Fiduciary & Trust Section #1 Nature & Characteristics Of Account Relationships Flashcards
‘2 sources of trustee governance
- governing trust instrument
- State trust law
2 important references for trust professionals
- Restatement of trusts (3rd). Synthesizes court cases and opinions, explains history, nuance, importance of each principle 1935 → 2012 American law institute
- Uniform trust code attempt to codify and provide consistency across jurisdictions
Uniform Law Commission
Legal title to property
Owner of public record
Equitable title to property
Owner is entitled to use and enjoy property
Aspects of ownership in trust
Split
Legal interest (legal title) = holding title to property. (trustee of a trust)
Beneficial interest (equitable title) = receiving economic benefit (use) of property. (Beneficiary of trust)
Present interest-holder has current use, benefit or control of property
Future interest-holder has rights to property in the future
2 types of implied trusts
- Constructive trust = fraud rectifying trust
- Resulting trust = intent enforcing trust
5 common law requirements for valid express trust
l. Intent to create trust by legally competent settlor
2. Present act or declaration by settlor
3. Existence of trust corpus
4. Naming trustee with duties to perform
5. Definite and identifiable beneficiaries
Types of express trusts
Revocable enables settlor to retain control of assets
Irrevocable cannot be revoked, terminated, amended without court order
Intervivos and testementary While alive or under will
Types of marital trusts (Qualify for unlimited marital deduction)
Power of appointment trust
Qualified terminable interest property trusts
Qualified domestic trusts
estate trusts
Power of appointment trust
Surviving spouse
general power of appointment
must be entitled to all income
Income payable at least annually
no other beneficiaries during surviving spouse’s lifetime
QTIP trust
Similar to power of appointment trust w/o general POA
Surviving spouse entitled to all’ income during lifetime
no one can benefit from principal during surviving spouses lifetime
Donor spouse retains dispositive control
QTIP election made on timely filed 706
Surviving spouse may be given limited power of appointment by donor spouse
Estate Trust
Surviving spouse and his/her estate are only allowable beneficiaries
Trustee may distribute as much of income and principal as needed
Income distributions not a requirement
Upon surviving spouses death, must go to estate
Surviving spouse may not appoint trust property during lifetime
Qualified Domestic Trust (QDT or QDOT)
At least one trustee must be US citizen or corporation
US trustee has right to withhold federal tax
Executor of donor spouse makes irrevocable election
A~B Estate Plan
Creates 2 trusts at death of first spouse
Credit Shelter/ Bypass/Family trust = assets equal to deceased spouse unused unified credit
Marital trust = everything else. Will qualify for unlimited marital deduction
No tax at death of first spouse
Bypass trust assets go to next generation tax free at second spouse death
Portability of unused exclusion
Income beneficiaries
Beneficiaries that may benefit from income generated by trust corpus
Also called current beneficiaries
Remainder beneficiaries
May benefit from trust corpus in the future
Split interest trust
Income and remainder interests split between 2 classes of beneficiaries
Charitable remainder annuity trust
Charity is remainder beneficiary
Noncharitable beneficiary annual income stream. ( must be between 5 ~ 50% of initial fmv of trust)
Charitable remainder unitrust
Charity is remainder beneficiary
Annual payment to noncharitable beneficiary ( must be between 5~50 % of annually determined fmv)
Charitable lead trust
Charitable beneficiaries receive stated amount each year
Noncharitable beneficiaries get remainder interest
Grantor retained income trust
Grantor receives trust income for fixed term
Corpus passes to remainder beneficiaries without being included in grantors estate
Gift tax based on remainder interest, income retained by grantor
Corpus of GRIT limited to personal residence of grantor and remainder beneficiaries immediate family members
Grantor retained annuity trust
Grantor retains right to fixed annuity payments
Remaining corpus to remainder beneficiaries
Value of gift discounted by value of income stream
Corpus not limited to particular asset type
Grantor retained unitrust
Grantor receives fixed % of value of trust corpus each year
Crummey Trust
Effective vehicle for making annual exclusion gifts
Trust beneficiaries are given powers of withdrawal for a limited time
If the right of withdrawal is not exercised, does not count against annual exclusion because there is no gift of present interest
Spendthrift trust
Prohibits beneficiary from assigning interest in the trust, either voluntarily or involuntarily
Provides protection from creditors
Trustee can withhold discretionary distributions
Trustee must still make mandatory distributions
Not effective against child support claims, spousal support, tax liens
Uniform Probate Code
General principles of probate code, issues pertaining to estate adminstration
Personal Representative
Fiduciary of both estate and beneficiaries
Executor = decedent died with valid will
Administrator = decedent died without will
Personal representative = broad term including both
Authority begins day probate court issues letters of administration
Duties of personal representative
Locating & presenting will for probate
Locating heirs
Collecting & preserving estate assets
Prosecuting decedents lawful claims
Inventory
Accountings
File decedents final tax returns
File estate returns (elections - portability, QTIP, etc)
Distribute assets
Guardian
Court appointed fiduciary that exercise authority over physical custody of incapacitated person
Conservator
Court appointed fiduciary manages financial affairs of incapacitated person
Custodian
Maintains and secures principal’s assets. No fiduciary dut.
Power of attorney
Written document where principal grants agent authority to act for agent
Can be general or limited
Financial or health care
Agent vs fiduciary
Agency title remains with principal
Agency death of principal terminates relationship
Fiduciary (trust) trustee assumes legal ownership of property
Precatory language
I desire, I request
Do not create legally enforceable duty on trustee
Types of Present Interest
Fee Simple - present & future interest. Outright ownership
Life Estate - use of property for life, terminates at death of holder, at holders death reverts to grantor or predetermined remainder person MARITAL TRUST IS LIFE ESTATE
Estate for Years - Holders use is limited to specified term of years, at holders death property reverts to grantor or predetermined remainder person. GRAT. QPRT.
Determinable Interest - upon occurrence (or failure of occurrence) rights revert to grantor or another predetermined remainder person. AGE, GRADES, DRUG FREE
Types of Future Interest
Reversionary - property will, or may be, returned to original owner
Remainder - property will, or may, pass to successive owners at a given time or occurrence of event
Sole Ownership
Titled in name of 1 person
Transfers under decedents will or intestate estate
Subject to probate
Full step up
Joint Tenancy
Ownership by multiple individuals
Right of survivorship to surviving joint tenants-different than tenants in common
Decedents share passes to surviving tenants by operation of law
Not subject to probate
Step up divided by recipients
Tenancy by Entirety
Form of joint tenancy only between SPOUSES
Avoids probate
Tenancy by Entirety
Form of joint tenancy only between SPOUSES
Avoids probate
Tenants in Common
Owned by multiple individuals
Each have separate but undivided interest
No survivorship rights
Subject to probate, unless decedents share held in non probate form of ownership
Tenants in Common
Owned by multiple individuals
Each have separate but undivided interest
No survivorship rights
Subject to probate, unless decedents share held in non probate form of ownership
Community property
All property acquired by spouses by joint efforts after marriage
Differs from separate property
WA, WI, NV, NM, TX, CA, ID, LA, AZ
Probate ( Passes by Will)
⏺️ Sole ownership
⏺️ Tenants in Common
⏺️ Community property
Avoids probate
⏺️ Joint Tenancy
⏺️ Tenants by Entirety
⏺️ Contract property w/ valid beneficiary
⏺️ Living Trust property
