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169 Cards in this Set

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  • Back
What is a trust?
Arrangement for making gifts of property and for management of assets under which trustee holds legal title to the assets for benfit of beneficiaries
What kind of title does a trustee have in a trust?
Legal title, as well as the burdens of ownership (duty to manage, safeguard, invest)
What kind of title does a beneficiary have in a trust?
Equitable title and benefits of ownership (because of this, bene can sue trustee if they mess up)
What are the different kinds of express trusts?
1. private trust
2. charitable trust
3. lifetime
4. testamentary
5. honorary
What is an express trust?
Contains the expressed intentions of the settlor
What is a private trust?
Most basic. Established by settlor for named beneficiaries of the trust
What is a charitable trust?
Established for charitable purposes that do not benefit identifiable individuals (trustee shall pay all trust income to SJ law school forever)
What is a lifetime trust?
Created during settlor's life (inter vivos), non-court trust. No court is involved in the trust's creation
What is a testamentary trust?
Established by will at settlor's death. Court trust that arises in probate proceedings in Surrogate's Court
What is an honorary trust?
A trust benefiting non-humans which is performed at the discretion and choice of the trustee
What is an implied trust?
A trust imposed by law - not a true trust! Based on the presumed intentions of settlor
What are the kinds of implied trusts?
1. constructive trusts
2. resulting trusts
What is a constructive trust?
Not a true trust. Flexible, equitable remedy designed to disgorge unjust enrichment resulting from wrongful conduct
What is a resulting trust?
Not a true trust. Trust that fails for some reason
Name some other "trust-like" arrangements
1. joint bank accounts with right of survivorship
2. totten trusts
3. custodial gifts to minors
What is required for a valid private trust?
1. Settlor
2. delivers legal title to the res (trust property)
3. to a trustee for the benefit of named beneficiaries
4. with intent to create a trust
5. that is evidenced by writing
6. that is signed by the settlor and trustee and
7. either acknowledged before notary or W'd by 2 W's
Can you create a trust by intending to do so?
No. Mere intend is not enough. Such language is Precatory (nonbinding suggestion)
How do we know if the language is precatory?
Settlor requests, hopes, wishes, and desires, would like
What if a condition in a trust is precatory?
You can have a valid trust with a condition that is not enforceable because it is precatory
What is the writing requirement for a trust?
NY requires inter vivos trusts to be created by a writing (deed, declaration, or agreement) that is signed by settlor and trustee unless settlor is the only trustee AND either A or A
What is the res requirement for a trust?
Res is the subject matter of the trust. To have a trust, there must be specific identifiable property in the trust
What is the delivery requirement for lifetime trusts?
Settlor must formally transfer legal title to the specific property. For assets evidenced by a document of title, legal title must be formally transferred to the trustee (whether trustee is third party or settlor himself). For other assets, transfer must be by a written assignment to the trustee
Are there title transfer requirements for testamentary trusts?
No. As long as T is alive, a will does not transfer legal rights. So won't have anything to put in trust as a person with an expectancy
If trust says "whatever money or property that I contribute to the trust in the next 10 years," is the trust valid?
No - no res, no trust
If trust says "settlor hereby delivers the assets described in Attachment A to the trustee," and Attachment A lists a parcel of RE and 3 sculptures, is the trust valid?
No - legal title to the trust assets was not formally transferred to the trustee. Trust res requirement will be satisfied (there will be res in the trust) when transfers the RE deed to trustee and makes a written assignment to trustee of the sculptures
Does a will that devises Blackacre to her trustee in trust for benefit of Brady constitute a valid trust?
No - doesn't transfer the deed. At her death, the will is admitted to probate. Then, a trust. Title transfer requirements do NOT apply to testamentary trusts (only to lifetime or inter vivos trusts)
What is the requirement for beneficiaries of private, non-charitable trusts?
Must be definite and ascertainable
What if a trust bequeaths to Tallie to pay the income to my best friends, residuary to my mother? Valid?
