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68 Cards in this Set
- Front
- Back
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Express Trust |
A legal device that allows an owner of property to make transfers of property and have these assets managed on behalf of someone else |
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Settlor |
The person that creates the trust |
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Trustee |
The person that recieves legal title to the property from the settlor and that will manage the property |
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Beneficiaries |
Have equitable title to enjoy the distributions of a trust |
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Two kinds of express trusts |
Life time trust: set up during the life time of the person who created the trust (settlor)
Testimentary Trust: created by the settlor's will |
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Eight Requirements for a valid trust |
Settlor makes a
Delivery of legal title to
Property to a
Trustee who holds legal title for the benefit of a
Beneficiary with the
Intent to create a trust for a
Lawful Purpose, in a
Validly executed document
NOTE: No consideration is necessary
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Express Trust Requirements: Settlor |
The settlor can be anyone who is 18 or older with the capacity to enter into a contract |
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Express Trust Requirements: Delivery |
Titled assets must be formally transfered to the trustee for delivery to be valid
They must be put in the trustee's name |
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Express Trust Requirements: Property |
The property can be almost anything but MUST be property that the settlor owns not something that he has a mere expectancy of ownership in the future
The property must be identified property, not subject to future determination (not any money I might make in ten years) |
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Express Trust Requirements: Trustee |
For a life-time trust, almost anyone can be a trustee since no court involvement is needed for the creation of the trust
For a testimentary trust, which is created under the court's supervision, anyone can be except for
individuals under 18
judicially declared incompetents
convicted felons
those incapable because of drunkeness, dishonesty, or want of understanding |
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Can a non-resident alien be a trustee? |
A non-resident alien can only serve as a trustee if a NY resident serves a co-fiduciary |
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Does the failure to name a trustee invalidate the trust? |
No a failure to name a trustee does not matter, the court will simply appoint someone |
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Express Trust Requirements: Beneficiaries |
Beneficiaries must be definite and ascertainable -- there can be no ambiguity (to my best friend is a no go)
If there is any ambiguity, the trustee holds in a resulting trust for the residuary beneficiary of a will (or the intestate heirs if there is no will)
EXCEPTION: Family or next-of-kin are considered definite and ascertainable and the turst does not fail -- the intestate statutes provide the definitions of these terms |
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Express Trust Requirements: Intent |
Settlor must intend to create an enforcable obligation -- Precatory (non-binding: would like, request, wish) language does not give rise to a trust
NOTE: using the word trust does not make it a trust you have to look at all of the language and all of the facts to determine intent (for instance it would not be a trust if it could alternatively be charecterized as a landlord tennant relationship)
Trustee must be given duties to perform, if the trustee is fiven no duties to perform this is a passive trust and that is not a trust |
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Express Trust Requirements: Lawful Purpose |
A trust cannot call for the commission of a crime
A trust cannot call for the destruction of property
A trust cannot have a condition against public policy (restricting marriage or promoting divorce) |
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Express Trust Requirements: Lawful Purpose: Exceptions |
If a purpose that can be found that is not offensive to public policy then it will be considered a valid trust (to provide for a widow until she remarries)
Marriage restrictions that restrict marriage to certain religions or ethnic groups are valid as permissible partial restraints on marriage |
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Express Trust Requirements: Trust Execution |
Must be in writing and signed by BOTH the settlor and trustee AND this writing MUST be
acknoweldged by a notary public OR
signed by two witnesses |
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Are trusts generally revocable? |
NO, trusts are pressumed to be irrevocable unless the trust EXPLICITY authorizes revocation |
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Revocable Lifetime Trusts |
At lease one beneficiary who is not a settlor
Settlor cannot be the sole beneficiary when also named the sole trustee |
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Revocable Lifetime Trusts: Roles of the Settlor |
Settlor can be A trustee
Settlor can be AN income beneficiary
Settlor's estate can be one of the beneficiaries of the principal SO LONG AS there is at least 1 other beneficiary
Settlor can retain the power to terminate or amend the trust |
