Trusts – Lecture Review Flashcards

These flashcards review key concepts, definitions, and rules from the lecture on trusts, covering formation requirements, types of trusts, trustee duties, beneficiary rights, modification and termination, and special doctrines.

What is the basic definition of a trust?

A fiduciary relationship in which a trustee manages, protects, and invests property for named beneficiaries.

What three elements are required for a valid trust?

(1) A trustee, (2) an ascertainable beneficiary, and (3) trust assets (res).

Are trust interests generally alienable?

Yes, they are transferable during life, by will, or by intestacy unless the trust terms provide otherwise.

Who holds legal title to trust property?

The trustee.

Who holds equitable title to trust property?

The beneficiary.

Is consideration required to create a trust?

No.

Under the majority rule, is a trust presumed revocable or irrevocable?

Revocable unless it expressly states it is irrevocable.

Under the minority rule, what is the presumption about revocability?

A trust is presumed irrevocable.

What distinguishes a mandatory trust from a discretionary trust?

Mandatory trusts require distribution of all income; discretionary trusts give the trustee discretion over distributions.

To what future‐interest rule are trusts subject?

The Rule Against Perpetuities (unless charitable).

Who is the settlor?

The person who creates or contributes property to the trust.

Can the same individual be sole trustee and sole beneficiary?

No; title would merge and the trust would fail.

Name two basic duties a trustee must have for the trust to stand?

Duties to manage/invest and to distribute according to the terms.

How may a person accept trusteeship if the instrument is silent?

By accepting delivery of property, exercising trustee powers, or performing trustee duties.

What happens if a designated trustee declines within a reasonable time?

They are deemed to have declined; the court will appoint a successor trustee unless the settlor intended otherwise.

Define an express trust?

A trust created by the expressed intent of the owner to create a trust relationship.

List the six elements of a valid private express trust?

(i) Settlor with capacity, (ii) present intent, (iii) identifiable property, (iv) trustee with duties, (v) definite beneficiaries, (vi) valid purpose.

What is a precatory trust?

A gift with language of hope or wish that may be construed as a trust if specific fiduciary instructions and an unnatural disposition absent a trust exist.

What is required for trust property (res)?

It must be owned by the settlor and identifiable/segregated at creation.

What is a pour-over devise?

A will provision directing assets into a trust at the testator’s death.

What is a Totten trust?

A bank account titled "A, trustee for B" where A retains full control during life; revocable and not a true trust.

Under UTMA, what is the role of the custodian?

Manage the account for a minor until the minor reaches 21; the custodian does not hold legal title as trustee.

Why is a life-insurance trust valid even though unfunded at creation?

The policy proceeds constitute the res when the insured dies.

Define a testamentary trust?

A trust whose terms are set out in a will and which takes effect at death.

What is a "secret" trust?

Looks like a gift in a will but relies on the beneficiary’s promise to hold property for another; enforced by constructive trust if proven.

What is a "semi-secret" trust?

Will indicates property is in trust but fails to name beneficiary/terms; gift fails and property goes by resulting trust.

What two requirements make a trust charitable?

A stated charitable purpose and benefit to the community or a changing class of persons.

Name three accepted charitable purposes?

Relief of poverty, advancement of education or religion, promotion of health (also gov./municipal, community benefit).

Are charitable trusts subject to the Rule Against Perpetuities?

No; they may last indefinitely.

What is the cy pres doctrine?

Court modification of a charitable trust to a purpose as near as possible when the original one becomes impossible, impracticable, or illegal.

What is an honorary trust?

A trust without a definite human beneficiary (e.g., for pets or graves) enforceable by statute for a limited period.

When does a resulting trust arise?

When an express trust fails or there is an incomplete disposition, so property returns to settlor or estate.

State the two elements needed to impose a constructive trust?

(1) Defendant holds title to property; (2) retention would unjustly enrich the defendant due to wrongdoing.

What is a spendthrift trust?

A trust that restricts voluntary and involuntary transfer of a beneficiary’s interest while in the trust.

Name two creditor exceptions to a spendthrift clause?

Claims for child/spousal support and tax liens (sometimes providers of necessities).

What is a support trust?

Trust directing trustee to pay income/principal as necessary for beneficiary’s support, maintaining accustomed lifestyle.

Define a discretionary trust?

Trust where trustee has complete discretion whether to distribute income or principal.

