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60 Cards in this Set

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Distinguish between an Express trust and Resulting Tursts and Constructive Trusts?
Express trust is the only real trust, other two are just equitable remedies
What is an express trust?
Allows an owner of property to make transfers of property and to have those assets managed on behalf of someone
What are the two kinds of express trusts?
1. Lifetime trust, setup during the lifetime of the person who created the trust, who we call the settlor of the trust (aka an intervivos trust)

2. Testatmentary trust, set up in t he settlor's will
What are the 7 requirements for a valid trust?

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1. Settlor (who makes a...)
2. DELIVERY of legal title to...
3. PROPERTY (also called res, or corpus, or principal) to a...
4. TRUSTEE who holds legal title for the benefit to a....
5. BENEFICIARY with....
6. INTENT to create a trust for....
7. A LAWFUL PURPOSE
What additional requirments are there for a valid trust?
Must be in writing, signed by both settlor and trustee and either
1. Acknowledged by a notary OR
2. Signed by 2 witnesses.
Who can be a settlor?
Anyone 18 or older with the capacity to enter into K's
What is the special rule wrt delivery of titled assets?
Title must be formally transferred in order to have a valid trust.
What can satisfy the Property Prong of the 7 part test?
Almost anything, but must be property the settlor owns, not a mere expectancy

Also, it must be identified property, not subject to future determination.
WHo can be trustee?
For a lifetime trust, almost anyone
For a testamentary trust, anyone except
1. Those under 18
2. incompetents
3. convicted felons
4. those incapable because of drunkenness, dishonesty, want of understanding, or improvidence.
Can non-resident alien serve as a trustee?
Yes, if that person is related to the decedent and if a NY resident serves as co-fiduciary
Can you have a valid trust if no trustee is named in the will?
Yes. the court will appoint someone.
What are the requirements for the "beneficiary" part of the 7 part test?
1. Must be definite and ascertainable
2. If ambiguous, trustee holds on a resulting trust for the residuary beneficiary (CF, its OK to list Family or NExt of Kin, that's not considered too ambiguous)
What are the requirements for the "intent" part of the 7 part test?
1. settlor must intend to create anenforceable obligation (precatory, non-binding language is not enough). Just saying"I would like" is merely precatory, and not enough
2. Trustee must be given duties to perform, if trustee has no dutires, its called a passive trust, which is no trust at all

NB- just because the word trust is used that does not show an intent to create a trust, look at all the language and all of the facts to determine intent
What are the requirmeents for "lawful purpose"?
trust can't call for commission of a crime
trust can't call for the destruction of property
trust can't have a condition against public policy (frequently tested is restricting marriage or promoting divorce)

However, its ok to only provide for your wife until she remarries

Marriage restrictions to members of a certain religious or ethnic group are valid as well
What is a revocable lifetime trust?
Main requirement is that at least one beneficiary NOT BE the settlor

Settlor can be trustee, income beneficiary for life, his estate can be the beneficiary of the principal so long as there is at least one other beneficiary

4. Settlor can retain the power to terminate or amend the trust.
What are the reasons to have a recovable lifetime trust?
1. Manages assets efficiently, particularly using a professional trustee
2. Helps paln for possible incapacity by avoiding guardianship
3. Avoids probate-no part of the principal goes through the settlor's estate
What are reasons not to have a revocable trust?
Does not avoid taxes.

If a settlor keeps an income interest or keeps a power to revoke, the full trust assets will be included in the settlor's gross estate for federal estate tax purposes.
What's a pour-over gift and are they allowed?
Testamentary gifts to an existing revocable trust are ok. Such a gift avoids with formalities in the trust and trust can be changed during the lifetime somewaht easier than changing a will

The key requirement for a pour-over gift to a trust to be valid is the trust must be in existence or executed concurrently with the will
What is the key requirement for a pour-over gift to a trust to be valid?
The key requirement for a pour-over gift to a trust to be valid is the trust must be in existence or executed concurrently with the will
What are the 2 ways an insured can make life insurance proceeds payable to a trust?
1. insured can create an unfunded revocable insurance trust and name the trustee of the trust as policy beneficiary
2. Have the trust to be a testimentary trust and name "the trustee named in my will" as beneficiary
What is a totten trust?
Its a poor man's trust. Also called a bank account trust.

