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44 Cards in this Set

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  • Back
Define a trust
it is a fiduciary relationship in which trustee holds legal title to specific property under a fiduciary duty to manage, invest and safeguard the assets for the benefit of designated beneficiaries who hold equitable title.
To what kinds of trusts does the Rule Against Perpetuities Apply?
Only private trusts, not charitable.
What are the seven requirements for a valid trust?
Must be in writing, signed by both settlor and trustee and either (i) acknowledged before notary public, OR (ii) signed by two witnesses

1. settlor - creates trust
2. delivery - of legal title
3. property - also known as principal
4. trustee - holds legal title and owes a fiduciary duty to the...
5. beneficiary
6. there must be intent to create trust
7. for a lawful purpose
Who can be a settlor?
anyone 18 or older with capacity
How must titled assets be delivered to be valid?
Formal delivery is required for titled assets. Thus:

1. If Settlor is sole trustee: completed by recording deed or registering stocks in name of trust or trustee

2. For other assets: transfer made by written assignment describing assets with particularity
What are the requirements for trust property to be valid?
1. must be property the settlor owns

2. must be adequately and specifically identified
Who can be a trustee?
1. For Lifetime Trust - pretty much anyone since no court supervision

2. For Testamentary Trust - court supervision so NO:
a. Under 18
b. incompetents
c. convicted felons
d. incapable because of drunkenness, dishonesty, want of understanding or improvidence
Can a non-resident alien serve as trustee?
Yes, if (i) person related to decedent AND (ii) NY resident serves as co-fiduciary
What is effect of failure to name a trustee to a trust?
Trust does NOT fail; court can just appoint somebody
What are the requirements of beneficiaries for a private trust?
Must be definite and ascertainable. If ambiguous, trustee will hold a resulting trust for the residuary beneficiary
What is the intent required of a settlor?
To create an enforceable obligation on part of trustee; precatory language will not suffice. (Must be lawful purpose)
What if the trustee has no duties?
Then this is not a valid trust, just a passive trust, which is no trust at all.
Can a trust call for the destruction of property?
What sorts of requirements of a trust violate public policy?
1. requiring commission of crime
2. total restraints on marriage or conditions encouraging divorce
What are the requirements to create a revocable lifetime trust?
1. There must be at least one beneficiary who is not the settlor

NOTE: beneficial as will avoid probate and helps with planning
What are Pour-Over Gifts?
These are testamentary gifts that will avoid Will formalities. The requirements for one are:
1. trust must be in existence already or executed concurrently with the Will

2. No need for trust to be funded

3. Can be any existing trust
What is a Totten Trust and what are its characteristics?
This is a bank account in the depositors name "As trustee for X" (or ITF X) with a named beneficiary.

1. Depositor makes withdrawals and deposits AS HE WISHES during lifetime
2. beneficiary has no beneficial interest in trust during lifetime, but gets whatever it contains at death of depositor.
How can you revoke a Totten Trust?
1. withdraw all the money in the account
2. express revocation by:
a. writing
b. naming beneficiary & financial institution
c. having revocation notarized and delivered to the bank
3. Revocation in a Will
4. Death of Beneficiary
How Can Depositor change beneficiary of a Totten Trust?
1. done in same way as revocation:
a. writing
b. include names of beneficiary and financial institution
c. notarized and delivered to the bank
Are the funds belonging to the beneficiary of a Totten trust subject to other rights?
1. subject to creditors' rights, since this is a revocable trust

2. subject to rights of depositor's spouse as a testamentary substitute
How are joint bank accounts created?
Must use specific rights of survivorship
After death, can anybody block money from going to survivor in joint bank account?
Yes, if showing of clear and convincing evidence that survivorship was not intended and that account only opened as matter of convenience.
What requirements for a Uniform Transfers to Minors Act gift and what are its characteristics?
1. Must be made to named custodian or named minor
2. must specify that made under UTMA
3. Custodian has three duties:
a. hold manage and invest property under prudent person standard
b. pay over to minor, for minor's needs, what part custodian deems advisable
c. pay what is left of property minor when minor turns 21.

