CAS Bar Wills Trusts and Estates 3 — Questions and Answers
Question 1: Which of the following is NOT required to create a valid inter vivos trust of personal property under California law?
- A present intent to create a trust
- Trust property (the res)
- An ascertainable beneficiary
- A written trust instrument (Correct answer)
Correct answer: A written trust instrument
California does not require a writing to create an inter vivos trust of personal property; writing is only required for trusts involving real property under the Statute of Frauds.
Question 2: A spendthrift provision in a trust primarily protects the beneficiary by:
- Preventing the trustee from making discretionary distributions
- Restricting the beneficiary's ability to voluntarily assign the interest and shielding it from most creditors (Correct answer)
- Limiting the trust to assets that cannot be easily liquidated
- Requiring court approval before any distribution exceeds $10,000
Correct answer: Restricting the beneficiary's ability to voluntarily assign the interest and shielding it from most creditors
A spendthrift clause restrains both voluntary alienation by the beneficiary and involuntary attachment by creditors, protecting the beneficiary's interest until it is actually distributed.
Question 3: A charitable trust created to fund a specific hospital is frustrated when the hospital permanently closes. Under the cy pres doctrine, a California court will most likely:
- Return the trust assets to the settlor's estate
- Distribute the assets to the state under the doctrine of escheat
- Modify the trust purpose to a charitable use as close as possible to the original intent (Correct answer)
- Terminate the trust and distribute assets equally among all local hospitals
Correct answer: Modify the trust purpose to a charitable use as close as possible to the original intent
Cy pres allows a court to redirect charitable trust assets to an alternate purpose as close as possible to the settlor's original intent when the specific purpose becomes impossible or impractical.
Question 4: A trustee purchases trust property for personal use without authorization from the beneficiaries or the court. Under California's duty of loyalty, this self-dealing transaction is:
- Automatically void and of no legal effect regardless of the price paid
- Voidable at the election of the beneficiary (Correct answer)
- Valid if the trustee paid fair market value and acted in good faith
- Valid if no objection is raised within 90 days of the transaction
Correct answer: Voidable at the election of the beneficiary
Under California Probate Code §16004, unauthorized self-dealing transactions are voidable at the beneficiary's election, not automatically void, giving the beneficiary the choice to ratify or rescind.
Question 5: Under the Uniform Prudent Investor Act as adopted in California, a trustee's investment decisions are evaluated by:
- Judging each investment individually for whether it was prudent in isolation
- Assessing the overall portfolio strategy in light of the trust's purposes and all beneficiaries' needs (Correct answer)
- Comparing total returns against a guaranteed 3% annual minimum
- Measuring performance solely against the S&P 500 index
Correct answer: Assessing the overall portfolio strategy in light of the trust's purposes and all beneficiaries' needs
The Prudent Investor Act adopts a portfolio theory approach, evaluating investment decisions in the context of the overall investment strategy rather than on an asset-by-asset basis.
Question 6: A resulting trust most commonly arises when:
- A party is unjustly enriched at another's expense
- An express trust fails entirely or fails to exhaust all trust property (Correct answer)
- A trustee commits a breach of fiduciary duty
- A beneficiary disclaims their interest in the trust
Correct answer: An express trust fails entirely or fails to exhaust all trust property
A resulting trust returns property to the settlor (or their estate) when an express trust fails, is not fully used, or where purchase money is paid by one party but title is taken in another's name.
Question 7: Under California Probate Code §15403, a trust may be modified or terminated without court approval when:
- The trustee petitions due to excessive administrative costs
- All beneficiaries consent and the continuance is not necessary to carry out a material purpose of the trust (Correct answer)
- The trust has existed for more than 21 years
- The value of trust assets falls below $40,000
Correct answer: All beneficiaries consent and the continuance is not necessary to carry out a material purpose of the trust
Under §15403, if all beneficiaries consent and the trust's continuance is not required to achieve a material purpose, the trust may be modified or terminated without court approval.
CAS Bar Wills Trusts and Estates 3
Which of the following is NOT required to create a valid inter vivos trust of personal property under California law?