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61 Cards in this Set
- Front
- Back
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What are the two types of express trust?
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1) Lifetime Trust
2) Testementary |
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What are the 8 requirements for a valid Trust?
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DELIVERY of PROPERTY by a SETTLOR with INTENT to a TRUSTEE for a LAWFUL PURPOSE and for the benefit of a BENEFICIARY accomplished in a VALID TRUST DOCUMENT
1) Settlor 2) Delivery 3) Property 4) Trustee 5) Beneficiary 6) Intent 7) Lawful purpose 8) Validly Executed document |
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What is a Settlor and what are the requirements for being one?
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The Settlor is the one who establishes the trust by transferring property. A settlor can be anyone 18 or older with the CAPACITY to enter into contracts.
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What is required to satisfy the requirement of delivery in creating a trust?
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Titled assets must be FORMALLY transferred to the TRUSTEE for delivery to be valid.
EX: Settlor gives stock certificates to trustee after signing relevant documents, but dies before the corporation can record the transfer on its books. NOT VALID DELIVERY. |
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What are the two restrictions on the property given in creating a trust?
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1) The property must be presently owned. A mere expectancy of future ownership is insufficient.
2) The property must be IDENTIFIED, not subject to future determination. |
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Requirements to be a trustee of a lifetime(inter-vivos) trust?
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Anyone over 18.
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Who can be a trustee for a testementary trust?
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Anyone EXCEPT:
1) Those under 18 2) Those judicially declared incompetent 3) Convicted Felons 4) Those incablable because of drunkenness, dishonesty, want of understanding, or improvidence |
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New York: Can a non-resident alien serve as a trustee?
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Only if he is nearly related to the decedent (spouse, grandparent, etc)
AND A NY resident serves as co-fiduciary |
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Vader creates a trust with Luke as the beneficiary but does not name a Trustee. Result?
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Valid Trust. A trustee need not be named, since the court can appoint one.
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Han Solo creates a trust naming himself as trustee and "my 2 best friends in the rebel alliance" as beneficiaries. His (then) wife Leia is the residuary beneficiary of Han's will.
Valid trust? |
No. Beneficiaries are too indefinite. Han cannot take the money back, but must manage it in trust for Leia (or whoever the state intestacy statue provides in case that he dies intestate)
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Are the terms "family" or "next of kin" too vague to specify beneficiaries in a valid trust?
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No. These are legally defined terms and can be used in a valid trust.
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What intent on the part of Settlor is necessary to create a valid trust? What is required with respect to the Trustee?
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Settlor must intend to create an enforcable obligation; precatory (non binding) language is not enough.
Furthermore, the trustee must be given DUTIES or else a passive trust results (which is not a valid trust) |
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How does a court determine intent to create a trust?
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By looking at all of the language and all of the facts. Using the word "trust" does not have magic powers.
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What are three disallowed purposes for a trust?
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1) Can't call for the commission of a crime
2) Can't call for destruction of property (like shredding documents, burning diaries) 3) Cannot have a condiction against public policy (usually ABSOLUTE restraint on marriage (or encouragement of divorce) - but partial/racial restraints are okay |
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What is required for a trust to be validly executed?
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The trust agreement must be in WRITING and signed by both Settlor and trustee.
IN NEW YORK Must also either 1) Be notarized -OR- 2) Signed by 2 witnesses |
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Vader creates a trust naming himself as the sole beneficiary. Valid?
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No! There must be at least one beneficiary other than the settlor.
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May the Settlor of a revocable lifetime trust be a trustee?
May he be an income beneficiary? |
Yes and Yes.
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What if a settler of revocable lifetime trust tries to retain the power to terminate or modify the trust?
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Valid trust. This is okay.
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What is a Pour-Over gift? And what are the requirements for a valid one?
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A testementary gift (made in a will) to an existing revocable trust.
Requirements: Trust must be in EXISTENCE or created simultaneously with the will |
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I draft a will that leaves $1 Million upon my death to a trust which I create simultaneously. I put nothing in the trust at the time of its creation. Is the trust valid
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Yes! A vessel for a pour over gift can be empty during the settlor's lifetime.
