Ny Bar 2007 Trusts

Front 1

Express Lifetime Trust

Back 1

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).

Front 2

Express Testamentary Trusts

Back 2

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.

Front 3

Express Trust Requirements

Back 3

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).

Front 4

Trustee Requirements

Back 4

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.

Front 5

Result of an Ambiguous Beneficiary in a Trust

Back 5

If a trust names a beneficiary that is not definite or ascertainable, the trustee holds on to a resulting trust for the residuary beneficiary.

Front 6

Revocable Lifetime Trust Requirements

Back 6

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).

Front 7

Revocable Lifetime Trust Benefits and Detriments

Back 7

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.

Front 8

Pour Over Trusts

Back 8

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.

Front 9

Pour Over Life Insurance Proceeds (Savings account proceeds, pension plan proceeds)

Back 9

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.

Front 10

Totten Trusts

Back 10

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.

Front 11

Revocation of a Totten Trust or a change of the beneficiary

Back 11

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.

Front 12

Joint Bank Accounts

Back 12

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.

Front 13

Uniform Transfer to Minors Act (UTMA)

Back 13

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.

Front 14

Charitable Trust Requirements

Back 14

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.

Front 15

Cy Pres Doctrin

Back 15

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.

Front 16

Honorary Trusts

Back 16

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.

Front 17

Constructive Trusts

Back 17

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.

Front 18

Oral Trusts

Back 18

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.

Front 19

Resulting Trust

Back 19

An equitable remedy when a trust fails.

Front 20

Purchase Money Resulting Trust

Back 20

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.

Front 21

Statutory Spendthrift Rule

Back 21

Income interests are statutorily protected from creditors.

Front 22

Spendthrift Clauses

Back 22

Used to protect income or residuary beneficiaries from creditors.

Front 23

Exceptions to Statutory Spendthrift Protection or Protection via Spendthrift Clauses

Back 23

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%.

Front 24

Modification of a Trust

Back 24

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.

Front 25

Modification of a Trust Test

Back 25

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.

Front 26

Termination of a Trust by the Settlor

Back 26

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).

Front 27

New York Fiduciary Powers Act

Back 27

Sets out the powers that can be exercised by a trustee without court order and without express authorization in the trust.

Front 28

Trustee Powers under the New York Fiduciary Powers Act

Back 28

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.

Front 29

Trustee as a Fiduciary: unpermitted powers

Back 29

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.

Front 30

Trustee as a Fiduciary: affirmative duties

Back 30

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.

Front 31

Remedies for Breach of Trustee's Fiduciary Duties

Back 31

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.

Front 32

Actions against 3rd Parties when Trustee Self-deals

Back 32

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.

Front 33

Trustee's Personal Liability in Contracts

Back 33

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.

Front 34

Trustee's Personal Liability in Torts

Back 34

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.

Front 35

Trustee's Investment Power

Back 35

The trustee must manage the property on behalf of the beneficiary including investing the corpus.

Front 36

New York Uniform Prudent Investor Act (UPIA)

Back 36

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.

Front 37

Rule Against Perpetuities

Back 37

No interest is valid if it could vest later than any life in being at the time of creation plus 21 years.

Front 38

NY Perpetuities Reform Statute

Back 38

Automatically reduces all age contingencies to 21 years thus saving invalid gifts.

Front 39

The NY Suspension Rule

Back 39

Any interest is void if it suspends the power of alienation for a period of lives in being plus 21 years.