Non-Probate transfers Flashcards
5 most common non-probate transfers
- Inter vivos trusts
- Life insurance
- Joint tenancies and tenancies by the entirety
- Payable-on-death and transfer-on-death accounts and contracts
- Pension accounts
Requirements for Intervivos, revocable trusts
Must be in writing and signed
How are payable on death accounts treated?
Like life insurance policies. When a will addresses these assets, the will doesn’t control
For POD’s accounts, is extrinsic evidence permitted?
Yes, extrinsic evidence is permitted to show decedent’s intent as to who takes the contents of the account (even when the account is joint tenancy w/ a right of survivorship)
Is there a 120 hr rule for non-probate transfers?
Nah, just need “sufficient evidence” that the recipient survived
3 classifications of trusts
- By manner of creation
- By time of creation
- By duties
Subcategories of trusts by manner of creation
- Express
- Private Express Trusts
- Charitable Trusts
- Resulting (implied)
- Constructive (by law)
Subcategories of trusts by time of creation
- Inter vivos
- Revocable
- Irrevocable
- Testamentary
Subcategories of trusts by duties
- Active
2. Passive
3 ways a trust can be created
(1) transfer of property to another person as trustee during the settlor’s lifetime or by will or other disposition taking effect upon the settlor’s death (i.e., a deed of trust);
(2) declaration by the owner of property that the owner holds identifiable property as trustee (i.e., a declaration of trust); OR
(3) exercise of a power of appointment in favor of a trustee
Elements of a Valid Private Express Trust (8)
- The trust must have a valid purpose
- The settlor must have the capacity to create a trust
- The settlor must have the intent to create a trust
- Settlor must deliver assets to trustee
- The trust must have property
- must have ascertainable beneficiaries
- must be in writing
- must have a competent trustee who has duties to perform
(1) The trust must have a valid purpose
Must be for the benefit of it’s beneficiaries
(2) The settlor must have the capacity to create a trust
Same capacity required to make a will
(3) The settlor must have the intent to create a trust
Self explanatory, use of the word trust/trustee is not required
(4) Settlor must deliver assets to trustee
Assets to be held in trust must be delivered to the trust and placed in the trustee’s name
(5) The trust must have property
A trust isn’t valid until its funded with property
Exceptions to rule about trusts having property
- pour over wills/trusts
- Life insurance trusts
What kind of property must inter vivos trusts be funded with?
Must be funded with specifically identifiable property during the settlor’s lifetime to be valid
What kind of property must testamentary trusts be funded with?
Funded at the settlor’s death from probate assets
(6) The trust must have ascertainable beneficiaries
2 exceptions, 1. a charitable trust, 2. trust created for the care of an animal.
When is a beneficiary definite
A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities
(7) The trust must be in writing
Trusts w/ real property need to be in writing to satisfy statute of frauds
Requirements needed to create a trust (5)
(1) the settlor has capacity to create a trust;
(2) the settlor indicates an intention to create the trust;
(3) the trust has a definite beneficiary or is:
(A) a charitable trust;
(B) a trust for the care of an animal, as provided in Section 408; or
(C) a trust for a non charitable purpose, as provided in Section 409;
(4) the trustee has duties to perform; and
(5) the same person is not the sole trustee and sole beneficiary
Precatory Trusts
Trusts whose language does NOT clearly indicate whether the testator intended to create a trust with fiduciary duties imposed on the devisee or merely an unenforceable moral obligation. Ex. “I hope” “I wish”
Constructive Trusts
An equitable remedy to prevent the unjust enrichment of the holder of title to, or of an interest in, property which such holder acquired through fraud, breach of duty or some other circumstance making it inequitable for him to retain it against the claim of the beneficiary of the constructive trust
Pour over will
Testator’s will ensures that when they die, their assets immediately go into a previously established trust
Can you make a trust for an animal?
Yes
When is an animal’s trust terminated?
When the animal dies
In her will, T provides: “I leave my entire estate to A, as trustee, to be distributed according to the instructions I told to him before I died.” There is extrinsic evidence that T wanted B to be the sole beneficiary. Is this a valid trust and, if not, who owns the property?
This is not a valid express trust. It is a semi-secret trust. Because the ambiguity is patent, no extrinsic evidence is admissible. The court will enter a resulting trust in favor of T’s estate.
In her will, T provides: “I leave my entire estate to A.” There is extrinsic evidence that T intended for A to hold the property in trust for B. Is this a valid trust and, if not, who owns the property?
This is not a valid express trust. It is a secret trust. Extrinsic evidence is admissible to prove the existence of the trust. The court will enter a constructive trust for B
3 limits to the freedom of disposition pertaining to trusts
1) limit on the extent to which a settlor may impose a restraint on alienation of a beneficial interest
2) limits on modifying or terminating a trust without the consent of the settlor
3) Removal of a trustee
Discretionary and support trusts
- Trustee may be given discretion over when, to whom, or in what amount to make a distribution
- The trustee must exercise the discretion in accordance with the trustee’s fiduciary duties
- Beneficiaries’ creditors generally cannot access the beneficiary’s trust interest and the beneficiary cannot voluntarily alienate his interest
Who are spendthrift trusts unenforceable against (3)
- Child, spouse, or former spouse with a valid order of support or maintenance
- A creditor who has provided services for the protection of the beneficiary’s interest in the trust
- The government as a creditor
Can a creditor of a beneficiary in a spendthrift trust obtain an order attaching future distributions to or for the benefit of the beneficiary?
No
When is a spendthrift provision valid?
Valid only if it restrains both voluntary and involuntary transfers of a beneficiary’s interest
Can a beneficiary of spendthrift trust alienate her interest in the trust?
No
What is a spendthrift trust?
A trust designed so that the beneficiary is unable to sell or give away her equitable interest in the trust property
Types of trusts imposing a limit on the extent to which a settlor may impose a restraint on alienation of a beneficial interest (2)
- Discretionary and support trusts
2. Spendthrift trusts
When can a trust not be terminated (4)
- It is a spendthrift trust,
- The beneficiary is not to receive the principal until a specific age
- It is a discretionary trust, OR
- It is a trust for the support of the beneficiary
2 grounds to modify or terminate a trust without the settlor’s consent
- By consent of ALL the beneficiaries if the modification is NOT contrary to a material purpose of the settlor
- Changed circumstances not anticipated by the settlor that would defeat or substantially impair the accomplishment of the purposes of a trust
When can a trustee be removed? (3)
- Ineffective administration,
- A change in circumstances, OR
- by consent of all the beneficiaries if removal would be in the best interests of the beneficiaries and not contrary to a material purpose of the settlor
When can a non charitable irrevocable trust be modified?
Upon consent of the settlor and all beneficiaries, if the court concludes that modification is not inconsistent with a material purpose of the trust
When can a non charitable irrevocable trust be terminated?
Upon consent of the settlor and all beneficiaries, if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust
Can a non chartiable irrevocable trust be modified or terminated w/out the consent of the settlor and all beneficiaries?
Yes, if the court is satisfied that: (1) if all of the beneficiaries had consented, the trust could have been modified or terminated under this section; and (2) the interests of a beneficiary who does not consent will be adequately protected.
