Trusts Review Questions
Set 2
|
Gerry W. Beyer |
Question 1
(The following question appeared as one part of a three-part trust question on a previous Texas Bar Examination.)
“Johnson established a trust for his son, Ben, to terminate at age 21. Johnson was named Trustee with Merchants Bank as Alternate. The stock contributed to the trust increased in value to a substantial sum and Johnson feared that Ben might spend it all in riotous living. On Ben’s 20th birthday, Johnson asked Ben to sign an agreement to extend the trust when he became 21 to terminate at age 27. Ben agreed and signed the requested contract. Johnson died about three months later and when Ben turned 21, he demanded that he receive the trust corpus. Upon refusal of the trustee, Ben filed suit to have the trust terminated.”
What result and why? Explain your answer fully.
Question 2
You have been hired by the Last National Bank (LNB) of Texas to advise them on trust matters. LNB tells you it was named as the trustee for an inter vivos trust to pay income to A for life, remainder to B. LNB wants to know its rights, obligations, duties, etc. with regard to the following items. Explain your answers fully. Assume that no provisions of the trust instrument are relevant unless specifically stated.
a. LNB wants to commingle some of the assets of this trust with the assets of other trusts for which it is also named as trustee.
b. LNB wants to invest trust assets in the Alchemy Corporation. This corporation claims its scientists are on the verge of being able to turn lead into gold.
c. LNB is considering selling a particular trust asset. Walter, one of the beneficiaries, is interested in purchasing the asset.
d. LNB’s president wants to purchase one of the trust assets. She is willing to pay the fair market value of the asset. The trust instrument specifically grants the trustee’s officers the power to buy trust assets.
e. Settlor has threatened to revoke the trust if he becomes dissatisfied with the way things are handled. The trust instrument, however, is silent on whether the settlor can revoke.
Question 3
Trustees plan to sell appreciating securities of the trust to a bank at which they serve on its board, at a price which represents the current fair market value of the securities. How would you advise the trustees which respect to the legality of the proposed transaction?
Question 4
Trustees wish to invest $100,000 of trust money in Sci-Fi, Inc., a fledging corporation that was established three months ago to explore the unproven but potentially lucrative technique of converting lead to gold. Although the trustees candidly admit that the investment is risky, they believe that the trust has an opportunity to reap a substantial profit on its original investment. How would you advise the trustees which respect to the legality of the proposed transaction?
Question 5
The language of the trust instrument provided, “No trustee named herein shall be liable for any act of self-dealing or bad faith in the administration of this trust.” Discuss the use of exculpatory clauses authorized by the Texas Trust Code. How will the court treat this exculpatory clause?
Question 6
Trustee and the trust are being sued by a moving company which was employed by trustee to transport personal property belonging to the trust from one place to another. The service contract was signed by trustee with his usual signature, followed by the words, “as trustee.” Discuss the legal effects of trustee signing the contract “as trustee.”
Question 7
Carl Cole comes to your office for advice. He is the president of a bank and is concerned about the propriety of the bank’s conduct and possible liability as trustee of certain trusts. Where the trust instruments give no specific instructions, the trust department has been crediting all receipts to “income” as to the following types of property held by these trusts: (1) oil and gas royalties; (2) rents from rental properties, (3) unincorporated businesses, such as restaurants; and (4) cash dividends on corporate stock. Please advise him.
Question 8
The beneficiary of a testamentary trust seeks a ruling as to whether the testator, who is not yet deceased, can revoke the trust when the trust provisions in the will clearly state the trust is not revocable. What do you tell the beneficiary?
Question 9
The trust department was administering a charitable trust for Civil War widows. About twenty years ago the last of those widows died. The director of the trust department, upon reviewing the trust and finding no instructions as to how to proceed, then on his own decided to substitute widows of the U.S. Army LSD experiments conducted during the 1950s which resulted in the accidental deaths of a number of participants. Please advise him.