Its a bank accound in the depositor's name "for benefit of" named beneficiary.
What are the 2key things to remember about TT's?
1. Depositor makes deposits andwithdrawals as he or she wishes during the depositor's lifetime
2. Beneficiary has no beneficial interest during the depositor's lifetime, but gets whatever is in the account when the depositor dies
What are the 4 ways to revoke a Totten Trust
1. withdraw all the money
2. express revocation (needs to be notarized and delivered to bank)
3. revocation in a will
4. death of beneficiary

Change can be made by depositor, but it must be done the same way as a revocation: notarized statment, sent to the financial institution, naming the old beneficiary and the new one
When creditors of the trust depositors reach the TT account balance?
Either before or after the depositors death, since it is a form of revocable trust revoked partially each time withdrawal is made.
What is the most popular issue about joint bank accounts that is frequently tested?
after one of the parties to the account died can anyone block the money from going to the survivor? Yes

If clear and convincing evidence shows that a surviorship was not intended when the account was established and that the account was opened only as a matter of convenience to the depositor,then the survivorship language can be set aside. (this is a hard requirement to satisfy)
HOw are joint accounts normally construed?
Each account holder owns one-half of the joint account, no matter who deposits the money, and if one person makes the entire deposit, it is considered a gift of one-half to the other account holder
What is UTMA and what are the 3 reasons to use it?
Uniform transfers to minors act

It avoids a guardianship
It avoids a need for creating a trust
It qualifies for the $12k per donee annual exclusion from federal and state gift tax
What are the duties of the custodian under UTMA?
1. hold, manage and invest property under a prudent person standard
2. pay over to the minor or the minor's needs what part of the property that the custodian deems advisable
3. Pay what is left of the property to the minor when the minor turns 21
Is UTMA a trust?
no. its a special statutory conservatorship where the conservator does not hold legal title

However, if donor names himself or herself as custodian, then the amount of the gift is includible in the custodian's gross estate for federal and state estate taxes.
What should i remember about charitable trusts?
Must have indefinite benficiaries and they must be a reasonably large group. cannot have specific named persons as beneficiaries.

Must be for a charitable purpose.

May be perpetual

Cy pres (near as possible) can be used to change the trust
What about charitable trusts and the attorney general?
THe AG has the duty of representing the beneficiaries of trusts in the state.
What are the Non Trusts?
1. Honorary trusts (where no human being is the beneficiary of a private trust, ie "to take care of my beautiful rose garden") when they fail the money falls into the residuary estate.

2. Pet trusts. valid, but not for more than 21 years

3. Constructive tursts- they are just a fleixible equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct.
the "Trustee's" only duty is to convey the property to the person who, in equity, shoudl have the property.
What is an oral trust?
Its another non-trust. Its where there is a deed by grantor to grantee, but someone claims that grantee orally promised grantor that grantee would hold the land in trust for certain purposes of the grantor.
What is the general rule on oral trusts?
No constructive trust will be imposed to give effect to any alleged oral trust.
What are the exceptions to the general rule on oral trusts?
1. where there is fraud in the inducement

- must be clear and convincing evidence that a trust was intended
- must be evidence that the alleged trustee had no intention AT THAT time of carrying out the agreement
What is the other exception to the general rule on oral trusts?
where there is a confidential relationship between the grantor and the grantee. here the oral agreement to hold the property in trust can be shown to impose a constructive trust for the benefit of the intended beneficiaries,

evidence of the oral agreement must be shown by clear and convincing evidence

confidential relationship is
same family, business partner, attorney client, etc
What is a resulting trust?
Not a trust, but is an equitable remedy.

The purchase money resulting trust (having someone else buy something for you, put it their name and have them orally agree to transfer title back to tyou)

Not valid in NY. but if there is clear and convincing evidence that the grantee had orally or in writing promised to reconvey the land to the purchaser, then a constructive trust can be imposed (think, having this conversation happen in front of 10 people, all witnesses).
What is the statutory spendthrift rule and protection from creditors?
protects a trust beneficiary's interest from creditors by prohibiting voluntary or involuntary transfer of the beneficiary's interest.

NY not only allows spendthrift clauses in trust, it has a special statutory rule that protects all income interests in trusts with spendthrit protection even if the trust instrument does not contain a spendthrift cluase. but this just applies to income from the trust, not the principal.
How can you apply spendthrift protection to a residuary beneficiary?
Spendthrift clause must be expressly stated in the trust.
What is typical spendthrift clause language?
No beneficiary of this trust shall have the power to assign his or her interest, nor shall such interest be reachable by the beneficiary's creditors, attachment, garnishment, or other legal process
What is the effect of the spenthrift clause?
keeps creditors at bay
What are the 5 major exceptions to spendthrifit caluses?

