vivos trust passes outside of the probate process.
This means not under the settlor’s will or to the settlor’s heirs if intestate.
8
Q
What are some potential tax benefits of trusts?
A
Income, gift, and estate tax savings.
9
Q
What are express trusts?
A
Trusts created by the express intention of the settlor.
They are categorized into private and charitable trusts.
10
Q
What defines a charitable express trust?
A
It has charitable beneficiaries, which can be an indefinite class of persons or the public in general.
11
Q
What is a resulting trust?
A
Resulting trusts arise from the presumed intention of the owner of the property.
12
Q
What is a constructive trust?
A
Constructive trusts are an equitable remedy used to prevent unjust enrichment.
They are imposed by a court.
13
Q
What are the five main elements of a valid trust?
A
- Intent to create a trust (manifested by settlor’s words, writing, or conduct)
- Trust property (res)
- Ascertainable beneficiaries (Note: Same person cannot be sole trustee and sole beneficiary)
- Proper purpose (one that is not illegal, tortious, or against public policy, and does not violate the Rule Against Perpetuities)
- Meets formalities (SOF: for trust of land)
14
Q
What is essential to the existence of an express trust?
A
settlor’s intention to create a trust
15
Q
What must the settlor intend to do in relation to legal and equitable title?
A
To split the legal and equitable title and impose enforceable duties on the holder of the legal title
16
Q
How can intent be manifested?
A
By written or spoken words or by the conduct of the settlor
17
Q
Must the settlor intend for the trust to take effect immediately?
A
Yes, the trust must take effect immediately
18
Q
Do expressions of hope/wish typically create a trust?
A
No, they usually do not create a trust
19
Q
What can overcome the inference that hopes and wishes do not create a trust?
A
- Definite and precise directions
- Directions addressed to a fiduciary
- A resulting ‘unnatural’ disposition of property
- Extrinsic evidence showing prior support for the intended beneficiary
20
Q
What is required for a trust to exist?
A
Trust property must be ascertainable with certainty
Trust is a type of property transfer, and without trust property, the trust fails.
21
Q
What constitutes sufficient trust property?
A
An existing interest in existing property
Future profits from an existing contract can be a trust res.
22
Q
What types of property can be trust property?
A
Existing property that the settlor can convey, including intangibles like promissory notes.
23
Q
What is required for trust res?
A
The res must be identifiable and segregated.
24
Q
What is necessary for a trust to be valid?
A
An ascertainable beneficiary is necessary for the validity of every trust except charitable and honorary trusts.
25
Who can be a beneficiary of a private trust?
Any person or entity capable of taking and holding title to property.
26
Is notice to a beneficiary essential for a valid trust?
No, notice is not essential, but lack of notice may indicate no trust was intended.
27
What is required for a beneficiary's acceptance?
Acceptance can be express or implied and is generally presumed.
28
What is the time frame for making a disclaimer?
Within **nine months** of the interest’s creation.
29
What happens if a beneficiary disclaims an interest?
The trust is read as though the disclaimant was deceased as of the relevant date.
30
What is estoppel in relation to disclaimers?
A beneficiary may be estopped from making a disclaimer if they have exercised dominion over the interest.
31
How does a disclaimer affect a beneficiary's creditors?
A disclaimer relates back to the date of the transfer for all purposes.
32
What is required for a private trust regarding beneficiaries?
There must be definite beneficiaries, who must be ascertainable by the time their interests are to come into enjoyment.
33
What is a class gift in the context of trusts?
Beneficiaries may be designated by generic descriptions like 'children'.
## Footnote
The class must be reasonably definite.
34
What happens if a trust fails for lack of a beneficiary?
A resulting trust in favor of the settlor or their successors is presumed.
35
What is an honorary trust?
A trust set up to provide benefits for a non-human, non-charitable purpose.
## Footnote
such as caring for pets or a clock
36
What makes a trust purpose invalid?
A trust purpose is invalid if it is:
* Illegal
* Requires a criminal or tortious act
* Contrary to public policy
* Violates the Rule Against Perpetuities
37
What are examples of acts that violate public policy in trust purposes?
Public policy is violated if the purpose of a trust is to:
* Induce criminal or tortious acts
* Encourage immorality
* Induce neglect of parental, familial, or civic duties
38
What happens if a condition attached to a trust interest is against public policy?
If a condition is against public policy:
* The settlor's expressed alternative desire controls
* If a condition subsequent, it is invalidated but the trust is valid
* If a condition precedent, the interest is valid unless evidence shows the settlor wanted it voided
39
What approaches have states adopted regarding the Rule Against Perpetuities?
States have adopted:
* A wait-and-see approach
* An alternative 90-year vesting period
* Abolishment of the Rule for trusts, permitting 'dynasty' trusts
40
What is presumed about the transferability of a beneficiary’s interest in a trust?
A beneficiary may freely transfer their interest in the trust unless restricted by statute or the trust instrument
41
What happens to a beneficiary's interest in a trust in cases of involuntary transfer due to creditors?
The beneficiary’s creditors may reach the beneficiary’s interest in the trust, which is subject to judicial sale
## Footnote
A court may order the trustee to pay the beneficiary’s income to the creditors until the debt is satisfied.