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Why have a revocable trust? |
Manage assets efficiently, particularly when using a professional trustee
Helps plan for a possible incapacity by avoiding a guardianship proceeding
Avoids the probate process (no part of the principal of a trust goes through the settlor's estate in probate) |
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Reasons not to have a revocable trust |
Does not avoid taxes
If the settlor keeps an income interest or the power to revoke the full trust assets will be included in the settlor's gross estate for federal tax estimate purposes |
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Pour Over Gifts |
Testamentary gifts (those gifts made in a will) to an existing revocable trust are OK -- this gift will avoids will formalities (trusts can be changed during the lifetime of the settlor) |
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Pour Over Gifts: Key Requirements |
The trust must be in existance or executed concurently with the will |
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Pour Over Gifts: Exceptions |
Pour over is not limited to tursts created by the settlor, but it can be to any exisiting trust including those executed by another peron
Pour over gift remains valid even if the trust was unfunded or if it is only partially funded during the settlor's lifetime |
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Life Insurance Proceeds: Two ways an insured can make life insurance proceeds payable to a trust |
Insured can create an unfunded revocable insurance trust and name the trustee of the trust as the policy beneficiary
Have the trust be testimentary and have life insurance policy contract name "the trustee named in my will" as the life insurance policy beneficary
NOTE: this also applies to the proceeds of saving accounts or pension plans |
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Totten Trust (Bank Account Trust) |
A totten trust is a bank account in the depositor's name "as a trustee for" a named beneficiary |
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Totten Trust: Charecteristics |
Depositor makes deposits and withdrawls as he or she wishes during the depositor's lifetime
Beneficiary has no beneficial interest during the depositor's lifetime, but will get whatever is left in the account when the depositor dies |
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Totten Trust: Creation |
No particular words are required to make a totten trust account |
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Totten Trust: Revocation |
Withdraw all the money in the account
Expressly revoke the trust during the lifetime BY: having the depositor make a writing naming the beneficiary and financial instutions and having the revocation notarized and delivered to the bank
Revocation in a will (must also comply with the express revocation requirements)
Death of a benficiary (money goes back to the depositor and the heirs of teh beneficiary get nothing) |
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Totten Trust: Change in Beneficiary |
Can be made at anytime by the depositor but must be done by in a notorized writing to the financial insitution that names both the bank and the old and new beneficiary |
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Totten Trust: Creditors |
Creditors of the depoistor can always reach the Totten Trust bank account balance either BEFORE or AFTER the depositor's death
Essentially a revocable trust that is partially revoked each time a withdrawl is made |
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Joint Bank Accounts |
"John and Jane with Right of Survivorship"
These are not Totten Trusts
After of the parties of the account dies an individual may only block the money from going to the survivor of the trust if:
Clear and convincing evidence shows that a survivorship was not intended when the account was established AND
that the account was opened only as a matter of convenience to the depositor |
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Joint Bank Accounts: Who owns the money? |
Each joint account holder owns there apporpiate share (1/2) of the account no matter who deposited the money
If one person makes the entire deposit it is considered a gift of one-half to the other account holder
During the lifetime each person is entitled to thier fractional share so if you end up taking more than that severs the right of survivorship
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Uniform Transfers to Minors Act: Why use it? |
Avoids guardianship proceedings
Avoids the creation of a trust
Qualifies for the $14k per donnee annual exclusion from federal and state gift tax |
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Uniform Transfers to Minors Act: Requirements |
Gifts must be made to a custodian (he does not hold legal title to the property) AND NOT a trustee and it must specify that they are made pursuant to the Act
Can be made in a will but the same statutory required language is needed |
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Uniform Transfers to Minors Act: Duties of a Custodian |
Hold, manage and invest the property under a prudent person standard
Pay over to the minor or for the minor's needs what part of the proerty that the custodian deems advisable
Pay what is left of the property to the Minor when the Minor turns 21 (or 18 if the gift was made before Jan. 1 1997) |
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Uniform Transfers to Minors Act: Tax Concequences |
If the donor names himself or herself as a custodian then the amount of the gift is includible in the custodian's gross estate tax for federal or state purposes
