Term
| If the instrument creating the trust is silent regarding revocability, the trust is presumed to be _________. |
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Definition
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Term
| What is a mandatory trust? |
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Definition
| A trust in which the trustee is required to distribute all income. |
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Term
| What is a discretionary trust? |
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Definition
| A trust in which the trustee is permitted to distribute income at his discretion. |
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Term
What three things are required to create an express trust?
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Definition
1. Express intent to create trust
2. Identification of trust property
3. Identification of beneficiaries |
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Term
If an express trust fails to indicate the specific duties a trustee is to perform, what is the result?
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Definition
| The trust fails. Legal and equitable title then merge in the beneficiary. |
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Term
| Who can be named as a trust beneficiary? |
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Definition
| Any individual or entity, but they must be capable of taking and holding title to property. |
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Term
| When must the manifestation of intent occur for the intent to create an express trust to be found? |
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Definition
| Prior to or simultaneously with the transfer of property |
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Term
What is a precatory trust?
What are the elements necessary to form a precatory trust? |
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Definition
A precatory trust is one in which the a donor transfers property to a donee using language expressing a hope or wish. This would typically defeat the creation of a trust because it would lack the intent necessary to create a bifurcated transfer and would be presumed a gift. However, the court will sometimes create a precatory trust if:
1. There are specific instructions to a fiduciary
2. Absent the imposition of a trust, there would be an unnatural dispostion of the donor's property. Look for someone weird getting the property as opposed to a family member or someone who the donor has historically supported. |
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Term
| Settlor writes a will placing his account at B of A in trust for the benefit of Beneficiary. If, prior to Settlor's death, he transfers the proceeds of that trust to Jackass, what will Beneficiary likely receive? |
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Definition
| Nothing. The property must be owned by the settlor at the time the trust is created. |
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Term
| What happens if the beneficiary of an express trust has died without the settlor's knowledge prior to the trust's creation? |
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Definition
| The trust fails and a resulting trust in favor of the settlor and his successors is presumed. |
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Term
| Under the Third Restatement, if a real property interest is placed into trust in violation of the State of Frauds, what is the result? |
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Definition
| A constructive trust. The purported trustee is required to distribute the real property to the beneficiaries outright, rather than in trust. |
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Term
| When is parol evidence admitted to show the settlor's intent? |
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Definition
| When the agreement is ambiguous on its face. |
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Term
| What is a "pour-over" trust? |
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Definition
| A provision in a will that orders property to be distributed into an existing trust, rather than creating the trust through the will expressly. |
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Term
What is a "secret" trust?
What is something interesting about it that you should know for the Bar exam? |
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Definition
A secret trust looks like a testamentary gift, but it is created in reliance on on the named beneficiary using it for the benefit of a third, unnamed party.
To note: extrinsic evidence is admissible to prove the promise
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Term
What is a semi-secret trust?
What is something to note about it for Bar exam fact patterns? |
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Definition
A semi-secret trust is one in which a gift is directed to be held in trust, but no beneficiary is named.
To note: extrinsic evidence is NOT allowed, and the gift fails |
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Term
| What is a charitable trust? |
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Definition
| A trust that exists for the benefit of the community at large or for a class of persons that has a large, varying membership. |
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Term
| Are charitable trusts subject to RAP? |
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Definition
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Term
| What is the cy pres doctrine? |
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Definition
The cy pres doctrine allows a court to modify a charitable trust to seek an alternative charitable purpose that is "as near as possible" to the original, stated purpose if the stated purpose becomes illegal, impracticable or impossible to perform.
Remember: the settlor's intent controls |
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Term
| What is an honorary trust? |
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Definition
An honorary trust is a trust that is not charitable but also has no private beneficiaries. The trustee is on their honor to administer the trust.
Example: a trust for the car of the family dog |
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Term
| What is the primary purpose of a resulting trust? |
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Definition
| The prevention of unjust enrichment |
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Term
What is a purchase-money resulting trust?
What are the exceptions? |
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Definition
A purchase-money resulting trust is a trust created when title to a piece property is taken in the name of one party, but another party provides all or part of the consideration.
This is a rebuttable presumption if the party seeking the imposition of a constructive trust can show, by clear and convincing evidence, that he supplied the consideration. The trustee can rebut this by showing lack of intention to create a trust.
Exceptions:
1. Close family relationship between holder of property and purchaser
2. Purchaser manifests an intention to make a gift. |
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Term
| When can a beneficiary's creditor's reach trust principal or income? |
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Definition
| When the beneficiary is entitled to them or subject to his demand |
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Term
| When can creditor's reach the assets of a support trust? |
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Definition
| If they provided necessities. |
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Term
| What three categories of individuals can reach the assets of a trust containing a spendthrift clause? |
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Definition
1. Child/spousal support
2. Necessities
3. Holders of federal or state tax liens |
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Term
| What is the Claflin doctrine? |
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Definition
| The Claflin doctrine allows a trustee to block the termination of a trust, even if the beneficiaries have consented, if there is still an unfulfilled material purpose. |
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Term
| What must a settlor do to have the right to modify or terminate a trust? |
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Definition
| Typically, expressly reserve that right. |
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Term
| When may the court remove a trustee? |
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Definition
1. Incapcable of performing duties
2. Material breach of fiduciary duties
3. Conflict of interest
4. A serious conflict between the trustee and beneficiaries
5. The trust is persistently performing poorly as a result of the trustee's management
Note that if these circumstances are known by the settlor at the time the trustee is named, it may not be enough. |
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Term
| Generally speaking the life beneficiaries are entitled to trust _________, while the remaindermen are entitled to the trust's _______________. |
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Definition
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Term
| What is the traditional approach regarding the allocation of trust principal and income? |
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Definition
| The traditional approach is that any money generated by trust property was income, while any money generated as a result of the conveyance of trust property was principal. |
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Term
What does the modern approach regarding the allocation of trust income and principal focus on?