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1. creditors who furnish necessites
2. child support and alimony
3. federal tax liens
4. excess income beyond that needed
for support and education (last resort remedy, have to show all other possible remedies have been exhausted)
5. the 10% levy provided by CPLR 5205

judgment creditors
alimony
necessityes
excess income
tax liens
What is the big limitation on a spendthrift clause?
It does not apply to any interest retained by the settlor

settlors cannot hide out from their own creditors, but they can protect other beneficiaries.

all revocable trusts are fair game for settlor's creditors, if settlor can revoke a trust then it offers no protection at all against creditors of the settlor
When can a trustee or beneficiary modify a trust?
Its appropriate only when the objectives of the trust would be defeated or substantially impaired if the trust is not modified

the purpose of the trust comes first
What is the 2 part test to see if you can modify a trust?
1. Find out the primary intent of the settlor regarding trust purposes
2. Look at the specific directions in the trust instrument to determine whether bc of changes in circumstances, those specific directions would now frustrate the primary intent of the trust
When can the court authorize the "invasion" of the principal?
if the income is not enough to carry out the settlor's purpose of the trust?
How does a settlor terminate a trust?
In NY they are hard to terminate. They are irrevocable and unamendable unless the power to revoke and amend is expressly reserved in the trust instrument
What is the exception to this rule?
A settlor can terminate an irrevocable trust if all beneficiaries consent...this is ofetn impossible because no one can give consent for any beneficiary who is a minor or who is incompetent.

(we won't count children in gestation)
(we won't count heirs or next of kin)
What are the trustees powers?
set out in NY fiduciary powers act...its the stuff that a trustee can do w/o a court order and w/o express authorization in the trust....

The genral approach to trustee's powers in NY, trustee can do almost anything, except

1. Engage in self-dealing
2. borrow money
3. continue a business...trustee is liable for losses incurred by the business unless trustee has court approval to continue the business
What are the five prohibitions on self-dealing?

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1. B- Cannot Buy or sell trust assets to himself
2- B- cannot borrow trust funds
3. L- cannot loan funds to the trust
4. C- cannot comings trust funds w/ his own
5. P- cannot profit from being trustee
6. P- corporate trustee cannot purchase its own stock
What are the 2 affirmative duties on self-dealing?
1. duty to segregate trust assets from personal assets
(harsh remedy if you buy assets with comingled funds, heads they win, tails you lose)

2. duty to earmark trust assets by titling them in trustee's name
What are the remedies for breach of fiduciary responsibilities?
1. beneficiary can sue to remove the trustee
2. beneficiary can ratify the transaction and waive the breach (usually if it goes up, beneficiary isn't going to complain)
3. Beneficiary can sue for any loss- (action is called a surcharge)
What is the no further inquiry rule?
breach of a fiduciary duty by engaging in self-dealing is an automatic wrong andno further inquiry need be made....

good faith is not a defense
reasonableness is not a defense
What if the trustee engages in a prohibited transaction, such as self-dealing, and sells the trust property to a 3P?
Beneficiary cannot sue purchaser if he was a BFP for value without notice.
What is indirect self-dealing?
Selfdealing also applies 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 SH
What is the Liability of Trustee in Contract ?
IN Contract, depends on how trustee signed.
- if trustee signed only on behalf of trust, no personal liability
- if trustee signed personally and merely mentioned trust, then personal liability.

Even if there is personal liability, the trustee will be reimbursed if the contract was within the powers of the trustee and trustee was acting in the course of the proper administration of the trust.
What is the liability of trustee in Tort?
Trustee is personally liable for all torts by the trustee or trustee's employees.

To deal with this liability, trustee should buy insurance and charge the cost to the trust.

Trustee can get reimubrsement from the trust for any tort claims if two requirments are satisfied

1. trustee must have been acting within trustee's powers
2. trustee was not personally at fault
What is the Uniform Prudent Investors Act (UPIA)?
It gives a broad latituted to trustees to choose investments

- trustee can pursue what UPIA calls the modern portfotion theory of investment where the trustee creates a custom tailroed investment strategy for thisparticular trust

1. trustee must consider the role each investment plays within the overall trust portfolio
2. Trustee must consider the expected total return from income and capital gain

trustee does not have to justyfy the prudence of each investment looked at by itself. can balance risky speculative investments against safe ones.

they key of the UPIA is flexibility to shape the investment strategy for maximum total reutrn along with flexibility to adjust income bw income and residuary beneficiaries to be fair to each of them
What is the NY change to the RAP?
automatically reduces all age contingencies to 21 years , thus saving the gift.

deals with vesting only

look at facts to make sure there is no way the vesting could come outside the time period of the rule; if any chance of that, then the interest is void
What is the NY suspeniosn rule
does not deal with vesting

is only concerned with the possible suspension of the ability to transfer a fee simple

look for facts to make sure there are persons identified and alive who could, together, convey a full fee simple, if you can't find such persons who could do this during livesin being plus 21 years, then the interest is void.