Code II - Trusts

Question 1

What is a trust?

Answer 1

A trust is a realtionship resulting from the transfer of title to property to a person to be administered by him as a fiduciary for the benefit of another.

Question 2

Who is a settlor? Who is a trustee?

Answer 2

A settlor is a person who creates the trust. A trustee is the person to whom title is transferred and who manages the assets. The trustee can be named by the settlor in trust instrument/chosen in manner directed by instrument.

Question 3

Who can be a trustee?

Answer 3

1. Natural person must be U.S. citizen; 2. Insititutional trustee (FDIC-insured); 3. Charities; 4. Settlor can be trustee and beneficiary. 5. Trustee’s selection of the attorney to handle legal matters involving the trust is not binding on the trustee.

Question 4

Who is a beneficiary?

Answer 4

Person for whose beneift the trust is established. Must be in being and ascertainable when the trust is created.

Question 5

What is an income beneficiary?

Answer 5

Person entitled to income of trust in accordance with the trust guidelines. Trustee may select amoung ncome benefiricaries to distribute income; Trust Codes permits successive and concurrent income interests; trustee must distribute income unless authorized to accumulate; Can invade principal for income beneficiary under objective standards.

Question 6

What is a principal beneficiary?

Answer 6

Person entitled to principal or property that is in trust.1. Trust Code does not permit successive principal interests, except as a condititonal substitution. 2. Class trusts may include future members of the blass not yet in being when trust is created.

Question 7

What is the proper court for actions arising under inter vivos trusts and the Trust Code?

Answer 7

1. Inter vivos trusts: if settlor does not choose a court, then any of these: district court in which the settlor was domiciled; district court of parish where trustee is domiciled; district court where an agent for service is domiciled. If no court satisfies the criteria above, then the proper court shall be the Nineteenth Judicial District Court.

Question 8

What is the proper court for testamentary trusts?

Answer 8

Proper court shall be the district court of the parish having jurisdiction over the settlor’s succession, unless se separate court is agreed to by all trustees, beneficiaries, and living settlors.

Question 9

What kinds of trusts are there?

Answer 9

1. Inter vivos; 2. Testamentary; 3. Revocable/irrevocable–if revocable becomes irrevocable upon the death of the settlor. 4. All trusts are considered irrevocable unless the settlor reserves the right to revoke or modify.

Question 10

Can a settlor delegate the poer to revoke or terminate the trust?

Answer 10

Yes, a settlor can delegate but only by an express statement in the trust or in a power of attorney executed in authentic act referring to the trust.

Question 11

What are the form requirements for an inter vivos trust?

Answer 11

1. Must be executed in the presence of a notary public and two witnesses; or by act before two witnesses and duly acknowledged by the settlor or one of the witnesses.

Question 12

What are the form requirements for a testamentary trust?

Answer 12

Testamentary trusts must be in the form of a will; part of the testment. Only need intent to establish trust, do not need to follow any special language.

Question 13

Does the trust instrument need to be recorded?

Answer 13

Not unless the trust owns immovable property–then the extract must be recorded in parish where property is located, and include info.

Question 14

When is the trust effective?

Answer 14

1. Testamentary–at the date of death. 2. Inter vivos–at the execution of the trust. If the trustee fails to accept, the court will appoint a trustee; the trust is not invalidated.

Question 15

What duties relating to the trust can be delegated?

Answer 15

1. A trustee, by power of attorney, may delegate the performance of ministerial duties and acts that he could not reasonably be required to perform personally

Question 16

Who can amend a trust?

Answer 16

A trust instrument may indicate that a person other than the settlor can modify provisions of the trust including the right to add or remove beneficiaries or modify their rights, but only if the beneficiares whose rights are affected are descendants of the person given that authority.

Question 17

Who can revoke a trust?

Answer 17

A settlor who has reserved the right to revoke a trust may delegate that right but only by an express statement in the trust instrument or in the power of attorney executed by authentic act referring to the trust.

Question 18

How does acceptance of the donation work?

Answer 18

1. A trustee accepts the donation in trust for the beneficiaries. 2. A beneficiary may refuse the interest in trust, in whole or in part. 3. Acceptance as trustee is different from accpetance of gift.

Question 19

How does a usufruct compare to income interest in trusts?

Answer 19

Income beneficiary and usufructary have different rights; e.g., ability to alienate and encumber assets; duty to account; reinvestments.

Question 20

Can a legitime be placed in trust?

Answer 20

Yes, special rules apply. Income attributable to legitime need only be distributed as needed for the health, education, support and maintenance of the forced heir, after considering all other income and support.

Question 21

What is a spendthrift provision?

Answer 21

Beneficiary cannot alientate or encumber his interest in the trust; and the trust income and principal are exempt from seizure by creditors of beneficiary. Need only use the word spendthrift to make it a spendthrift trust. Court MAY permit seizure to pay alimony, child support and damages arising from a federal crime committed by the beneficiary which results in conviction/plea of guilty. 4. Legitime in trust may be subject to income interest/usufruct of surviving spouse of settlor; 5. Duation of legitime in trust may be for life of forced heir, cannot exceed the forced heirs life, except when subject to income interest or usufruct of the surviving spouse.

Question 22

What is a conditional substitution?

Answer 22

Vesting of the interest of a principal beneficiary in a named substitute beneficiary if the beneficiary dies without descendants during the term of the trust.

Question 23

What is a shifting principal interest?

Answer 23

A conditional substitution may result in shifting principal interest, but as to a forced heir, it may only do so where the beneficiary dies intestate and without descendants.

Question 24

How is a trust terminated?

Answer 24

If a principal beneficiary dies before termination, his trust interest vests in his heirs or legatees, as the case may be.

Question 25

What is the trustee’s right to terminate?

Answer 25

A trustee may have the right to termiante the trust, in whole or inr part, earlier than its designated termination date. The authority to terminate must be granted in the trust. However court may modify or terminate trust if continuance would defeat or substantially impair the purposes of the trust.

Question 26

What are the terms for trusts?

Answer 26

Trust cannot remain in effect forever. 1. Death of last income beneficiary or 20 years from death of settlor; 2. Death of last income beneficiary or 20 years from trust’s creation; 3. 20 years from death of natural person settlor and juridical person income beneficiary; 4. 50 years from trust’s creation if juridical person settlor and income beneficiary.

Question 27

What are the powers of the trustee?

Answer 27

Buy, sell, lease (beyond terms of trust), and mortage; borrow funds and obligate the trust.

Question 28

What are the duties of the trustee?

Answer 28

1. Trustee is a fidcuary, with duties of loyalty; must act as a reasonably prudent person would. 2. Must not self-deal or delegate certain powers.

Question 29

What are class trusts?

Answer 29

A class trust can be created with respect to all or a portion of income or principal, or both, but the members of the class must always be the sole beneficiaries of the portion of the trust of which they are beneficiaries.

Question 30

What relations are allowed in class trusts?

Answer 30

1. Relations allowed in class trusts–by blood or adoption. 2. At least one member must be in being when the class is created. A deceased member’s interest vests in his heirs/legatee unless the trust provides otherwise.