If the donor names somone else it is not |
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Charitable Trusts: Beneficiaries |
Must have indefinite beneficiaries and they must be a reasonably large group -- the beneficiaries cannot be named or specific
EXCEPTION: a trust for Masses for relatives is ok |
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Charitable Trusts: Purpose |
Charitable trusts must be for a charitable purpose: health, education or religion |
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Charitable Trusts: Duration |
Perpetual and not subject to the rule against perpetuitites |
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Charitable Trusts: Cy Pres |
If the state purpose of a charitable trust can no longer be accomplished or the designated charity goes out of existance the court may use this to make the trust as near as possible to what the settlor wanted |
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Charitable Trusts: Attorney General's Role |
The AG has the duty of representing the beneficiaries of the charitable trusts in the sate
AG is an indispensible party to any suit on construction or enforcement of a charitable trust
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Honorary Trusts |
Where no human being is the beneficiary of a private trust the property placed in trust falls into the residuary estate because a private trust MUST have a human beneficiary
EXCEPTION:
Trust for pets: a valid pet trust can last for no longer than the duration of the pet's lifetime somone designated in the will or appointed by the court can enforce the trust and makes sure its purposes are carried out
Cemetery Trusts: Trusts for the perpetual care and maintence of cemeteries and burial plots are classified as charitable trusts and are allowed -- NO RAP problem |
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Constructive Trusts |
Equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct
The "trustee's" (the bad guy) only duty is to convey the property to the person who should have the property |
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Resulting Trust: Purchase Money Resulting Trust |
Only arises when a purchaser buys a property and has the title put in someone else's name (who is not a relative) and later the purchaser claims that it was not a gift and asks the title holder to the property for title and the title holder refuses
NOT RECOGNIZED IN NY UNLESS
there is clear and convincing evidence that the grantee expressly or implicitly promised to recover the land to the purchaser RESULT a constructive trust can be imposed to benefit the purchaser |
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Spendthrift Rule |
Protects a trust beneficiary's interest from creditor's by prohibiting voluntary or involuntary transfer of a beneficiary's interest
In NY all income interests in trusts have spendthrift protection even if the trutst instrument does not contain a spendthrift clause BUT this applies only to income from the trust and not to the principle
To provide spendthrift protection to the REMAINDER BENEFICIARY the spendthrift clause must be expressly stated in the trust
EXCEPTION:
Does not apply to any interest that is retained by the settlor, only beneficiaries
All revocable trusts are fair game for the settlor's creditors |
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Effect of Spendthrift Clause |
Keeps creditors at bay EXCEPT:
creditor's who furnish necessities (food, clothing, shelter)
Child support or alimony
federal tax leins
Excess income beyond that needed for support and education (have to show all other remedies were used before you can get after this and what qualifies for support is based on the life style of the beneficiary)
The 10% levy provided by NY state law (however it is only 10% for ALL creditors, not individuals) |
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Trust Modification |
Appropriate only when the objectives of the trust will be defeated or substnatially impaired if the trust is not modified
The PURPOSE of the trust comes first over-riding any specific directions of the trust: CLAFIN doctrine |
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Two Level Modification Test |
Find out the primary intent of the settlor regarding the trusts purposes
Look at the specific directions in the trust instrument to determine whether, because of changes in circumstances, theose specific directions in trust would now frustrate the primary intent of the trust
IF SO then those directions could be changed by the court
NOTE: the court could authorize the invasion of the principal of the trust if the income is not enough to carry out the settlor's purpose of the trust |
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Trust Termination By Settlor |
Trusts are difficult to terminate in NY since they are generally irrevocable and unalienable unless the power to revoke and amend is expressly reserved in the trust instrument
EXCEPTION: A settlor can terminate an irrevocable trust if ALL beneficiaries in being consent -- HOWEVER NO ONE can give consent for any beneficiary who is mentally incapacitated or a minor
NOTE: an unborn child need not consent this only applies to born alive children |
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Trust Termination: Heirs and Next of Kin |
If a trust gives property to hiers or next of kin that interest is not considered a beneficical interest and thus no consent need be obtained from them |
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Trustee's Powers |
New York Fiduciary Powers Act controls
