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42 Cards in this Set
- Front
- Back
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Trust
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a legal device that allows an owner of property to make transfers of property and to have those assets managed on behalf of someone else.
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Settlor
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Creator of a trust
Must be over 18 must have capacity |
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Requirements for a valid trust
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A settlor needs to deliver legal title of property to a trustee for a beneficiary with the intent to create a trust.
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Delivery
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Title must be formally transferred to the trustee for delivery to be valid.
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Property
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Can be almost anything, but must be property that the settlor owns.
Must be identified property |
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Trustee
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Lifetime trust: almost anyone can be a trustee
Testamentary trust: can't be -under 18 -judicially declared incompetent -convicted felons -those who are drunk or dishonest |
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Non-alien trustee
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Can be a trustee only if:
-person is related to the decedent -NY resident serves as co-fiduciary |
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Beneficiary
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must be definite and ascertainable
if ambiguous, trustee holds in a resulting trust for the residuary beneficiary of a will. |
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Intent
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Settlor must intend to create an enforceable obligation.
precatory language is not enough Trustee must be given duties to perform - otherwise a passive trust |
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Lawful purpose
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Cannot call for compensation of a crime, destruction of property, or a condition against public policy
Trust restricting marriage or promoting divroce are contrary to public policy but if not offensive to public policy then it is valid. |
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Validly executed document
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must be in writing and singed by both settlor and trustee AND either
1. acknowledged by a notary public OR 2. signed by two witnesses |
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Revocability
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All trusts are presumed irrevocable unless the trust explicitly authorizes revocation.
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Revocable lifetime trust
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Settlor cannot be sole beneficiary. Must be at least one other beneficiaries
Creditors can get at a revocable trust. |
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Pour Over Gifts
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Testamentary gifts to an existing revocable trust are ok IF the trust is in existence at the time the will is made or executed concurrently with the will.
Does not have to be funded until death |
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Life Insurance Proceeds
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Proceeds can be payable to the trust
- insured may create an unfunded revocable insurance trust and name the trustee of the trust as a policy beneficiary - life insurance proceeds can name the trustee named in the will as a beneficiary |
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Totten Trust
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payable on death account.
- Settlor can make deposits and withdrawals as he wishes during his lifetime. -Creditors can get at the gotten trust |
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Four Ways to Revoke a Totten Trust
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1. Withdraw all money in the account
2. express revocation during lifetime by depositor making a writing naming the beneficiary and bank AND have the revocation notarized and delivered to the bank. 3. Revocation in a will 4. Death of beneficiary |
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Joint Bank Accounts
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Goes to the other person on account UNLESS
- proponent shows by clear and convincing evidence shows that survivorship was not intended when the account was established, and that the account was opened as a matter of convenience. Each joint holder owns 1/2 of the account, even if the person makes the entire deposit. |
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Uniform Transfers to Minors Act
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Trust-like gift to a minor
Must be given to an UTMA custodian and specify that it is under UTMA. Hold the property for the minor's benefit, pay the minor for their needs, give to minor when they turn 21. |
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Charitable Trusts
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Must have infinite beneficiaries, and they must be a reasonably large group.
Must be for a charitable purpose May be perpetual (not subject to RAP) Cy pres can be used to changes the trust. |
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Honorary Trusts
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Where no human being is the beneficiary of a private trust, the property goes to the residuary estate.
Private trust must have a human beneficiary. |
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Pet trust
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can last for no longer than the duration of the pet's lifetime.
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Cemetery Trust
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Trusts for perpetual care and maintenance of cemeteries.
No RAP issues. |
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Constructive Trusts
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Flexible equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct.
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Resulting Trust
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When a purchaser buys property and has title put in someone else's name, purchaser claims no gift was intended and asks the title holder for title to the property and the holder refuses.
Not recognized in NY. Exception: If there is clear and convincing evidence that the grantee had expressly or impliedly promised to reconvey the land to the purchaser. |
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Spendthrift Trust
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Protects a trust beneficiary's interest from creditors by prohibiting voluntary or involuntary transfer of the beneficiary's interest.
Beneficiary can't sell or transfer the trust. Creditors can't get at it. JUst applies to income, not principal. |
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Self Settled Spendthrift Trust
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If a settlor creates a spendthrift trust in himself, the creditors can get at it.
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Exceptions to spendthrift trust
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1. Creditors who furnish necessities
2. Child support and alimony 3. Federal Tax Liens 4. Excess income beyond that needed for support and education 5. 10% levy |
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Trust modification
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Appropriate when the objective of the trust would be defeated or substantially diminished if the trust is not modified.
1. Find out primary purpose of the settlor regarding trust purposes 2. look at specific directions in the trust instrument to determine whether those specific instructions in the trust would not frustrate the primary intent by the trust. |
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Termination of a trust
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Irrevocable and unamendable unless the power to revoke and amend is expressly reserved in the trust instrument
Exception: settlor can terminate an irrevocable trust if all beneficiaries in being consent. |
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Trustee's powers:
A trustee can do... |
-Sell any real personal property
-Mortgage property -Lease property -Make ordinary repairs -Consent, compromise or settle claims OR -Do almost anything to manage the corpus of the trust |
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Trustee cannot do...
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-Engage in self dealing
-Borrow money -Continue a business |
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Self dealing
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-Trustee cannot buy or sell trust assets to himself
-Cannot borrow trust funds -Cannot lend money to the trust -Cannot profit from serving as trustee (except for appropriate trust fees) -Corporate cannot buy its own stock as a trust investment |
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Affirmative duties on self-dealing
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Duty to segregate trust assets from personal assets.
If commingled funds are used to buy an asset and the asset goes down in value, there is a conclusive presumption that personal funds were used. If the asset goes up in value, there is a conclusive presumption that trust funds were used. |
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Remedies for Breach of Fiduciary Responsibilities
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- Beneficiary can sue to remove the trustee
-Beneficiary can ratify the transaction and waive the breach -Beneficiary can sue for an loss |
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No further inquiry rule
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Breach of a fiduciary duty by engaging in self dealing is an automatic wrong and no further inquiry need to be made.
- good faith is not a defense - reasonableness is not a defense |
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Actions against 3P when trustee engages in self dealing
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If a BFP, cannot sue them.
To not be a BFP -must know dealing with trustee AND -that the trustee is engaged in self dealing |
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Indirect self-dealing
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self-dealing rules apply to loans or sales to a relative of the trustee; or to a business of which the trustee is an officer, employee, partner, or principal shareholder.
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Exculpatory clauses
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cannot be used to shield trustee from liability for a breach of fiduciary duty in a testamentary trust because relieving an executor from liability is void against public policy.
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Personal liability of a trustee in Contract
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If trustee signed ONLY on behalf of the trust - no personal liability
If signed on behalf of self and mentioned the trust - personal liability Even if there is personal liability, the trustee will be reimbursed if: - K was within the powers of the trustee; AND - the trustee was acting in the course of proper administration of the trust. |
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Personal liability of trustee in tort
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Trustee is personally liable for all torts by the trustee or trustee's employees.
Can get reimbursement if 1. acting within trustees powers AND 2. trustee is not personally at fault |
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Trustee investment power
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Must consider the role each investment plays within the overall trust portfolio
Trustee must consider the expected total return from income and capital gain Trustee does not have to justify the prudence of each investment. |
