Professional Documents
Culture Documents
Table of Contents
I. REQUIREMENTS FOR A TRUST......................................................................1 (1) EXPRESS TRUSTS (THE TRUE TRUST) 8 REQUIREMENTS FOR A VALID TRUST 1 1
II. TYPE OF TRUSTS........................................................................................1 A. REVOCABLE LIFETIME/INTER VIVOS TRUST (2) POUR-OVER GIFTS (3) TOTTEN TRUST (BANK ACCOUNT TRUST) (4) JOINT BANK ACCOUNTS (5) CHARITABLE TRUST (6) NON-TRUSTS I. HONORARY TRUSTS II. CONSTRUCTIVE TRUSTS III. RESULTING TRUST (7) STATUTORY SPENDTHRIFT RULE AND PROTECTION 1 2 2 3 3 4 4 4 4 4
FROM
CREDITORS
III. MODIFICATION AND TERMINATION OF TRUSTS............................................5 A. TRUST MODIFICATION BY TRUSTEE (2) TWO-LEVEL MODIFICATION TEST (3) TRUST TERMINATION BY SETTLOR
AND/OR
BENEFICIARIES
5 5 5
IV. TRUST ADMINISTRATION............................................................................5 A. TRUSTEES POWERS (2) SELF-DEALING 1. FIVE PROHIBITIONS ON SELF-DEALING II. TWO AFFIRMATIVE DUTIES ON SELF-DEALING III. REMEDIES FOR BREACH OF FIDUCIARY RESPONSIBILITIES IV. ACTIONS AGAINST A THIRD PARTY WHEN TRUSTEE ENGAGES V. INDIRECT SELF-DEALING (3) EXCULPATORY CLAUSES 5 6 6 6 6 6 6 6
IN
SELF-DEALING
V. LIABILITY OF TRUSTEE IN CONTRACT AND TORT...........................................7 A. PERSONAL LIABILITY OF TRUSTEE IN CONTRACT (2) PERSONAL LIABILITY OF TRUSTEE IN TORT (3) TRUSTEES INVESTMENT POWER 7 7 7
VI. RULE AGAINST PERPETUITIES AND SUSPENSION RULE.................................7 A. REVIEW OF RAP (2) NY RULE AGAINST SUSPENSION
OF THE
POWER
OF
ALIENATION
7 8
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Disadvantages:
o Does not avoid taxes. o Since keep income interest or keeps power to revoke, assets included in the settlors estate for taxes
Two ways insured can make life insurance proceeds payable to a trust:
o (1) create an unfunded revocable insurance trust and name the trustee of the trust as policy beneficiary. o (2) make testamentary trust and have the life insurance policy contract name the trustee named in my will as the insurance policy beneficiary.
(1) Withdraw all funds in the account; (2) Express revocation during lifetime by: NEED EVERY ELEMENT
o (a) making a writing naming the beneficiary and the financial institution
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(3) Revocation in a will must comply with the same requirements. (4) Death of beneficiarymoney goes free and clear to depositor. Beneficiarys heirs get nothing.
Changing Beneficiary
Depositors creditors can always reach Totten Trust before or after depositors death. It is a partial
revocation each time a withdrawal is made.
Each joint account holder owns one-half. No matter who deposited it excess is gift If joint account holder withdraws more than one-half, he may be forced to return what is in excess of his
lifetime gift. Uniform Transfers to Minors Act
Benefits:
o Avoids a guardianship proceeding o Avoids a trust, and thus court supervision of a trust. o Qualifies for the $13K per donee annual exclusion from federal and state gift tax.
(b) Gifts under UTMA must be made to a custodian and it must specify under UTMA (c) UTMA gifts can be made in a will if stated
Duties of a UTMA Custodian
Hold, manage, and invest the property under a prudent person standard. Pay over to minor or for the minors needs what part of the property that the custodian deems advisable; and Pay what is left of the property to the minor when the minor turns 21 (post-1996 gift) or 18 (pre-1997 gift).
NOTE UTMA does not create a trust; it is a special statutory rule where the custodian does not hold legal title. Minor does. UTMA Tax Consequences
(i) If donor names himself as custodian then the amount of the gift is taxible (ii) If donor names someone else as custodian, not taxable
(1) Must have indefinite beneficiaries, and they must be a reasonably large group.
o no specific, named persons as beneficiaries. o Cant be so narrowly defined that just a few people benefit. o BUT a trust for Masses for relatives is okay.
