MD Bar Wills Trusts and Estates 3 — Questions and Answers
Question 1: Under the Maryland Trust Act, a trust is revocable by the settlor unless what is true?
- The terms of the trust expressly provide that it is irrevocable (Correct answer)
- The trust holds real property
- A trustee other than the settlor has been appointed
- The beneficiaries have accepted their interests
Correct answer: The terms of the trust expressly provide that it is irrevocable
Following the Uniform Trust Code approach, the Maryland Trust Act makes trusts revocable by default unless the instrument expressly states the trust is irrevocable.
Question 2: Which element is NOT required to create a valid private express trust in Maryland?
- Consideration paid by the beneficiaries (Correct answer)
- Intent to create a trust
- Identifiable trust property
- Ascertainable beneficiaries
Correct answer: Consideration paid by the beneficiaries
A trust is a gratuitous transfer requiring intent, property, and ascertainable beneficiaries, but no consideration.
Question 3: A Maryland spendthrift clause is generally ineffective against which claimant?
- A child with a valid claim for child support (Correct answer)
- A general unsecured creditor of the beneficiary
- A friend who lent the beneficiary money
- A credit card issuer
Correct answer: A child with a valid claim for child support
Even with a spendthrift provision, exception creditors such as those holding child or spousal support judgments can reach the beneficiary's interest.
Question 4: A Maryland charitable trust to fund a specific hospital fails because the hospital closes. What doctrine may the court apply to redirect the funds?
- Cy pres, applying the funds to a similar charitable purpose consistent with the settlor's intent (Correct answer)
- Resulting trust in all cases, returning funds to the settlor's estate
- Escheat to the State of Maryland
- Merger of legal and equitable title
Correct answer: Cy pres, applying the funds to a similar charitable purpose consistent with the settlor's intent
Under cy pres, when a particular charitable purpose becomes impossible or impracticable, the court may direct the property to a charitable purpose that approximates the settlor's general charitable intent.
Question 5: A trustee of a Maryland trust buys trust real estate for himself at fair market value with full disclosure to no one. A beneficiary sues. What is the likely result?
- The sale is voidable as self-dealing regardless of fairness (Correct answer)
- The sale stands because the price was fair
- The sale stands because trustees may deal with trust property freely
- The beneficiary may recover only if the trustee acted in bad faith
Correct answer: The sale is voidable as self-dealing regardless of fairness
Self-dealing by a trustee triggers the no-further-inquiry rule, making the transaction voidable by beneficiaries without regard to fairness or good faith.
Question 6: Under Maryland's prudent investor standard, a trustee's investment decisions are evaluated how?
- In the context of the trust portfolio as a whole and as part of an overall investment strategy (Correct answer)
- Investment by investment, with any single loss constituting a breach
- Solely by whether the trustee avoided all stocks
- By comparing returns to the S&P 500 each year
Correct answer: In the context of the trust portfolio as a whole and as part of an overall investment strategy
The prudent investor rule judges decisions on a total-portfolio basis considering risk and return objectives, not by isolating individual investments.
Question 7: May a settlor's creditors reach the assets of a revocable trust the settlor created in Maryland during the settlor's lifetime?
- Yes, because property in a revocable trust remains subject to the settlor's creditors (Correct answer)
- No, because the trust owns the property, not the settlor
- Only if the trust contains a spendthrift clause
- Only after the settlor's death
Correct answer: Yes, because property in a revocable trust remains subject to the settlor's creditors
While a trust is revocable, its property is treated as available to the settlor's creditors because the settlor retains complete control.
MD Bar Wills Trusts and Estates 3
Under the Maryland Trust Act, a trust is revocable by the settlor unless what is true?