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Questions and Answers
What occurs to the property of an ex-spouse if a revocable trust is silent about the impact of divorce?
What occurs to the property of an ex-spouse if a revocable trust is silent about the impact of divorce?
Which condition does NOT allow the provisions regarding an ex-spouse to be revoked?
Which condition does NOT allow the provisions regarding an ex-spouse to be revoked?
In terms of mandatory income distributions, what is true about commentators' views?
In terms of mandatory income distributions, what is true about commentators' views?
Which of the following best describes a Bona Fide Purchaser's (BFP) role with respect to property from an ex-spouse?
Which of the following best describes a Bona Fide Purchaser's (BFP) role with respect to property from an ex-spouse?
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What is the general consequence of unjust enrichment for an ex-spouse who improperly receives property or payments?
What is the general consequence of unjust enrichment for an ex-spouse who improperly receives property or payments?
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How can power to transfer or assign property generally be characterized?
How can power to transfer or assign property generally be characterized?
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What is a notable restriction on a beneficiary's ability to transfer property?
What is a notable restriction on a beneficiary's ability to transfer property?
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Which of the following is NOT a requirement for a trust to pour over from a will?
Which of the following is NOT a requirement for a trust to pour over from a will?
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What is a potential drawback of pouring over assets into a revocable trust?
What is a potential drawback of pouring over assets into a revocable trust?
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What advantage does naming a trust as the beneficiary of a life insurance policy provide?
What advantage does naming a trust as the beneficiary of a life insurance policy provide?
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Under what condition can you NOT pour over into a trust of another person?
Under what condition can you NOT pour over into a trust of another person?
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Which of the following is a valid characteristic of a life insurance trust?
Which of the following is a valid characteristic of a life insurance trust?
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What is a primary benefit of establishing a trust for life insurance proceeds?
What is a primary benefit of establishing a trust for life insurance proceeds?
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In the context of life insurance trusts, what does the term 'contract right to receive proceeds' refer to?
In the context of life insurance trusts, what does the term 'contract right to receive proceeds' refer to?
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What is a consideration for setting up a life insurance trust for clients with minor or disabled children?
What is a consideration for setting up a life insurance trust for clients with minor or disabled children?
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What does the Substitute Fiduciary Act allow for a corporation that acquires a target?
What does the Substitute Fiduciary Act allow for a corporation that acquires a target?
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What term describes beneficiaries who are entitled to income until death, with remaining trust passing to another beneficiary?
What term describes beneficiaries who are entitled to income until death, with remaining trust passing to another beneficiary?
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What criteria must the description of beneficiaries meet according to the trust instrument?
What criteria must the description of beneficiaries meet according to the trust instrument?
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Who holds equitable title and can enforce fiduciary duties against the trustee?
Who holds equitable title and can enforce fiduciary duties against the trustee?
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In the context of a trust, what is an honorary trust?
In the context of a trust, what is an honorary trust?
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Which of the following statements is true regarding the capacity to hold property in a trust?
Which of the following statements is true regarding the capacity to hold property in a trust?
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What does the failure to clearly describe beneficiaries in a trust result in?
What does the failure to clearly describe beneficiaries in a trust result in?
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What is a potential consequence of not enforcing an honorary trust?
What is a potential consequence of not enforcing an honorary trust?
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What must the settlor demonstrate to create a trust?
What must the settlor demonstrate to create a trust?
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Which of the following is NOT an essential element of a trust?
Which of the following is NOT an essential element of a trust?
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Which statement about beneficiaries' awareness of a trust is true?
Which statement about beneficiaries' awareness of a trust is true?
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What is a key characteristic of the duties a trustee has in a trust?
What is a key characteristic of the duties a trustee has in a trust?
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What was the purpose of the Statute of Uses enacted in 1535?
What was the purpose of the Statute of Uses enacted in 1535?
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Before the 15th Century, what was the status of a beneficiary's rights under a trust?
Before the 15th Century, what was the status of a beneficiary's rights under a trust?
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Which type of use developed at common law allows for actual duties to be performed by the trustee?
Which type of use developed at common law allows for actual duties to be performed by the trustee?
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Which of the following statements is true regarding the language used in trusts?
Which of the following statements is true regarding the language used in trusts?
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What does Family Code § 154.005 allow the court to do regarding spendthrift provisions?
What does Family Code § 154.005 allow the court to do regarding spendthrift provisions?
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What happens if a trust payment is mandatory in relation to child support payments?
What happens if a trust payment is mandatory in relation to child support payments?
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What is the effect of a forfeiture provision related to child support?
What is the effect of a forfeiture provision related to child support?
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What must a person claiming delinquency first obtain before going after the trust?
What must a person claiming delinquency first obtain before going after the trust?
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When creating separate trusts for the children, what is a potential downside?
When creating separate trusts for the children, what is a potential downside?
