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Trusts Overview
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Trusts Overview
Trusts Overview
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1
Question
What are the types of trusts?
Answer
1. Inter Vivos Trust - created when the settlor is alive. 2. Testamentary Trust - created when the settlor is dead. 3. Type of Beneficiary - can be a private trust or a charitable trust.
2
Question
What are the requirements for trust validity?
Answer
1. Trust Intent - split of title and enforceable fiduciary duty on Trustee (T). 2. Consideration - not needed. 3. Statute of Frauds (SoF) compliance - general rule is yes, with an exception only for personal property.
3
Question
What are the exceptions to SoF compliance for trusts?
Answer
1. Oral Trust. 2. Self-declaration of trust with insufficient writing or defective writing. 3. Part Performance - if Trustee starts acting like a Trustee.
4
Question
What must changes to a written trust be?
Answer
Changes to a written trust must be in writing if they are in writing, even if originally an oral trust.
5
Question
What is the important date to know regarding irrevocable trusts?
Answer
There is no violation of the Rule Against Perpetuities (RAP) when the trust becomes irrevocable.
6
Question
What is a legal purpose for a trust?
Answer
A trust cannot have an illegal purpose and cannot be against public policy.
7
Question
What must the Settlor (S) have to create a trust?
Answer
The Settlor must have the capacity to create the trust.
8
Question
What is needed for a trust in terms of property?
Answer
There must be property that can be transferrable.
9
Question
What is required of the Trustee (T)?
Answer
There must be a surviving Trustee; it is not automatic, and one cannot force someone to be a Trustee.
10
Question
What is presumed in Texas regarding Trustee bonds?
Answer
A bond is presumed in Texas.
11
Question
What are the traits of a trust?
Answer
1. Is the trust revocable by the Settlor? 2. Are there limits on Beneficiary (B) interests?
12
Question
What is the biggest limitation on Beneficiary interests in a trust?
Answer
The biggest limitation is Spendthrift provisions.
13
Question
What are the types of distributions a Trustee can make?
Answer
Distributions can be mandatory or discretionary and are limited by purpose or standard, usually Health, Education, Maintenance, and Support (HEMS).
14
Question
Who can make changes to a trust?
Answer
Changes can be made by: 1. Settlor (S) 2. Beneficiary (B) 3. Both Settlor and Beneficiary 4. Trustee (T) 5. Trustee and Beneficiary 6. Court.
15
Question
What are the types of deviations related to trusts?
Answer
Deviation and Reformation apply to both kinds of trusts.
16
Question
What is Cy Pres in relation to trusts?
Answer
Cy Pres applies only to charitable trusts and can be mandatory to fix RAP.
17
Question
When can a trust be terminated?
Answer
1. If all Beneficiaries are dead resulting in a resulting trust.
18
Question
What constitutes proper conduct of a Trustee?
Answer
1. What powers did the Trustee have and did they exceed them? 2. If the Trustee had the power to do something, also check if they violated fiduciary duty.
19
Question
What standard must Trustees adhere to in their investments?
Answer
Trustees must adhere to the Prudent Investor Standard.
20
Question
What must a Trustee do in response to requests for accountings?
Answer
The Trustee must properly respond to requests for accountings.
21
Question
What is the liability of a Trustee to third parties?
Answer
Liabilities to third parties include respondeat superior and getting insurance.
22
Question
How are allocations made between principal and income in a trust?
Answer
Allocations must be made according to the type of income received and under the governing trust code.
23
Question
What is the standard for Trustee compensation?
Answer
Trustee compensation is presumed to be 50/50 but can be allocated in any manner consistent with fiduciary duties.
24
Question
What are the basic allocation rules for trust property?
Answer
1. Capital gains - principal. 2. Interest earned - income. 3. Rent income - income.
25
Question
What can trigger the need for a Trustee to inform beneficiaries?
Answer
The Trustee must inform beneficiaries when they are going to do something unusual and material.
26
Question
What is required for accountings in Texas?
Answer
Texas does not require regular accountings, but beneficiaries can demand them.
27
Question
What happens if a Trustee fails to provide an accounting upon request?
Answer
If the Trustee fails to provide an accounting within 90 days, any beneficiary can sue.
28
Question
What can result in the modification of trusts?
Answer
Trusts can be modified if the purposes of the trust are fulfilled, became illegal, or impossible to fulfill.
29
Question
What are the conditions under which a trust can be revoked?
Answer
A Settlor can revoke a trust unless expressly stated to be irrevocable.
30
Question
How does the Texas legislature view the merging of trusts?
Answer
The merging of trusts is allowed as long as no material trust purposes remain unfulfilled.