Trusts Review
Questions
Set 1
|
Gerry W. Beyer |
Question 1
Under modern law, which of the following powers may a settlor retain over an otherwise valid trust? List all correct answers.
A. Ability to change the remainder beneficiary.
B. Right to terminate the entire trust because of a personal dispute with one of the trust’s five income beneficiaries.
C. Ability to serve as the sole trustee and sole beneficiary.
D. Right to remove property from the trust.
Question 2
Which of the following is/are characteristic of a valid inter vivos trust? Give all correct choices.
A. Validity of settlor’s will is a condition precedent to validity of the trust.
B. The settlor may retain the power to revoke.
C. The settlor may retain a life interest in the trust property.
D. The beneficiary must have given consideration to the settlor before the trust was created.
Question 3
Sabrina’s parents established a valid trust (Parent’s Trust) for Sabrina containing $500,000 in cash and a house in a nice area of town. The trust contains the following language:
“The trustee shall invest the money placed in this trust and pay all income to Sabrina in monthly installments except for amounts used to keep the house in good condition as long as Sabrina lives in the house. Sabrina’s interest in this trust may not be voluntarily or involuntarily transferred. Upon Sabrina’s death, this trust will terminate and all remaining trust property and undistributed income shall be paid to her then-living children.”
Sabrina enrolled in law school to fulfill her childhood dream of becoming an attorney. Law school, however, did not live up to her expectations. She did not like attending classes, reading cases, and taking exams. She dropped out of school and pursued other interests more to her liking. Several years elapsed and Sabrina enjoyed a measure of success in her other pursuits, both professional and personal.
Although Sabrina had already executed a valid pour over will which left all her property to a valid inter vivos trust for her daughter (Anita’s Trust), Sabrina realized that it was important to make additional plans for the financial future of her family now that she had remarried and had another child, Belinda, with her new husband, Hiroko. Sabrina figured she had enough legal background from her law school experience to handle matters herself and thus took the following steps without consulting an attorney.
1. Sabrina placed $50,000 cash from the money she received as a beneficiary of her grandmother’s will into a bank account styled Hiroko’s Trust and signed a written instrument naming herself as the trustee and the only income beneficiary with the remainder to pass outright to Hiroko upon her death. She retained the ability to revoke this trust. The trust instrument also stated that it was a “spendthrift trust” and granted Sabrina unrestricted discretion over how to make trust distributions.
2. Sabrina transferred $10,000 in cash she received as a birthday present from her parents to her friend, Thomas. At the same time, she said to Thomas, “This money is for Belinda’s Trust. Invest this money for my daughter, Belinda. Give Belinda the income every year on her birthday until she reaches age 30. Then give her all the property. If she dies before her 30th birthday, give the property to the American Red Cross.”
3. Sabrina indorsed her February 1, 2004 paycheck over to the trustee of Anita’s Trust. She also signed a document promising to place her March 1, 2004 paycheck into this trust as well.
4. Sabrina and Hiroko purchased a joint and survivorship life insurance policy naming the trustee of Parent’s Trust as the primary beneficiary.
Sabrina experienced financial difficulties after her stock portfolio heavily weighted with Enron and K-Mart stock began to precipitously decline. Acme Finance Company attached her interest in Parent’s Trust and Hiroko’s Trust. She asked the trustee of Parent’s Trust to quit maintaining the house and give her all the income instead of maintaining the house as required by the trust. Sabrina gave the trustee a valid release but Sabrina’s neighbors are suing the trustee for damages to their property value because the house is becoming an eyesore.
In an organized matter and applying Texas law, advise Sabrina regarding the legal and practical ramifications of her actions and the other events described in this problem. Your discussion should include the steps, if any, you would recommend that Sabrina take to remedy any existing or future problems.
Question 4
The following provisions are found in the valid will of Phil A. Thropist:
“Article IV — Trusts
A. I give $500 to my son, Frank, with the expectation that he will distribute it to his children.
B. I give $1,000 to my son, George, in trust to pay the income to my devoted friend, Joe College, if he survives me.
C. I give $1,000 to my brother, Henry, to pay the income to the March of Dimes.
D. I give the entire contents of my safety deposit box (#421A) at Octopus National Bank to my son Frank, in trust, to pay the income to Susan Swails for life, remainder to Sam Matteson. If Susan does not survive me, the gift in trust is cancelled and the contents of the box are to go outright to Sam.
E. I give $1,000 to my darling wife, Sarah, in trust, to keep the grandfather clock, which I left her in Article II of my will, in running condition.
F. I give the rest, residue, and remainder of my estate to the trustees, in trust, of the trust established by me on * * * . (full description of trust).”
Mr. Thropist executed this will on January 3, 1970, and died on November 13, 2000. Frank refuses to distribute any of the $500 to his children but rather has purchased a new set of reporters for his law office with the money. Joe College died on September 1, 1995, leaving a wife and two kids. Henry now resides in the Texas State Home for the Criminally Insane. The safety deposit box referred to in part D is empty and contains a note saying, “I intend to place $10,000 cash in this box before I die.” The trust referred to in part F is valid in all respects. When the will was executed, Frank and George were the sole beneficiaries of the trust. In 1996 the trust was validly amended by Mr. Thropist changing the beneficiary to his wife, Sarah.
Assume that the Texas Trust Code and other relevant statutes were in force in their present form at all relevant times. No other provision of Mr. Thropist’s will is relevant to this problem.
Question 5
Dad goes to his attorney, puts $10,000 in cash on her desk, and states “I am leaving town for a week. I am giving you this money and I hope that if anything happens to me you will use this money for the benefit of my children. Is an express trust created? Assume that the facts as stated can be proven.
Question 6
Dad directs his attorney to prepare a trust with Dad’s children as beneficiaries and the attorney as trustee, and that the instrument shall state that the trust will be funded with whatever “money, property, or other assets” Dad contributes to the trust over the next ten years. Dad executes the trust, but does not on that day designate any money, property, or assets as the res of the trust. Is an express trust created?
Question 7
Grandmother gives a check for $10,000 to Son and contemporaneously states, within hearing of Grandson, that this money is to be used for the use and benefit of Grandson. She dies three days later. Son refuses to disburse any funds for the use and benefit of Grandson. Grandson comes to you and asks if he has any legal recourse.
Question 8
An ex-spouse seeks a ruling to enforce child support payments under a divorce decree against the assets of a spendthrift testamentary trust. The estate was distributed and closed five years previously. Summarize the advice you give your client (the ex-spouse).