Trusts Flashcards
Perpetual trusts allow for a tax exemption through a loophole in the generation
skipping transfer law
Revocable trusts, unlike wills, do not go through
probate
Revocable trusts is a
will substitute
What a revocable trust does as a will substitute
3
- Avoid probate - if funded
- maintains privacy
- structures stewardship/distributions during incapacity
if settlor has complete control and access then the instrument is
fully revocable
Mandatory notice to presumptive remainder beneficiaries
likely no mandatory notice to presemptive remainder beneficiaries
If the property still belongs to client (settlor) the trust is not being used for
and is being used for
Not used for
- - tax benefits
- creditor protection
Used for
- avoid probate, maintain privacy and have a different structure in place for incapacity
Do you still need a will if you have a trust
- yes because not listing every piece of property/assets
- but for privacy, the will should say that everything in the will pours over for a revocable trust
- called pour-over will
With spouses a revocable trust is funded when
1st spouse dies, it puts it in the 2nd spouses revocable trust
At death the revocable trust becomes a
irrevocable trust
- ask does the assets go outright or in further trust to the beneficiaries
After passing should assets remain in further trust for beneficaries?
what that does
- maintain a degress of control over distributions
- stewardship and management
- creditor protection
- built in estate planning for beneficaries (control remainder after primary beneficaries passing, powers appointed for flexability)
Can leave assets in further trust (irrevocable trust) through
will and revocable trust
If not leaving assets in a revocable trust in further trust, would just be using the revocable trust for
privacy reasons
2 types of irrevocable trusts
- testamentary- created by will or irrevocable trust
- inter vivos- given during life
inter vivos trust
- created to accomplish advanced planning goals and wealth transfer tax planning purposes
Assets transfered to irrevocable trust are outside
taxable estate
Irrevocable trust planning may be appropriate when planning for goverment benefits
medicate, special needs social security
With trust descendant can decide
what the money is used for and what happens to the money if it wasn’t used
Dynasty trust
Under article 1 goes through making new trusts for each generation
Power of appointment
giving someone power to decide where assets go
(ex. give trust to spouse, give spouse options of who to leave the spouse’s trust to upon the spouses death)
Remote contingency article of a trust
no beneficiarys at death or later, then what should happen to the money
With a dynastic trust structure, you want to
leave soemthing there for the future trustee
Dynastic trust structure
A big purchase is ok if
the trust says so
3 different types of beneficiaries
- concurrent
- future
- remainder
UTC 705 Resignation of trustee
A trustee may resign:
- upon at least 30 days notice to the qualified beneficiaries, the settlor, if living, and all cotrustees, or
- with approval of the court
UTC 705 Resignation of trustee
In approving a resignation
the court may issue orders AND
impose conditions reasonably necessary for the protextion of trust property
UTC 705 Resignation of trustee
Any liability of a resigning trustee or of any surities on the trustee’s bond for acts or ommission of the trustee is not
discharged or affected by the trustees resignation
UTC 705 Resignation of trustee
To resign, the
beneficaries and the living settlor must agree
UTC 705 Resignation of trustee
If the beneficiaries and the living settlor do not agree the trustee needs a
court order to resign
One of the ways beneficiaries can modify irrevocable trusts is through the
removal of a named trustee
Trustee removal and replacement does have the practical impact of
modifying the trust by installing a new trustee
Beneficiaries routinely remove trustees for
mundane reasons
ex. expense, convience, or location
UTC 706 Removal of Trustee
who may remove a trustee
- teh settlor, a cotrustee, or a beneficiary may request the court to remove a trustee OR
- a trustee may be removed by the court on its own inititive
UTC 706 Removal of Trustee
The court may remove a trustee if:
- The trustee has committed a serious breach of trust
- lack of cooperation among cotrustees substantially impairs the administration of the trust
- because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries; OR
- There has been a substantial change of circumstances OR
- Removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of the beneficiaries and is not incosistant with a material purpose of the trust and a suitable cotrustee or successor trustee is available
Removal of the trustee
A well drafted trust will have braod
removal and replacement provisions to make litigation uneccessary
Excessive fees are an important reason why
beneficaries seek to remove trustees
A trustee who is removed in order to lower fees for the trust does not have
standing to pursue an appeal
Can a settlor exculpate a trustee from breaches by inserting express terms to that effect in that trust instrument
The UTC allows for trustee exculpation with limits
UTC 1008 Exculpation of Trustee
A term of a trust relieving a trustee of liability for breach of trust is unenforcable to the extent that it:
- relieves the trustee of liability for breach of trust commited in bad faith OR w/ reckless indifference to the purposes of the trust OR the interests of the beneficiaries
OR - was inserted as the result of an abuse by the trustee of a fiduciary OR confidential relationship to the settlor
UTC 1008 Exculpation of Trustee
An exculpatory term drafted OR caused to be drafted by the trustee is an
abuse of a fiduciary OR confidential relationship UNLESS
the trustee proves that the exculpatory term is fair under the circumstances AND
that its existance and contents were adequately communicated to the settlor
UTC 1008 Exculpation of Trustee
An exculpatory clause is unenforcable if
it relieves the trustee of liability for bad faith or reckless indifference
A trustee may accept or resign from position by methods under
UTC or in trust instrument
Once the trustee accepts the position, the trustee must
act, or refrain from acting
consistant with the terms of the trust instrument AND the fiduciary duties
Trust may modify and/or expand upon
duties
ex. trust with exculpatory clauses releases trustees from liability for breaches of duty that fall short of bad faith or recklessness
revocable trusts that terminate on the death of the settlor are commonly used as
will substitutes
Whether:
- a trust is irrevocable from moment of creation or
- becomes irrevocable at the death of the settlor
are a
planning device for high wealth families because of the asset protection and privacy they provide
