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65 Cards in this Set
- Front
- Back
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2 kinds of trusts
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(1) Lifetime/Intervivos
(2) Testamentary (set up in settlor's will) |
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Requirements of a Trust
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(1) SETTLOR (creator) who makes a
(2) DELIVERY of legal title to (3) PROPERTY to a (4) TRUSTEE who holds legal title for the benefit of a (5) BENEFICIARY with (6) INTENT to create a trust for (7) a LAWFUL PURPOSE (8) must be IN WRITING (9) SIGNED by the settlor |
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Settlor
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(1) > 18
(2) Capacity to hold and deal with property (3) Of sound mind |
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Delivery
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Titled assets must be formally transferred
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Property
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(1) Must be presently owned by the Settlor, not a mere expectancy of ownership
(2) Must be identified property, not subject to future determination |
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Trustee
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Lifetime Trust = anyone, bc no ct involvement
Testamentary Trust: (1) > 18 (2) Capacity to hold and deal with property (3) of sound mind (4) be of good moral character |
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Effect of failure to name trustee
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Trust does not fail. Ct will appoint
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Beneficiary
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Must be
(1) Definite (2) Ascertainable |
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Ambiguity of Beneficiary
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Trustee holds a resulting trust for the residuary beneficiary.
EXCEPTION: "family" and "kin" are definite and ascertainable (intestacy statutes) |
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Intent
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(1) Settlor must intend to create an enforceable obligation. Precatory (non-binding) language is not enough.
(2) Trustee must be given duties to perform. If not, it is a passive trust which is no trust at all. (3) Use of word Trust is not dispositive - look at entire language and facts to determine intent. |
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Lawful Purpose
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Cannot:
(1) call for commission of a crime (2) call for destruction of property (3) have a condition against public policy (restricting marriage; promoting divorce) EXCEPTION: if a purpose can be found that is NOT offensive to public policy, the trust is valid (income to spouse until they remarry; marriage restrictions to members of certain religious or ethnic groups) |
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Types of trusts
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(1) Revocable Lifetime Trust
(2) Totten Trust (Bank Account Trust) (3) Joint Bank Accounts that are NOT Totten Trusts (4) Charitable Trusts (5) Honorary Trusts |
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Revocable Lifetime Trust
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Requires at least one beneficiary who is not the Settlor
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Roles Settlor can play in a Revocable Lifetime Trust
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(1) Trustee
(2) Income beneficiary for life (3) Beneficiary of principal so long as there is at least one other beneficiary (4) retain power to terminate or amend the trust |
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Reasons to have a Revocable Lifetime Trust
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(1) manage assets efficiently with professional trustee
(2) helps plan for possible incapacity by avoiding guardianship (3) avoid probate |
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Reasons NOT to have a Revocable Lifetime Trust
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Does NOT avoid most taxes. If S retains an income interest or power to revoke, the full trust assets are part of gross estate for fed estate tax purposes.
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Pour-over gifts in a Revocable Lifetime Trust
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Def: testamentary gifts to an existing trust.
MUST be in existence when before T dies. Can be to ANY existing trust, not just those created by S. Valid even if trust was unfunded or only partially funded. |
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Why have a pour-over?
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(1) Avoids formalities
(2) Trusts can be changed more easily than wills |
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Life Insurance Proceeds payable to a Trust
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Created by:
(1) create an unfunded revocable insurance trust and name the trustee as policy beneficiary (2) OR testamentary trust and name the "trustee named in my will" as policy beneficiary |
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Totten Trust
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Bank account in depositor's name "as trustee for" (ITF) a named beneficiary.
