STEP Trust and Estate Law 2 — Questions and Answers
Question 1: Under the Uniform Trust Code, which party has standing to enforce a charitable trust when no specific beneficiary exists?
- The settlor's heirs
- The state attorney general (Correct answer)
- Any interested person
- The corporate trustee only
Correct answer: The state attorney general
The state attorney general has standing to enforce charitable trusts on behalf of the public interest when no private beneficiary can do so.
Question 2: A spendthrift clause in a trust is MOST effective at protecting trust assets from:
- The beneficiary's future tort creditors (Correct answer)
- Claims by the beneficiary's former spouse for alimony arrears
- Federal tax liens against the beneficiary
- Medicaid recovery claims after the beneficiary's death
Correct answer: The beneficiary's future tort creditors
Spendthrift provisions are most effective against voluntary and involuntary transfers to future creditors, though exceptions exist for alimony, federal liens, and Medicaid.
Question 3: What is the primary distinction between a resulting trust and a constructive trust?
- Resulting trusts are express; constructive trusts are implied
- Resulting trusts arise from presumed intent; constructive trusts are remedial devices imposed by equity (Correct answer)
- Constructive trusts require a written instrument; resulting trusts do not
- Resulting trusts only apply to real property; constructive trusts apply to personalty
Correct answer: Resulting trusts arise from presumed intent; constructive trusts are remedial devices imposed by equity
A resulting trust reflects the presumed intent of the transferor, while a constructive trust is an equitable remedy imposed to prevent unjust enrichment regardless of intent.
Question 4: Under the rule in Saunders v Vautier, a beneficiary may compel early termination of a trust if:
- The trust has been in existence for more than 21 years
- All beneficiaries are adults, have full capacity, and together hold the entire beneficial interest (Correct answer)
- The trustee consents to termination
- The trust assets have depreciated by more than 50%
Correct answer: All beneficiaries are adults, have full capacity, and together hold the entire beneficial interest
Saunders v Vautier allows trust termination when all beneficiaries are sui juris and collectively entitled to the entire beneficial interest.
Question 5: Which doctrine allows a court to modify a charitable trust when the original purpose becomes impossible or impractical?
- Doctrine of equitable deviation
- Cy-pres doctrine (Correct answer)
- Rule against perpetuities
- Doctrine of merger
Correct answer: Cy-pres doctrine
The cy-pres doctrine permits courts to redirect a charitable trust to a purpose as near as possible to the original when the stated purpose fails.
Question 6: A trustee commits a breach of the duty of impartiality when it:
- Invests solely in bonds to favor income beneficiaries over remainder beneficiaries (Correct answer)
- Distributes income quarterly instead of monthly
- Retains low-yield assets upon the settlor's request
- Declines to make discretionary distributions during a market downturn
Correct answer: Invests solely in bonds to favor income beneficiaries over remainder beneficiaries
Investing solely in bonds generates high income at the expense of growth, unfairly favoring income beneficiaries over remainder beneficiaries in violation of the duty of impartiality.
Question 7: In the context of US estate law, which statement about per stirpes distribution is CORRECT?
- Each living descendant at each generational level receives an equal share regardless of branch
- The estate is divided at the first generational level with living takers, with deceased shares passing to their issue (Correct answer)
- Representation is based on the number of surviving descendants at the youngest generation
- Per stirpes and per capita at each generation produce identical results
Correct answer: The estate is divided at the first generational level with living takers, with deceased shares passing to their issue
Under per stirpes (strict or English), the estate is divided into shares at the first generational level, and a deceased share passes down through that deceased person's line.
STEP Trust and Estate Law 2
Under the Uniform Trust Code, which party has standing to enforce a charitable trust when no specific beneficiary exists?