Under the Claflin doctrine, when can beneficiaries not terminate a trust?

When continuation is necessary to achieve a material purpose such as spendthrift or discretionary provisions.

What is the default presumption about revocability under the UTC?

Revocable unless stated otherwise.

How may a settlor revoke a revocable trust absent a specified method?

By a later will/codicil referring to the trust or by other clear and convincing evidence of intent.

What duty must a trustee follow immediately upon accepting office?

Safeguard trust property (insure, earmark, record deeds, locate beneficiaries, follow instructions).

Name the overarching fiduciary duties of a trustee?

Duty of loyalty, duty of prudence, duty of impartiality, duty to inform and account.

What is the "no further inquiry" rule regarding self-dealing?

Once self-dealing is shown, it is a per se breach; reasonableness and good faith are irrelevant.

Can a trustee ever engage in self-dealing?

Only if expressly authorized, approved by court, or consented to by all beneficiaries AND the transaction is fair.

What standard governs trustee investments under the Uniform Prudent Investor Act?

A prudent investor standard focusing on total portfolio performance, reasonable care, caution, and skill.

Must a trustee diversify trust investments?

Yes, unless the costs or circumstances make diversification contrary to the trust’s purpose.

What does the duty of impartiality require?

Balancing the interests of income and remainder beneficiaries without favoritism.

What information must a trustee generally provide to beneficiaries on request?

A copy of the trust instrument and accurate information about trust property and administration.

What is the unitrust concept under the UPAIA?

Beneficiaries receive a fixed percentage of the trust’s annual value, making income/principal distinction irrelevant.

Under UPAIA, how are stock dividends normally allocated?

As principal.

What liabilities does a trustee face for breach of trust?

Responsibility for lost profits, lost interest, and other losses; may also be removed.

When is a co-trustee liable for another trustee’s breach?

If the co-trustee consented, failed to prevent, concealed, or improperly delegated regarding the breach.

Is a successor trustee liable for a predecessor’s breach?

Generally no, unless the successor fails to seek redress or secure the property after learning of the breach.

How can a trustee resign?

By 30-day notice to settlor (if living), co-trustees, and qualified beneficiaries, or by court approval.

List one ground for court removal of a trustee?

Incapacity, material breach, conflict of interest, serious conflict with beneficiaries, or persistent poor performance.

What is a power of appointment?

Authority (often given to a beneficiary) to direct the trustee to distribute trust property, sometimes to a limited class.

What is the effect of a beneficiary disclaiming a future interest?

Beneficiary is treated as predeceasing; interest passes to next takers (estate or issue depending on jurisdiction).

Do adopted children generally count as "children" in class gifts today?

Yes, absent contrary intent; UPC treats adopted children as biological for class gifts.

What is the Rule Against Perpetuities period traditionally?

Life in being plus 21 years.

Which trusts are NOT subject to RAP?

Charitable trusts.

Define an executory interest?

A future interest that cuts short a prior vested interest or follows a fee simple subject to an executory limitation.

What happens to excess trust property if a trust purpose fails and there is no gift-over clause?

A resulting trust returns property to the settlor or the settlor’s estate.

Who generally has standing to enforce a charitable trust?

The state attorney general and persons with a special interest in the trust.

In a discretionary trust, when can a beneficiary’s creditors reach trust assets?

Only after the trustee actually decides to make a distribution, unless a spendthrift provision blocks it.

What is required to modify a noncharitable irrevocable trust with beneficiaries’ agreement alone?

Court must find modification is not needed to achieve a material purpose OR no material purpose remains.

What is a gift-over clause?

A provision directing where trust property goes if the trust purpose fails.

Under the UTC, when can a trustee combine or divide trusts?

After notice to qualified beneficiaries, if rights are not impaired and purposes are not adversely affected.

Name two expenses typically charged to trust income?

Half of trustee compensation and ordinary expenses like interest or routine repairs.

Name two expenses typically charged to trust principal?

The other half of trustee compensation and payments on trust debt principal.

What does the Uniform Custodial Trust Act create?

A revocable management trust to handle assets if the grantor becomes incapacitated.

Under the UPIA, may a trustee delegate investment functions?

Yes, if prudent in selecting, instructing, and monitoring the agent.

What is constructive fraud in trust accounting?

Providing false statements in an accounting that proper investigation would have corrected.

How long do most animal (pet) trusts last?

Until the animal (or last surviving animal) dies.