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.
Three (3) reasons to make a gift to a minor under
UTMA:
- It avoids a guardianship proceeding,
- It avoids a trust, and the costs associated,
- It qualifies for the $14,000 per donee annual exclusion from federal and state gift tax.
How are gifts made under the Uniform Transfers to Minors Act?
Gifts under UTMA must be made to a custodian and it must specify that it is made under the New York Uniform Transfers to Minors Act.
May UTMA gifts be made in a will?
Yes, so long as the same required statutory language is used.
Duties of an UTMA Custodian:
- Hold, manage and invest the property under a prudent person standard;
- Pay over to the minor or for the minor’s 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.
UTMA tax consequences:
- If donor names himself or herself as custodian then the amount of the gift is includible in the custodian’s gross estate for federal and state estate taxes.
- If donor names someone else as custodian, then the amount of the gift is not includible.
Requirements for beneficiaries of a charitable trust:
Charitable trusts must have indefinite beneficiaries, and they must be a reasonably large group.
Requirements for the purpose of a charitable trust:
Charitable trusts must be for a charitable purpose.
Are charitable trusts subject to the RAP?
No
Cy Pres
If the stated purpose of the charitable trust can no longer be accomplished, or the designated charity goes out of existence, the court may use this to make the trust be as near as possible to what the settlor wanted.
Honorary Trusts:
Where no human being is the beneficiary of a private (i.e., non-charitable) trust.
Are pet trusts valid in NY?
Yes. A valid pet trust can last for no longer than the duration of the pet’s lifetime.
Are cemetery trusts valid in NY?
Trusts for perpetual care and maintenance of cemeteries and burial plots are classified as charitable trusts and are OK even though they have no human beneficiaries.
Constructive Trusts
Are just a flexible equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct.
Trustee’s duty in a constructive trust:
The “trustee’s” only duty is to convey the property to
the person who, in equity, should have the property.
Purchase Money Resulting Trust
A purchaser buys property and has title put in someone else’s name (who is not a relative); later, purchaser claims no gift was intended and asks title holder for title to the property and the title holder refuses.
Most states would find this situation to create a
PMRT which allows the purchaser to compel the title holder to give up title; NOT New York
When is the only time that NY will allow a Purchase Money Resulting Trust?
If there is clear and convincing evidence that the grantee had expressly or impliedly promised to reconvey the land to the purchaser, then a constructive trust can be imposed to benefit the purchaser.
The statutory spendthrift rule protects a trust beneficiary’s interest from creditors by:
Prohibiting voluntary or involuntary transfer of the beneficiary’s interest
New York’s Statutory Spendthrift Rule:
New York has a special statutory rule that protects all income interests in trusts with spendthrift protection even if the trust instrument does not contain a spendthrift clause.
Can a spendthrift clause protect the remainder beneficiary?
To provide spendthrift protection to the Remainder Beneficiary (i.e., the one who gets the principal) the spendthrift clause must be expressly stated in the trust.
Five major exceptions to spendthrift clauses:
- Creditors who furnish necessities (Food, clothing or shelter)
- Child support and alimony
- Federal tax liens.
- Excess income beyond that needed
for support and education - The 10% levy provided by CPLR § 5205(e).
Self-Settled Trust Rule as a big limitation on a spendthrift clause:
Spendthrift protection does not apply to any interest
retained by the settlor
