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37 Cards in this Set
- Front
- Back
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what are the 3 types of trust. |
1. express trust. (is the only real trust)
the only 2 left = equitable remedies. 2. resulting trust 3. constructive trust. |
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what is express trust.
def. |
A legal device that allows an owner of properly to make transfer of prop. and have those assets managed on behalf of someone else.
(rather than have the beneficiary manage the money by himself of herself) |
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label the people doing the trust.
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1. settlor (creator) gives legal title to manage money to the
2. trustee = get income and holder for the 3. beneficiary = equitable title to enjoy the distribution from the trust. |
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what are 2 kinds of express trust.
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1. life time = trust set up during the lifetime of the persons who created the trust.
--who can call the settlor of the trust (also known as inter vivos trust) 2. Testamentary = trust, set up in the settlor's will. |
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what is the 8 requirement for a valid trust.
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1. settlor = makes the trust. ( must be 18 w capacity to enter into k )
2. delivery = of legal title to/ out of control of settlor for delivery to be valid (unless the settlor trustee) 3. property= must be identifiable + prop. that settlor owns (not just the mere expectation of ownership in the future) 4. Trustee = anyone who has capacity to acquire or hold title to prop. for his own benefit can be a trustee. ----failure to name a trustee in the trust does not matter, the crt can appoint someone--- 5. Beneficiary = must be definite and ascertainable (No ambiguity) -----if ambiguous, the trustee holds in a resulting trust for the residuary beneficiary of a will (or intestate heirs in absence of a valid will)------- 6. Intent = a. settlor must intend to create = enforceable obligation (prectory) language is not enough. b. trustee must be given i. duties to perform. or ii. it becomes a passive trust. 7. Lawful purpose = a. nothing illegal b. no for destruction of prop. c. cannot have condition for other People restriction (Unless it goes against Public Policy) ----religious or ethic groups are valid = permissible partial restraints on marriage---- 8. In a validly executed document = trust of land must be in writing and signed by the settlor. |
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what is the presumption for illinois trust
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all trust in illinois is presumed to be irrevocable
= unless the trust explicitly state it maybe revoked. |
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types of trust.
what isn the rule for revocable lifetime/ inter-vivos trust. main requirement what roles can each play. |
Main requirement =
At least one beneficiary who is not the settlor. settlor (one est. the trust) can not be sole beneficiary when also named the sole trustee. settlor can play. 1. trustee 2. income beneficiary. 3. settlor's estate can be one of the beneficiary of the principal so long as there is at least one other beneficiary. 4. settlor can amend or terminate = trust. |
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types of trust.
what are the reason to have a revocable lifetime/ inter-vivos trust. explain = probate. |
1. manage asset efficiently
2. help plan for possible incapacity (guardianship) 3. avoid probate. ---no part of the principal trust goes through settlor's probate-- |
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what is probate.
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1. proving a will.
or 2. having it declared valid and effective following the death of testator. |
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what are the reasons not to have a revocable lifetime/inter vivos trust.
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1. does not avoid taxes
2. if settlor keeps income interest, or keeps a power to revoke the full trust asset IRS will tax you as a whole. |
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what is the rule for pour over gift.
what is the key requirement for the pour over trust. what are the subset points. |
testamentary gifts made in a will to existing revocable trust are ok. = pour over gift.
1. this kind = avoids will formalities in the trust. 2. trust can be changed during the lifetime of settlor (easier than a will) a. trust must be in existence or b. executed concurrently with the will and c. the trust must be identifiable in the will ----subset points---- 1. "pour over" is not limited to trust created by the settlor, but it can be to any existing trust, including those executed by other persons. 2. Pour over gifts are valid even if a. trust was unfunded. b. only partially funded during settlor's lifetime. |
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what is the rule for life insurance proceeds 2 a trust.
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2 ways.
1. insured can create an unfunded revocable insurance trust and named the trustee of the existing trust as policy beneficiary. or 2. have the trust be a testamentary trust and have the life insurance policy contract name "the trustee named in the will" as the life insurance policy beneficiary. a. illinois also permits directing insurance to proceeds to a testamentary trustee, whether or not will is in made yet or not ( probation proceeds) b. proceeds of saving acct or pension plan can be handled the same way as life insurance proceeds. |
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what is the rule for totten trust ( poor person trust)
how does it work. what are the other issues. |
Also called ( bank acct trust)
1. bank acct in depositor's name "as turstee for" a named beneficiary. 2 main things to remember a. depositor makes deposits and withdrawals as he or she wishes during the depositor's life. b. beneficiary has no beneficial interest during the depositor's lifetime, but gets left over after maker die. -----other issues------ No particular words are required to create a Totten trust acct. |
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what are the 4 ways to revoke a Totten trust acct.
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1. withdrawal all of the $$ in the acct.
2. manifest an intention to revoke during the lifetime. 3. revoke in a will. 4. death of beneficiary = Totten trust revoked and money in acct goes free and clear to depositor. |
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How can the beneficiary be changed in a Trotten trust.
what can creditor do to Trotten trust. |
change of beneficiary can be made by depositor but it must be done at same time as revocation:
notarized statement sent to a financial institution, naming the old beneficiary and the new one. --Creditors of the depositor can always reach the Totten trust acct balance either by or after the depositor's death, since it is a form of revocable trust= revoked partially each time a withdrawal is made. |
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what is the rule for joint bank acct that are not Totten trust: a trust like option.