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2 ways to make life insurance proceeds payable to a trust?
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1) create an UNFUNDED revocable insurance trust and name the trustee of the trust as the policy beneficiary
2) Create a testementary trust and have the life insurance policy name "the trustee named in my will" |
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Luke opens a bank account with the name "Luke Skywalker as Trustee for Han Solo". Result?
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A TOTTEN TRUST (bank account trust).
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With a Totten Trust Account, what are the Depositor's rights during his life? What are the beneficiary's rights during the Depositor's life?
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Depositor: Is entitled to make deposits and withdrawls. Treats it as a NORMAL bank account while he is alive
Beneficiary: Can't touch it until the Depositor DIES - at which point he gets whatever is left in the account (could be NOTHING) |
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I open an account "Chris ITF Luke Skywalker", result?
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Valid Totten Trust Account. NO PARTICULAR words are needed.
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What are the four ways to revoke a Totten Trust?
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1) Withdraw all the money (and leave it empty til you die)
2) Express Revocation 3) Revocation in a Will 4) Death of a beneficiary (account free and clear to depositor) |
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What is required for Express Revocation of a Totten Trust?
What about revocation in a will? |
Must be by the depositor in a
1) writing NAMING beneficiary 2) having the revocation NOTARIZED and DELIVERED to the bank. Revocation in a will has the same requirements. |
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How do you change the beneficiary of a Totten Trust?
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Change must be made by the Depositor and done the SAME way as a revocation:
Notarized statement sent to the bank naming the old beneficiary and the new one. |
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Can the creditors of the Depositor get at a Totten Trust?
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YES
Both before or after the Depositor's death, because its a form of revocable trust that's "revoked" partially each time a withdrawal is made |
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Under what circumstances can the surviving beneficiary named in a joint bank account with Right of Survivorship be denied access to the funds after the other beneficiary dies?
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If CLEAR and CONVINCING evidence shows that Right of Survivorship was not actually intended and the account was simply set up for the convenience of the depositor.
This is a hard standard to satisfy |
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Vader and Tarkin open a joint bank account with survivorship. Tarkin puts in $100,000, Vader puts in nothing. As Vader is chasing Luke down the Trench Run, he decides that Tarkin probably won't last the day and decides to call the bank and have them withdraw all $100,000 in his name. Tarkin them perishes when Luke blows up the Death Star.
Can Vader keep all the money? |
NO. Those named in a joint bank account have ownership of 1/2 of the account's contents, no matter how much is deposited by each. In this case, $50,000 of Tarkin's $100,000 deposit was considered a gift to Vader, but Vader is NOT entitled to the $50,000 that was Tarkin's half. (he should have waited til after Tarkin died and he would have gotten the whole thing by survivorship)
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What are the 2 requirements for making a gift under the Uniform Gifts to Minors Act (UTMA)?
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1) Must be made to a Custodian and
2) Must specify that it is made under UTMA |
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What are the duties of an UTMA Custodian?
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1) Hold manage and invest property under a Prudent Person standard
2) Pay over to the Minor or for Minor's needs what part of the property the custodian deems necessary 3) Pay the remaining property to the Minor when he turns 21 (current gifts) or 18 (gifts before 1997) |
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Who holds title under a UTMA arrangement?
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The Minor. Custodian just manages the property for him.
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What are the 3 requirements for creating a Charitable Trust?
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1) Must be INDEFINITE beneficiaries comprising an REASONABLY LARGE group. (All my friends who live in brooklyn not OK ; All orphans in Rochester is OK)
*No NAMED persons 2) Must be for a CHARITABLE PURPOSE 3) Must be PERPETUAL (immune to RAP!) |
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When can a court modify the terms of a Charitable Trust?
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Doctrine of Cy Pres: When the stated PURPOSE of the trust can no longer be accomplished or the Charity named goes out of existence, the court can modify it to be as close to donor's wishes as possible.
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Luke leaves $40,000 in a testementary trust to "my beloved droid R2-D2". Valid trust?
If not, where does the money go? |
NO! Trusts with non-humans as beneficiaries don't work!