No - no ascertainable bene's (and don't permit extrinsic evidence to find out who they are)
What happens to the above trust when it is declared invalid?
Tallie holds the money on a resulting trust for Brady's mother, and court orders that the money be distributed to Brady's mother
What if a will provides that Tallie was to pay the income to Brady's family or next of kin for 10 years?
Valid. Valid class gift. Can determine who is in the class by going to state intestacy statutes
What if a will bequeaths money to Tallie to use the income to train spiritualistic mediums?
It is up to the court - depends if the court finds this is a valid charitable purpose (if charitable, don't need ascertainable benes)
What are the requirements for the settlor?
Must be over 18, have capacity to enter k's, and to transfer title
Who lacks capacity to serve as a testamentary trustee?
Infants, incompetents, convicted felons, persons incapable because of drunkenness, dishonesty, want of understanding, improvidence, non-resident aliens
Are there exceptions to the exclusion of non-resident aliens that would allow them to serve as trustee?
1. related to decedent (includes in-laws)
2. AND a NY resident serves as co-fiduciary
These rules do NOT apply to lifetime trusts
Will devises residuary estate in trust. Income to son Brady for life, and on his death principal to his descendants. Will does not name anyone as trustee. Is this a valid trust?
Yes. NO TRUST will ever fail for lack of trustee. If intent to create a trust is clear and no trustee (didn't name, named declines to serve, died), court will appoint
What is the first restriction on a trust?
It must serve a lawful purpose
When will a trust fail for not serving a lawful purpose?
If its enforcement involves commission of a crime or tort, if it calls for destruction of property, or when its terms are against public policy. When condition is unlawful, Unenforceable
What are some examples of trusts that are against public policy?
1. conditions that encourage divorce
2. total restraints on first marriage
What happens to trust property when it is declared void for public policy reasons?
Party takes it free of the condition and free of the trust, if the point of putting it in trust was to have the condition
Are trusts that are partial restraints on marriage valid?
Yes. For example, if providing support to wife but if she remarries, doesn't need the support
What is the Rule Against Perpetuities?
No estate in property shall be valid unless it must vest, if at all, no later than 21 years after one or more lives in being at the creation of the estate and any period of gestation involved
What if a gift is made to a spouse who may not be a life in being, how does NY law handle it?
Would violate RAP, but NY law assumes that a gift to a spouse presumptively refers to a person in being (the existing spouse) - NY will disregard the possibility of divorce or death
What if a gift violates RAP because of a remote chance of fertility, how does NY law handle it?
NY law will save the gift through use of three assumptions:
1. males under 14, females under 12 and over 55 - infertile
2. medical testimony about actual infertility admissible
3. possibility of adoption disregarded
What if a gift violates RAP because of an age contingency?
NY law will reduce the age to 21, if doing so will save the gift
What is the NY suspension rule called?
RASPA: Rule Against Suspension of the Absolute Power of Alienation
What is the RASPA?
Every present or future interest shall be void in its creation if it suspends the absolute power of alienation for a longer period than life in being + 21 yrs
When is the absolute power of alienation suspended?
When there are no persons in being by whom an absolute fee or estate in possession can be conveyed or transferred
What is the basic requirement for RASPA to be avoided?
Persons in being who COULD join in conveying a fee simple within LIB + 21 (have to be able to account for all the pieces of the fee simple title in ascertainable persons within LIB + 21)
What is NY statutory spendthrift protection?
RASPA is always violated when there is a life estate in trust in an unborn person or in an open class that may possibly include unborn persons. By definition, unborn person is not a life in being. So person might outlive everyone by more than 21 yrs and in the 22nd year would have a trust income interest that could not be transferred (due to NY's statutory spendthrift rule). Thus, might not be able to account for all the pieces of the fee simple title within LIB + 21 yrs
What is the power of appointment?
One party has an asset and gives another the power of appointment
What are the questions to ask when analyzing power of appointment under RAP?