(1) depositor makes deposits and withdrawals as they wish during lifetime (2) beneficiary has no beneficial interest during depositor's lifetime, but gets the account when depositor dies. |
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Revoking a Totten Trust
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(1) withdraw all money from the account
(2) express revocation during depositor's lifetime (3) revocation in a will (4) death of beneficiary |
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Revoking a Totten Trust by express revocation
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(1) writing naming the beneficiary and bank
(2) revocation notarized and delivered to bank |
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Revoking a Totten Trust in a will
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Name beneficiary and bank, notarized and delivered to bank
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Can creditors of depositor reach the funds in the Totten Trust?
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Yes, always.
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Joint Bank Accounts that are NOT Totten Trusts
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(1) Right of Survivorship
(2) Each joint account holder holds 1/2 interest no matter who deposited the money |
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Joint Bank Accounts that are NOT Totten Trusts - challenging Right of Survivorship
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Clear and convincing evidence showing:
(1) survivorship was not intended (2) AND account was opened only as a matter of convenience to the depositor |
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Joint Bank Accounts that are NOT Totten Trusts - nature of 1/2 interest
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(1) if only one deposits, then 1/2 is considered gift to joint account holder
(2) can only withdraw up to what you own, or could be forced to return money on joint account holder's death (if you wait until death, you take all through survivorship) |
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Uniform Transfers to Minors Act
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(1) NOT a trust
(2) can be made though a will, still requires necessary language |
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Uniform Transfers to Minors Act - reasons for
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(1) avoids guardianship
(2) avoids a trust (3) qualifies for annual gift exclusion for fed gift tax purposes |
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Uniform Transfers to Minors Act - requirements
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(1) Made to a custodian (does NOT have legal title to the property)
(2) Specify that made under UTMA |
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Uniform Transfers to Minors Act - duties of custodian
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(1) hold, manage, and invest the property under a prudent person standard
(2) pay over to the minor or for the minor's needs what party of the property the custodian deems advisable (3) Pay what is left of the property to the minor at 21 |
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Uniform Transfers to Minors Act - donor is custodian
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Gift is included in custodian's gross estate.
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Charitable Trusts
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(1) Must have INDEFINITE beneficiaries, of a REASONABLY LARGE GROUP
(2) Must be for charitable purpose (3) May be perpetual (not subject to RAP) (4) Cy pres can be used (5) AG has duty of representing beneficiaries to enforce trust's terms |
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Who has standing to sue to enforce the trust's terms?
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AG (indispensible party)
Donor |
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Honorary Trusts
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Where no human being is the beneficiary of the trust. Valid in IN for < 21y.
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Types of Honorary Trusts
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(1) Pet Trusts: valid for the care of one or more animals that were alive during S's lifetime; ct can appoint someone to enforce
(2) Cemetery Trusts (for perpetual care and maintenance of cemeteries and burial plots - classified as valid charitable trusts) |
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Kinds of Non-trusts
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(1) UTMA
(2) Constructive Trust (3) "Oral" Trust (4) Resulting Trust |
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Constructive Trust
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Flexible equitable remedy designed to disgorge unjust enrichment resulting from wrongful conduct.
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"Oral" Trust
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RULE: no constructive trust will be imposed to give effect to alleged oral trusts.
EXCEPTIONS: (1) Fraud in the Inducement (2) Confidential Relationship |
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Fraud in the Inducement exception for Oral Trust
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Clear and convincing evidence that grantee did in fact agree to hold the property in trust and, at the time of the agreement, had no intention of carrying out the trust.
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Purchase Money Resulting Trust (PMRT)
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RULE: NOT recognized in IN.
EXCEPTION: evidence that the transfer was induced by the grantee by: (1) fraud (2) undue influence (3) breach of a confidential relationship |
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Spendthrift Clauses
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Limitations:
(1) Must be expressly stated (2) Does not apply to interests retained by S (3) Only protect IRREVOCABLE trusts |
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Spendthrift Clauses - purpose
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(1) Keeps creditors away from trust property.
(2) Protects: income beneficiary, residuary beneficiary, or both |
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Spendthrift Clauses - when can creditors access?