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How do settlement agreements influence trust issues?
How do settlement agreements influence trust issues?
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What distinguishes tort claimants from traditional creditors in relation to trusts?
What distinguishes tort claimants from traditional creditors in relation to trusts?
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What is typically stated in trusts with multiple beneficiaries regarding child support delinquency?
What is typically stated in trusts with multiple beneficiaries regarding child support delinquency?
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What is the primary limitation on a trustee's ability to delegate their duties?
What is the primary limitation on a trustee's ability to delegate their duties?
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Which rule allows a trustee to delegate investment decisions to an investment agent?
Which rule allows a trustee to delegate investment decisions to an investment agent?
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Under what condition can a trustee delegate investment or management decisions according to the 2004 Rule?
Under what condition can a trustee delegate investment or management decisions according to the 2004 Rule?
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What allows a trustee to investigate environmental concerns before acceptance?
What allows a trustee to investigate environmental concerns before acceptance?
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What can a court with proper jurisdiction do regarding a trustee's powers?
What can a court with proper jurisdiction do regarding a trustee's powers?
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What was a major change introduced by the 2004 Rule regarding trustee delegation?
What was a major change introduced by the 2004 Rule regarding trustee delegation?
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What is a key consideration when determining if a task is discretionary?
What is a key consideration when determining if a task is discretionary?
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What do implied powers of a trustee allow them to do?
What do implied powers of a trustee allow them to do?
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The trustee needed legal title to perform a power or a duty relating to the property for the beneficiary’s ______.
The trustee needed legal title to perform a power or a duty relating to the property for the beneficiary’s ______.
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As long as legal and equitable title are split, even if only a tiny bit, the settlor can keep legal and most ______ title.
As long as legal and equitable title are split, even if only a tiny bit, the settlor can keep legal and most ______ title.
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A sole trustee can never be the sole ______ of the trust.
A sole trustee can never be the sole ______ of the trust.
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If all legal and equitable title is in one person, ______ occurs and no trust exists.
If all legal and equitable title is in one person, ______ occurs and no trust exists.
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Any separation of legal and equitable title coupled with fiduciary ______ on the legal titleholder is sufficient to create a trust.
Any separation of legal and equitable title coupled with fiduciary ______ on the legal titleholder is sufficient to create a trust.
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A trustee may need to post a ______ conditioned on the faithful performance of the trustee's duties.
A trustee may need to post a ______ conditioned on the faithful performance of the trustee's duties.
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A trust must have ______; when there is no longer property, the trust does not exist.
A trust must have ______; when there is no longer property, the trust does not exist.
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If the trust instrument is silent, a ______ is required for the trustee unless waived by the settlor.
If the trust instrument is silent, a ______ is required for the trustee unless waived by the settlor.
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The ______ creates a trust by manifesting trust intent and must have the capacity to convey property.
The ______ creates a trust by manifesting trust intent and must have the capacity to convey property.
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In Texas, a majority of ______ may act to make decisions regarding the trust.
In Texas, a majority of ______ may act to make decisions regarding the trust.
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Reasons to not accept a trustee position include subjecting yourself to ______ and bad beneficiaries.
Reasons to not accept a trustee position include subjecting yourself to ______ and bad beneficiaries.
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In a Dacey Trust, the settlor, trustee, and lifetime beneficiary are the ______ person.
In a Dacey Trust, the settlor, trustee, and lifetime beneficiary are the ______ person.
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The court sets the amount of the bond based on the value of the trust ______.
The court sets the amount of the bond based on the value of the trust ______.
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A resulting trust allows the ______ to regain the property if it was created for an improper purpose.
A resulting trust allows the ______ to regain the property if it was created for an improper purpose.
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If a settlor retains powers such as the ability to amend or revoke the trust, the trust is considered to be ______.
If a settlor retains powers such as the ability to amend or revoke the trust, the trust is considered to be ______.
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The Substitute Fiduciary Act allows a corporation that acquires a target to become the ______ of those trusts.
The Substitute Fiduciary Act allows a corporation that acquires a target to become the ______ of those trusts.
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Beneficiaries can be classified as either concurrent or ______, where one beneficiary may receive income until death with remaining trust passing to another.
Beneficiaries can be classified as either concurrent or ______, where one beneficiary may receive income until death with remaining trust passing to another.
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The description of beneficiaries in a trust must be clearly ______ to avoid invalidation of the trust.
The description of beneficiaries in a trust must be clearly ______ to avoid invalidation of the trust.
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An honorary trust lacks a human beneficiary or charitable ______, making it unique compared to traditional trusts.
An honorary trust lacks a human beneficiary or charitable ______, making it unique compared to traditional trusts.
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A beneficiary holds ______ title and can enforce fiduciary duties against the trustee.
A beneficiary holds ______ title and can enforce fiduciary duties against the trustee.