What power does this approach confer on the trustee? |
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Definition
The modern approach under the UPAIA focuses upon total return to the trust portfolio.
This typically allows a trustee (unless he is himself a beneficiary of the trust) to characterize investment returns, proceeds, etc as he sees fit provided the characterization is reasonable. |
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Term
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Definition
| A unitrust is a trust that gives a fixed annual share of the trust principal to the life beneficiaries. |
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Term
| Is a stock split/dividend treated as income or principal? |
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Definition
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Term
How is the receipt of cash money from an entity characterized?
What is the exception? |
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Definition
| Cash money is characterized as income unless it is a capital gain for income tax purposes or is a partial liquidation of the entity itself. |
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Term
How are the proceeds of a liquidating asset characterized in regards to the allocation of principal and income?
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Definition
| 10% income, 90% principal. |
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Term
| How are mineral rights characterized in regards to the allocation of principal and income to life/remaindermen beneficiaries? |
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Definition
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Term
| What expenses are charged to the trust's income? |
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Definition
1. Half of the trustee's compensation
2. Half of the accounting costs, court costs or other costs affecting trust interests
3. Ordinary expenses
4. Insurance premiums covering the loss of a trust asset. |
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Term
| What expenses are charged to the trust's principal? |
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Definition
1. Half of the trustee compensation
2. Half of accounting costs, court costs and other costs of matters affecting the trust's interests
3. All payments on the principal of any trust debt
4. All expenses of any proceeding concerning an interest in principal
5. Estate taxes
6. Environmental matters |
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Term
| Under the majority rule, how long does a named trust beneficiary have to disclaim his interest in trust property before it becomes indefeasibly vested? |
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Definition
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Term
| What type of presumption is created when it is determined that a trustee has engaged in self-dealing with regards to trust property? |
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Definition
| An irrebutable presumption |
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Term
Assuming that a settlor has included a complete exculpatory clause in regards to a trustee's liability for self-dealing, how will the court's interpret it?
What if the clause is not a complete exculpatory clause but is instead limited to specific self-dealing behavior? |
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Definition
A complete exclupatory clause regarding self-dealing is void as against public policy.
A limited exculpatory clause will be honored if there is a) no bad faith and b) the trustee's behavior is not unreasonable. |
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Term
If a trustee invests in a corporation that the trustee has an interest in that might affect the trustee's judgment, what is the result?
How may this result be overcome? |
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Definition
This creates a rebuttable presumption of a breach of the duty of loyalty, provided the transaction is not flagrant self-dealing, which would result in an irrebuttable presumption.
In the first instance, the presumption can be rebutted by demonstrating that a) the terms of the transaction were fair and b) a disinterested party would have made the transaction. |
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Term
At common law, when may a trustee delegate discretionary responsibilities?
Under the modern trend? |
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Definition
At common law delegation of discretionary responsibilities was not permitted.
Under the modern trend, delegation is permitted as long as it would be unreasonable for the settlor to expect the trustee to perform such tasks. |
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Term
| Under the UPIA, what factors are considered in determining whether a trustee has breached his duty of prudence in regards to the investments chosen? |
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Definition
1. Distribution requirements of the trust
2. General economic conditions
3. The role the investment plays considering the trust's overall investment portfolio
4. The trust's need for liquidity, regularity of income and preservation or appreciation of capital |
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Term
| If a trustee commingles trust assets and his own property, and a loss occurs, how does the court approach the issue? |
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Definition
| The court will presume that any loss was the trustee's property and that any remaining property is the trust's. |
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Term
| When does a trustee have a duty to notify the beneficiaries of a sale of trust assets? |
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Definition
| If the portion of assets to be sold is significant. |
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Term
| Under what circumstances can a co-trustee be liable for a breach of fiduciary duty by another trustee? |
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Definition
1. COnsenting to an action constituting breach
2. Negligently failing to act to prevent the breach
3. Concealing the breach or failing to compel redress
4. Improperly delegating authority to a co-trustee |
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Term
| Under what circumstances will a trustee be liable for breaches by an agent? |
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Definition
1. Directs, permits or acquiesces to the agent's act
2. Conceals the agent's act
3. Negligently fails to compel the agent redress the wrong
4. Fails to exercise reasonable supervision
5. Permits the agent to perform duties that the trustee was not entitled to delegate
6. Fails to use reasonable care in selecting an agent |
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