Final Study Guide Notes Flashcards
A spendthrift trust includes a provision that protects the (1) and (2) from (3) and (4). It restricts the trust assets as musch as possible by law, in such a way that they do no become the beneficiary’s until (5).
- trust principal
- unpaid income
- creditors
- the beneficiary’s own foolishness
- he receives income or portion of the principal
Two basic types of stand-alone (non-testamentary) trusts
- revocable (intervivos/living)
2. irrevocable trusts
5 required trust elements
- trustor
- trustee
- trust property
- beneficiary/ies
- trust purpose
person who establishes the trust. Must have capacity. Can be a legal entity.
trustor
individual or legal entity given legal title to trust property. Needs contract capacity.
trustee
7 duties of trustee
- General standard of care; must use special skills.
- Must act impartially; cannot act in self-interest.
- Must make a reasonable effort to resolve conflicts
- Must try to verify facts (can use professionals, docs)
- Must keep 25+ benes informed
- May rely on previous trustee’s info
- Special standards for uncompensated trustees
ESSAY: Compare/contrast legal and equitable title
Legal title is granted to the trustee by the trustor, and is the right of ownership. It includes the right to buy, sell, mortgage, lease or do with the property other things permitted in the trust agreement. This right, however, is for, and subservient to, the equitable title granted to beneficiaries. This is the right to benefit from and enjoy the property, and can include receiving income from the trust as well as portions of the principal. No capacity is required to hold equitable title.
If there is more than one beneficiry to a trust, they will hold equitable title as (1)
- tenants in common
A trust may be created for any (1) except if it will violate (2) or (3). It must be (4) in order for the agreement to be valid.
- any lawful purpose
- criminal laws
- civil laws
- clearly stated
Express trusts are (1). They can be (2) or (3) but fail without a (4).
- deliberately created by the trustor
- written
- oral
- clearly stated trust purpose
Implied trusts are created (1) and to avoid (2). The two types are (3) and (4).
- by operation of law
- unjust enrichment
- resulting
- constructive
ESSAY: Compare/contrast resulting and constructive trusts.
Both types of trusts are implied trusts created by operation of law. Resulting trusts arise when an express trust fails, and it prevents a situation in which the trustee holds legal titlte based on the trustor’s intent, with no beneficiary holding equitable title. The court imposes a resulting trust with the former trustee and beneficiary. A constructive trust arises when a person has title to property under circumstances involving fraud or wrongdoing–for example, if the beneficiary kills the trustor to inherit sooner, the courts will impose an implied trust with a more appropriate beneficiary, to avoid unjust enrichment.
ESSAY: Compare/contrast irrevocable, revocable and testamentary trusts
A testamentary trust is part of the testator’s will and is only effective upon death of the testator, and upon validation of the trust and appointment of the personal representative in probate. Revocable and irrevocable trusts are both types of intervivos/living trusts. They usually take effect during the trustor’s lifetime and upon execution. They are not part of probate proceedings. Revocable trusts can be changed, amended or terminated anytime during the trustor’s lifetime. The trustor may also be a trustee, and can maintain control of the funds. The main reason for a revocable trust is to get property out of the trustor’s name to avoid probate upon death. The reason for an irrevocable trust, by contrast, is usually to avoid federal estate taxes by relinquishing control of the property–meaning the trustor cannot also be the trustee. An irrevocable trust cannot be amended or terminated by the trustor.
ESSAY : Compare/contrast pourover trusts and testamentary trusts
Testamentary trusts are part of the testator’s will and is effective upon death of the testator, and upon validation of the trust and appointment of the personal representative in probate. They are usually used to establish a trustee for maintenance of beneficiaries, such as children, who may spend the money unwisely. A pourover will is a provision in the testator’s will and also effective upon the testator’s death, but by contrast, it doles out all remaining property in a will (residuary) to a living trust that is already established, thereby taking it out of the jurisdiction of the probate court.
3 main purposes for establishing a trust
- avoid taxes
- direct where assets go (how and to whom)
- avoid probate (thus, time, money, publicity)
ESSAY: 5 situations in which trusts may be terminated
- trust’s purpose has been fulfilled
- trust’s terms require termination after a period of time
- trust allows for revocation by the trustor
- legal title and equitable title of the trust are hold solely by the same person
- beneficiaries agree that the trust’s purpose does not require the continuation of the trust
3 basic advantages to sprinkling (spray, discretionary) trusts, which give the trustee discretion over distribution to a group of beneficiaries
- helps for unforeseen/unforeseeable circumstances
- built-in spendthrift provisio
- may save estate taxes
Marital trusts take advantage of the (1). It starts as (2) but the document allows for, upon death of one spouse, the trust assets to be (3), with the beneficiary of each as the (4) and the children as (5). One portion becomes (6) and is called the (7); it is funded with (8) and the surviving spouse has (9) to insure it will not be (10). The remainder of the assets are usually (11.)
- unlimited marital deduction (one-time)
- one trust
- divided into two portions
- surviving spouse
- remainder benenfiaries
- irrevocable
- bypass trust/credit shelter trust
- the deceased spouse’s exemption amount
- limited control over the assets
- taxable upon her death
- given outright to the spouse
A qualitifed terminable interest property trust (QTIP) is a (1) that allows the trustor to create a trust giving a (2) of all the (3) of a trust to a (4), with the (5) of the trust property passing to someone else upon (6). These are particularly useful for (7).
- tax provision
- life interest
- income of the trust
- surviving spouse
- remainder
- surviving spouse’s death
- second marriage where the trustor wants to ensure the children are taken care of
An ILIT is an (1) that is (2), with the trustor as the (3). Upon death, (4).
- irrevocable trust
- named beneficiary of a life insurance policy
- the insured
- the insurance company pays the proceeds directly to the trust
Charitable trusts benefit (1) rather than (2) and are also called (3).
- the public at large
- individuals
- public trusts
3 requirements of a charitable trust
- must be for religious, scientific, charitable, literary, educational purposes
- trustor must intend to create a public trust
- beneficiaries must be an indefinite class (no ascertainable individuals)
The cy pres doctrine allows a (1) to find a charity with (2) to give the charitable trust (3) and (4). Use of the doctrine is dependent on whether the trustor’s intent was (5) or (6).
- court
- same/similar purpose
- income
- principal
- specific
- genereal
Tottten trusts, aka (1), are (2) opened by a (3) for the benefit of a (4). During the depositor’s lifetime, (5). After death, (6).
- pay-on-death accounts
- savings accounts
- depositor/trustee
- beneficiary
- the depositor is the rightful owner and may use the assets
- the money automatically passes to possession of the bene and does not become part of the depositor’s estate