1. is the power itself (the creation of the power by the donor for the benefit of the donee of the power) valid? and
2. is the exercise of the power to create interests (the donee's determination of who should receive the appointive property) valid?
How do we decide whether the power itself is valid?
To be valid, a general testamentary power or any special power of appointment (whether inter vivos or testimony) must be certain to be exercised, if it is exercised, within a life in being + 21
What if the general testamentary power or a special power is given to an unborn
Void - violates RAP because the power could be exercised by someone beyond LIB + 21
A will creates a trust for each of W's children, to pay the income to the child for life, and on the child's death to such of the child's issue as the child appoints by will, with a gift in default of appointment to the child's descendents - valid?
The special testamentary powers of appointment are valid because this is a will; all of the T's children will be alive or in gestation at the time the T dies, and that is when the interests are created
When does the RAP clock start to run for interests created by the exercise of a general testamentary power or any special power of appointment?
Starts from the date of the instrument creating the power of appointment and not from the date of the power's exercise. Reflects the CL theory that the donee of the power is merely the donor's agent, filling in the blanks in the donor's disposition of her property
What is the second look doctrine?
While the clock starts to tick at the time the power was created, SLD allows courts to take into account facts that exist when the donee fills in the blanks by exercising the power
What is the purpose of the SLD?
It eliminates the need to take into account hypothetical events that could have happened, but in fact did not happen, after the date the RAP clock began to run
How do we apply the SLD?
Look to see whether the power was given to a donee who was alive when the disposition took effect (i.e., death of settlor)
Ex: Hillary died in 1990 leaving will that created trust (income to my daughter for life and on Chelsea's death to distribute outright or in further trust to such of her descendants as she appoints by will). Chelsea dies in 2002, leaving a will that appointed the property to such of my children as live to attain 30 - valid?
Power itself is valid because (applying the above test) the power is given to a donee who is alive when disposition takes effect (Hillary's death)
When in this problem does the RAP clock begin to run?
At Hillary's death
How do we read Hillary's will under SLD?
AS if the exercise of the power of appointment filled in the blanks left by Hillary. So the will reads, "To Chelsea for life, then to such of Chelsea's children as live to attain the age of 30"
Might the interest vest in a child of Chelsea's not born when Hillary died, so not a LIB, who turns 30 more than 21 years after Chelsea's death?
SLD fixes this. If at Chelsea's death, all children are 9 and older, the remainder appointed to Chelsea's children is valid because no child will reach 30 more than 21 years after death
What can we do if an age contingency violates the RAP?
We can reduce the age to 21 if that saves the gift
What is a spendthrift trust?
Protects a trust beneficiary's interest from creditors by prohibiting involuntary or voluntary transfers of the beneficiary's interests (ex: no beneficiary of this trust shall have the power to assign his or her income interest, nor shall such interest be reachable by the bene's creditors by attachment or other legal process)
How do we create a spendthrift clause?
In most states: instert a clause to create; in NY, all income interests in trust have spendthrift protection
What are the exceptiosn to the statutory spendthrift rule?
1. 10% levy under CPLR available to judgment creditors in all cases - no need to show that other remedies have been exhausted) (all judgment creditors share the 10%)
2. alimony or child support
3. creditor who provides necessaries
4. excess income beyond that needed for support and education (needs based on bene's station in life and income from other sources) (last resort remedy - creditor must show he has exhausted all other remedies)
5. Federal tax liens
Does the NY spendthrift statute extend automatic protection to remainder interests in trusts?
You need express spendthrift clauses if you want to protect the remainder interest in that trust principal
How do we interpret self-settled spendthrift trusts?
Creditors can reach the trust income because interests kept by the settlor do not get spendthrift protection
Can creditors reach the trust principal?
No, because it was transferred irrevocably to the trust (gave it away and cannot get it back)
When can creditors defeat a spendthrift provision?
If they show that it was a fraudulent conveyance
What if the trust is revocable, under which the power to revoke is retained?