42
What is a discretionary trust?
A trust where the trustee has discretion to apply or withhold payments of income or principal to a beneficiary
## Footnote
The beneficiary has no right to enforce payment against the trustee.
43
What rights do creditors have regarding a beneficiary’s interest in a discretionary trust?
Creditors cannot compel the trustee to make a distribution and the beneficiary has nothing to transfer until payments are made
## Footnote
Creditors may attach the beneficiary’s interest but cannot reach it before the trustee exercises discretion.
44
What is the purpose of a spendthrift trust?
To preclude the beneficiary from transferring their interest and to protect the beneficiary from their own improvidence
## Footnote
The beneficiary's creditors are also precluded from reaching the trust to satisfy their claims.
45
What are the characteristics of a spendthrift trust?
1. Beneficiary may not transfer interest
2. Creditors cannot attach beneficiary’s interest until payment is made
## Footnote
Once the trustee pays the beneficiary, creditors may reach the property.
46
What is the validity of a spendthrift provision if the settlor is also the beneficiary?
In most states, it is invalid
## Footnote
The settlor cannot protect their own property from creditors.
47
Which classes of creditors may reach a beneficiary’s assets despite a spendthrift restraint?
1. Claims of dependents
2. Government claims
3. Persons supplying necessities
## Footnote
Examples include alimony claims and tax debts.
48
What defines a support trust?
A trust that directs the trustee to pay only the amount necessary for the beneficiary’s support
## Footnote
The beneficiary's interest cannot be assigned or reached by creditors.
49
Are the interests in a support trust assignable?
No, the beneficiary’s interest is not assignable by definition
50
What is the standard of support in a support trust if the instrument is silent?
The beneficiary’s accustomed standard of living
51
What is the most common way for a trust to end?
By its express terms.
52
When does a trust terminate automatically?
Upon the expiration of the term specified in the instrument or when all purposes of the trust have been accomplished.
## Footnote
ex: Upon a person’s death, when a person reaches a stated age, when a person graduates from college, or a stated date.
53
Can a settlor revoke or amend a trust?
Yes, unless the terms expressly state that it is irrevocable.
54
What is the traditional rule regarding the revocability of trusts?
A trust is irrevocable unless the settlor expressly reserves the power to revoke or modify the trust.
55
Under what condition can a settlor revoke an irrevocable trust in some states?
Upon written consent of all living persons with vested or contingent interests.
56
What conditions must be met for beneficiaries to agree to modify or terminate a trust?
* All beneficiaries agree
* All beneficiaries are legally competent
* The settlor’s intent is not frustrated
* The settlor consents or
* Modification or termination will not impair any material trust purpose (Claflin Rule)
57
When will a trust terminate by operation of law?
If the property has been exhausted or if the legal and equitable titles have merged.
58
Under what circumstances can a court prematurely terminate a trust?
Where the trust’s purpose has been completed or has become illegal or impossible.
59
What is the Doctrine of Changed Circumstances?
A court may authorize a deviation from the administrative terms of a trust upon a change of circumstances unanticipated by the settlor.
## Footnote
This is also known as Equitable Deviation.
60
What must not happen when a court authorizes a deviation in a trust?
Beneficiaries must not be deprived of their interests in the income or corpus.
61
What happens to a trustee's powers upon trust termination?
The trustee’s powers do not end immediately and may continue for a reasonable time to wind up trust affairs.
62
What is the duty of the trustee after winding up trust affairs?
The trustee must timely distribute trust property to the appropriate remainder beneficiaries.
63
What are the express powers of a trustee?
Express powers are conferred by:
* The trust instrument
* State law
* Court decree
64
What are implied powers of a trustee?
Implied powers are necessary or appropriate to carry out the terms of the trust, unless expressly forbidden by the trust instrument.
## Footnote
Examples include selling or leasing trust property.
65
List some implied powers a trustee may have.
* Sell trust property
* Lease trust property
* Incur reasonable expenses
* Hire agents
* Repair trust property
## Footnote
Implied powers facilitate the proper functioning of the trust.
66
What is the duty of a trustee to administer the trust?
A trustee must follow the terms of the trust and is liable for noncompliance.
## Footnote
This duty is binding once the trustee accepts the position.
67
What is the duty of loyalty for a trustee?
A trustee must not enter into transactions with the trust in their individual capacity without court approval or express waiver.
## Footnote
This includes not buying or selling trust assets personally.
68
Fill in the blank: A trustee cannot personally gain through their position as trustee beyond their _______.
[trustee fee]
## Footnote
This ensures that trustees act in the best interest of the beneficiaries.
69
What is the general standard of care a trustee must exercise?
A trustee must exercise the degree of care, skill, and caution that a reasonably prudent person would use in managing their own property.
## Footnote
Trustees with special skills are held to a higher standard (use the care of someone with their skill, expertise, etc).
70
What is the duty to separate and earmark trust property?
A trustee must keep trust assets physically separate from personal assets and title them distinctly.
## Footnote
Duty to not comingle
71
What is the duty to defend the trust from attack?
