IN Bar Wills Trusts and Estates 3 — Questions and Answers
Question 1: To create a valid express trust in Indiana, which element is NOT required?
- Consideration paid by the beneficiary (Correct answer)
- A definite beneficiary or valid charitable purpose
- Trust property (res)
- Intent by the settlor to create a trust
Correct answer: Consideration paid by the beneficiary
A trust is a gratuitous transfer, so consideration is not required, while intent, res, and an ascertainable beneficiary or charitable purpose are.
Question 2: Under the Indiana Trust Code, a trust of real property is enforceable only if:
- Its terms are evidenced by a writing signed by the settlor or the settlor's authorized agent (Correct answer)
- It is recorded in the county recorder's office
- It is notarized and witnessed by two people
- The trustee posts a fiduciary bond
Correct answer: Its terms are evidenced by a writing signed by the settlor or the settlor's authorized agent
Indiana requires trusts of real property to be evidenced by a signed writing, satisfying the Statute of Frauds.
Question 3: A settlor creates an irrevocable spendthrift trust in Indiana for his daughter. Which creditor can nonetheless reach the daughter's interest?
- A claimant holding a child support order against the daughter (Correct answer)
- A credit card company with a judgment
- A tort judgment creditor from a car accident
- The daughter's landlord for unpaid rent
Correct answer: A claimant holding a child support order against the daughter
Spendthrift protection in Indiana generally yields to claims for child support (and certain other exception creditors), but not to ordinary contract or tort creditors.
Question 4: An Indiana trustee invests the entire trust corpus in a single speculative tech startup, which fails. Under the prudent investor rule, the trustee is most likely liable because:
- The trustee failed to diversify the trust investments absent special circumstances (Correct answer)
- Any loss of trust principal is automatically a breach
- Trustees may only invest in government bonds
- The trustee did not obtain beneficiary consent for each trade
Correct answer: The trustee failed to diversify the trust investments absent special circumstances
Indiana's prudent investor rule requires diversification unless the trustee reasonably determines the trust is better served without it, and investments are judged as part of the overall portfolio.
Question 5: In Indiana, a revocable trust can be revoked by the settlor:
- Only if the power to revoke is reserved in the trust instrument, since Indiana trusts are presumed irrevocable absent contrary terms (Correct answer)
- At any time, because all Indiana trusts are presumed revocable
- Only with the trustee's written consent
- Only with court approval after notice to beneficiaries
Correct answer: Only if the power to revoke is reserved in the trust instrument, since Indiana trusts are presumed irrevocable absent contrary terms
Unlike the UTC default, Indiana presumes a trust is irrevocable unless the settlor expressly reserves the power to revoke or modify.
Question 6: A charitable trust in Indiana to fund a specific hospital fails because the hospital closes. A court may apply cy pres to:
- Redirect the trust to a similar charitable purpose consistent with the settlor's general charitable intent (Correct answer)
- Terminate the trust and distribute the assets to the trustee
- Convert the trust into a private trust for the settlor's heirs automatically
- Escheat the property to the state immediately
Correct answer: Redirect the trust to a similar charitable purpose consistent with the settlor's general charitable intent
Cy pres lets a court reform a failed charitable purpose to a near-equivalent one when the settlor had general charitable intent.
Question 7: Which duty does an Indiana trustee breach by purchasing trust assets for the trustee's personal account, even at fair market value?
- The duty of loyalty, under the self-dealing (no further inquiry) rule (Correct answer)
- The duty of impartiality between income and remainder beneficiaries
- The duty to inform and report
- The duty to earmark trust property
Correct answer: The duty of loyalty, under the self-dealing (no further inquiry) rule
Self-dealing violates the duty of loyalty regardless of the fairness of the price, triggering the no-further-inquiry rule.
IN Bar Wills Trusts and Estates 3
To create a valid express trust in Indiana, which element is NOT required?