Creditors can reach the entire trust property, income and principal. If she can revoke the trust (get the assets for her own purposes), then she is the owner for creditors' purposes
What is a lifetime trust funded by a pour-over will
A trust that devises all or a portion of the T's estate to a lifetime trust
Does a lifetime trust and pour-over will run into problems with NY's "no incorporation by reference" rule of Wills law?
No. This is an exception. Valid so long as the lifetime trust receiving the gift is (a) in existence before the will and (b) executed concurrently with the will
Is the PO gift valid if the trust receiving the gift is subject to revocation and amendment and is later amended?
Valid. But if the receptacle trust was created by another person, amendments made after the T's death are disregarded
Example of a valid pourover devise
Dec. 24 2003, Winona transfers securities worth 1M to county bank as trustee of a revocable lifetime trust that provides "Income to Winona for life, and on death in further trust for her sister Ashley." Trust instrument is signed by Winona and an officer of County Bank, and their signatures are notarized. On same date, Winona executes a will that devises her entire estate to Country Bank, as trustee, to be added to and administered under the terms of the trust that I executed on Dec 24, 2003.
What is a life insurance trust?
Trustees of both inter vivos and testamentary trusts can be designated as benes of life insurance policies. Valid lifetime trust even though there is no res until the insured settlor dies and the trust is funded with the insurance proceeds
Example of life insurance trust
L executes a will that creates a trust for benefit of his daughter Nicole. Thereafter, L designates trustee of the trust created in my will as the beneficiary of a life ins policy. Valid beneficiary designation
Example of life insurance trust
L executes revocable (lifetime) trust to hold proceeds of the insurance policy on his life. Even though his trust has no res until L dies and the proceeds are paid to the trustees, this trust is valid
What other mechanisms resemble the life insurance trust in terms of payment of the trust?
Same procedures are available for payment of any savings and thrift accounts, and death benefits under employee retirement plans
What restriction is there on a pour-over will?
It can pour over ONLY into a lifetime trust
What restriction is there on a life insurance trust?
None - life insurance proceeds can go into either a lifetime or a testamentary trust
How does a trust qualify as charitable?
Must be established for charitable purposes, must be in favor of a reasonably large class of unidentifiable members of the public at-large and cannot have ascertainable bene's
What qualifies as a charitable purpose?
Health, education, religion, relief of poverty, accomplishment of gov purpose (public park, museum)
What if no specific charitable bene is named?
Fine - underlying purpose is a charitable one
Who can enforce a charitable trust
By statute in every state, the AG (indispensable party to every charitable trust action - has to be joined and served)
What is the cy pres doctrine?
"As near as possible" - equitable rule. If circ's have so changed since the execution of the trust instrument such that the trust's specific direction is rendered either impractical or has been accomplished, the court may redirect the benefit in a manner that will most effectively serve the general charitable intent. Instruct trustee to distribute trust income to agency doing similar work. Applies to outright gifts as well as dispositions in trust
Are charitable trusts subject to the RAP?
No. Charitable trusts may be perpetual (trustee shall pay all income to the clinic forever - fine)
What are honorary trusts?
Trust beneficiaries must be either
1. unidentifiable members of the public at-large (charitable trust) or
2. definite and identifiable (private express trust)
Private express trust cannot benefit non-humans because trustee would owe no fiduciary duties to anyone with legal standing to sue. But several states say honorary trust is valid in the sense that the trustee will be allowed to perform if he chooses to do so
Is an honorary trust valid in NY?
Unenforceable. Need beneficiaries with standing to sue. Cannot create trust for the upkeep of the privately owned 100 Acre Woods. But if for central park, OK because for valid charitable purpose
What are the exceptions to the general rule in NY declaring honorary trusts unenforceable?
1. trusts for perpetual care and maintenance of cemeteries and burial plots are charitable trusts and thus valid notwithstanding the indefiniteness of benes (exempt from RAP)
2. trusts for pets are valid for 21 years or until pet dies, whichever comes first. Trust can be enforced by someone designated in the will or the court will appoint someone
How does a settlor terminate an inter vivos revocable trust?
