III. Types of Express Trusts

Question 1

Revocable Trusts

Answer 1

• IRREVOCABLE Unless the settlor has RESERVED THE POWER to revoke or modfy the trust in the trust instruemnt
• MODIFICATION OR TERMINATION allowed only if in writing
• Often used in estate planning as a means to avoid probate costs

Question 2

Modifying a Testatmentary Trust

Answer 2

• Must have a writing that is executed BEFORE OR CONCURRENTLY WITH the will

Question 3

Totten Trust

Answer 3

Trust where individual puts money into a bank in trust with expectation that upon the settlor’s death, it will be given to the beneficiary.

X, in trust for Y.

• Exception to no irrevocability
• Can withdraw some or all of the money during lifetime
• She must pay taxed on the income and creditors can reach it at death to the extent that her probate assets are insufficent
• Can also change the beneficiary

Question 4

Discretionary and Spendthrift Trusts

Answer 4

Used to protect a beneficiary’s interest from the beneficiary’s creditors as well as from their own habits

• trust assets belong to the settlor until the trustee utilized any discretion conferred to distribute funds to the beneficiary
• Assignability of interest okay as long as not forbidden in trust
• Where supprot is implicated, trustee must take into account the assets available to beneficiary but does not need to investigate

Question 5

Exceptions to Spendthrift Trusts Reachability by Creditors

Answer 5

• Creditors may reach anything that the beneficiary can demand (e.g. if the beneficiary can demand 1/2 the assets, the creditors can too)
• Settlor cannot isolate himself or herself using a spendthrift clause (cannot be self-settled)
• Creditor may reach a percentage of beneficiary’s interest in the trust for the following:
  
  • 25% for tort claims, taxes, involuntary services rendered
  • 50% for alimony or child support
• More credit given to those who have trust ceated for them who have sever mentor or physical disability that precedes creation of trust

Question 6

ERISA & Protection of Trust Assets from Creditors

Answer 6

• Plans protected under ERISA set in trust are not reachable by creditors unless a state court issues a qualified domestic relations order in cases of divorce

Question 7

Charitable Trusts: Who can it benefit

Answer 7

Must be set up for PUBLIC BENEFITTING PURPSOES, which is thePUBLIC AT LARGE, not private individuals

Includes:

• Relief of poverty
• education
• religion and ethics
• health and welfare
• maintenance of cemeteries
• prevention of cruelty to animals
• government

E.g. Can leave money for homesless sheleters but not for your homeless relative Bob

If a charitable trust not used for its purpose, attorney general can act through local county district attorney to compel enforcement

Question 8

Charitable Trusts and Rule of Perpetuities

Answer 8

• not subject to RAP
• (e.g. situation where A gives $5 in trust to Charity A, and if not around, to Charity B) valid only as long as the trust corpus can shift only from charity to charity; if it could shift to a private person (even if private person to charity), it is subject to RAP
  
  • although if that private perosn is someone like “medical researchers working on AIDS Projects” that is acceptable

Question 9

Cy Pres

Answer 9

Like purpose–courts may amend a charitable trust under cy pres

• attempt is to comply with inention of settlor. (e.g. trust gives $50k to church 5 years after death; 5 years after death, chruch no longer around; can give to the church where the parishoners moved to)
• OR if given to a disease, and disease is cured, can be shifted to another disease.