"special statutory conservatorship."
How is a Gift under the UTMA treated for tax purposes?
1. If Donor Names Himself Custodian: includible in donor's estate for federal and state estate taxes

2. If Other Person Custodian: amount of gift not includible for estate tax purposes
What are the basic requirements for a charitable trust?
must have unascertained beneficiaries and must be a reasonably large group.

must be for charitable purposes

must be perpetual

cy pres can be used to change trust
Who has duty of representing charitable trusts in the state?
The Attorney General. Indespensible party to any suit on construction or enforcement of charitable trust. AG and donor have standing to sue.
What is an honorary trust?
A Trust where no human is the beneficiary. These are NOT TRUSTS with two EXCEPTIONS:

1. trust for pet - can last for no more than 21 years

2. cemetary trust

What is a constructive trust?
equitable remedy designed to disgorge unjust enrichment resulting from wrongful conduct. Trustee's only duty is to convey the property the person who, in equity, should have the property
What is rule regarding oral trusts and constructive trusts?
Generally, no constructive trust UNLESS:
1. where there is fraud in the inducement IF (i) clear and convincing evidence that there was an agreement AND (ii) at time of agreement no intention of carrying out the trust

2. Where There is Confidential Relationship between Grantor and Grantee: need (i) clear and convincing evidence plus (ii) confidential relationship
What is a resulting trust?
Equitable remedy where courts imply a trust and declare settlor to be beneficiary of the trust. Arises where:

1. failure of express trust

2. resulting trust by reversion (settlor made incomplete transfer in express trust)

3. NOT RECOGNIZED IN NY: Purchase Money Resulting Trust: arises where buyer buys property and puts in another's name, but claims was not a gift, but a trust. NY ABOLISHED EXCEPT WHERE:
(i) clear and convincing evidence that grantee expressly or impliedly promised to reconvey

What is the NY Statutory Spendthrift protection
Prevents income beneficiary's interests from creditors by prohibiting voluntary or involuntary transfer of the interest (can't give away right in it)
How do you get spendthrift protection in principal interest or residuary interest in trust?
Must include express spendthrift protection clause
What are the five exceptions the the spendthrift clause
1. creditors who furnish necessaries

2. child support and alimony

3. federal tax liens

4. excess income beyond that needed for education and support

5. 10% levy provided for by CPLR (for all creditors)
When is modification of a trust by trustee or beneficiares appropriate?
When objectives of trust would be defeated of substantially impaired if not modified.
1. Look to primary intent of settlor
2. whether specific directions no frustrate that intent
When can settlor terminate a trust?
only if ALL beneficiaries consent (and must have capacity to do so)
1. beneficiaries must be already alive to count here
2. trust giving property to settlor or heirs does not count
What law governs action of trustees?
The NY Fiduciary Powers Act
What are major limitations on trustee's powers?

1. engage in self-dealing
2. cannot gain benefit/profit from acting as trustee
3. must segregate personal from trust assets
4. Borrow money on behalf of trust (or from trust)
5. Continue a Business placed in trust (will be liable for losses)
Who will win in action by beneficiary against third party purchasor for value where trustee breached duties?
If TP is a bona fide purchaser for value, will win UNLESS:
1. had notice that was trustee AND
2. had notice that trustee was breaching a duty
What is the personal liability of a trustee in contract?
If trustee signs on behalf of trustee no liability, BUT liability will attach if signs in own name and just mentions trust
What is required for reimbursement of a trustee for contract liability?
1. contract was within powers of trustee
2. was acting in proper course of trust administration
What is personal liability of trustee on tort claims?
liable for ALL torts of employees etc.
How can trustee get reimbursed for tort claims?
If trustee was acting within powers AND
was not personally at fault
What governs trustee's investment power?
New York has adopted the Uniform Prudent Investor's Act
What is required by the Uniform Prudent Investor's Act?
1. must pursue modern portfolio theory of investment
2. consider role each investment plays in overall trust
3. consider total returns from income and capital gains
4. can exercise adjustment power