Exception: Pet Trusts can be established, but have a max time limit of 21 years If such a trust fails, the money goes to the Residuary Estate |
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What is a Constructive Trust? What are the duties of the Trustee in this case?
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An equitable creation designed to digorge unjust enrichment that results from WRONGFUL CONDUCT
The Trustee's only duty is to convey the property to the person who should, in equity, have the property |
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A and B find out that their mother M is going to sign a new will that cuts them both out and leaves all the money to the boy scouts. A and B head to M's lawyer's office, and kill her before she can sign the new will.
A and B were the sole heirs under the old will. What happens to M's money? |
A and B hold it in constructive trust with the duty to give the money to the Boy Scouts. The new will wasn't valid, nor was the old one revoked, but their wrongful conduct means they don't get the money.
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Suppose T has sons A and B. A kills T, and T is intestate at time of death. How is T's estate treated?
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We treat A (the wrongdoer) as if he had predeceased T.
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(MBE) What is a Purchase Money Resulting Trust? (PMRT)
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An equitable remedy that results when a purchaser buys real property but puts title in another person's name (non relative) who then refuses to give up the property when the purchaser later claims no gift was intended.
Allows purchaser to compel title holder to give up title |
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(NY) What is the NY PMRT rule and its exception?
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Default Rule: NO PMRTs
Exception: If there is CLEAR and CONVINCING evidence that the greantee expressly or impliedly promised to reconvey. Then a constructive trust can be imposed |
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What is a Spendthrift Clause and how are they treated in NY?
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A clause in a trust instrument that prohibits voluntary or involuntary transfer of the beneficiary's interest, thus protecting it from creditors, but making it inalienable. Must be expressly created by language.
In NY: INCOME interests in trusts AUTOMATICALLY have spendthrift protection by default (can be overridden) Ex 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 by attachment, garnishment, or other legal process" |
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*What are the 5 major exceptions to spendthrift clauses?
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1) Creditors who furnish Necessities (food, clothing, shelter)
2) Child support and alimony 3) Federal Tax Liens 4) Excess income beyond that needed for support and eductation (VERY hard since it is measured by the life style of the beneficiary, which can be profligate) 5) 10% levy provided by CPLR 5205(e) (creditors can usually get this one - but its 10% of the interets SPLIT AMONG ALL CREDITORS, not 10% each) |
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Obi-Wan establishes a valid lifetime trust with this provision: "trustee shall pay the income for life to Obi-wan and upon his death shall pay the balance of the trust to Luke Skywalker". Jabba gets a judgment against Obi-wan for $100,000. Obi-wan lives in NY.
Can Jabba get at the Trust? |
Yes. Even though the income interest is covered by spendthrift protection (automatic in NY), creditors can get at any part of it that benefits the SETTLOR. (since he can revoke the trust at any time)
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Can Creditors get at revocable lifetime trusts?
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Yes! If the Settlor retains the power to revoke, his creditors can get at the trust no matter what.
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When can a Trustee or a Beneficiary of a trust modify the terms of the trust?
What is the test? |
Only when the objectives of the trust would be defeated or substantially impaired without modification. The PURPOSE of the trust comes first.
Two Part Test: 1) Find the primary INTENT of the settlor regarding trust purpose 2) Look at specific directions in the trust and determine for each if, due to new circumstances, those instructions would actually now frustrate the purpose of the trust If so, they can be modified (but only the conflicting instructions) |
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When can the court authorize an invasion of the Trust's principal?
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When the income is not enough to carry out the trust's purposes
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(NY) When can a trust be revoked?
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In New York: By default, trusts are IRREVOCABLE and UNAMENDABLE unless the power to revoke and amend is expressly reserved in the trust instrument.
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When can a Settlor terminate an otherwise irrevocable trust?
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When ALL beneficiaries in being consent.
NOTE: This is often impossible since one or more might be minors or incompetent (beneficiaries must be born alive to count) NOTE2: "Heirs" or "Next of Kin" do not count as people who must give consent |
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What law controls a Trustee's duties in New York and what CAN and CAN'T a trustee do?