John and Jane with rights of survivorship Most pop. issue is: after one of the parties to the acct dies, can anyone block the money from going to the survivor |
if clear and convincing evid.
show that there was no intention for survivorship when acct was open. acct was only open as matter of convenience = survivorship language will be set aside. (hard requirement to satisfied.) --each joint acct holder holds 1/2 of the joint acct. no matter who deposits the money and if one person makes entire deposit, it is considered a gift of one half of the other acct holder-- |
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what is the rule for uniform transfer to minors act.
3 reasons. |
UTMA (uniform transfer to minor act)
a. it avoids a guardianship proceedings b. it avoids trust and crt supervision of a trust. c. it qualifies for 13k per donee annual exclusion from fed. and state gift tax. 2. Gifts under UTMA must be made under custodian and it must specify that it is made under that state uniform transfer to minor act. 3. UTMA gift can be made in a will so long as the same requirement statutory language is used. |
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UNiform transfer to minor act.
what are the duties for UTMA custodian. |
UTMA (uniform transfer to minor act)
1. hold, manage and invest in the prop. under a. prudent person standard. b. pay over minor everything or give what minor needs (trustee) then give minor everything when turn 21. ***UTMA (uniform transfer to minor act)**** does not create a trust; it is a special statutory conservatorship when custodian does not hold legal title = minor does. |
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what is the UTMA (uniform transfer minor act) tax consequence.
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If donor names himself custodian = amount of gift is includible in the custodian's gross estate for fed. and state estate taxes.
if donor names someone else as custodian, then amount of is not included. |
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what is the rule for charitable trust (indefinitely)
five keys things to remember. |
1. charitable trust = indefinite beneficiary
a. can not be a real named person. b. only organization. c. must be large. 2. charitable purpose. 3. trust must be perpetual 4. Cy pres can be used to change the trust. --if stated purpose of charitable trust can no longer be accomplished, or the designated charity goes out of existence goes out of existence, crt appoint new trust. (close to original) 5. AG rep. of charitable trust in the state. a. AG is indispensable party (construction or enforcement of a charitable trust. ) b. AG has standing to sue to enforce that trust terms. |
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what is the rule for Honorary trust.
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where no human being is the beneficiary of a private trust.
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what is the rule for Pet trust in illinois.
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Pet trust.
1. illinois Pet trust = ok = will be exempt from Rules against perpetuities. 2. when pet dies = trust ends and balance of trust prop. is distributed to either residuary if there is one or if none settlor's heir. 3. enforcement can be carried out by. a. designated person name in the will. b. appointed by crt. |
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what is the rule for cemetery trust.
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illinois trust for perpetual care and maintenance of municipal cemeteries and burial plots are classified as
1. chartable trust. and are ok even thought they have no human beneficiaries. b. since they are called charitable trusts, there is no rules against perpetuities problems. |
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what is the rule for constructive trust.
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1. flexible equitable remedy designed to take from unjust enrichment that results from wrongful conduct.
2. trutee only duty is to convey prop. to person who in equity has ben wronged. |
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what is the rule for RESULTing trust.
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is not a trust but equitable remedy that arises in 2 situations.
a. when an express trust fails and b. when a Purchase Money Resulting Trust (PMRT) is created. c. PMRT (purchase money resulting trust) only arises when purchaser buys prop. but has title put in someone else have ( who is not a relative) later, purchaser claims no gift was intended and ask title holder for title to the prop. and the title holder refuses this creates a PMRT which allows the purchaser to compel the title holder to give up title. |
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what is the spend thrift rule and protection from creditors
1. what it does. 2. how to included 3. language. 4. effects of spendthrift clause. 5. 3 major exceptions. |
1. Protects a trust beneficiary's interest from creditors by prohibiting voluntary or involuntary transfer of the beneficiary interest.
2. To provide spendthrift protection to a beneficiary, the spendthrift clause must be expressly stated in the trust. 3. typical language. No beneficiary of this trust shall have power to assign his or her interest, nor shall such interest be reachable by creditors. 4. effect of spendthrift = keeps creditors at bay. 5. a. creditor who furnish necessity ---food, clothing, or shelter b. child support and alimony. c. fed. tax lien |
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what is the limitation on spendthrift.
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1. spendthrift protection does not apply to any interest retained by the settlor remainder beneficiary.
2. settlor(s) cannot hide out form their own creditors but they can protect other beneficiaries. 3. all revocable trusts are fair game for settlor's creditors; even if the settlor has no immediate financial interest in trust, but settlor retained the POWER TO REVOKE , then the trust offers no protection at all against creditors of the settlor. |
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when is the rule for modification by trustees and or beneficiaries.
what are the 2 levels modification test. what is the trust termination by the settlor. |
modification by trustee and or beneficiaries.
