Trusts-Requirements For A Trust

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Three "Trusts"

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1. Express trusts (real trust);

2. Resulting trusts; and

3. Constructive trusts.

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Resulting trusts and Constructive trusts

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Equitable Remedies

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Express Trust

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A legal device that allows an owner of property to make transfers of property and have those assets managed on behalf of someone else.

Rather than have the beneficiary manage the money by himself or herself.

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Settlor

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Creates trust

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Creation of a Trust

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Settlor gives legal title to a trustee to manage the money, and the beneficiaries have equitable title to enjoy the distributions from the trust.

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Types of Express Trusts

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Lifetime Inter Vivios

Testmentatry Trust

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Lifetime or Inter Vivios Trust

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Set up during the lifetime of the person who created the trust.

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Testementary Trust

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Set up in the settlor’s will

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Requirements for Valid Trust

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1. Settlor who makes a...

2. Delivery of legal title to...

3. Property (res, or corpus, or principal) to a...

4. Trustee who holds legal title for benefit of a...

5. Beneficiary (or beneficiaries) with...

6. Intent to create a trust for...

7. A lawful purpose…

8. In a validly executed document.

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Consideration Requirements

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No consideration is required to create a trust

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"settlor" requirement for express trust

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anyone 18 or older

with capacity to enter into contracts

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"delivery" requirement for express trust

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Titled assets must be formally transfered for

delivery to be valid

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Stock certificates were handed over to Tom by Sarah at the time the trust document was signed and acknowledged. Before the shares could be reregistered in Trustee Tom’s name, Settlor Sarah died.

Delivery?

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No, no delivery without formal transfer

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"property" requirement for express trust

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property the settlor owns.

Must be identified proeprty,

NOT subject to future determination

NOT a mere expectancy of ownership in future.

NOT a mere promise

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"trustee" requirement for inter vivos/lifetime trust

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almost anyone can be a trustee since no court involvement is needed for such trusts.

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"trustee" requirement for testementary trust

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created under court supervision

Anyone except those who are:

1. under 18

2. judicially declared incompetent

3. convicted felons

4. incapable because of drunkenness,

dishonesty, want of understanding, or improvidence

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Residency requirements for Trustee

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A non-resident “alien” can serve as trustee ONLY IF

A New York resident serves as co-fiduciary.

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Failure to name a trustee

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Failure to name a trustee in the trust does not matter; the court can appoint someone.

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"beneficiaries" requirement for express trust

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Beneficiaries must be definite/ascertainable;

no ambiguity

If ambiguous, the trustee holds in a resulting trust for the residuary beneficiary of a will (or intestate heirs in absence of a valid will).

UNLESS "family" or "next of kin" (defined by intestacy statute)

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"intent" requirement for express trust

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1. Settlor must intend to create an enforceable obligation; precatory (non-binding) language is not enough. (e.g. would like)

2. Trustee must be given duties to perform (if no duties a passive trust, no trust at all)

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"lawful prupose" requirement for express trust

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cannot be for:

1. commission of a crime

2. destricution of property (even if owner's)

3. condition against public policy (i.e restricting marriage/promting divorce)

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In his will James set up a testamentary trust with income going to his wife for life or until she remarries, and upon his wife’s death or remarriage to his son Clyde.

Valid?

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Yes

because his purposewas to provide for his widow during her widowhood and that is a valid purpose.

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Marriage Restrictions in Creation of Trust

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Marriage restrictions to members of a certain religion or ethnic group are valid as permissible partial restraints on marriage.

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"execution" requirement for express trust

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Must be in writing signed by both settlor and trustee

AND EITHER:

1. Acknowledged by a notary public, OR

2. Signed by two (2) witnesses.

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Types of Trusts

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1. Revocable Lifetime/Inter Vivos Trusts

2. Pour Over Gifts

3. Totten Trust

4. Charitable Trusts

Trust-like Aleternatives

4. Joint Bank Accounts

5. Uniform Transfers to Minors Act

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Non Trusts

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1. Honorary Trusts

2. Constructive Trusts

3. Resulting Trusts

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Revocable Lifetime/Inter Vivos Trusts

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Primary Requirement: one beneficiary who is not the settlor.

settlor cannot be the sole beneficiary when also the sole trustee.

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Permitted Settlor Roles

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1. trustee

2. income beneficiary for life

3. setlor's estate can be one of beneficiaries

4. setlor can retain power to terminate or amend

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Reasons to have a revocable lifetime/inter-vivos trust

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1. Manages assets efficiently, particularly using a

professional trustee.

2. Helps plan for possible incapacity by avoiding a guradianship proceeding.

3. Avoid probate

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Reasons NOT to have a revocable lifetime/inter-vivos trust:

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1. Does NOT avoid taxes

2. If a settlor keeps an income interest, or keeps a power to revoke, the, included in settlor's gross esate for federal tax purposes

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Pour Over Gifts

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1. Testamentary gifts (Gifts made in a will) to an existing revocable trust are permitted

2. Avoids will formalities in the trust

3. Can be changed in lifetime of the settler in ways that easier than a will

4. Can be anyone existing trust, not just settlor's

5. Valid even if unfunded during settlor lifetim

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Key requirements for a “pour-over” gift to a trust

to be valid

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1. The trust must be in existence before or

2. concurrently with execution of the will

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Life Insurance, Savings Plan or Pension Plan Proceeds Payable to Trust

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1. Insured can create an unfunded revocable

insurance trust and name the trustee

of the trust as policy beneficiary

2. Have the trust be a testementary trust and have the life insurance policy contract name “the trustee named in my will” as the beneficiary

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Totten Trust

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1. Depositor makes deposits and withdrawals 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.

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Totten Trust Creation

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A Trust-like Alternative

The Totten Trust is a bank account in the depositor’s name "as trustee for" a named beneficiary.

No particular words are necessary for creation (i.e. ITF).

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Revocation of Totten Trust

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1. Withdraw all money in account

2. Express revocation during lifetime by depositor naming beneficiary and having revocation notarized and delivered to bank

3. Revocation in will, during lifetime by depositor naming beneficiary and having revocation notarized and delivered to bank

4. Death fo beneficiary, money goes to depositor

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Changing beneficiary of Totten Trust

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Change of beneficiary can be made by depositor

Notarized statement sent to the financial institution, naming the old beneficiary and the new one

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Creditors' Rights Totten Trust

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Creditors of the depositor can ALWAYS reach the

Totten Trust account balance, EITHER before or after the depositor’s death, since it is a form of

revocable trust revoked partially each time a withdrawal is made