A trustee must defend the trust from legal attacks unless the challenge is well-founded.
72
What is the duty to preserve trust property and make it productive?
The trustee must take actions to make trust property productive, such as leasing land or investing money.
## Footnote
Damages for breach of this duty are measured by the income that would have accrued from proper investments.
73
What does the Uniform Prudent Investor Act require from a trustee?
A trustee must exercise reasonable care, skill, and caution when investing and managing trust assets.
74
What is the portfolio approach to investments?
Investment decisions must be evaluated as part of an overall investment strategy suited to the trust's objectives.
75
What is required of a trustee regarding diversification of investments?
A trustee must diversify investments unless it is reasonably determined that the trust's purposes are better served without diversification.
## Footnote
Diversification helps mitigate risk in investment portfolios.
76
What can beneficiaries seek if a trustee breaches their duties?
Beneficiaries may seek to have the trustee surcharged or removed from office and sue for damages.
77
What is the trustee liable for in case of a breach?
The trustee is liable for losses resulting from the breach, profit that would have accrued to the trust, and any profit made by the trustee as a result of the breach.
78
What type of damages can a trustee be liable for?
Money damages including depreciation in value of trust property and interest on their liability from the time of breach.
79
What remedies may a beneficiary have in the case of self-dealing?
* Affirm the transaction if the trust profited
* Set aside the transaction if the trust lost money
* Trace profits from the trustee if the trustee profited
80
Can a trustee offset losses from one breach with gains from another?
No
81
Under what circumstances can beneficiaries remove a trustee?
Beneficiaries need to go to court to remove a trustee, considering the settlor's intent and the interests of the beneficiaries.
82
List grounds for removing a trustee.
* Legal or practical incapacity to administer the trust
* Unfitness for the position
* Commission of a serious breach of trust
* Serious conflict of interest
* Trustee’s insolvency
* Extreme friction or hostility between trustee and beneficiaries
* Refusal to post any required bond
* Refusal to account
83
What are the trustee's liabilities for the acts of agents?
A trustee is liable if they directed, permitted, acquiesced in the act, concealed the act, or failed to compel the agent to redress their wrong.
84
How is a trustee liable for the acts of co-trustees?
A trustee is liable if they approved, acquiesced, participated in the breach, or failed to take steps to compel redress.
85
Under what conditions is a trustee liable for predecessor trustee's breach?
* Knew or should have known of the breach and failed to compel redress
* Was negligent in determining what property should have been delivered to them
86
Is a trustee personally liable on contracts made in trust administration?
Yes, unless the contract specifically provides otherwise.
87
What is a trustee's tort liability?
A trustee is personally liable for torts committed in the course of trust administration, including those by agents.
88
Can beneficiaries directly sue third parties who damage trust property?
No, direct suits by beneficiaries against third parties are not permitted; the trustee alone can sue.
89
What are exceptions for beneficiaries to sue third parties directly?
* Trustee participated in the breach
* Trustee has left the jurisdiction and no successor trustee is appointed
* Trustee fails to sue a third person liable in tort or contract
90
What is the doctrine of cy pres?
It means 'as near as possible' and allows a court to select an alternative charitable purpose when the original cannot be accomplished.
## Footnote
This doctrine applies both to outright charitable gifts and charitable trusts.
91
What must a court find to apply the doctrine of cy pres?
The court must find a general charitable intent on the part of the settlor and ascertain their primary purpose.
## Footnote
General charitable intent means the settlor did not intend to limit their gift to a particular charity.
92
Are charitable trusts bound by the Rule Against Perpetuities?
No, charitable trusts may be perpetual.
## Footnote
The Rule Against Perpetuities restricts non-charitable trusts to a life in being plus 21 years.
93
What is the duration limit for honorary trusts under the UTC?
Honorary trusts are enforceable up to 21 years.
## Footnote
This can be enforced by someone named in the trust instrument or appointed by the court.
94
What is a resulting trust?
A resulting trust arises where a settlor has conveyed property to a trustee under an express trust and the trust is void or unenforceable, or the beneficiary is dead or cannot be located.
95
When does a resulting trust apply on failure of a charitable trust?
A resulting trust applies when cy pres is inapplicable, causing the express trust to terminate and the settlor to become the beneficiary of the resulting trust.
96
What triggers a resulting trust in favor of the settlor?
A resulting trust in favor of the settlor arises when the trust purpose is fully satisfied and some trust property remains.
97
What is the general rule regarding contracts and constructive trusts?
The general rule is that a mere breach of a promise will not raise a constructive trust.
98
What happens when A transfers real property to B on B’s oral promise to hold it for C?
Some jurisdictions consider the Statute of Frauds a bar, but the trend is to impose a constructive trust for C.
99
What are some exceptions to the general rule regarding contracts and constructive trusts?
A constructive trust will be imposed in cases of:
* Fraudulent promise (promisor never intended to keep it)
* Breach of promise by one in a confidential relationship.
100
What types of relationships can constitute a confidential relationship for constructive trusts?
Confidential relationships can include:
* Attorney-client
* Doctor-patient
* Business partners
* Family relations
* Friendships.
CA Bar Essay Topics
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