It sets out powers that can be exercised by a trustee without cour order and without express authorization in the trust |
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General Trustee Powers |
Trustee can do almost anything INCLUDING
Sell any real property
Mortgage any real property
Lease any real property
Make ordinary repairs
Contest, compromise or settle claims
do almost anything to manage the corpus of the trust |
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Limitations on Trustee Power |
Trustee CANNOT
Engage in self dealing
Borrow money on behalf of the trust
Continue running a business placed in trust (liable for all loses unless the trustee has court approval) |
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Prohibatory Self Dealing |
Trustee cannot buy or sell trust assets to himself
Trustee cannot borrow trust funds
Trustee cannot lend money to the trust (any interest earned on such a loan must be returned to the trust and any security for the loan is invalid)
Trustee cannot profit from serving as the trustee (beyond customary fees) -- in other words trustee cannot take advantage of confidential information he learns of while a trustee
Corporate trustee cannot buy its own stock as a trust investment |
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Affirmative Self Dealing |
Duty to segregate trust assets from personal assets
NOTE: if the funds do get commingled and they are used to buy an asset if the worth of the asset goes down then the court will find that PERSONAL money was used and if the value goes up that TRUST funds were used
Duty to earmark trust assets by titling them in a trustee's name as a trustee |
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Remedies for Breach of Fiduciary Duties |
Beneficiaries can sue the trustee
Beneficiary can ratify the transaction and waive the breach
Beneficiary can sue for any loses (a surcharge action) |
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No Further Inquiry Rule |
Breach of a fiduciary duty by engaging in self dealing is an AUTOMATIC wrong and no further inquiry needs to be made
Good faith and reasonableness ARE NOT DEFENSES |
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Third Party Liability when dealing with self dealing trustee |
if a trustee engages in a prohibited transaction and sells trust property to a third party the beneficiary CANNOT sue the purchaser of the property if the purchaser was a BONA FIDE PURCHASER and did not have notice (has know that she is both dealing with a trustee AND that he is engaging in self dealing)
NOTE: self dealing rules also apply to relatives of teh trustee or to a business of which the trustee is an officer, employee, partner or principal share holder SO these individuals are not protected from suit from the beneficiary |
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Exculpatory Clauses |
Cannot be used to shield trustees from liability for breach of a fiduciary duty in a testimentary trust
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Liability of Trustee In Contract |
If trustee signed only on behalf of trust then no personal liability (needs specific langauge either sign as the X trust by Me, Trustee or explcitly state not individually)
If trustee signed personally and merely mentioned the trust then trustee has personal liability
NOTE: even if there is peronal liability the trustee will be reimbursed by the trust IF
the contract was in the powers of the trustee
trustee was acting in the course of proper administration of the trust |
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Personal Liability In Tort |
Trustee is personally laible for all torts by the trustee or trustee's employees (so they should get some liability insurance)
EXCEPTION: Trustee can get reimbursed from the trust for any tort if
trustee was acting within the trustee's powers
trustee was not personally at fault |
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Trustee's Investment Power |
Must manage the property of the trust on behalf of the beneficiary and thus must invest the corpus of the trust
Trustee can puruse MODERN PORTFOLIO THEORY OF INVESTMENT where the turstee creates a CUSTOM-TAILORED investment stratergy for this particular trust |
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How may the trustee invest? |
Trustee must consider the role each investmnet plays within the overall trust portfolio
Trustee must consider the expected total return from income and capital gain
THEREFORE trustee's do not have to justify the prudence of each investment individually, can balance the portfolio as a whole |
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How are investments judged? |
Prudence is not measured by hind-sight -- look at the decision to investemnet when it was made
Trustee can exercise adjustment power and allocate capital gains to income -- if he has to protect the income beneficiary
The trustee has the power to shape investment stratergy for maximum total return along with the felixbility to adjust income between the income and remainder benficiaries |
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Rule Against Suspension of the Power of Alienation |
Any interest is void if it suspends the power of allienation for a period longer than lives in being plus 21 years -- when there are no persons who could, together, transfer fee simple title |
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Rule Against Suspension of the Power of Alienation: Things to Watch for |
Spend thrift income interests are in the trust
Life estate is created in an unborn beneficiary or in an open class that may possible include unborn persons |
