Va - Trusts

Front 1

Trusts must have a lawful purpose

Back 1

Any trust, the purpose of which is to further commission of a crime, or calling for the destruction of property as wasteful, is invalid as against public policy.

Any unlawful conditions imposed by the terms of the trust are unenforceable.

Front 2

Oral trusts

Back 2

valid if terms of trust proven by clear and convincing evidence

( real and personal property)

Front 3

Inter vivos trusts

Back 3

if made by settlor, revocable unless explicitly made irrevocable and nonmodifiable by settlor.

If made by conservator of incapacitated settlor, guardian may revoke only if

(i) expressly authorized by trust, or

(ii) if authorized by court for good cause shown.

Front 4

Pour over devices

Back 4

You can pour over assets from inter vivos arrangements, like IRAs, life insurance, and trusts, into a LWAT so as to pass under probate. i.e., a life insurance policy can be payable to decedent's estate at death; this makes will or intestate scheme beneficiary of decedent's life insurance. Also works vice versa, aka your last will & testament can name existing, inter vivos trust as a beneficiary.

Front 5

Self-declaration of trust

Back 5

A settlor can name him/herself as trustee and beneficiary, with another remainder beneficiary. Can be used to avoid probate costs.

Front 6

Contest of trusts

Back 6

action challenging validity of trust must be brought within earlier of

(1) two years after settlor's death, or

(2) six months after trustee sent person commencing judicial proceeding a copy of trust instrument, trustee's name and address, and a notice of time allowed for contesting trust.

Front 7

Charitable trusts

Back 7

Not subject to the RAP.

Enforcement of terms of trust rests with attorney general of state, or, if settlor is alive, she may maintain a proceeding to enforce it.

When stated charitable purpose can no longer be accomplished, it may be reformed in a judicial proceeding under doctrine of cy pres.

Front 8

Honorary trusts

Back 8

For pets and cemeteries. trustee should do "honorable" thing and follow terms of trust even though the beneficiary can't complain if she doesn't.

Front 9

Constructive trusts

Back 9

equitable device to remedy a bad act, like fraud, murder, and willful breach of a fiduciary duty. They arise automatically and do not require 5 elements of a normal trust.

Example: if a husband shoots his wife and they own land as tenants by the entirety, a constructive trust prevents the husband from taking the wife's half via right of survivorship; it descends to her estate. However, the husband does get to keep his half.

Example 2: witnesses who don't like their share under a will that's about to be executed prevent the testator from signing it and she dies soon thereafter. No valid will was created, but a constructive trust springs up and does what the will would have done if not for the witnesses' bad act.

Front 10

Resulting trust

Back 10

because of the impossibility of completing the trust purpose, remaining assets of trust "result back" to settlor
.Example: if Jeff places $1 million in trust to pay for David's law school education and David dies before all of the money is expended, remaining assets of the trust "result back" to Jeff

Example 2: Purchase money resulting trust. A presumption, rebuttable by C&CE, arises that there was a PMRT when A buys land for B, a stranger, for no reason.

Front 11

Spendthrift trust

Back 11

settlor added clause to restrict creditor of beneficiary from reaching trust assets, income or corpus.

VA enforces unless (1)public policy violation

NB: no specific words necessary to create a spendthrift trust.

Takes away garnishment & attachment from creditor, who must file with each distribution

Front 12

*** Trustee's obligations ***

Back 12

No self-dealing unless consent by beneficiary after complete and full disclosure. ***true even if beneficiaries would benefit***

Front 13

Trustee obligations -- statute of limitations for suing a trustee

Back 13

A. One year if trustee gives beneficiary an accounting (report) that (i) discloses facts that show existence of a potential breach of trust, and (ii) informs beneficiary of time allowed for commencing an action.

B. For all other CoA against trustee, five years after first to occur of:
(i) trustee's removal, resignation, or death;
(ii) termination of beneficiary's trust interest; or
(iii) termination of trust.

Front 14

Trustee obligations -- waiver by settlor

Back 14

settlor can waive prohibition on trustee self-dealing if settlor aware of consequences.

cannot waive rules against

(1) reckless indifference to purposes of trust or interests of beneficiaries; or

(2) acts resulting from abuse of a confidential relationship.