Settlor may revoke a revocable trust at any time if the revocation is
1. in writing
2. signed
3. acknowledged or attested by 2 W's (unless the trust provides for other mech's for termination)
4. revocable trusts also can be amended or revoked by an express provision in the settlor's will
5. written notice of revocation must be delivered to the trustee within a reasonable time
How does a settlor terminate an inter vivos irrevocable trust?
All NY trusts generally are irrevocable and unamendable unless the power to revoke and amend is expressly reserved in the trust instrument. However, settlor can terminate an irrevocable trust if ALL of the beneficiaries in being consent
Can a guardian for a minor or incompetent person consent on their behalf to revocation?
No. Thus, if a trust bene (even with only a contingent interest) is a minor or incompetent, trust cannot be terminated
Termination of trusts hypo. Jane created valid irrevocable lifetime trust: income to Jane for life, and on her death principal to Jane's daughter, Melissa, but if Melissa is not then living, to Melissa's then living children. Jane wants to terminate the trust. Melissa, who has no children but is six months pregnant, has agreed to the termination
Trust can be terminated because "person beneficially interested in the trust" means only people who are alive and for purposes of the trust termination statute, a child is not regarded as a person until it sees the light of day
What if Jane sought to termiante the trust one month after the birth of Melissa's child?
No. Trust cannot be terminated because the minor child cannot give consent, even through a guardian or custodian
What is the doctrine of worthier title?
In a lifetime conveyance, a grantor cannot create a remainder in his own heirs. Instead, G will get a reversion
Is the doctrine of worthier title in existence in NY?
NY has abolished the doctrine. Where a remainder is limited to the heirs or distributees of the creator of an estate, such heirs/distributees take the remainder interest
How does NY's trust termination statute changed role of heirs/next of kin of the settlor in terminating a trust?
For purposes of a rule authorizing the settlor to terminate a trust with consent of all bene's, a disposition in favor of heirs, next of kin, etc. of settlor does not create a beneficial interest in the trust (it will not require their consent)
How do we answer a question on the bar about a lifetime trust that purports to create a remainder in the settlor's heirs?
If the question is whether the settlor can terminate the trust with consent of all persons beneficially interested in the trust, the settlor's heirs do not have a beneficial interest for purposes of the trust termination statute. Settlor can terminate the trust if all beneficiaries in being are adults and consent to the termination. If question is about who takes on settlor's death, the settlor's heirs (determined at settlor's death) take by remainder because doctrine of worthier title has been abolished in NY
How do we terminate a testamentary trust?
Claflin doctrine: court may terminate a testamentary trust only if (a) all bene's consent and (b) termination would not be contrary to purposes of the trust
How does NY complicate the termination of a testamentary trust?
All income interests in the trust have automatic spendthrift protection. So courts cannot terminate a testamentary trust upon application by benes, because doing so would frustrate a material purpose of the trust, which is to spendthrift the income interest
How is a trust changed by judicial modification?
Courts will look at change of circumstances
What is the equitable deviation doctrine?
Courts will permit deviation from trust terms, if due to circ's not known to or anticipated by settlor, compliance with terms will impair or frustrate the trust PURPOSE (look to primary intent of settlor - court can strike a prohibition)
To what extent can a trustee invade the trust principal for the life beneficiary's support?
Usually, trust document will direct this
What happens if the settlor, assuming that the income will be sufficient for the bene's support, does NOT give the trustee the power to invade the principal?
CL: life beneficiary was out of luck
NY: court may exercise discretion to allow a principal distribution to the life income beneficiary IF it is consistent with the primary purpose of trust AND there is no remainder to charity
What is a passive or dry trust?
If a named trustee has no powers or active duties to perform (no trust)
What kind of ownership does the beneficiary have in a passive trust?
Full legal title - he is the outright owner
Can you have spendthrift protection with a passive trust?
