Trust - Trust requirements Flashcards
What is an 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 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 equitable 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
What are 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!
Who can be a settlor (of property into a trust)?
ANYONE who… 1) Is ≥ 18; AND 2) Has CAPACITY to enter into Ks
What is necessary for “delivery” (for trust purposes) to be valid?
Titled assets must be FORMALLY transferred to the trustee e.g. stock certificates must be re-registered in trustee’s name
What can constitute trust property?
A/k/a “res” or “corpus” or “principal” Almost anything, BUT must be the property that the settler owns (NOT just the mere expectancy of ownership in future) 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”)
Who can be a trustee 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)
Who can be a trustee for a testamentary trust?
ANYONE, except… 1) Those UNDER 18 2) Judicially declared incompetants 3) Convicted felons 4) Those INCAPABLE b/c of drunkeness, dishonesty, want of understanding, or improvidence 5) Non-resident aliens NOT related to the decedant (spouse, grandparent, etc) NOTE: if a non-resident alien IS related to decedent, a NY resident must serve as CO-FIDUCIARY NOTE: failure to name a trustee does NOT matter (the ct can appt someone)
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 beneficary of a will (or intestate heirs in abscene 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)
What is the necessary form of intent to form a trust?
Settlor must intend to create an enforecable obligation Precatory (i.e. suggestive), non-binding language is NOT enough NO: “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 creat a trust (must look at ALL of the language/facts to determine)
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 that remarries is OK)
What is needed to validly execute a trust document (execution ceremony)?
1) Instrument MUST be in writing & signed by settlor AND trustee PLUS 2) Acknowledged by a notary public OR signed by 2 witnesses
How can you revoke amend modify a trust?
NY requires the express reservation of the right to revoke and modify a trust. Absent such express authority, a creator of a trust can revoke and modify a trust only with the consent of all beneficiaries, provided the modifications do not interfere with the trust’s primary purpose.
NB - it should be noted that the trust provision giving the principal to settlor’s s heirs upon the death of beneficiaries is not a beneficial interest in the trust and would not prevent settlor from modifying the trust provided live beneficiaries consented to the modification. Alternatively, settlor could revoke the trust and create a new trust which added makes modifications as needed.
(The issue is whether a trust that provides the creator an express right to revoke, but not an express right to amend the trust instrument, can be amended by the creator.)
What are the creditors of a settlor right to a revocable and irrevocable?
In New York, a trust is presumed to be irrevocable unless the grantor specifically retains the right to revoke the trust. The creator of a revocable trust retains an interest in the trust principal because the creator can revoke the trust and recover the trust principal. In contrast, when a trust is irrevocable, the creator has no interest in the trust principal.
NY requires the express reservation of the right to revoke and modify a trust. Absent such express authority, a creator of a trust can revoke and modify a trust only with the consent of all beneficiaries, provided the modifications do not interfere with the trust’s primary purpose.
what are spendthrift trust (restraint on alienation) and its provisions?
In New York, a trust for the benefit of a beneficiary other than the grantor has automatic spendthrift protection.
Spendthrift protection limits the ability of creditors to attach income or assets belonging to the trust by limiting the beneficiary’s ability to assign or alienate his equitable interest in the trust.
A grantor may avoid the automatic spendthrift protection by giving the beneficiary the power to assign or alienate his interest in the trust or stating expressly that the trust is something other than a spendthrift trust (discretionary and mandatory trust).
There are a number of exceptions to New York’s spendthrift protections that limit their application when certain creditors are involved. Exceptions limiting automatic provisions to a certain classes of creditors
- Children and spouses entitled to support
- Those providing basic necessities to the beneficiary (doctors but NOT holders of car loans or electrons)
- Holders of federal tax liens
- Judgment creditors to levy up to 10% of a beneficiary’s income derived from the trust.
- Only to be used as a remedy of last resort after a creditor has exhausted all other options, allows a creditor to attach income or assets that are beyond what is needed for support and education.
6 Transfer containing a fraudulent conveyance w. the purpose to delay, defraud, or defeat creditors