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New York's Fiduciary Powers Act (FPA)
Trustee CAN (almost anything): 1) Sell any real or personal property 2) Mortgage property 3) Lease property 4) Make ordinary repairs 5) Contest, compromise, or settle claims 6) Do almost anything to manage the corpus CAN'T: 1) Engage in Self Dealing 2) Borrow $ on behalf of the trust 3) Continue a business placed in trust w/o court approval (if he does, he's liable for losses incurred by the biz unless he gets approval) |
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***What are the 5 main things that a trustee cannot do if he wants to avoid SELF DEALING?
What are his 2 affirmative duties? |
1) Trustee cannot buy or sell trust assets TO HIMSELF (Absolute rule)
2) Trustee cannot BORROW trust funds (absolute rule) 3) Trustee cannot lend money to the trust (any interest must be returned, any security given is invalid) 4) Trustee cannot PROFIT from serving as trustee (other than his fees for being trustee) 5) A Corporate trustee cannot buy its own stock trust investment Affirmative Duties: 1) Must segregate trust assets from personal assets - If comingled funds decrease in value, loss goes to trustee; If the increase, gain goes to trust 2) Must not earmark trust assets by titling them in trustee's name |
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What are the 3 courses of action that a Beneficiary can take when a Trustee breaches one of his fiduciary duties?
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1) Sue to remove trustee
2) Ratify the transaction and waive the breach (if the breach ended up making the trust money even though it was sketchy) 3) Sue for any loss (a SURCHARGE ACTION) |
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What is the No Further Inquiry Rule?
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Breach by a Trustee of a fiduciary duty is an AUTOMATIC wrong and no further inquiry is needed
a) Good Faith is not a defense b) Reasonableness is not a defense |
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Luke, trustee of a large Trust, sells the Death Star (part of the trust) to his sister Leia (who has no idea he is a trustee). Leia pays market price for the Death Star.
Can Vader (the beneficiary of the trust) sue Leia to get the Death Star back? |
NO. Luke is self-dealing since Leia is a relative, but Leia is a BFP. Vader must sue Luke for the loss (and maybe to get him removed).
Note: For Leia to lose BFP status he would have had to know 1) that Luke was a Trustee and 2) that Luke was engaged in self dealing |
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When can an exculpatory clause be used to shield a Trustee from potential liability for breach of fiduciary duties?
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NEVER with a Testementary Trust.
CAN be used with a lifetime trust (but you have to write it in). |
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When is trustee personally liable in CONTRACT?
If he is liable, when will he be reimbursed? |
When he signs PERSONALLY (ie. NOT on behalf of the trust)
Reimbursed when: 1) K was within the powers of the trustee AND 2) Trustee was acting in the course of proper administration of the trust |
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When is a trustee personally liable in TORT?
If he is liable, when will he be reimbursed? |
Trustee is personally liable for all torts by himself AND the employees of the Trust.
Suck it up and buy some liability insurance. Or don't do stupid shit. Can be reimbursed when: 1) He was acting within his powers AND 2) he was not PERSONALLY at fault (ie. it was a trust employee) |
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What are a Trustee's powers to invest trust monies?
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MODERN PORTFOLIA THEORY of investment: Trustee must consider how each investment fits into the total portfolio and gauge the total expected return. As long as it is overall good, he's fine.
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Can a trustee move capital gains made on the trust's corpus into income?
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YES.
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Luke conveys Tatooine to Lei for life, remainder to Bank of Hutt in Trust, to pay Han Solo the income for life and then to pay the principal to the first of Han's kids to reach 30.
Does the interest in Han's first kid to reach 30 violate RAP? |
Common Law: YES
NY: NO - because NY has a RAP reform statute that auto reduces the 30 years to 21. |
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What is the NY rule against suspension of alienation?
When can problems with it crop up? |
Like the RAP, only it it covers inability to transfer title that doesn't clear for life in being +21 years.
Frequent problems: 1) Spendthrift income interests in a trust (since they can't be transferred) 2) Life estate created in an unborn or is an open class that could include unborn persons |