Front 15

Duties of a Trustee (10--may God have mercy on your soul)

Back 15

1. Compliance w/trust instrument & VA law

2. Loyalty - act in beneficiary's interest, no self-dealing

3. Impartiality & Uniform Principal & Income Act (UPIA) - must consider both interests of income and remainder beneficiaries

4. Prudence - Uniform Prudent Investor Act

4. collect trust property and enforce and defend claims.
5. segregate trust property from trustee's own property and earmark trust property by taking title in trustee's name.
6. adequate records.
7. keep beneficiaries reasonably informed about the material facts necessary to protect their interests.
8. furnish copy of trust instrument upon request of a beneficiary.
9. Irrevocable trusts 60 day notice duty - within 60 days of accepting trusteeship, must notify beneficiaries of (i) trust's existence, (ii) identity of settlor, (iii) their right to request a copy of the trust instrument, (iv) their right to an annual report, and (v) trustee's name, address, and telephone number.
10. Accounting duty to furnish annual reports, as well as on termination of trust.

Front 16

Trustee powers

Back 16

Basically, if a fee simple owner of property can do it, a trustee can do it ( no self-dealing).

Front 17

Prudent investments

Back 17

VA has adopted the Uniform Prudent Investor Act, which utilizes a portfolio theory of diversified investments, each element of which was deemed prudent, not individually, but in reference to the portfolio, the beneficiary's needs, and the terms specified by the settlor, at the time of investment (aka not in hindsight).

Trustee must be prudent and exercise reasonable care, skill, and caution. (Though if a trustee was selected because she had special skills or expertise, she will be held to that level of expertise in the evaluation of prudence.)

Certain assets, such as VA bonds and obligations, that VA regards as always prudent.

Front 18

Adjustment powers of the trustee

Back 18

To minimize friction between income beneficiaries and remainder beneficiaries, the trustee can exercise her adjustment power and allocate capital gains to income (they would normally be added to the corpus of the trust, not distributed to income beneficiaries).

A good standard for the trustee under allocation is 10% to income, 90% to principal.

Half of trustee's fees are charged against income, and half against principal.

Ordinary expenses are charged against income (account expenses that come up every year, property taxes, ordinary repairs, etc.).

Capital expenses are charged against and paid from principal (extraordinary expenses, capital improvements, mortgage principal payments, etc.).

Front 19

Unitrusts

Back 19

Without court approval, a trustee can convert a trust into a unitrust, in which the income beneficiaries receive a fixed percentage of the value of the trust's assets, valued annually. Only requirement is to give notice to the qualified beneficiaries.

This simplifies the managing of the trust a lot.

Front 20

Delegation by trustee (3 requirements)

Back 20

A trustee may delegate trust powers and duties. Trustee not liable for any actions taken by the agent chosen if the trustee exercised reasonable care in
(i) selecting the agent;
(ii) establishing the terms of the delegation; and
(iii) periodically reviewing the agent's actions.

Front 21

Trustee liability for contracts and torts

Back 21

A trustee is NOT personally liable on a contract properly entered into by him as long as he is acting in a fiduciary capacity, disclosed his fiduciary capacity, the contract is part of administering the trust, and the contract does not state otherwise.

A trustee IS personally liable for torts committed in the course of administering the trust only if the trustee is personally at fault.

Front 22

Modification of a trust during settlor's lifetime (3 scenarios)

Back 22

This can happen in three situations:

(1) All trusts created after July 1, 2006 are revocable and hence modifiable by the living settlor unless they were expressly made irrevocable.

(2) If the settlor and all beneficiaries consent, a court can order a modification or termination of an irrevocable trust even if the modification is inconsistent with a material purpose of the trust.

(3) If all the beneficiaries, but not the living settlor, consent to the modification or termination, the court still may consent to the petition if the continuance of the trust is not necessary to achieve any material purpose of the trust.

Front 23

Modification of a trust after settlor's death (2 scenarios)

Back 23

Happens in two situations:

(1) If all beneficiaries consent, a trust can be modified if court finds that the modification is not inconsistent with a material trust purpose, and terminated if the court finds that continuance of the trust is not necessary to achieve any material trust purpose.

(2) If NOT all the beneficiaries consent to a proposed modification or termination of the trust, the court may nonetheless approve the modification if the court is satisfied that:
(a) If all the beneficiaries had consented, the trust could have been modified or terminated; and
(b) The interests of a beneficiary who does not consent will be adequately protected.

