Trusts

Front 1

Private Express Trust

Whaaa

&

Hooooww (8)

Back 1

Arises from an express intention of property owner to create trust relationship, i.e. gives legal title to trustee to manage for Bs who hold equitable title

Types: intervivos or testamentary

Elements:

1. Settlor (creator) must have mental capacity + > 18

2. Delivery of Legal Title requires more than mere expression but not much; however, titled assets require formal transfer

3. Res (property) something that settler owns, not just a mere expectancy, + identifiable

4. Trustee, but will not fail w/o
--> can resign only if (a) instrument or (b) court allows
--> non-resident ok if close relationship w/ settlor + NY co-fiduciary
--> testamentary trustee has higher competency requirement, i.e. not a felon, + > 18

5. Beneficiaries must be definite + ascertainable (settlor can be one)

6. Intent to create enforceable obligation

7. For a lawful purpose, i.e not criminal or the destruction of property, and cannot be agaisnt public policy, i.e. restraint of marriage/encouraging divorce

8.

Front 2

Default Rules Re: Express Trusts

Back 2

1. Irrevocable + Unamenable: the power to revoke generally includes the power to amend as well.

2. Statutory Spendthrift Rules
(i) AUTO protect B's income from creditors
(ii) MAY protect principal or remainder Bs
(ii) NEVER any interest S retains

Exceptions to Protection:
a) Necessity creditors
b) child support and alimony
c) Fed. tax liens
d) CPLR creditors (together) may levy up to 10% of income
e) Excess lifestyle beyond station in life of B support and education; is a last resort of creditors and creditor has BoP

Front 3

Revocable IV Trusts

Back 3

Req: (i) at least one B other than S, (ii) S can be Trustee or income B and (iii) S retains power to revoke and amend
--> consequently, S has no protection

Why IV? efficiently manages assets, avoids probate, and avoids quardianship proceeding, i.e. if B/S become incapacitated

Does NOT avoid taxes and will be included in gross estate

Testamentary Pour Over (gift) into IV trust (must be in existence or concurrently created)
--> may also receive policy benefits if Trustee names as B
--> if IV revoked, gift fails, but doesn't if only amended (+)

Front 4

Will Substitutes

Back 4

1) Totten Trust

2) JT Bank accounts

3) UTMA

4) Honorary Trust (charity only)

Or if fails --> constructive v. resulting trust

Front 5

Totten Trusts

Back 5

Bank account in depositor's name "as trustee" for named B. "ITF"

1. revoked to the extent of w/drawals made by depositor who is not limited in doing so

2. B only entitled to what is left @ depositor's death

3. Depositor's creditors can reach amount on deposit

4. Revocation
a) during lifetime: writing + names Bs & financial institution + notarized + delivered
b) testamentary: express reference to account in duly executed will

5. if @ death, B < 18 + < $10k in deposit --> may go to B parents/guardian

Front 6

Joint Bank Accounts

Back 6

1. Must have specific words of survivorship and signed by both

2. irrevocable to the extent of 1/2 no matter respective contribution
--> w/drawal of more w/o consent destroys survivorship (i.e. JT tenancy) and other party can recover w/drawal in excess of 1/2

3. Creditors must show w/ C&C evidence that there is no right of survivorship to access the $$

Front 7

Charitable Trusts

Back 7

Elements:
(a) indefinite Bs, i.e. not narrowly defined or large group
(b) charitable purpose, i.e. religious, education, benevolent, or health
(c) perpetual: not subject to RAP
(d) Cy Pres: if no longer, court directs property to "as near as possible" other

AG is an indispensable party to a suit concerning a charity trust
--> duty to represent Bs interests
--> can terminate if < $100k + administrative costs > $$

Example: Cemetery trusts for the perpetual maintenance and care of tombstone

Front 8

Honorary Trusts

Back 8

NOT recognized b/c there is no human nor charitable purpose as B, i.e. enforcement issue
--> some states allow if T is willing to honor purpose
--> attempt will go to residuary

