OK Bar Wills Trusts and Estates 3 — Questions and Answers
Question 1: Which of the following is required to create a valid private express trust?
- Intent, identifiable trust property, ascertainable beneficiaries, and a lawful purpose (Correct answer)
- A written instrument signed by two witnesses
- Court approval of the trust terms
- A corporate trustee
Correct answer: Intent, identifiable trust property, ascertainable beneficiaries, and a lawful purpose
A private express trust requires settlor intent, a res, ascertainable beneficiaries, and a valid purpose; a trustee will be supplied if missing.
Question 2: A settlor creates a trust 'for my friends.' The trust most likely fails because:
- The beneficiaries are not ascertainable (Correct answer)
- Friends cannot legally take trust property
- The purpose is unlawful
- A trust cannot benefit non-relatives
Correct answer: The beneficiaries are not ascertainable
'Friends' is too indefinite a class, so the trust fails for lack of ascertainable beneficiaries.
Question 3: A spendthrift clause in an Oklahoma trust generally prevents:
- Beneficiaries from voluntarily or involuntarily transferring their interests before distribution (Correct answer)
- The trustee from making any distributions
- The settlor from revoking the trust
- The trust from earning income
Correct answer: Beneficiaries from voluntarily or involuntarily transferring their interests before distribution
A spendthrift provision bars a beneficiary's creditors and assignees from reaching the interest before it is distributed.
Question 4: A trustee of an Oklahoma trust invests all trust assets in a single speculative stock, which loses value. The trustee most likely breached:
- The duty of prudent investment, including the duty to diversify (Correct answer)
- The duty of loyalty
- The duty to inform beneficiaries
- No duty, because losses alone are not a breach
Correct answer: The duty of prudent investment, including the duty to diversify
Under prudent investor principles, a trustee must diversify investments and manage the portfolio with reasonable care and caution.
Question 5: A trustee purchases trust property for himself at fair market value without court approval or beneficiary consent. This is:
- A breach of the duty of loyalty regardless of fairness, under the no-further-inquiry rule (Correct answer)
- Permitted because he paid fair value
- Permitted if the trust is revocable
- Only a breach if the trust loses money
Correct answer: A breach of the duty of loyalty regardless of fairness, under the no-further-inquiry rule
Self-dealing by a trustee is a per se breach of loyalty, and fairness of the price is no defense under the no-further-inquiry rule.
Question 6: Which trust may a settlor generally modify or revoke at any time during life?
- A revocable inter vivos trust (Correct answer)
- A testamentary trust after the testator's death
- An irrevocable trust without beneficiary consent
- A charitable trust enforced by the attorney general
Correct answer: A revocable inter vivos trust
A revocable living trust remains subject to the settlor's power to amend or revoke while the settlor is alive and competent.
Question 7: A charitable trust for a specific school fails when the school closes. A court applying cy pres will:
- Redirect the trust to a similar charitable purpose if the settlor had general charitable intent (Correct answer)
- Terminate the trust and return assets to the settlor's heirs automatically
- Convert the trust into a private trust
- Allow the trustee to keep the assets personally
Correct answer: Redirect the trust to a similar charitable purpose if the settlor had general charitable intent
Cy pres lets a court substitute a charitable purpose as near as possible to the original when the settlor had general charitable intent.
OK Bar Wills Trusts and Estates 3
Which of the following is required to create a valid private express trust?