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(1) When paid to the income beneficiary
(2) When residuary beneficiary is entitled to it |
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Spendthrift Clauses provide no protection against?
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(1) Child support and alimony/maintenance
(2) Fed tax liens |
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When can a trust be modified?
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When the objectives of the trust would be defeated or substantially impaired if not modified. In such cases, the purpose of the trust is controlling over any specific directions in it.
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Test for Trust Modification
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(1) Determine primary interest of S regarding trust purposes
(2) Determine if specific directions in trust would frustrate the primary intent (if yes, ct can change) |
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Can ct authorize invasion of the principal?
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Yes, if income is not sufficient to carry out the trust purpose.
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Trust Termination by S
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IN RULE: trusts are revocable and amendable unless the power to revoke and amend is EXPRESSLY DENIED in the trust instrument.
BUT: trusts established before 9/30/2005 are the opposite (irrevocable and unamendable unless power to do so EXPRESSLY GIVEN in the trust instrument) |
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What is required for S to terminate an irrevocable trust?
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The consent of ALL beneficiaries.
(1) If minor, incompetent, or unborn, ct must appoint a GAL to represent them. (2) If trust property does to heirs or next of kin NO CONSENT needed. |
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Trustee's Powers
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Can do almost anything, including:
sell lease mortgage make repairs contest, compromise, settle claims anything to manage trust corpus |
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What can a trustee NOT do?
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NO SELF-DEALING
Cannot: (1) buy or sell trust assets to himself (2) cannot borrow trust funds (3) cannot lend money to trust (unless necessary & fair interest rate) (4) Cannot profit from serving as trustee (except for appropriate fees; no taking advantage of confidential info received as trustee) (5) (corp trustee) buy its own stock as a trust investment |
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Affirmative Duties of Trustee
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(1) duty to segregate trust assets from personal assets
(2) duty to earmark trust assets by titling them in Trustee's name |
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Remedies for co-mingling
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(1) if value of co-mingled funds goes down, presume from personal assets
(2) if value of co-mingled funds goes up, presume from trust funds |
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Remedies for breach of fiduciary relationship
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Beneficiary can:
(1) sue to remove Trustee (2) ratify the transaction and waive the breach (3) sue for any loss (surcharge) |
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Surcharge
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Action to recover losses to the trust
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No Further Inquiry Rule
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Self-dealing is an automatic wrong.
GF or reasonableness are NOT defenses. |
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Actions against a third-party when trustee engages in self-dealing
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Beneficiary cannot sue a BFP w/o notice.
To sue, BFP must know: (1) dealing with a trustee (2) AND trustee was self-dealing |
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Indirect Self-Dealing
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Self-Dealing Rule also applies to loans or sales to relatives of Trustee or businesses in which Trustee is an officer, employee, partner, or principal SH.
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Personal Liability of Trustee in K
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If Trustee:
(1) signed "on behalf" of trust, then NO personal liability (2) signed personally and merely mentioned trust, then personal liability |
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Can Trustee be reimbursed from trus for K liability?
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If found personally liable, can be reimbursed if:
(1) K was within power of Trustee (2) AND acting in course of proper administration of trust. |
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Personal Liability of Trustee in Tort
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(1) Personally liable for all torts by Trustee or his employees
(2) Buy liability insurance and charge to the trust! |
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Can Trustee be reimbursed from trus for tort liability?
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If found personally liable, can be reimbursed if:
(1) acting within power as Trustee (2) AND Trustee was not personally at fault. |
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Uniform Prudent Investor Act
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(1) Modern portfolio theory of investment (custom-tailored investment strategy)
(2) Prudence not measured in hindsight (3) Trustee can exercise adjustment power and allocate capital gains to income |
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Factors Trustee must make in determining investments
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Trustee must consider:
(1) the role each investment plays within the overall trust portfolio (2) the expected total return from income and capital gain. NOTE: can balance safe/conservative investments with risky ones - looking at overall balance |