No - you need a spendthrift trust for this
What are the powers granted to trustees by the NY Fiduciary Powers Act?
Too many to list - trustee CAN, expressly authorized by the Fiduciary Powers Act unless it involves (a) self-dealing or (b) it's on the can't do list
Who can administer these powers?
A trustee (and executor or administrator of decedent's estate), without court order, and without express authorization in a trust or will
What are the most important powers granted to trustees, executors, and administrators under the FPA?
1. sell real and personal property at public sale (auction) or private sale, unless property was specifically devised by will
2. mortgage property
3. lease property for up to 10 years (10 yr rule for trustees; executors and administrators may lease for up to 3 years)
4. make ordinary repairs
5. contest, compromise, and settle claims
6. distribute, on behalf of a minor, to a parent or adult who has custody, where the amount distributable does not exceed 12k
7. make distributions on behalf of a minor beneficiary to a custodian for the minor under the NY uniform transfers to minors act
What powers are denied to trustees?
Most important - ban on self dealing. Additionally, in the absence of court approval or express authorization in the will or trust CANNOT
1. borrow money
2. continue a business
3. make extraordinary repairs or improvements
4. abandon or demolish RP
5. employ agents, delegate authority
6. keep funds uninvested
7. pay debts barred by SOL or discharged in BR
8. lend personal funds to the estate or advance funds to a beneficiary
What duties does the trustee owe to the trust and its beneficiaries?
Duty of loyalty and fiduciary obligation - cannot represent the trusts' and her own interests in the same transaction
Also duty to exercise reasonable care in the performance of her duties and duty to make the property productive
What are the major self-dealing rules for trustees?
1. Can't BUY or sell trust assets to himself
2. Can't BORROW trust funds
3. can't LOAN funds to the trust, and any interest earned on such must be returned to the trust (and security interests received in connection with such a loan are invalid
4. Can't COMMINGLE trust funds with her own. Duty to segregate trust assets from personal assets; earmark trust assets by titling them in trustee's name. If commingled funds are used to buy an asset and the asset goes down in value, conclusive presumption that (to the extent available) personal funds were used. If asset goes up in value, there is a conclusive presumption that (to extent available) trust funds were used
5. Can't PROFIT from serving as trustee (except for compensation) as by taking advantage of confidential information received in his capacity as trustee
6. Can't PURCHASE its own stock as a trust investment (but it can retain its stock if a part of the estate received by it as trustee - provided it is permissible investment. Must meet prudent person standard).
What actions can the trust beneficiaries bring against Trustee who violates?
1. action for self-dealing
2. self-dealing rules can be waived by settlor
3. self-dealing rules also apply to loans or sales to a relative or business entit of which trustee is an officer, employee, partner, or principal SH (indirect self-dealing rule)
What is the no further inquiry rule?
If the trustee engages in self-dealing and the beneficiary sues for breach of fiduciary duty, the breach is automatic (good faith or reasonableness is not a defense). Only issue is damages
What is the prudent investor rule?
The trustee's power to invest is governed by this rule - trustee may make investments as would be acquired by prudent men of discretion and intelligence seeking reasonble income and preservation of their capital
How is prudence measured?
By conduct when the investment decision is made, not by outcome or performance and not by hindsight
How do we treat the investment portfolio when considering prudence?
We look at the whole portfolio and not just at individual investments in isolation
How do we consider investment returns when considering prudence?
Measured by total return, including growth and capital gain, as well as dividends and income (modern portfolio theory)
What must the trustee do when investing the trust?
Establish a custom tailored strategy for the trust, taking into account
1. size of portfolio
2. nature and estimated duration of the fiduciary relationship
3. general economic conditions
4. possible effect of inflation or deflation
5. expected tax consequences of investment decisions or strategies
6. role that each investment plays within the overall trust portfolio
7. expected total return from income and capital gain
8. needs for liquidity and distribution requirements
9. needs of beneficiaries
10. asset's special relationship or value to the purposes of the trust or a beneficiary
any differing interests of the income beneficiaries and remaindermen
What is the trustee's adjustment power?
