More Trusts/Trust Alternatives

Question 1

What are 3 reasons to make a gift under the Uniform Transfers to Minors Act?

Answer 1

1. It avoids a trust
2. It avoids a court supervision
3. It qualifies for the $14,000 per donee annual exclusion from federal and state gift tax

Question 2

What does a UTMA gift require?

Answer 2

To be made to a custodian (can’t be directly to the minor) AND
Must specify that it is made under the state UTMA

Question 3

Can you make a UTMA in a will?

Answer 3

Yes, so long as the same statutorily required language is present

Question 4

What are the duties of a UTMA Custodian?

Answer 4

1. Hold, manage, and invest the property under a prudent person standard
2. Pay over to the minor or for the minor’s needs what part of the property that the custodian deems advisable
3. Pay what is left of the property to the minor when he turns 21

Question 5

Who holds legal title in a UTMA?

Answer 5

The minor

Question 6

What are the tax consequences of a UTMA if the donor names himself Custodian?

Answer 6

The amount of the gift is includible in the custodian’s gross estate for federal and state estate taxes

Question 7

What are the tax consequences of a UTMA if the donor names someone else as custodian?

Answer 7

Then amount of gift is NOT includible

Question 8

What are the requirements for the beneficiaries of a Charitable Trust?

Answer 8

They must have an indefinite number of beneficiaries, they must be a reasonably large group, and the beneficiaries cannot be specifically named persons.

Question 9

Settlor creates a trust to pay the income for the health care and costs of education to “all my children” for life, and on his death distribute the principal to “all my grandchildren” to improve their health and education. Is this a valid charitable trust?

Answer 9

No, because the beneficiaries are a small group of identificable beneficiaries.

Question 10

What must the purpose of the charitable trust be? q

Answer 10

A charitable purpose, health, education, religion etc.

Question 11

Are charitable trusts subject to the Rule against Perpetuities?

Answer 11

NO

Question 12

How do you change the purpose of the charitable trust?

Answer 12

Via the Cy Pres Doctrine, if the stated purpose of the charitable trust can no longer be accomplished or the designated charity no longer exists, the court may use this to make the trust as near as possible to what the settlor wanted.

Question 13

Who has the duty of representing the beneficiaries of a charitable trust?

Answer 13

The Attorney General: b/c he is an indispensible party to any suit on construction or enforcement of a charitable trust, and has standing to sue to enforce the trust’s terms

Question 14

What is an Honorary Trust?

Answer 14

Where no human being is the beneficiary of a private trust. INVALID unless Trustee is willing to carry out the trust terms.

Question 15

A private trust must have a human beneficiary. Are there any exception in IL?

Answer 15

Yes, Pet Trust exception. Courts will allow Pet Trusts to be made valid for the dog, and will appoint a Trustee to enforce the trust.

Question 16

When does a Pet Trust end? Does RAP affect it?

Answer 16

Pet Trust ends when pet dies, and the balance of the trust property is distributed to either the residuary estate or, if none, the Settlor’s heirs.

Pet trusts are exempt from RAP.

Question 17

Are Cemetery trusts valid?

Answer 17

Yes, in IL can have a trust for perpetual care and maintenance of burial plots, but this is classified as a charitable trust.

Question 18

What is a constructive trust?

Answer 18

It is just a flexible equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct.
“Trustee’s” only duty is to convey the property who, in equity, should have the property

Question 19

In 1992, M executes a will to her bros A&B. in 2005, M now hates A&B, and goes to Lawyer to change the will to give all her property to C. Lawyer tells A&B, who show up at the office and prevent M from executing the new will. During the altercation, M has a stroke and dies in Lawyer’s office. Who gets M’s property?

Probate to C?
Was old will Revoked?
Do A&B take?

Answer 19

No, can’t give to C because the new will was not signed and witnessed.
Old will wasn’t validly revoked, b/c a new one wasn’t signed and witnessed, nor was it destroyed.
A&B don’t take, they hold title on a constructive trust and they have a duty to transfer title to C, b/c otherwise they would by unjustly enriched by their wrongful conduct.

Question 20

J has two kids, A&B, and they each have two kids. In a fit of rage, A kills J. J dies intestate. What is the result?

Answer 20

Without a will, A&B would each take half, but since that unjust enrichment for wrongful conduct, 1/2 of J’s estate is put in a constructive trust for A’s children.

Question 21

When does a resulting trust occur?

Answer 21

It is another equitable remedy that occurs when either:

1. An express trust fails or
2. When a Purchase Money Resulting Trust is created (PMRT)

Question 22

When is a Purchase Money Resulting Trust is created (PMRT)?

Answer 22

When purchaser buys property, but has title put in someone elses name who is not a relative, and later purchaser claims no gift was intended and asks title holder to give up title and she refuses. This situation creates a PMRT which allows the purchaser to compel the title holder to give up title.

Question 23

M wants a beach house, but wants to hide it from her husband, so she uses her sole account to buy it and put it in her friend T’s name. Later, M divorces and wants title back from T and she refuses. M sues T for title, claiming they had an oral agreement that it was not a gift. Who wins?

Answer 23

M wins, PMRT. Parole Evidence don’t matter.

Question 24

What is the Spendthrift protection?

Answer 24

It protects a trust beneficiary’s interest from creditors by prohibiting voluntary or involuntary transfer of beneficiary’s interest.

Question 25

How do you include a spendthrift clause to a trust?

Answer 25

Must be stated EXPRESSLY, use language like:
“No beneficiary of this trust shall have the power to assign his or her interest, nor shall such interest be reachable by the beneficiary’s creditors by attachment…etc”

Question 26

What are the exceptions to the spendthrift clause? (When creditors CAN get to the $$)

Answer 26

1. Creditors who furnish necessity (food, clothing, etc)
2. Child support or alimony
3. Federal tax liens

Question 27

How does a spendthrift clause affect the Settlor?

Answer 27

1. Doesn’t protect any interest retained by settlor
2. settlor can’t hide from their own creditors, just protect their beneficiaries
3. All revocable trusts are fair game for settlor’s creditors, even if the settlor has no immediate financial interest in the trust (just retains power to revoke, creditors can get ya!)