Front 24

Trustee's power to modify or terminate a trust without all beneficiaries' consent (4 scenarios)

Back 24

Can happen in four circumstances:

(1) Unanticipated circumstances: on petition by trustee or a beneficiary, a court may modify or terminate a trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust.

(2) Tax advantages: The court may modify a trust in a manner that achieves the settlor's tax objectives.

(3) Purposes: In addition to the above methods of termination, a trust may terminate if (i) no trust purpose remains to be achieved, or (ii) the purposes of the trust have become unlawful, contrary to public policy, or impossible to achieve.

(4) Uneconomic: If the value of a trust is less than $100,000, the trustee may terminate the trust without court approval if the trustee concludes that the trust's value is insufficient to justify administration costs. Trustee must first give notice to the qualified beneficiaries, those who would be income or remainder beneficiaries, or would be distributees if the trust terminated on that date.

Front 25

Division or combination of trusts

Back 25

Court approval not required

Front 26

Reformation to correct mistakes

Back 26

Court may reform the terms of a trust, even if the terms are unambiguous, if it is proved by C&CE that both the settlor's intent and the trust terms were affected by a mistake of fact or law.

Cf. wills, where this CANNOT be done.

Front 27

Public policy reasons for when a spendthrift trust is no longer enforceable (6)

Back 27

(i) Child support;
(ii) legal services of beneficiary's interest;
(iii) Claims of gov't, or municipality ;
(iv) Claims of reimbursement for public assistance reimbursement; and
(v) Creditor may reach mandatory distribution of income or principal if no distribution within reasonable amount of time.

Front 28

Statutes of limitations for probate (2)

Back 28

After will is admitted to probate (or probate is denied) in an ex parte proceeding, interested parties can challenge in one of two ways:
(i) Six months in which to appeal to the circuit court from an order made by a clerk or court deputy; or
(ii) One year in which to file a bill in equity to impeach or establish the will already filed with the court. In either case, there is a trial de novo.

There is no time limit in VA on when a will must be offered for probate. However, a bona fide purchaser of real property from an heir is protected unless the will devising such real property is probated within one year after the decedent's death.

Front 29

Will Contest: Undue influence - 5 types of confidential relationship

Back 29

There are five confidential relationships possible:
(i) Trust (??)
(ii) Priest-penitent
(iii) Doctor-patient
(iv) Guardian-ward
(v) Attorney-client

Front 30

3 types of trust beneficiaries

Back 30

(i) Private trusts - benefit private individuals. Must be definitely and ascertainably named. NB: interests must vest w/in RAP period.
(ii) Charitable trusts - cannot benefit identifiable individuals; rather, must have a charitable purpose and must benefit an indefinite group of persons. NB: these are not subject to RAP.
(iii) Honorary trusts - a little private, a little charitable. Main beneficiaries here are pets and cemeteries.

Front 31

Tax - Lifetime Transfers

Back 31

RULE: Even though the decedent transferred title to assets during lifetime, certain lifetime transfers will be included (“swept back in”) to the gross estate.

Among the most important of these are:
(1) transfers with a retained life estate; and
(2) transfers with a retained power to alter or revoke (either alone is enough to sweep back into the gross estate)

Front 32

Trustee/Beneficiary/ liability - Contested Trust

Back 32

Trustee liability: may proceed to distribute trust property in accordance with terms of trust and not be subject to liability unless:
(i) knows of pending judicial proceeding contesting validity of a trust, or
(ii) potential contestant has notified trustee of a possible judicial proceeding and a judicial proceeding is in fact commenced within sixty days after the contestant sent the notification.

Beneficiary liability: beneficiary of a trust that is determined to have been invalid is liable to return any distribution received, but no other liability.

Front 33

Self- Settled Spendthrift

Back 33

irrevocable during settlor's life

valid trust & spendthrift clause

qualified trustee authorized in VA

at least one beneficiary entitled to distributions

No right to disapprove distributions

Front 34

Bases for removing a trustee

Back 34

VA Uniform Trust Code (UTC), two reasons:

1. trustee acting bad.

a. breach of trust

b. inability to cooperate w/co-trustees

c. lack of fitness; or

d. persistent failure to administer effectively.

OR

2. not saying he's bad, we just don't want him anymore.

ct must find:

1. substantial change in circumstances; OR removal requested by all beneficiaries;

2. removal best serves the interests of all beneficiaries;

3. removal not inconsistent w/material purpose of trust; and

4. suitable replacement available.