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39 Cards in this Set

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  • Back
Express Lifetime Trust
Allows an owner of property to make transfers of property and to have those assets managed on behalf of someone.
An inter vivos trust is set up during the lifetime of the person who created it (the settlor).
Express Testamentary Trusts
Allows an owner of property to make transfers of property and to have those assets managed on behalf of someone.
The trust is created in the settlor's will.
Express Trust Requirements
1. Capacity: Settlor must be 18+ with the capacity to enter into contracts.
2. Delivery: Titled assets must be formerly transferred to the trustee.
3. Property: any identified property owned by the settlor (no mere expectancy subject to future determination).
4. Trustee: named in the instrument or appointed by the court.
5. Beneficiary: a definite and ascertainable person.
6. Intent: the obligation must be enforceable (no precatory language), assigning duties to the trustee, looking at all of the language and all of the facts.
7. Lawful Purpose: a trust calling for the commission of a crime, destruction of property or conditions against public policy are invalid.
8. Writing: signed by settlor and trustee acknowledged or signed by 2 witnesses.
9. No Consideration (not necessary).
Trustee Requirements
Lifetime Trust: anyone may be a trustee.
Testamentary Trust: created under court supervision, anyone may serve as trustee except:
1. Minors
2. Incompetents
3. Convicted Felons
4. Those incapable due to drunkenness, dishonesty, want of understanding, improvidence.
5. Non-resident aliens if related to decedent and a resident of NY is co-trustee.
Result of an Ambiguous Beneficiary in a Trust
If a trust names a beneficiary that is not definite or ascertainable, the trustee holds on to a resulting trust for the residuary beneficiary.
Revocable Lifetime Trust Requirements
Settlor retains the power to terminate and amend the trust.
Settlor may NOT be sole beneficiary.
Settlor may be a trustee, lifetime income beneficiary and principal beneficiary (with others).
Revocable Lifetime Trust Benefits and Detriments
Efficient management of trust assets using a professional trustee.
Plan for incapacity: avoids guardianship.
Probate avoidance.
Includible in the settlor's gross estate for tax purposes due to the retnetion of income interest or power to revoke and amend.
Pour Over Trusts
Testamentary gifts to an existing revocable trust avoids estate taxes because trust is irrevocable at settlor's death.
Must exist before or concurrently with will execution.
May be any existing trust, not just one created by settlor.
Valid if unfunded or partially funded during settlor's lifetime.
Pour Over Life Insurance Proceeds (Savings account proceeds, pension plan proceeds)
Insured creates an unfunded revocable insurance trust naming trustee as policy beneficiary or
Insured created a testamentary trust and the settlor's will names the trustee as beneficiary.
Totten Trusts
A bank account in depositor's name "as trustee for" a named beneficiary.
Depositor makes deposits and withdrawals during lifetime.
Beneficiary has no interest during the depositor's lifetime but takes account at depositor's death.
There is no protection from depositor's creditors before and after the death of the depositor.
Revocation of a Totten Trust or a change of the beneficiary
A Totten trust may be revoked:
1. Withdrawal of all the funds.
2. Express revocation during the lifetime of depositor or via depostitor's will in a notarized writing delivered to the bank naming the beneficiary and the financial institution.
3. Death of the beneficiary
A change of the beneficiary requires the same formalities.
Joint Bank Accounts
Not a Totten trust.
Survivorship is automatic unless there is clear and convincing evidence that the account was opened for the depositor's convenience with no intent for survivorship.
Joint account holders own 1/2 the assets no matter who made the deposits.
Uniform Transfer to Minors Act (UTMA)
Bank account held by custodian for a minor.
Must specify that it is being made under the UTMA.
May be created by will or inter vivos.
Custodian's Duties:
1. Hold, manage and invest property under a prudent person standard.
2. Pay over to the minor for minor's needs.
3. Pay leftover to minor upon turning 21.
4. Minor holds legal title, not custodian.
5. If donor is custodian, it is includible in his gross estate for tax purposes.
Charitable Trust Requirements
1. Indefinate beneficiaries.
2. Reasonabley large group.
3. Charitable purpose.
4. May be perpetual (no RAP).
5. Cy Pres
6. Attorney General has the duty of representing the beneficiaries, has standing and is an indispensible party to any suit on construction or enforcement.
Cy Pres Doctrin
If the state purpose of the charitable trust can no longer be accomplished, or the designated charity no longer exists, the court invokes cy pres to make the trust be as near as possible to what the settlor wanted.
Honorary Trusts
Not a trust: a private trust not benefitting a human being.
Pet Trusts are valid for 21 years.
Cemetary Trusts for the maintenance of bural plots are permissible.
Constructive Trusts
A flexible equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct.
Trustee's only duty is to convey the property to the person who, in equity, should have the property.
Oral Trusts
Where there is a deed of land by the grantor to the grantee, but someone clims that grantee orally promised grantor to hold the land in trust for certain purposes.