Exception: Pet Trusts for maintenance of pet valid through pet's life

Front 9

UTMA: Uniform Transfers to Minor Act

Back 9

Elements:
1. Gift made out to guardian w/ express language that it is under NY UTMA

2. Custodial Powers:
i) hold and manage property under RPP standard
ii) pay out to minor for use and benefit
iii) pay what's left when minor reaches 21 (automatic)

3. Why UTMA it?
i) avoid guardianship
ii) qualifies for $14k donee annual exclusion for fed/state gift tax

NOT a trust

Front 10

Equitable Remedy Trusts

Charitable v. Resulting

Back 10

Charitable: flexible remedy designed to disgorge unjust enrichment from wrongful conduct
--> T's only duty is to convey property to correct person
--> C&C to show wrongful conduct, i.e. unjust enrichment, secret gifts in confidential or fiduciary relationship, or influenced by fraud, duress or coercion

Resulting: when express fails it returns to grantor
--> PMRT (not NY) presumption where purchaser recovers title when places another in title but does intend him to have equitable title or be a B
--> NY will only reconvey if C&C that grantee had promise to do so

Front 11

Termination and Modification

Back 11

By Trustee: modification of nondispositive provisions ONLY w/o any approval to meet tax purposes

By Settlor:
(i) if revocable, @ any time
(ii) if irrevocable, need ALL B written consent
--> does not include gestation B or "heirs"/"kins"
--> Difficult b/c guardians can't consent for minors/insane

By B (Claflin Doctrine):
Court can only modfy if the primary intent of the trust will be frustrated if not modified
--> objectives of trust must be defeated or substantially impaired
--> irrelevant whether all B consent

Front 12

Invasion of Principal for Income Bs

Back 12

By Trustee: provided a standard when to do so; if not, it is unfettered after consideration of the different types of B
--> if T is a B, may not unless:
i) instrument provides
ii) limited to standard relating to health, education, maintenance, support, OR
iii) revocable trust where S also T

By B (not deemed a PoA):
Either by ascertainable standard or $5k/5%

By Court: upon petition, if B support is insufficient in line w/ S intent and purpose

Front 13

Trustee Fiduciary Powers

Back 13

Governed by NY Fiduciary Powers Act --> essentially a fee simple owner, i.e. sell, manage, mortgage, lease, repair, and contest or settle claims

Specific Exceptions:
i) continue a business
ii) waste/destroy property
iii) borrow
iv) lend personal funds
v) employ agents
vi) keep funds uninvested

Duties (exculpatory clause limited to IV trust and ordinary negligence)
i) preserve trust property
ii) not delegate fiduciary duties
iii) periodic accountings
iv) reasonable care and skill
v) prevent co-trustee breach
vii) make property productive

Front 14

Trustee Self-Dealing

Back 14

"No Further Inquiry" Rule: If B shows one of the below, automatic wrong, i.e. no good faith or reasonableness defense (SoL 6 years @ end of rep or if reported)

Affirmative Duties: segregate funds from personal

Specific prohibitions:
i) B/S trust assets to himself
ii) Borrow personally on funds
iii) Lend $ to trust
iv) Profit from serving as T, i.e. confi info
v) Buy its own stock as T investment

Remedies: B can either ratify, action for surcharge, or sue to remove T

TPs are safe if BFPs, unless BFP is a T relative or w/in T's business

Front 15

Trustee Liability:

On Contracts &
On Torts

Back 15

Contracts: personally liable, unless K relieves liability or signed as Trustee
--> Right of indemnification if w/in powers AND in course of proper administration

Torts: personally liable for all torts by T or T's employee NO EXCEPTION
--> protects self w/ liability insurance
--> reimbursement if w/in powers and in course of T function

Front 16

Trustee Investment Power

Back 16

Uniform Prudent Investor Act (broad as F***)

--> Prudent investor rule: reasonable care, skill & caution in making investment decisions that are evaluated on entire portfolio as part of an overall investment strategy

(i) can exercise adjustment power, i.e. reallocate, b/w capital and income for fairness to all B w/in trust intent
(ii) a special skill T held to a higher standard
(iii) may delegate management functions
(iv) doesn't have to justify prudence of each investment