Terminology
What is a testamentary trust?
A testamentary trust is created through provisions of the settlor's will and does not come into existence until the settlor dies.
What is the Ultra Vires Doctrine?
If any officers or directors act outside the scope of the corporation’s stated purpose (1) a shareholder can sue to enjoin the action or (2) the corporation can recover any losses sustained as a result of the action.
How can a settlor modify a trust?
A trust is irrevocable and cannot be modified unless the settlor retained the right to do so in the terms of the trust instrument.
What is a spendthrift trust?
A trust established to protect the beneficiary from his own carelessness.
How is a valid express trust created?
Settler has intent to create the trust, there is a trust property, an ascertainable beneficiary exists, trust has a trustee, there is a lawful purpose for the trust, and all parties comply with the requisite formalities.
In many close corporations, there are certain restrictions placed on a shareholder’s ability to transfer its stock--name the two restrictions:
There are certain restrictions placed on a shareholder’s ability to transfer its stock.
These restrictions will only be upheld if (1) they are placed in the articles of incorporation or by written agreement of the shareholders and (2) they are reasonable.
What must a director show to get around an interested director transaction?
(normally these dealings constitute a breach of the director's duty of loyalty)
(1) He disclosed the material facts relating to his interest to the corporation and the deal was approved by either a majority of disinterested shareholders, or a majority vote of disinterested directors; or
(2) The deal was fair and reasonable to the corporation at the time it was approved.
How can a beneficiary modify a trust?
-all beneficiaries must consent
- no material purpose remains
- trust expires/revoked
- unlawful trust purpose
What is a constructive trust?
A constructive trust is imposed to prevent a party from being unjustly enriched by obtaining title to property through wrongful conduct.
How is a trust terminated?
1. Trust is revoked or expires
2. material purpose for trust is satisfied or becomes unlawful
3. settlor and all beneficiaries unanimously agree to terminate
4. termination will further purpose of trust
5. no material purpose remains
6. value of trust property too low to justify cost of administration
What is a discretionary trust?
A discretionary trust grants the trustee absolute power and discretion to make good faith determinations regarding when and how much trust property should be distributed.
What is corporation by estoppel?
In the event a promoter enters into a contract as the agent of the corporation (e.g. signs the contract as “president of X corporation”), the promoter will not be personally liable on the contract, even if the corporation has not yet been validly formed under the theory of corporation by estoppel.
When may a trustee be allowed to invade the trust principal?
IF:
1. only one beneficiary exists.
2. the beneficiary will ultimately recieve the trust principal.
3. significant change in circumstances
or 4. trust grants the trustee discretion to invade the principal.
What is the rule for class gifts?
If a bequest is made to a class of individuals, then only the surviving members of the class at the time of the testator’s death will take (including any children in the “womb” at the time of testator’s death).
The predeceased members will not, unless the anti-lapse statute applies.
What are the two main functions of a spendthrift trust?
AND
2. The beneficiary's creditors cannot reach the beneficiary's beneficial interest.
What is a support trust?
A support trust is a trust that contains a provision directing the trustee to pay to the beneficiary as much of the income as is necessary for beneficiary's education and support.
What is a quorum? What is voting by proxy?
Quorum is a majority of all outstanding shares (not people) entitled to vote. There must be a quorum of shares present at the meeting in order for the meeting to be valid.
Proxies: A signed directive by the record shareholder or an authorized agent to the secretary of the corporation authorizing another to vote the record shareholder’s shares.
What is a general power of appointment?
A general power of appointment is granted when the donor does NOT leave any restrictions as to the appointment of the property.
The donee is free to appoint the property to himself, his creditors, or any others he chooses.
What is the common theme between illusory transfer doctrine and the fraudulent transfer doctrine
surviving spouse can reach assets transferred into a revocable trust if the transfer was fraudulent/if the deceased spouse could have recaptured the assets.
What is covered under the Duty of Loyalty the trustee has toward the beneficiary?
no borrowing trust funds
no lending money to trust
no profits from serving as trustee
no co-mingling personal assets with trust
cannot buy/sell trust assets to self.
What does UPIA stand for?
Uniform Prudent Investor Act, which requires the trustee to exercise the degree of care and skill as an investor of ordinary prudence.
What is the common law for a shareholder inspecting corporation's books and records?
(what is the modern rule?)
Common Law Rule: Any shareholder has the right to inspect the corporation’s books and records so long as they have a proper purpose for the inspection.
Modern Rule:
Qualified Right: A shareholder has the right to inspect the corporation’s records which it does not generally make available to shareholders (e.g. accounting records, list record shareholders, etc.) if the shareholder provides at least 5 days written notice and states a proper purpose in the notice.
Unqualified Right: A shareholder has an absolute right (no notice or statement of purpose) to inspect those records of the corporation which it generally makes available to shareholders (e.g. the articles, the bylaws, a list of directors, minutes from shareholder meetings, etc.).
What is a special power of appointment?
A special power of appointment is granted when the donor leaves restrictions as to the appointment of the property.
Generally, the donee may not exercise a special power of appointment for his own benefit.
What is the elective share statute?
A surviving spouse has the right to take under the will or to renounce their bequest and file for an elective share.
The spouse is then entitled to the following: 1/3 if the decedent had children, 1/2 if the decedent had no children.
- will reduce any share also getting in the will
- disqualified through annulment and divorce
What are the fiduciary duties of a trustee toward a beneficiary?
1. Manage the trust property exclusively for the benefit of all the trust's beneficiaries.
2. Administer the trust in good faith pursuant to the terms and purposes of the trust.