Intro Trusts Flashcards
Trust
A way to give property to one person (the trustee) to manage for and distribute to another person (beneficiary)
The trustee has
rights associated with legal title, such as right to manage the assets and distribute them to the beneficiary
Beneficiary
retains rights to use the assets and enjoy the assets for her own benefit
Trustee may not use the assets in the trust for her own benafit, as doing so would
constitute self dealings and violate one of the trustees fiduciary duties
People in the 3 way triangle consisting of the settlor, trustee, and beneficiary
any of the three persons can be occupide by more then one person
For a valid trust there must be at least 1 beneficiary who is
not also a trustee
except with inter vivos trust or new forms of asset protection trusts
3 advantages of a trust
- The donor can benefit someone without giving that person direct access to funds they may not be well equipt to handle
- allows a donor to plan ahead for the donors own incapactiy
- can provide asset protection and shield the beneficiary from creditors and their claims against the trust assets
2 categories of trusts
- revocable trusts
- irrevocable trusts
Revocable trust
AKA living trust or inter vivos trust
- can be revoked or amended by the settlor at any time
- is a will substitute
Trust should state whether it is
revokable or irrevocable
- if revocable, it should specify the procedure
If the settlor wants to revoke the trust, the settlor can
email (or snail mail) the trustee to state that hte trust is revoked
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What if the trust instrument fails to indicate whether the trust is revokable or irrevocable?
provides that the trusts are presumed revocable unless the trust instrument “expresssly” provides that the trust is “irrevocable”
- The assumption is that a settlor would more likely to intend to retain the power to revoke the trust
How having personal property in a revocable trust makes no difference to a persons daily life
- the settlor is usually the trustee and beneficiary
- the trust will provide for a successor trustee under certain incapacity and names future beneficiary
- as long as the settlor is alive and competent, all activities and transactions go on as normal
If the client owns property in another state, what may be a good idea?
- a revocable trust, because if the property is in a revocable trust, ancillary probate is not necessary
Irrevocable trusts arise in 3 ways
- often are drafted by lawyers as a form of tax planning
- any testamentary trust (created by a will)
- a revocable trust becomes irrevocable upon the settlors death
Testamentary trusts are created by
a will and comes in to existence upon the testators death
“pour over trust” is essentially
a standalone trust that recieves assets that the will “pours into” at the testators death
Charitable trusts
4 key differences between charitable trusts and the private trusts
- unlike private trusts, charitable trusts do not have identifiable beneficiaries (they benefit groups of people OR charaitable purposes)
- charitable trusts recieve tax exemptions
- because no identifiable beneficiaries to enforce their terms, charitable trusts are overseen by the attourney general of the state which they operate in
- charitable trusts last forever, while there are rules for how long private trusts can last
In general, remedial trusts arise when
someone made a drafting error in a will, when someone acquired property through fraud, or when a trust fails.
- They are not actual trusts, they are legal fictions that exist to fix a problem or remedy a fraud
remedial trusts
2 important things to remember
- they are not trusts
- a lawyer would never create any of these on purposes
3 remedial trusts
- constructive trusts (think fraud)
- resulting trust ( assets with nowhere to go)
- merger (two becomes one)
remedial trusts
constructive trust (think fraud)
A court can impose a constructive trust on property someone has acquired through fraud, and creates the legal fiction that it being held for the rightful owner
- important because cts arent allows to take away property to giv eto rightful owner
Remedial trusts
Resulting trust (assets with nowhere to go)
arises from
faulty drafting and the failure to think ahead
- this trust by operation of law happens when a trust fulfils its purpose and there are still funds remaining in the trust
- The funds or property returns to settlor or is distributed through the settlors estate if they are dead
Remedial trusts
merger (two become one)
occurs when
the trustee and the sole beneficary becomes the same person
and the trust property/funds is now the persons property in fee
- merger would not occur if the trust provides for the beneficiary’s decedent, even if they had no descendants when the co-beneficary/settlor died.
Trusts allow the trust settlors to
- avoid probate
- keep assets secure from taxation, AND
- ensure continual management of property
Real estate investment trusts (REIs)
a company that pools the capital of multiple investors to purchase, operate, or finance income-generating real estate
- so, individual investors earn dividends from real estate investments without having to but, manage, or finance any properties themselves
Private trusts are a popular way for individuals to own real estate, esp. if they
do not want to divulge their identies
The settlor
The person who transfers legal title of the assets to the trustee to be held in trust
The trustee
The person who has legal title to the trust assets and manages them for the benefits of the beneficiary
The trustee has a fiduciary duty to the
beneficiary and can be sued for breach of that duty
Trustee can be a
person or instution (like a bank)
number of trustees a trust can have
more then 1
if settlor fails to appoint a trustee
a court will
” a trust will not fail for lack of trustee”
Although the trustee is a essential element, if the purpose and the beneficiaries are clear, a court can appoint someone to administer the trust
The beneficiary has euitable title to the trust property
means she may use it for her benefit and enjoyment according to the terms of the trust
how many beneficiaries can you have
may have more then 1 beneficiary and may have present and future beneficiaries
The trust protector may exercise
certain specified powers over the trust and trustee
the trust procetor is given the power to
- remove and replace trustee
- can add beneficiaries
- terminate trust
Trust protector is a advisable way to
keep an eye on the trustee or add flexability to a trust that is intended to last for many generations
The trustees fiduciary duty is meant to
protect beneficiaries from tortious/malfeasence and abuse
A completely drafted instument will
name a trustee or trustees (and will contain provisions for removing and replacing the trustee without necessity of court intervention)
A trust will not fail for lack of a trustee, but
a court will be involved if no trustee is named
Intent
attourney should use the word
“trust”, to show the intent is clear
- bc trust can be difficult to distinguish from others like gifts or other
declaration of trust
the question of the intent of a person who signed an instrument
Main purpose of a trust
To ensure that the settlor’s assets are managed according to the settlors wishes and for the benefit of beneficiaries