1. is appropriate only when all the beneficiaries consent and the objectives on the trust would be defeated or substantially impaired if the trust is not modified. 2. the material purpose of the trust comes 1st, overriding any specific directions in the trust. This is called the moffat doctrine. level test: 1. find out material purpose of the settlor regarding trust purposes. 2. Look at specific directions in the trust instrument to determine whether, b/c of change in circumstances those specific direction in the trust would frustrate the Main Purpose of the trust; IF so, then those directions can be changed by the crt. ---------trust termination by the settlor------ ILL. trust are hard to terminate =they are irrevocable and unamendable unless the power to revoke and amend is expressly reserved in the trust instrument. |
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what is the rule for trustee powers.
def. executor vs. admin. gen. approach of trustee powers. |
power can be exercised by trustee pursuant to
1. powers can be exercised by trustee. a. term of the trust. b. terms of a statute or c. by crt decree 2. these fiduciary power also encompass what an executor or admin. can do def. executor = person nominated in a testator will tp act as personal rep. and execute the will provision. administrator= a person appointed by probate crt as personal rep. to administer the estate of a peson who dies intestate, or estate in a will where no execution is available or name in the will. 3. trustee can: a. sell any real or personal prop. b. mortgage prop. c. lease prop. d. make ordinary repairs e. contest or compromise f. settle claims g. do almost anything to manage the corpus of the trust. Can Not do: a. Engage in self dealing b. borrow money from the fund he is managing. c. continue a business 1. trustee liable for all loss from business unless, get crt approval to continue business. 2. when there are 3 or more trustee, trustee who dissents from decision of majority of trustee will not be liable. |
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what is the rule for the trustee self dealing.
what are the 2 affirmative duties on self dealing. what is the remedy for violation of this duty. what can beneficiary due after violation of trust. |
five prohibitions on self dealing.
1. trustee cannot buy or sell trust asset to himself (no wiggle room for this rule) 2. trustee cannot borrow from trust funds 3. Trustee cannot lend $$ to the trust. (any interest earned on such loan must be returned to the trust, and any security given for the loan is invalid) 4. Trustee cannot profit from serving as trustee except for appropriate trustee (fees). a. trustee cannot take advantage of confidential received while trustee. b. corp. trustee cannot buy its own stock as a trust investment. 2 affirmative duties on self dealing= a. duty to segregate trust asset from personal asset. violation of this duty of the trust. --if commingled funds are used to buy an asset and the asset goes down = personal funds was used. (assumption). --if goes up = there presumption that trust funds were used. duty to separate personal funds from trust. BENEFICIARY can do: 1. beneficiary can sue to remove the trustee. 2. beneficiary can ratify the trans. and waive the breach. 3. beneficiary can sue for any loss 4. an action to recover losses to the trust is called surcharge. |
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what is the no further inquiry rule.
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Breach of fiduciary duty by engaging in self dealing is an auto wrong and no further inquiry needs be made.
a. good-faith is no a defense. b. reasonableness is not defense. |
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what is the rule for actions against 3rd party when trustee engages in self dealing.
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1. if trustee engages in a prohibited trans. such as self-dealing and sells trust prop. to 3rd party. the beneficiary cannot sue the buyer of prop. from the trustee if that buyer was a bona fide buyer (BFP) for value without notice.
2. Buyer not BFP if a. know person selling is self dealing. b. know dealing as a trustee. |
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what is the rule for indirect self-dealing.
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Self dealing rules apply to loans or sale to a relative.
of the trustee. or business to which the trustee is an officer employee, partner or principal shareholder. |
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what is the rule for exculpatory clause. |
for = clauses attempt to relief a trustee of liability for breach of fiduciary duty.
1. they cannot be used to shield trustee from all liability because it is against Public Policy and thus void. 2. Nor can exculpatory clauses be used to shield a trustee from liability for a. bad faith b. intentional breach of trust. c. recklessness d. an abuse of confidential relationship. |
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what is the rule for liability of trustee in k.
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1. unless k explicitly shields the trustee from liability |
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what is the rule for personal liability of trustee in tort.
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1. trustee is personally liable fro all trots by trustee or trustee's employees |
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what is the rule for trustee investment power |
1. trustee must manage prop. of trust on behalf of the beneficiary and this means the investment of the corpus of trust.
2. Uniform Prudent Investor Act (UPIA) gives a broad latitude to trustee to choose investment. 3. trustee can pursue what UPIA calls the modern portfolio theory of investment, where the trustee creates a custom tailored investment strategy from this particular trust. 4. a. trustee must consider the role each investment plays within the overall trust portfolio. b. trustee must consider the expected total return from income and capital gain. 5. Trustee does not have to justify the prudence of each investment looked at by itself; can balance off risky speculative investment against safe, conservative investment. 6. specific things to remember: a. prudence is not measure by hindsight: look at the decision to invest when made, not later, trustee does not have to have crystal ball. b. trustee can exercise adjustment power and allocate capital gains to income. i. trustee can switch capital gains into income category if necessary to protect the income beneficiary, and vice versa. II. end goal is fairness to all beneficiaries. 7. Key to UPIA is flexibility to shape the investment of strategy for max total return. |