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Study Notes
Introduction to Trusts
- Trusts divide property title into legal and equitable interests
- A settlor (trustor or grantor) creates a trust
- Trustees hold legal title for the benefit of beneficiaries
- Common reasons for establishing a trust include protecting beneficiaries (minors, incompetents, spendthrifts), managing property, avoiding probate, and tax benefits.
- Texas trust legislation has evolved, incorporating aspects of case law and statutes from 1943 to the present.
- Trusts involve costs and burdens. Durable power of attorney may suffice in some cases.
Purposes and Uses of Trusts
- Protecting beneficiaries who lack management skills
- Providing flexibility in asset distribution
- Protecting against settlor incompetence or inability to manage
- Providing professional property management
- Avoiding probate
- Tax benefits
Elements for a Valid Trust
- Trust intent – Settlor must manifest intention to create trust
- Settlor with capacity – Settlor must have legal capacity to transfer property
- Compliance with statute of frauds – in some cases a written agreement for a trust is required
- Legal Purpose – The purpose for the trust must not be illegal and must uphold public policy
- Transfer of Property
- Trustee holding legal title for the beneficiaries
- RAP compliance - The rule against perpetuities requires that a trust must have a reasonable timeframe for distribution of trust property
Trust Creation
- Split into legal and equitable title
- Enforceable fiduciary duties on the legal titleholder
- Court reluctant to create trusts if not clearly expressed by original parties
During Settlor's Lifetime
- Inter vivos trusts (living trusts)
- Settlor is not automatically the trustee in many scenarios
- Transfers property to a trustee for benefit of beneficiary
Upon Settlor's Death
- Testamentary trusts (will-based)
- The trustee does not have to accept the position
- The trust becomes effective when the settlor dies
Consideration
- Not required for a valid trust – except establishing a future trust
Statute of Frauds
- Trust must be in writing for enforcing or certain special situations
Trust Property
- Can be real estate, personal property, or future interests
- Needs to be transferred to the trustee
Trust Trustee's Duties
- Exercise care, skill, and prudence in administering trust
- Act in the beneficiary's best interest
- Avoid self-dealing and conflicts of interest
Trust Administration
- Trustee accepts the position (must be competent)
- Locates trust property
- Ascertain the identity of the beneficiaries
- Complies with trust instrument instructions
- Handles legal and financial matters of the trust
- Distributes the funds according to the provisions
- Manages trust property in a prudent manner
Multiple Trustees
- Multiple trustees can act jointly or separately
- They share responsibility and liability for trust management
Successor Trustees
- Often appointed if the original trustee is no longer able to fulfill their duties
- Appointed as per the trust agreement or by a court
Trust Beneficiaries
- Those benefiting from the trust, holding equitable title
- Their identities need to be established
- Beneficiaries are necessary in cases involving the trust
Charitable Trusts
- Benefit a section of the community or society
- Follow similar procedures to private trusts, but there are unique rules.
- Not subject to RAP
- Tax exemptions available
Trust Distributions
- Trustee makes distributions to beneficiaries based on trust instrument
- Rules are usually that the trustee must divide and consider income and principal distribution
- If unclear, the court will step in to provide guidance.
Revocable Trusts
- Settlor retains the right to change the trust's terms
- Trust can be amended or revoked at any time
Irrevocable Trusts
- Settlor gives up the right to alter the terms of the trust
- Trust's terms remain unchanged for the beneficiary's benefit
Trust Termination
- Occurs when the terms of the trust are met
- Court may permit termination if all parties agree
- Can be triggered by the exhaustion of trust funds.
Trust Enforcement
- Interested parties can challenge the trust
- Court may intervene
- Required Notice of litigation to parties
Conflict of Interest
- Trustees must act impartially and avoid conflicts that benefit them personally
- Settlor can waive some of these restrictions, but the court can override.
- Trustees can be held accountable for violating these guidelines.
Liability of Trustees
- Can be held personally liable for breaches of trust
- Liable for mismanaging trust funds/assets
- Liable for wrongful acts committed by trustee's agents.
Trust Accounts
- Banks may manage an account for a trust
- Trustees may owe accounting duties to beneficiaries.
Constructive Trusts
- Equitable remedy, not a trust in the true sense
- Created to prevent someone from benefiting from wrongdoing
- Court orders that the wrongdoer transfer ownership to a rightful owner.
Resulting Trusts
- Arises when the terms of an express trust fail or are incomplete, therefore any remaining property returns to the settlor or their successors.
- Equitable remedy, not a trust but an instruction by the court
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Description
This quiz covers the fundamentals of trusts, including their legal structure, purposes, and the elements required for a valid trust. It addresses how trusts can protect beneficiaries and offers insights into Texas trust legislation. Test your knowledge on the roles of settlors and trustees, as well as the benefits and costs associated with creating a trust.