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(2) must be for a charitable purpose. (3) may be perpetual. Not subject to RAP. (4) Cy pres can be used to change the trust.
o purpose of the trust can no longer be accomplished, or the charity goes out of existence, the court may use cy pres to reform the trust to make it as near as possible to what settlor wanted.
(5) Attorney genenral has duty of representing the beneficiaries of charitable trusts in the state.
o AG is an indispensable party to any suit on construction or enforcement of the trust. o AG and donor have standing to sue to enforce the trusts terms.
(6) Non-Trusts
i. Honorary Trusts On where no human being is the beneficiary of a private trust. o Not a valid trust. Money falls into the residuary estate.
NOT RECOGNIZED IN NY. PMRT only arises when a purchaser buys property and put title in someone elses name who is not a relative.
Later, purchaser claims no gift and asks title holder for title back. Title holder refuses.
creates a PMRT to allow purchaser to compel title holder to give back. NOT NEW YORK. NO BACKSIES.
o EXCEPTION: In NY, PMRT will apply if there is clear and convincing evidence that the grantee had expressly or impliedly promised to give back, then a constructive trust created & makes them give back
EXAM NOTE: Define PMRT and say it is the rule in most states, but does not apply in NY. Check if
exception applies.
DEFAULT PROTECTION: NY statute protects all income interests with spendthrift protection even if
clause omitted BUT only applies to trust income, not principal. o For spendthrift principal must be in trust
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Revocable trusts are fair game for all creditors, even if the settlor has no immediate financial
(3) By statute, the court can authorize the invade the principal if the income is not enough to carry out the
EXCEPTION: Settlor can terminate an irrevocable trust if ALL beneficiaries alive consent. Impossible
because no one can give consent for minor or incompetent benificiaries o a child in gestation is not recognized as a person. o If trust gives property to heirs or next of kin, still no consent needs to be obtained from them. (no heirs while alive)
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Trustee can do almost (sell, mortgage, lease, repair, settle claims) anything except
o (1) self-dealing. [Most important prohibition] o (2) Borrow money on behalf of the trust. o (3) Operate business in trust (unless court ok). Otherwise, trustee would be liable for losses.
Beneficiary has a right to demand accounting. Beneficiary can either ratify or challenge any wrongdoing
evident in the books.
(2) Self-Dealing
1. Five Prohibitions on Self-Dealing (1) cannot buy or sell trust assets to himself.
(2) cannot borrow trust funds (3) cannot lend money to the trust
o Interest from loan must be returned to the trust, and any security given for the loan is invalid.
(4) Trustee cannot profit from serving as trustee, except for appropriate trustee fees.
o Trustee cannot take advantage of confidential information received while trustee.
(1) Beneficiary can sue to remove the trustee. (2) Beneficiary can ratify the transaction and waive the breach. (3) Beneficiary can file a surcharge actionaction to recover losses to the trust. (4) No Further Inquiry RuleBreach of a fiduciary duty by engaging in self-dealing is an automatic wrong
and no further inquiry need be made. o Good faith or reasonableness NOT a defense. iv. Actions Against a Third Party When Trustee Engages in Self-Dealing (1) If sells trust property to a third party, , the beneficiary cannot sue the purchaser of property if BFP for value without notice.
(2) Purchaser must know that she was dealing with a trustee, and that the trustee was engaged in self-dealing.
v. Indirect Self-Dealing
also apply to loans or sales to a trustees relative, business of which trustee has an interest (e.g. SH)
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(2) Even if there is personal liability, the trustee will be reimbursed by the trust if:
o (a) Contract was within powers of the trustee; AND o (b) Trustee was acting in the course of proper administration of the trust.
(5) Trustee does not have to justify the prudence of each investment only in aggregate (6) Specific things to remember:
o (a) Prudence is hindsight only; look at the decision to invest when made, not later. o (b) Trustee can exercise adjustment and allocate capital gains to income. (i) Trustee can switch capital gains into the income category if necessary to protect the income beneficiary, and vice versa. (ii) End goal is fairness to all beneficiaries.
(7) The key to the UPIA is flexibility for maximum total return and distribution between the income and
remainder beneficiaries to be fair to each of them.
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is known. o (b) If there is any possibility, no matter how remote, that an interest could vest more than lives in being plus 21 years, it is void.
NY perpetuities reform statute automatically reduces any age contingencies to 21 years, saving the gift.
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