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26 Cards in this Set

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What is the "cake and eat it" principle? (#43)
An owner cannot place his assets in a trust in which he retains an interest, insert a spendthrift clause, and then claim that his retained interest cannot be reached by creditors.

If the settlor is also a beneficiary of the trust, a spendthrift provision does not prevent the settlor's creditors from reaching any interest retained by her.

Where the trust is a "support and health" trust, Creditors would be able to reach settlor's interests in the trust, including any income that was accumulated in the trust during S's lifetime but had not been distributed to S before death. Creditor can garnish all of the trust's income even through the trustee's power to distribute income is in the trustee's sole discretion. Creditor can also garnish the trust principal b/c the trustee can distribute the principal to Settlor for support, health, comfort.
What is the merger doctrine? (#43)
If the sole trustee is also the sole beneficiary of a trust, the legal title and equitable interests merge, and no trust arises.

Merger doctrine does NOT apply where there are other beneficiaries, such as contingent remaindermen.
What is the rule of construction as to whether a trust is revocable?
In TX, all trusts are revocable by the settlor unless expressly declared to be irrevocable.
What is the majority rule regardig priority of Testator's estate to satisfy creditors? (#43)
A decedent's probate estate is the first source of payment of the decedent's debts and revocable trust assets cannot be reached by creditors unless probate estate has been exhausted.
What are the rules regarding who has standing to bring suit against trustee for breach of trust?
If the trust is irrevocable then only the trust beneficiaries, and NOT the settlor, have standing to bring an action.

If revocable, then the settlor has standing.
What is a constructive trust? #43
An equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct.
Are constructive trusts governed by the Texas Trust Code? #43
No, because they are not really trusts.
When may you impose a constructive trust? #43
Where a one in a fiduciary relationship acquires or retains property in violation of his fiduciary duty, and where a fiduciary would be unjustly enriched by his wrongful conduct.
What is the benefit of a constructive remedy? #43
Not limited to recovering money damages. You can trace profit wrongfully acquired.
What is a "pure discretion" trust? #40
Where the trustee has discretionary power to distribute (eg tied to a "support, comfort and health" standard)
In a pure discretion trust w/ a spendthrift clause subject to "support, comfort and health" standard, can a creditor who furnished health services go after the interest in trust income? Can they go after interest in the trust principal?
A hospital can't reach interest in income b/c beneficiary has no enforceable right to compel distribution, so creditors are in no better position.

BUT b/c beneficiary can compel distribution for support and health, the creditors can get at the principal, b/c a spendthrift clause does NOT bar a creditor who furnishes necessaries.
What are the elements of creating a valid trust (#39).
1) In writing and satisfies the Statute of Frauds

2) There is a settlor

3) It designates trust property and that property is delivered to the trustee

4) It appoints a trustee

5) It identifies a beneficiary

6) It is for a lawful purpose
What is the Purchase Money Resulting Trust (PMRT) presumption?
When one party pays the purchase price but takes title to the prpoerty in the name of another party, and the two parties are not related (indicating that gift was not intended), a presumption arises that there was no gift and that there was some other reason for taking title in another's name. This is a rebuttable presumption.
What are the elements of creating a valid trust (#39).
1) In writing and satisfies the Statute of Frauds

2) There is a settlor

3) It designates trust property and that property is delivered to the trustee

4) It appoints a trustee

5) It identifies a beneficiary

6) It is for a lawful purpose
What is the Purchase Money Resulting Trust (PMRT) presumption?
When one party pays the purchase price but takes title to the prpoerty in the name of another party, and the two parties are not related (indicating that gift was not intended), a presumption arises that there was no gift and that there was some other reason for taking title in another's name. This is a rebuttable presumption.
To what extent can a Settlor relieve a trustee from liability? (#37)
Settlor may include a clause relieving a trustee from liability for ordinary negligence, but cannot relieve a trustee from liability for fraud or for actions taken in bad faith or with reckless indifference to the beneficiary's rights.
Does an exculpatory clause authorize self-dealing by the trustee? (#37)
No.
No Question. (#37)
Trustee has a duty to invest trust estate so as to produce reasonable income.
Can you waive self-dealing for an individual trustee? What about a corporate trustee? (#37)
Self-dealing rules can be waived by the settlor with respect to an individual trustee, but rules cannot be waived with respect to a corporate fiduciary.
What can a beneficiary do if he wants the benefit of a testator's self-dealing? (#37)
He can ratify and collect any profits wrongly withheld by trustee
May trustee borrow from trust fund? (#37)
No -- trustee may not borrow from trust funds, no matter how fair the interest rate, and no matter how well-secured the loan.
What does a spendthrift clause prevent? (#35)
A spendthrift clause prohibits the beneficiary from voluntarily or involuntarily transferring her interest in a trust.
May creditors get the benefit of the "turn-over" statute? (#35)
No - the turnover statute, which requires that a debtor turn-over to creditor income as it is distributed to her undercuts the policy and purpose of the spendthrift clause.
What is the duty regarding insurance? (#34)
Trustee has a duty to protect and preserve the assets that comprise the trust estate.

This includes a duty to insure trust assets against theft or other loss if a prudent person would insure them.

Try arguing that insurance was either not available (unlikely) or very expensive in relation to the size of the trust estate and its income.
What is landlord's duty regarding residential tenancy property?
Landlord has a duty to maintain a residential tenancy property and a duty to keep the property in good repair and habitable.
Can trustee receive reimbursement from trust estate for tort liabilty resulting from a common incident of business activity? (#34)
Yes. he is entitled to reimbursement from the trust estate for any expenses incurred in defending the action brought as defense of litigation necessary under Trustee's duty to preserve and protect the trust estate.