Generally not valid, except if:
1. Fraud in the inducement: clear and convincing evidence that grantee did make the promise and had no intention at the time of agreement to carry it out.
2. Confidential relationship between grantor and grantee: clear and convincing evidence of oral agreement between people in a confidential relationship.
Resulting Trust
An equitable remedy when a trust fails.
Purchase Money Resulting Trust
Not recognized in NY, it arises when a purchaser of property has title put in someone elses name and later claims that no gift was intended and purchaser refuses to give title up.
NY: A constructive trust will be imposed if there is clear and convincing evidence that grantee expressly or impliedly promised to reconvey the land to the purchaser.
Statutory Spendthrift Rule
Income interests are statutorily protected from creditors.
Spendthrift Clauses
Used to protect income or residuary beneficiaries from creditors.
Exceptions to Statutory Spendthrift Protection or Protection via Spendthrift Clauses
1. Necessities: creditors who furnish necessities to beneficiaries.
2. Child support and alimony.
3. Federal Tax Liens.
4. Excess income beyond what is needed for support or education upon a showing that all other remedies have been exhausted (support based on beneficiary's lifestyle).
5. CPLR 10% levy: available to all judgment creditors who share the 10%.
Modification of a Trust
Modification permitted by trustee or beneficiary.
Appropriate when the objectives of the trust would be defeated or impaired if the trust is not modified.
Purpose of the trust is controlling.
Modification of a Trust Test
1. Intent: determine the intent of the settlor regarding the purpose of the trust.
2. Specific directions: look at the specific directions in the trust intstrument to determine whether, because of changes in circumstances, those specific directions would not frustrate the primary purpose of the trust.
The court can order invasion of the principal if income is not enough to carry out the settlor's purpose.
Termination of a Trust by the Settlor
NY Trusts are prsumed irrevocable and un-amendable unless the power is expressly reserrved in the trust instrument.
A settlor can terminate an irrevocable trust if all of the beneficiaries consent (minors can't consent, children in gestation don't count, gifts to heirs are not considered beneficial interests so no consent necessary).
New York Fiduciary Powers Act
Sets out the powers that can be exercised by a trustee without court order and without express authorization in the trust.
Trustee Powers under the New York Fiduciary Powers Act
1. Sell any real or personal property.
2. Mortgage any property.
3. Lease property.
4. Make ordinary repairs.
5. Contest, compromise and settle claims.
6. Anything to manage the corpus of the trust.
Trustee as a Fiduciary: unpermitted powers
A trustee may not self-deal. The trustee may NOT:
1. Buy trust assets.
2. Sell assets to the trust.
3. Lend money to the trust.
4. Profit from confidential information received as trustee.
5. Continue to run settlor's business without court approval.
Trustee as a Fiduciary: affirmative duties
Segregation of assets: trustee may not comingle with his own assets: liable for losses; disgorged of gains.
Earmarked Assets: assets must be titled in trustee's name as trustee.
Remedies for Breach of Trustee's Fiduciary Duties
1. Removal: beneficiary may sue for removal of the trustee.
2. Ratify: beneficiary may ratify the transaction waiving the breach.
3. Surcharge: beneficiary can sue to recover losses.
Trustee has no defenses: an automatic wrong whether reasonable or done in good faith.
Actions against 3rd Parties when Trustee Self-deals
A bona fide purchaser is not liable and can not be sued if:
1. Purchased for value;
2. No knowledge that seller was trustee; and
3. no knowledge trustee was self-dealing.
Trustee's Personal Liability in Contracts
Trustee has no personal liability only if he signs the contract on behalf of the trust.
Trustee may be reimbursed if:
1. Contract was within the powers of the trustee and
2. trustee was acting in the course of proper administration of the trust.
Trustee's Personal Liability in Torts
The trustee is liable for all torst by the trustee or trustee's employees.
Trustee may purchase liability insurane payable by the trust.
Reimbursement is available if:
1. The liability was incurred in the coure of proper administrationm of the trust and
2. the trustee was not personally at fault.
Trustee's Investment Power
The trustee must manage the property on behalf of the beneficiary including investing the corpus.
New York Uniform Prudent Investor Act (UPIA)
The act gives the trustee broad latitude in choice of investment.
Modern Portfolio Analysis: the trustee creates a custom tailored investment strategy that considers the role each investment plays within the overall portfolio and th expected total return from income and capital gains.
Prudence of each investment does not have to be justified.
Goal is fairness to all beneficiaries.
Maximum total income return with flexibility to fairly adjust income between income and residuary beneficiaries.
Rule Against Perpetuities
No interest is valid if it could vest later than any life in being at the time of creation plus 21 years.
NY Perpetuities Reform Statute
Automatically reduces all age contingencies to 21 years thus saving invalid gifts.
The NY Suspension Rule
Any interest is void if it suspends the power of alienation for a period of lives in being plus 21 years.