Bar Bri New York Fine Points - Trusts

Front 1

Requirements For A Trust

Back 1

1. Creator - over age of 18
2. Delivery to Trustee During Settlor's Lifetime
3. Res - Subject Matter
4. Trustee - Adult, Competent, etc. etc.
5. Beneficiaries
-- Definite and Ascertainable, AND
-- Must Not Violate RAP
6. In Writing
7. Intent -- Watch for precatory language
8. Lawful Purpose

Front 2

Types of Trusts / Will Substitutes

REVOCABLE LIFETIME/INTER-VIVOS TRUSTS

Back 2

there must be at least ONE beneficiary who is NOT the settlor; the settlor cannot be the sole beneficiary when also named as the sole trustee.

THE SETTLOR CAN PLAY MANY ROLES:
i. The settlor can be a trustee;
ii. The settlor can be an income beneficiary for life;
iii. The settlor’s estate can be one of the beneficiaries of the principal so long as there is at least one other beneficiary; and
iv. The settlor can retain the power to terminate or amend the trust.

Front 3

Types of Trusts / Will Substitutes

Pour-Over Gift by Will to Inter Vivos Revocable Trust

Back 3

1. Executed prior to or contempraneously with the will, AND
2. In Writing
3. Signed
4. And acknowledged or witnessed by two witnesses.

Front 4

Types of Trusts / Will Substitutes

Life Insurance Trust

Back 4

1. the insured can create an unfunded revocable insurance trust and name the trustee of the trust as policy beneficiary.

Front 5

Types of Trusts / Will Substitutes

Totten Trust Bank Accounts

Back 5

1. Beneficiary Must Outlive Depositor
2. Revocation by specific reference in will to
-- Bank
-- Beneficiary

Front 6

Types of Trusts / Will Substitutes

Uniform Transfers to Minors Act

Back 6

1. Terminates when donee attains age 21
2. Must be irrevocable transfer
3. $14,000 Per Donee Annual Gift Tax Exclusion

Front 7

Types of Trusts / Will Substitutes

Charitable Trusts

4 General Rules

Back 7

1. Not Subject to RAP
2. Must be for charitable purpose
3. Must be in favor of unidentified members of the public (Orphans, Minorities..)
4. Subject to the Equitable Doctrine of Cy Pres (Allows the court to interpret - "as near as possible" - if purpose becomes impossible)

Front 8

Constructive Trusts And Resulting Trusts

Constructive Trust

Back 8

NOT A TRUST - requires:
1. Wrongful Conduct And
2. Unjust Enrichment

Front 9

Constructive Trusts And Resulting Trusts

Lifetime Transfers (as Constructive Trusts)

Back 9

1. Remedy if grantee promised to hold property in trust.
2. Requirements:
-- Fraud in the inducement or
-- Confidential relationship
3. Higher equity standard: clear and convincing evidence

Front 10

Constructive Trusts And Resulting Trusts

Resulting Trust

Back 10

NOT A TRUST
1. Used by courts when a trust fails for some reason
2. New York does NOT recognize purchase money resulting trusts.

Front 11

Creditor's Claims and Spendthrift Trusts

Spendthrift Rule

Back 11

New York Statutory Spendthrift Rule -
1. By statute (Unless Expressly):
-- Income interest NOT assignable AND
-- NOT reachable by Creditors.

Front 12

Creditor's Claims and Spendthrift Trusts

Spendthrift Rule

Exceptions:

Back 12

1. Creditor who furnishes necessaries
2. child support, alimony
3. Federal Tax Liens
4. Excess income beyond that needed for education and support ("Last Resort")
5. 10% levy for judgment creditors

Front 13

Creditor's Claims and Spendthrift Trusts

Spendthrift Rule

Rule Inapplicable to:

Back 13

1. Settlor as beneficiary
2. Express revocable trusts
3. Remainder interests

Front 14

Judicial Modification

Standard: Substancial Change in Circumstances

Back 14

1. Compliance will frustrate trust purpose
2. Generally involves sale of assets.

Front 15

Termination of Trust by Settlor

Back 15

1. ALL New York Trusts are IRREVOCABLE and UNAMENDABLE Unless Power is EXPRESSLY reserved in Trust.
2. Exceptions:
-- All Beneficiaries in Being Consent
-- -- Remainder to "heirs" does not prevent revocation
-- -- But any Minor beneficiary prevents early termination.

Front 16

Early Termination By Beneficiaries

Consent by ALL Beneficiaries Does NOT Terminate Unless...

Back 16

No Further Trust purpose is being served.

Front 17

Early Termination By Beneficiaries

Statutory Spendthrift Trust Indestructible by Beneficiaries Alone Unless...

Back 17

1. Beneficiaries are given right to transfer income interest AND
2. No material purpose is being served.

Front 18

Administration of Trusts

Trustee's Power (Without Court Order) comes from...

Back 18

Fiduciary Power Act "FPA"

Front 19

Administration of Trusts

Trustee's Power is Broad

Exceptions:

Back 19

1. Self-Dealing
2. Imprudent Investments
3. "Can't do List" (unless authorized by court or trust)
-- Borrow Money
-- Continue a Business
-- Abandon or Demolish Property
-- Delegate Authority, Employ Agents, etc.

Front 20

Administration of Trusts

Exculpatory Clause

Back 20

an exculpatory clause can eliminate liability for negligence, but NOT for gross negligence or intentional torts.

a. Testamentary Trusts - VOID
-- Executor/testamentary trustee liable for ordinary negligence
b. Inter vivos Trusts
-- Upheld but strictly construed

Front 21

Administration of Trusts

Breaches of Fiduciary Duty -- Beneficiary Can:

Back 21

1. Ratify the transaction and waive breach.
2. Sue for the resulting loss.
3. Avoid running of Statute of Limitations until:
-- Repudiation of trust
-- Plaintiff knows (or could know) of breach

Front 22

Administration of Trusts

Trustee's Liability for Contracts Entered

Back 22

Trustee Personally Liable Unless Contrary Provision.

Front 23

Administration of Trusts

Trustee's Liability for Torts

Back 23

Trustee personally liable but can be indemnified if:

1. acting within powers AND
2. in the course of proper administration

Front 24

Administration of Trusts

Trustee's Investment Power (Investing the Corpus, Uniform Prudent Investor Act, Modern Portfolio Theory)

Back 24

i. Investing the Corpus of the Trust → the trustee must manage the corpus of the trust on behalf of the beneficiary, i.e., invest.
ii. Uniform Prudent Investor Act (UPIA) → NY has adopted the UPIA, which gives broad latitude to the trustees to choose investments.
iii. Modern Portfolio Theory of Investment → the trustee creates a “custom-tailored investment strategy” for this particular trust

Front 25

Rule Against Perpetuities For Trusts

Back 25

i. Deals only with vesting.
ii. Simply says that for an interest to be valid it must vest within lives in being at the time of the grant, plus 21 years.
iii. Look at the facts to make sure there is no way that the vesting could come outside the time period of the rule; if there is any chance of that then the interest is void.

Front 26

Suspension of the Power of Alienation Rule

Back 26

i. Does NOT deal with vesting; is only concerned with the possible suspension of the ability to transfer a fee simple.
ii. Looks at the facts to make sure that there are persons identified and alive who could, together, convey a full fee simple; if you cannot find such persons who could do this during lives in being plus 21 years, then the interest is VOID.
iii. Remember that the perpetuities reform statute provision reducing age contingencies to 21 years (and all other reform provisions listed in your Real Property distinctions regarding RAP) also apply for saving gifts from suspension rule violations.