Trust requirements Flashcards
What is an express trust?
EXPRESS TRUST = legal device that allows an owner of property to make transfer of property & to have those assets managed on behalf of someone else the ONLY REAL trust
VOCAB:
Person who CREATES a trust = “settlor”
Person who MANAGES assets on behalf of beneficiaries = “trustee”
Beneficiaries have “equitable title” to enjoy the distributions from the trust
What are 2 types of EXPRESS trusts?
TWO types of Express Trusts:
1) LIFETIME trust = set up during the lifetime of the settlor A/k/a INTER VIVOS TRUST
2) TESTIMENTARY trust = set up in the settlor’s will
ELEMENTS OF A VALID TRUST
What are the 8 elements of a valid trust?
** TESTED FREQUENTLY**
THE 8 ELEMENTS OF A VALID TRUST:
1) Settlor (i.e. creator) who makes a…
2) Delivery of legal title of…
3) Property (a/k/a res, corpus or principal) to a…
4) Trustee who holds legal title for the benefit of a….
5) Beneficiary (or beneficiaries) with…
6) The intent to create a trust for…
7) A lawful purpose…
8) In a validly executed document
NOTE: NO consideration is needed!
SETTLOR
Who can be a settlor (of property into a trust)?
A SETTLOR CAN BE ANYONE who…
1) Is ≥ 18;
AND
2) Has CAPACITY to enter into Ks
DELIVERY
What is necessary for “delivery” (for trust purposes) to be valid?
FOR DELIVERY TO BE VALID…Titled assets must be FORMALLY transferred to the trustee
e.g. stock certificates must be re-registered in trustee’s name
E.G. PAST EXAM HYPO:
Question: Sarah, a personal injury attorney in Manhattan, signed a trust agreement naming her friend Tom, as trustee, and her children Betty and Ben as beneficiaries. The trust agreement was properly notarized. The agreement recited the property of the trust as shares of stock in various corporations, and recited that the trustee acknowledged receipt of the shares. The stock certificates were handed over to Tom by Sarah at the time the trust document was signed and acknowledged. Before the shares could be reregistered in Trustee Tom’s name, Settlor Sarah died.
Is this trust valid? _____________________, because there was no______________________________ of the stock certificates.
Answer: No, Delivery
TRUST PROPERTY
What can constitute trust property?
TRUST PROPERTY (A/k/a "res" or "corpus" or "principal") CAN BE... (i) Almost anything, BUT MUST be the property that the settler owns (NOT just the MERE EXPECTANCY of OWNERSHIP in future)
(ii) It must be IDENTIFIED property, not subject to future determination (e.g. NOT “whatever property that I may choose to contribute to the trust over X yrs”)
TRUSTEE QUALIFICATIONS - LIFETIME TRUST
Who can be a trustee for a lifetime trust?
For a LIFETIME TRUST…Almost ANYONE can be a trustee (since no ct involvement is needed for such trust)
NOTE: failure to name a trustee does NOT matter (the ct can appt someone)
PAST EXAM HYPO:
“Mother Jones executed a will that created a trust with 1 million dollars to pa the income from the trust to her son Barry for life, and on his death the principal was to go to her granddaughter Betsy. No trustee was named in the will. Is this a valid trust? ____________________________________________
Answer: Yes, b/c the court can appoint a trustee.
TRUSTEE QUALIFICATIONS - TESTAMENTARY TRUST
Who can be a trustee for a testamentary trust?
For a TESTAMENTARY TRUST…ANYONE, can be a trustee EXCEPT…
1) Those UNDER 18
2) Judicially declared incompetents
3) Convicted felons
4) Those INCAPABLE b/c of drunkeness, dishonesty, want of understanding, or improvidence
5) Non-resident aliens
NOTE: a non-resident alien IS allowed to serve IF a NY resident also serves as CO-FIDUCIARY
NOTE: failure to name a trustee does NOT matter (the ct can appt someone)
BENEFICIARIES
Who can be a trust beneficiary?
Beneficiaries must be DEFINITE and ASCERTAINABLE (i.e. NO ambiguity)
If ambiguous, the trustee holds in a RESULTING trust for the residuary beneficiary of a will (or intestate heirs in absence of a valid will)
EXCEPTION: a beneficiary listed as someone’s “FAMILY” or “NEXT OF KIN” IS considered definite and ascertainable and the trust does NOT fail (must consult the INTESTACY statutes for the names of persons who fit the description in the trust)
INTENT SUFFICIENT TO FORM A TRUST
What is the necessary form of intent to form a trust?
For a trust to be formed, the Settlor must INTEND to create an ENFORCEABLE obligation
Precatory (i.e. suggestive), non-binding language is NOT enough
NOT ALLOWED TO SAY: “I WOULD LIKE the trust income to be paid to…”
Trustee MUST be given duties to perform (if trustee has NO duties, then it’s a “passive” trust, which is NOT a trust)
NOTE: just using the word “trust” does NOT show intent to create a trust (must look at ALL of the language/facts to determine)
Past Exam Hypo:
“Samantha purchased Whiteacre in 2005, and the deed was made “to Samantha in trust for Susan.” At the time the deed was executed, Samantha and Susan agreed in writing that Susan would live on Whiteacre and pay $1,000 per month in rent to Samantha. Is this a valid trust? _________. All facts indicate that Samantha really intended a ___________relationship with Susan.
Answer, No, Landlord-Tenant
LAWFUL PURPOSE
In creating a trust, what CAN’T be the purpose of a trust?
A trust CANNOT…
1) call for the commission of a crime
2) call for the DESTRUCTION of property
3) have a condition against public policy (e.g. trusts restricting marriage OR promoting divorce)
NOTE: marriage restrictions to members of a certain
RELIGION or ETHNIC GROUP are valid as permissible partial restraints on marriage
BUT, if a (ANY) purpose can be found that is NOT offensive to public policy, then it IS valid (e.g. a trust that gives income to a spouse until he remarries is OK)
Past Exam Hypo:
In his will Jerrold set up a testamentary trust with the principal going “to my son Jeremy providing he marries a Jewish woman within seven years after my death. If he does not do so the trust principal shall be paid to the State of Israel.”
Is this a valid trust? ________________, because he still has a fairly wide choice.
Answer: Yes
TRUST EXECUTION
What is needed to validly execute a trust document (execution ceremony)?
FOR VALID EXECUTION of a trust it MUST:
1) Instrument MUST be in WRITING & SIGNED by SETTLOR AND trustee PLUS
2) Acknowledged by a NOTARTY PUBLIC OR SIGNED by 2 WITNESSES
