Introduction Flashcards
1
Q
Settlor -
- Definition
- can there be more than one?
- other names for settlor
A
- Settlor – a person who creates a trust or contributes property to a trust.
- There can be more than one settlor, if multiple people contribute to the trust, for their portion of the trust.
- Grantor and trustor are synonymous with settlor.
2
Q
Beneficiary
- Definition
- Who can be a beneficiary?
- What kind of ownership does beneficiary have in trust?
A
- Beneficiary - A person for whose benefit property is held in trust, regardless of the nature of the interest.
- A beneficiary may be:
- A current beneficiary
- Future/remainder beneficiary
- Contingent beneficiary
- Ownership – Beneficiary owns equitable title.
- Right to benefits but not responsible for managing the property.
- Beneficiary has the right to enforce the trust.
- A beneficiary may be:
3
Q
Trustee -
- Definition
- What does the trustee do?
- Main Trustee Dueties
- What kind of ownership in trust?
A
- Trustee – See TTC 111.004(18) - “The person holding the property in Trust, including an original, additional, or successor trustee, whether or not the person is appointed or confirmed by a court.”
- The Trustee follows instructions of the settlor (generally found in the trust instrument), guidance in the TTC, and follows various duties under common law.
- If trust instrument is silent, default to the Trust Code.
- TTC creates a fiduciary duty to use reasonable care and utmost loyalty
- Ownership - Trustee owns “legal title”
- Trustee has all the legal ownership, but gets none of the benefits (unless they get a fee).
4
Q
Trust Property -
- funding required?
- trust property defined.
- nominal trust funding.
- trustee receipt of actual legal title.
- identifiable trust property.
- Settlor’s power to transfer property to trust.
A
- Funding Required - A valid trust cannot be created unless it’s funded with “trust property”. TTC 112.005
- Trust Property - property placed in trust by one of the methods specified in Section 112.001 [methods of creating trusts] or property otherwise transferred to or acquired or retained by the trustee for the trust.” TTC 111.004(17)
-
Nominal funding is sufficient – i.e., $1
- Dry Trust – term used for a trust which is not funded.
-
Legal Transfer to Trustee - It’s not enough for the Settlor to simply sign the trust instrument
- Legal title must reach the hands of the Trustee.
- Settlor must consummate this intent by actually transferring or delivering the property.
-
Settlor’s Power to Transfer - Settlor must have the power/legal right to transfer property to trust.
- If Settlor transfers property he/she doesn’t own, then trust is not funded.
- Minors can’t legally transfer their interest in property.
-
Property must be identifiable:
- Should probably identify the account as “______ Trust Account” to avoid issues.
5
Q
Legal Title vs. Equitable Title
A
-
Legal Title –
- Held by the Trustee
- Manages property in light of state law and the Settlor’s instructions in the trust instrument.
- Owns and manages property for the equitable interest holder
- Fiduciary duties owed to Beneficiary/equitable interest holder
-
Equitable Interest –
- Held by the Beneficiary
- Beneficiary has right to enjoyment of trust property per the trust instrument.
- Not unrestricted benefit – because doesn’t own property
6
Q
Merger Doctrine
A
-
Legal title and Equitable interest can’t be united in one person.
- If so, trust ceases to exist/terminates.
- Exception - If legal title and all equitable interest become united in the beneficiary (except for the Settlor) of a spendthrift trust, then the court “shall” appoint a new trustee or co-trustee (see TTC 112.034(c))
7
Q
Methods of Creating a Trust
A
- A property owner’s declaration that the owner holds the property as trustee for another person;
- A property owner’s inter vivos transfer of the property to another person as trustee for the transferor or a third person;
- A property owner’s testamentary transfer to another person as trustee for a third person;
- An appointment under a power of appointment to another person as trustee for the donee of the power or for a third person.
8
Q
Types of Trusts
A
-
Inter Vivos Trust
- Created by Settlor to take effect during Settlor’s lifetime
-
Testamentary Trust
- Created by Settlor to take effect at Settlor’s death through Settlor’s will.
- The will itself must be valid
-
Revocable Trusts (sometimes called “Living Trusts”)
- All trusts are presumed revocable unless trust document states otherwise (TTC 112.051)
- Can be revoked and/or amended at any time while settlor is alive and competent.
- Exceptions
- No Revocable Testamentary Trusts
- a contributor to the trust (i.e. a contributing settlor) who did not create the trust, cannot revoke the trust.
- Exceptions
- May avoid probate, but doesn’t remove property from settlor’s estate for estate taxes
- Usually doesn’t file a separate tax return – disregarded by IRS
-
Irrevocable Trusts
- Cannot be revoked
- To be irrevocable, trust document must say so (TTC 112.051)
- Generally avoids probate and generally removes property from settlor’s estate for estate taxes.
- A Revocable Trust can become irrevocable after an event.
- Files a separate tax return (IRS form 1041)