Trusts

Question 1

Trusts

- Formation

Answer 1

1. Settlor must have capacity; settlor is the person who furnishes the consid for creation of a trust
2. A present intent to creates a trust relationship
3. A competent trustee with duties
4. A definite beneficiary
5. The same person is not the sole trustee and sole beneficiary.
6. A valid purpose must exist for the trust
7. Delivery

Question 2

Trusts

- Intent to create

Answer 2

• Intent most clearly shown by creating a fiduciary relationship by separating ownership into two parts:
• legal title in a trustee with management duties, and
• Equitable title in a beneficiary who can enforce the duties.
• settlor -trustee - when settlor is trustee and does not notify anyone, may fail intent

Question 3

Trusts

- Intent and Precatory language

Answer 3

• Language that esp0resses a hope, wish or suggestion\
• General rule - Precatory language does not create a trust.
• Exceptions - A legal obligation can be found in certain based on surrounding circumstances.
  a. Directions addressed to a fiduciary such as executor.
  b. Evidence showing that settlor previously supported or intended to support the intended beneficiary.

Question 4

Trust

- Beneficiaries

Answer 4

• There must be one to whom trustee owes duties.
• There must be ascertainable beneficiaries when the interests are to come into enjoyment.
• Class gifts - As long as the class for a private trust is reasonably definite, the trust may give trustee discretion to select beneficiaries.

Question 5

Trusts

- Spendthrift Trust generally

Answer 5

• Usually created by prohibiting assignment by beneficiary and stating not subject to beneficiary’s creditors.
• Requirement - If the beneficiary is given control over the trust principal or the ability to terminate along with purporting to deny creditors rights will not create a spendthrift trust.

Question 6

Trusts

- Creditors

Answer 6

• Exceptions exist for certain creditors that can reach a spendthrift trust
  a. Creditors of a revocable trust settled for the sole benefit of the settlor.
  b. Creditors who provide necessities (food, shelter, clothing, medical)
  c. Alimony and child support obligations.
  d. Claims by a state or U.S. government.

Question 7

Trusts

- Support Trusts

Answer 7

• Trust created to use trust assets as are needed for support.
• Discretion - Trustee is usually given an ascertainable standard, and must make payments for support as needed to meet the standard.

Question 8

Trusts

- Charitable Trust

Answer 8

• A charitable trust is not subject to the rule against perpetuities or accumulations.
• Requirements, unless shifts to private
  a. Must be for a charitable purpose
  b. Must be for a reasonably large group of beneficiaries, or specific charity
• must be indefinite, unnamed and can change
  c. Subject to cy pres doctrine.

Question 9

Trusts

cy pres

Answer 9

• If no specific trustee named, the court should try to determine intent and assign a trustee.
• When charitable purpose can no longer be accomplished, court should try and determine if intent was to maintain charitable trust or revert to heirs.

Question 10

Trusts

- Trustee Duty General

Answer 10

• Trustees are fiduciary and owe duty of loyalty.
• Self dealing is a breach.
  1. Trustee cannot buy or sell trust assets for itself
  2. Trustee cannot borrow trust funds
  3. Trustee cannot sell assets from one trust to another trust.
  4. Duty to invest prudently

Question 11

Trusts

- Termination or modification

Answer 11

• Beneficiaries can terminate
  a. If all have capacity
  b. All consent
  c. No further trust purpose is to be served.

Question 12

Trusts

definition

Answer 12

• Relationship in which a trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title
  = basically a device one manages property for benefit of others

Question 13

Trusts

Types

Answer 13

• Express - Expressed intention of owner to create relationship w/ relation to prop.
  a. private - to specific persons
  b. charitable - to a class of persons or public in general
• Resulting - Arise from presumed intention of owner
• Constructive - do not depend on intention, rather an equitable remedy for cases involving fraud or unjust enrichment

Question 14

Trusts

Future trusts

Answer 14

• The settlor at the future time must manifest an intention to create a trust.
• if old promise supported by consideration, trust can arise in the future w/o further manifestation of intent

