types of trusts
a settlor transfers 500k to a trustee during her lifetime and states "I reserve the right to modify or revoke this trust at any time". What type(s) of trust is this?
Express trust, inter vivos trust, revocable trust
A trust states "all trust funds shall be used to operate a tuberculosis hospital". Tuberculosis is no longer a major public health issue. What happens?
court may apply cy pres. If a charitable purpose becomes impossible or impracticable, courts may modify the trust to approximate the settlor’s intent.
A trustee sells trust real estate to his daughter for fair market value after obtaining an independent appraisal. The trustee did not profit personally.The beneficiaries challenge the transaction. Is the transaction valid?
no this is self dealing
A trust states: “Income to my son until he reaches age 40, at which time the trust principal shall be distributed to him.” The son is now 30 years old and asks the court to terminate the trust early. All beneficiaries agree. Can the trust be terminated?
no; under claflin doc a trust cannot be terminated if doing so would defeat a material purpose of the trust. the material purpose is delaying distribution until age 40
A settlor states: “I promise to create a trust for my daughter next year and transfer $100,000 to a trustee.” The settlor dies before transferring the money. Did a trust exist?
no true trust exists
A will states: "I leave 200k to my trustee to hold in a trust for my granddaughter until she reaches age 25". What type(s) of trust is this?
express trust and testamentary trust
a settlor creates a trust stating: "funds shall be distributed to the employees of my company". Is this a charitable trust?
no, its a private trust or benevolent
A trust states: “The trustee shall invest trust funds only in government bonds.” The trustee instead invests in corporate bonds to increase returns. Did the trustee breach a duty?
yes; duty of obedience, they must follow the terms of the trust
A trust requires the trustee to invest only in government bonds. Interest rates drop dramatically, and the trust produces almost no income. The beneficiary relies on the trust for support. Can the court modify the investment terms?
Under equitable deviation, courts may modify administrative terms when unanticipated circumstances threaten the trust’s purpose. Here the purpose (supporting the beneficiary) is threatened.
A trust contains a spendthrift clause. The beneficiary owes: credit card debt, and unpaid child support Which creditors can reach the trust?
credit card company is no and child support yes
a settlor creates a trust during life transferring 1 mil to a trustee and states" "the trustee may distribute income or principal to my son in the trustees sole discretion". The settle cannot modify or revoke the trust. What type(s)?
express trust, inter vivos, irrevocable, discretionary
A trust states: “The trustee may distribute income or principal to Tom in the trustee’s sole discretion. The beneficiary may not transfer his interest and creditors may not reach the trust.” Tom owes money to a bank.Can the bank reach the trust?
no bc spendthrift and discretionary trust protection
A trustee arranges for a friend to purchase trust land at auction and later transfers the land to the trustee privately. Did the trustee breach a duty?
yes; this is indirect self-dealing, courts treat it the same way
A trustee manages an old trust with extremely restrictive investment rules. The trustee transfers the assets into a new trust with modern investment provisions benefiting the same beneficiaries. Is this allowed?
possibly yes. This is decanting.
A trust states: “Income to my son for life, then principal to my grandchildren.” The son dies with no grandchildren in existence. What happens to the trust property?
a resulting trust may arise. When a trust fails due to lack of beneficiaries, the property returns to the settlor or the settlor’s estate.
A trust states: “The trustee shall distribute funds for the beneficiary’s health, education, maintenance, and support.” The trust also states: “The beneficiary may not transfer their interest and creditors may not reach the trust assets.”What type(s) of trust is this?
support trust and spendthrift trust
A trust states: “The trustee may distribute funds for the beneficiary’s health, education, maintenance, and support in the trustee’s discretion.” The beneficiary owes money to a bank. Can the bank reach the trust?
no; creditors generally cannot compel distributions from discretionary trusts even when a support standard exists
A trustee manages a trust for two beneficiaries. The trustee: Invests 80% of the trust assets into the trustee’s own company. Fails to diversify the trust investments. Refuses to provide financial records when beneficiaries request them. What duties are breached?
Duty of loyalty (self-dealing), Duty of prudence (prudent investor rule), and duty to inform and account
A trust states: “Funds shall be used to maintain the settlor’s private family cemetery.” The cemetery no longer exists. Can the trust be modified?
no cy pres. Cy pres applies only to charitable trusts. A private purpose trust does not qualify. The trust may fail, and the property may return to the settlor’s estate through a resulting trust.
A valet parking service takes a car and then uses the car to run personal errands. While driving, the car is damaged. Is the valet liable?
yes; using bailed prop for unauthorized purposes may constitute conversion
A settlor transfers assets into a trust during life but keeps the right to revoke it. The trust states: “The trustee may distribute funds to the beneficiary in the trustee’s discretion.” what type(s)?
express trust, inter vivo, revocable, discretionary
A trust states: “The trustee shall provide scholarships for the children of employees of my company.” Is this a charitable trust?
no bc the beneficiaries are a limited group
A trust has two trustees. One trustee makes risky investments that violate the prudent investor rule. The other trustee knows but does nothing. Is the passive trustee liable?
yes co trustees must participate in trust administration and prevent breaches by other trustees.
A trust contains $15,000 and states: “This trust shall continue until my grandson reaches age 30.” The grandson is currently 12 years old. Administrative costs consume most of the trust each year. Can the court terminate the trust despite the age restriction?
yes; The uneconomic trust rule can override a material purpose when maintaining the trust is impractical due to its small size. The court may terminate the trust and distribute the funds for the beneficiary’s benefit.
A caretaker convinces an elderly person to transfer property into a trust benefiting the caretaker through undue influence. What remedy may a court impose?
a constructive trust; Courts impose constructive trusts to prevent unjust enrichment. The caretaker would hold the property for the rightful owner.