2. Types of Trusts Flashcards
Are trusts presumed to be revocable or irrevocable?
All trusts are presumed to be irrevocable, unless the trust explicitly authorizes revocation.
Reasons to have a revocable lifetime/inter-vivos trust:
- Manages assets efficiently, particularly using a professional trustee.
- Helps plan for possible incapacity by avoiding a guardianship proceeding in the future.
- Avoids probate
Reasons NOT to have a revocable lifetime/inter-vivos trust:
- Does not avoid taxes
- If a settlor keeps an income interest, or keeps a
power to revoke, the full trust assets will be included in the settlor’s gross estate for federal estate tax purposes.
Pour-Over Gifts
Testamentary gifts (Gifts made in a will) to an existing revocable trust.
Key requirements for a “pour-over” gift to a trust
to be valid:
- The trust must be in existence, OR
2. Executed concurrently with the will.
There are two (2) ways an insured can make life insurance proceeds payable to a trust:
- Insured can create an unfunded revocable insurance trust and name the trustee of the trust as policy beneficiary.
- Have the trust be a testamentary trust and have the life insurance policy contract name “the trustee named in my will” as the
beneficiary.
What is a Totten Trust?
The Totten Trust is a bank account in the depositor’s name “as trustee for” a named beneficiary.
Two (2) key things to remember about Totten Trust accounts:
- Depositor makes deposits and withdrawals as he or she wishes during the depositor’s lifetime.
- Beneficiary has no beneficial interest during the
depositor’s lifetime, but gets whatever is in the account
when the depositor dies,
What particular words are required to create a Totten Trust account?
No particular words are required to create a Totten Trust account.
Four (4) ways to revoke a Totten Trust account:
- Withdraw all the money in the account.
- An express revocation made during lifetime by depositor making a writing naming the beneficiary and the institution and having the revocation notarized and delivered to the bank.
- Revocation in a will; must comply with same requirements for revocation during lifetime.
- Death of the beneficiary;
also results in having the Totten Trust revoked, and the money in the account goes free and clear to the depositor.
Can the depositor of a Totten Trust account change the beneficiary?
Change of beneficiary can be made by the depositor,
BUT it must be done the same way as a revocation
(Notarized statement sent to the financial institution, naming the old beneficiary and the new one.)
When can creditors of the depositor reach the To
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.
Example of language used to create a joint bank account:
“John and Jane with Right of Survivorship”
When can language of survivorship in a bank account possibly be set aside?
If clear and convincing evidence shows that a survivorship was not intended when the account was established, and that the account was opened only as a matter of convenience to the depositor, then the survivorship language can be set aside.
How much does each joint account holder own?
Each joint account holder owns one half of the joint account, no matter who deposits the money, and if one person makes the entire deposit it is considered a gift of one-half to the other account holder.