Question 15

Trusts

Creation despite precatory language

Answer 15

• directions are definite and precise, not vague
• directions addressed by decedent to executor or other fiduciary of will
• No trust results in unnatural disposition by testator; OR
• transferor had been supporting ben prior to the instrument and ben would not have sufficient means to support himself. shows intent to create for support

Question 16

Trusts

predeceased trustee

Answer 16

• not fail because of trustee death, incapacity, resignation removal
• trustee appointed to carry out intent
• exception- where clearly appears trust only to continue with designated trustee - rare

Question 17

Trusts

Absence of trustee

Answer 17

• Refusal or failure to qualify does not defeat testamentary trust
• absence of a trustee may fail a inter vivos trust by deed, for fail of delivery, no transfer

Question 18

Trusts

Active trust

Answer 18

• Trustee must have duties
• if passive, trustee no duties, bene will take legal title
• duties implied -
  a. intention to create
  b. property
  c. beneficiary identified

Question 19

Trusts

Qualifications of trustee

Answer 19

• Capacity to hold title for own benefit
• Admin capacity - usually minority or mental incapacity
• statutory - must not be denied capability by statute

Question 20

Trusts

Removal of trustee

Answer 20

• Grounds - continuation detrimental to trust; grounds
  a. breach of trust
  b. incapacity to administer
  c. unfitness - stuff, drunk, criminal, dishonest, extreme old age, etc
  d. refusal to post bond
  e. significant conflict of interest
  f. trustee insolvency if jeopardizes the trust
  g. extreme friction or hostility - between bene and trustee - interferes with proper admin
• bene cannot remove w/o grounds

Question 21

Trusts

Resignation

Answer 21

• Cannot accept and resign w/o
  a. authorization from terms of trust
  b. consent of all bene who have capacity
• when trustee is also bene, merger and trust defeated, fee simple; must be precisely the same interest

Question 22

Trusts

Named attorney for trust

Answer 22

• Attorney cannot enforce appointment

- beneficiaries can enforce appointment

Question 23

Trusts

Purposes

Answer 23

• valid for any purpose; except
  a. illegal
  b. contrary to public policy - if to induce others to engage in criminal or tortious acts, encourage immorality. induce a person to neglect parental, family, civic duties
• invalid condition subsequent or precedent will be voided and interest relieved of cond.

Question 24

Trusts
Express trust
Creation

Answer 24

• Inter vivos created by
  a. Declaration - creator declares itself trustee, delivery assumed
  b. Declaration - creator names a trustee, delivery required
  c. Transfer of Property - To another, trustee takes legal title
• Delivery - Act placing out of settlor control, future intent not good

Question 25

Trusts | Land transfer

Answer 25

- S.O.F. applies | - Exception - constructive trust can be created as equitable remedy for oral land transfer

Question 26

Trusts | Testamentary trusts

Answer 26

- Creation elements must exist - Can incorporate a trust document by reference -

Question 27

Trusts Charitable trusts Charitable purpose

Answer 27

- Must be considered to benefit the public - poverty, religion, education, health - accomplish government purposes - particular political movement, educational; not to a particular political party - Can create for general; such charitable purposes, so long as limited to charitable purposes

Question 28

Trusts Administration Powers of trustee

Answer 28

- Express powers from creation - statutory and court ordered powers - Necessary and appropriate to carry out the purpose

Question 29

Trusts Administration Duties of trustee

Answer 29

- Exercise care, skill, & caution of a reasonably prudent person in managing property - Loyalty - No self dealing - - Could affect judgment - - Cannot purchase trust prop - - Cannot transfer between trusts of a single trustee - Duty to account and report to beneficiary upon request - Settlor can waive duties, such as self-dealing; trustee then under bad faith standard - Duty to not commingle, held as trustee - Must not entirely delegate the duties

Question 30

Trusts Administration Duties of trustee Investments

Answer 30

- UIPA - must act as a prudent investor, taking into account the purposes, terms, distribution requirements, and other circumstances - evaluated upon the overall investment of the entire portfolio; not on each trans - Exercise reasonable care, skill, and caution in delegating investment duties