Trust

Question 1

What is a trust

Answer 1

A trust is the right to enjoy property (beneficiary) to which another holds legal title (trustee), and it is created at the request and from the property of another (settlor).

Question 2

How can a trust be created

Answer 2

Can create a trust by any of the following:

a. Inter vivos transfer
b. Will
c. Declaration - written or oral
d. Power of appointment
e. Other methods (statute, court order assignment of promise)

Question 3

Requirements for a valid trust

Answer 3

Michigan law requires the following elements for a valid trust
1. Capacity, settlor must have it.

2. Intent, settlor willing and w/o duress intended to create the trust
3. Funded “a res”, the trust must have property in it.
4. Trustee, it must have a named trustee.
5. Beneficiary, must be identifiable person, thing, or community.
6. Same person is not sole trustee and sole beneficiary
7. Trust purpose is legal, possible, and not against public policy.

Question 4

Terminating or Modifying a Private Irrevocable trust

Answer 4

A private irrevocable trust can be terminated or modified by court order if:
(a) Complete agreement between the Trustee, beneficiaries and the court that the request is consistent with the material purpose of the trust or that trust is no longer needed.

(b) W/O court approval and under the terms of the trust.

Question 5

Duties of Trustee

Answer 5

Trustee has a (1) Fiduciary duty to the trust, which is the highest assignable duty according to the law, and a (2) Duty of loyalty.

Key things to look for:

• Trustee must act in good faith
• No self-dealing by Trustee
• No usurping Trust opportunities
• Must act as a Prudent investor of trust property

Question 6

Beneficiary’s Rights to Trust Property

Answer 6

Depends if trust is discretionary or mandatory.
(1) Discretionary the Trustee determines if and when to distribute trust property.

(2) Mandatory Trustee must abide by the trust. If fails to do so beneficiary can sue to make Trustee act.
(3) if not prohibited by the Trust, beneficiary can sell his rights/interest in trust property.

Question 7

Beneficiaries’ Creditors

Answer 7

General rule: Creditors can get rights to any property that the beneficiary has a right to. This can be limited by using either a Spendthrift, Support, or Discretionary trust.

Support or Spendthrift does not protect against claims for child / spousal support, State or federal govt., or creditor who has provided services that protect, enhance or benefit beneficiary’s property.

Question 8

Support Trust

Answer 8

Is a discretionary trust that is “For the beneficiary’s maintenance and support.”

Very hard for creditor to get at these, and any amount they can recover once distributed is limited to what remains after beneficiary’s support is paid for.

Question 9

Spendthrift Provisions

Answer 9

Spendthrift property cannot be reached by creditors until the property has been distributed to the beneficiary. Trust property is not subject to enforcement by a creditor of a judgment until distributed directly to the trust beneficiary.

When there is a spendthrift provision in the terms of the trust, a trustee is not liable to the trust beneficiaries for making a distribution which the beneficiary is otherwise entitled to receive.

Question 10

pet care trusts

Answer 10

specifically gives a court the discretion to reduce the amount of property in a pet care trust “if it determines that that amount substantially exceeds the amount required for the intended use.”