Under the UPIA, trustee can exercise an adjustment power to adjust total return between income and principal and to allocate capital gain to income
How is the adjustment power exercised?
Trustee distributes income items (interest income, rental income, dividends on common stocks) to income beneficiary; adds capital gains (part of the proceeds of the sale of a principal asset) to the principal of the trust. Capital gains can also be allocated to income where appropriate and distributed to the income beneficiary (what the adjustment power does)
What factors should the trustee consider when exercising the adjustment power?
1. purpose and expected duration of the trust
2. intent of the settlor as to respective interests of the bene's
3. net amount of ordinary income and capital gain available for allocations
4. circumstances of the bene's
5. need for liquidity, regularity of income, and preservation and appreciation of capital
6. any increase or decrease in value of the trust assets
7. whether the trust gives the trustee a power to distribute trust principal
8. effect of economic conditions and effects of inflation and deflation
9. anticipated tax consequences of an adjustment
What are a beneficiary's options when the trustee breaches a fiduciary duty (breach of trust)?
When a trustee engages in self-dealing, speculative investment or exercise of power not given to the trustee, can (a) bring action to remove trustee and (b) has the option to ratify the transaction and waive the breach of trust or (c) sue for the resulting loss ("surcharge" action)
What can the beneficiary do if the trustee borrows funds and invests the proceeds?
If the trustee borrows funds and invests the proceeds, if the value of the purchased property goes up, the bene can "trace it," and claim the proceeds for the trust. Can also demand that the asset be restored to the trust
What are the beneficiary's options when third parties are involved and there is a breach?
If the conveyance was by the trustee to a BF purchaser, it cuts off equitable title
Who does not qualify as a BF purchaser?
One who knew the trustee was acting improperly
Can the beneficiary bring an action against a third party who is a relative?
Yes, self-dealing rules apply to loans or sales to relatives
When does the SOL begin to run on actions against fiduciaries?
1. fiduciary repudiates the trust by denying its existence
2. trust relationship ends (trustee dies or resigns or trust ends by its own terms
3. when trustee gives an accounting that reveals a wrongdoing
What is an exculpatory clause?
Exempts a trustee from liability. "Trustee shall not be liable for any acts or omissions of itself or its agents except for gross negligence, bad faith or fraud"
When is an exculpatory clause that removes liability for ordinary negligence valid?
Not valid in a testamentary trust, but valid in a lifetime trust (although such clauses will be strictly construed)
When is a trustee personally liable on a k?
Personally liable on k's entered into on behalf of the trust, unless a provision in the k relieves him of personal liability
Personally liable for "Ted Smith, trustee of the trust"?
Personally liable for "Ted Smith, trustee and not individually"?
Personally liable for "MM trust, by Ted SMith, trustee"
No. K is with the trust, not with Ted
Can a trustee who is personally liable on a k be reimbursed from the trust?
Yes, if contract was within his powers and he was acting in the course of proper administration of the trust
What is a trustee's personal liability for torts?
All torts of itself and its employees. Why a prudent trustee should immediately obtain liability insurance charging the cost to the trust
When can a trustee be reimbursed from the estate?
When trustee was acting within its powers when the tort was committed and the trustee was not personally at fault
What is a constructive trust?
An implied trust, an equitable remedy designed to disgorge unjust enrichment resulting from wrongful conduct
What are the trustee's duties in a constructive trust situation?
Convey the property to the person who, in equity, should have the property
How do you prove that a constructive trust is needed?
Proof of facts necessary to establish a constructive trust must be by CCE
What are the steps in a constructive trust analysis?
Apply the law (e.g., whether there is a valid will), and then apply equity - wrongful conduct plus unjust enrichment equals a constructive trust
When might a constructive trust be useful?
