Trusts Essay Workshop – Key Concepts

Flashcards cover foundational definitions, rules, and doctrines for trusts, future interests, beneficiary rights, trustee duties, and charitable doctrines presented in the Trusts Essay Workshop lecture.

Under the UTC, is a trust presumed revocable or irrevocable?

Presumed revocable unless the terms expressly make it irrevocable.

Traditional common-law presumption about revocability of a trust

A trust is presumed irrevocable unless it expressly states otherwise.

Who are the three essential parties to every trust?

Settlor (grantor), Trustee, and Beneficiaries.

Difference between income beneficiaries and remainder beneficiaries

Income beneficiaries receive current income; remainder beneficiaries take the principal when the trust terminates.

What duty standard is applied to a discretionary trustee’s decisions?

Abuse of discretion standard.

Are charitable trusts subject to the Rule Against Perpetuities?

No, charitable trusts are exempt from the RAP.

Four elements required to create a private express trust

Intent, Trust Property (Res), Valid Purpose, Ascertainable Beneficiaries.

Define an inter vivos trust

A trust created during the settlor’s lifetime that immediately transfers property to the trustee.

What is a pour-over will provision?

A will clause that directs probate assets into an existing or later-amended trust at the testator’s death.

Writing requirement for trusts holding real property

Must be in writing to satisfy the Statute of Frauds.

When can a trust with no initial corpus later become valid?

If the settlor later transfers property into it while manifesting intent to create the trust at that time.

Indefinite class exception for ascertainable beneficiaries

Trustee may select beneficiaries from an indefinite class (e.g., “my friends”) if distribution need not be equal among them.

Unborn children and trusts

Trusts for unborn children are valid even though beneficiaries are not yet ascertainable.

Cy pres doctrine

Court modification of a charitable trust to a similar purpose when the original purpose becomes impossible, illegal, or impracticable.

Specific vs. general charitable intent under cy pres

Specific intent ends the trust; general intent lets the court substitute a comparable charity.

Resulting trust definition

A remedial trust imposed by a court to return property to the settlor or estate when an express trust fails or makes an incomplete disposition.

Can creditors reach assets of a support trust?

Generally no, except providers of necessities paid directly by the trustee.

Spendthrift clause effect on alienation

Restricts beneficiary’s power to voluntarily or involuntarily transfer their interest; limits most creditor claims.

Exceptions allowing creditors to pierce a spendthrift trust

Child/spousal support, basic necessities providers, and tax liens.

When may all beneficiaries terminate a noncharitable irrevocable trust without the settlor?

Only if continuation is not necessary to achieve any material purpose of the trust.

Majority rule on settlor’s power to revoke or amend a trust

Settlor may revoke or amend unless the trust expressly states it is irrevocable.

Automatic termination of a trust

Occurs when terms expire, the purpose is fulfilled, or the purpose becomes unlawful/impossible.

Court-ordered modification for unanticipated changes

Allowed when circumstances not foreseen by the settlor make modification consistent with the trust’s purpose.

Definition of a vested remainder in trust law

Interest given to an ascertainable person not subject to a condition precedent.

Time limit for disclaiming a future interest in most states

Within nine months of the interest becoming indefeasibly vested, and the disclaimer must be in writing.

Effect of income beneficiary’s valid disclaimer

Accelerates distribution of principal to vested remainder beneficiaries.

Class gift rule for ‘surviving children’ at common law

Only children alive at the settlor’s death share, unless the instrument provides otherwise.

Anti-lapse statute application to trusts in most states

Generally does NOT apply, but the UPC applies anti-lapse to trusts.

Trustee’s general powers absent express language

Powers necessary for a prudent person to manage property, including to contract, sell, lease, and invest.

Define self-dealing by a trustee

Trustee engages in a transaction with trust property for personal benefit (e.g., buying or selling trust assets).

Legal presumption when self-dealing is shown

Irrebuttable presumption of breach of the duty of loyalty (per se breach).

Two possible beneficiary remedies for trustee self-dealing

1) Set aside the transaction; 2) Ratify and recover any profit or surcharge losses.

Prudent Investor Rule

Trustee must invest and manage trust assets as a prudent investor would, exercising reasonable care, caution, and skill.

Duty to diversify

Trustee must spread investments to reduce risk of loss.

Duty to make trust property productive

Trustee must generate reasonable income or appreciation from trust assets (e.g., rent out vacant property).

Duty of impartiality

Trustee must act fairly with respect to different classes of beneficiaries, balancing present and future interests.

Ordinary vs. extraordinary expenses allocation

Ordinary expenses charged against income; extraordinary expenses charged against principal.

Duty to disclose

Trustee must provide beneficiaries with complete and accurate information about the trust, including records.

Duty to account

Trustee must periodically render formal accounts of trust administration.

General power of appointment

Donee may appoint property to anyone, including himself, his estate, or creditors.

Special (limited) power of appointment

Donee may appoint property only among a specified group (e.g., the donor’s grandchildren).

Consequence of exceeding a special power of appointment

Invalid appointment; property passes to the taker in default or back to the estate.

What is a mandatory trust?

Trustee has no discretion—must distribute income or principal as directed by the terms.

What is a discretionary trust?

Trustee may decide whether, when, and how much to distribute to beneficiaries, subject to abuse-of-discretion review.

Creditor rights against a discretionary trust

If trustee has not made a distribution, creditors generally cannot compel payment; once paid, creditors may reach it unless a spendthrift clause applies.

Support trust purpose

Directs trustee to distribute income/principal as necessary for beneficiary’s support (health, education, maintenance).

Rule Against Perpetuities and trusts—general rule

Future interests in private trusts must vest, if at all, within lives in being plus 21 years.

Effect of UPC on lapse in trusts

UPC anti-lapse provisions supply a substitute gift to descendants of a deceased beneficiary, applying to trusts as well as wills.

In what situations can a court remove a trustee?

For breach of duty or if continuance in office frustrates the trust’s purpose.

Presumption regarding trustee investment decisions under UPIA

Evaluated based on facts at the time of the decision, not with hindsight.

May a trustee delegate investment functions?

Yes, if the trustee exercises reasonable care in selecting, instructing, and monitoring the agent.

When can a creditor reach principal or income of a beneficiary?

Only when the amount is payable to the beneficiary or the beneficiary could demand it, absent spendthrift protection.

Public-policy rule on restraints of first marriage in trusts

Generally void unless limited and linked to support motives.

Spendthrift trust effect on beneficiary’s voluntary transfer

Prevents the beneficiary from assigning or pledging his interest before distribution.

Required formalities for a testamentary trust

Trust terms must be in a will that satisfies the jurisdiction’s wills act (writing, signature, witnesses).

Self-dealing allowed when…

Expressly authorized by settlor, court order, or unanimous beneficiary consent AND the transaction is fair and reasonable.

If a trust fails as a charitable trust for specificity, what remedial device may apply?

It may be treated as an honorary trust or turned into a resulting trust.

Acceleration principle after beneficiary disclaims

Disclaimant is treated as predeceasing the life tenant; vested remainder accelerates unless contingent.

Material purpose doctrine (Claflin)

Trust cannot be terminated by beneficiaries if doing so would defeat a material purpose (like support or spendthrift).

UTC/majority rule on trustee duty when multiple beneficiaries exist

Trustee must act impartially and consider differing interests unless terms permit preference.