If no writing, but fraud in the inducement (orally promised to serve as trustee but no intention to do so) or trustee served in confidential relationship with settlor, if can prove promise by CCE
What is a resulting trust?
A label that courts employ when a trust fails
Simon devises 100k to Trustee. Simon directs Trustee to pay income to Clay for life, and on his death, Trustee shall pay the remainder to Clay's children. Clay dies without children. What happens?
Because the property reverts to Simon's estate, the court will say that Trustee holds the trust res in a resulting trust for Simon's heirs
What is a Purchase Money Resulting Trust?
A pays the purchase price but takes title in B's name. B holds a PMRT for A, meaning A can compel a reconveyance at any time. A and B must not be related
Does NY recognize the PMRT?
No. Testimony contradicting the deed is barred. The deed controls. But court may impose a constructive trust to prevent unjust enrichment if CCE that expressly or impliedly promised to reconvey
What is a JT bank account with right of survivorship?
Created by depositor using certain language (X and Y as joint tenants with right of survivorship), payable to either or to the survivor of them
What is the basic rule for JT bank accounts?
A deposit of funds into a joint account is a gift of 1/2 of the amount deposited. Withdrawal of more than 1/2 without the other JT's consent severs the JT and allows the non-withdrawing depositor to recover their half
What is a convenience account?
Titled a JWROS but in reality is intended by the depositor to remain her sole property, with the JT merely having the right to act as the agent of the depositor
What are the agent's rights in a convenience account?
Only has the right to withdraw on the depositor's behalf.
Who has the burden of proof in showing that an account was a convenience account?
Person challenging the survivorship right (it was only a convenience account)
What is a totten trust?
Bank account titled "Depositor, in trust for Beneficiary"
Is a totten trust a real trust?
No, because the depositor (trustee) continues to have all rights over the account. Totten trust is partially revoked when the depositor makes withdrawals. Beneficiary only succeeds to the amounts on deposit at the depositor's death
What if the beneficiary survives the depositor in a totten trust?
The amount on deposit belongs to him (subject to claims of depositor's creditors and subject to surviving spouse's elective share)
What if the beneficiary predeceases the depositor in a totten trust?
The totten trust automatically revoked. Does not pass through the deceased bene's estate. The funds are the depositor's - free and clear
How do you make a lifetime gift of a totten trust account?
Depositor must withdraw the funds and gift them to the bene (can't do it by delivering the account passbook)
How do you change account beneficiaries in a totten trust?
By a writing, signed and acknowledged instrument that names the bank, current bene, and new bene and is delivered to the bank
How do you revoke a totten trust?
By statute, it can be revoked by will, and the funds on deposit can be bequeathed to another person. But the rules are specific. Will must make express reference to the account, naming the institution and the beneficiary of the account
What is a Uniform Transfers to Minors Act account?
Means of making gifts to minors that avoid court-appointed guardians (or the need for creating a trust) and that qualify for the 12k per donee annual exclusion under fed and NY gift tax
How do you make a UTMA gift
Transfer property as follows: To A, as custodian for minor child under the NY UTMA
When does a UTMA custodianship terminate?
When the donee attains 21 unless the gift is made: A, custodian for B until age 18
Is a custodianship a trust?
No, even though the custodian is a fiduciary. Custodian does not hold legal title to the custodial property
Who holds legal title to the custodial property?
The minor donee, subject to the custodian's statutory powers
What are the custodian's statutory powers?
Power to collect, manage, and invest the property, to pay to or on the minor's behalf as much of the custodial property as deemed advisable and to pay the balance when the minor turns 21
What happens when the beneficiary of an estate or trust is a minor?
Statute authorizes distribution by the executor or trustee to a UTMA custodianship on the minor's behalf (to avoid court guardianship)
Is there a dollar limit on the amount that can be distributed though a custodianship?
No, if the will or trust expressly authorizes such distributions. And they terminate at age 21
What if there is no authorization for a custodianship in the will or trust?
Custodianships established by a fiduciary terminate at age 18, and court approval is required for distributions over 50k