Trusts and Estates: Types of Trusts Flashcards
A trust will terminate
when the beneficiary has died
based upon the written document
Generally, a trustee
has a fiduciary duty to the beneficiaries of a trust to make prudent decisions, including the investing of trust assets according to the instructions in the trust document
If the trust instructions are not explicitly followed, then there will be a breach of fiduciary duty, and
the trustee can be held liable for any adverse results
When a trust instrument is silent regarding a trustee’s powers
the trustee has the implied power to lease trust property to third parties, but does NOT have the implied power to make distributions of principal to income beneficiaries
The rule against perpetuities
does not apply to charitable trusts.
The rule against perpetuities was created to
restrict the trustor’s power to perpetually control the funds or property in the trust after death plus 21 years and to ensure transferability of the funds or property
Generally, a trustee would have the power to
sell trust property
pay management expenses
employ a CPA to prepare trust tax returns
The trustee would not typically accumulate income because
the income would then be taxed at a very high tax rate. For example, in 2015 the highest rate of 39.6% is reached when income is only $12,301
A spendthrift trust
is created for a beneficiary that is wasteful with money
Trust Exemption Amounts
Simple Trust = $300. Complex Trust = $100
Simple vs Grantor vs Revocable Trust
A simple trust is required to distribute all of its net income each year to the beneficiaries, One of the requirements of a simple trust is that the trust not distribute principal (corpus)
A complex trust is not required to distribute all of its net income each year to the beneficiaries
A grantor trust is one in which the grantor RETAINS beneficial enjoyment or substantial control over the trust property or income.
A revocable trust is one in which the grantor retains the power to revest all or part of the trust property
Inter Vivos vs Testimary Trusts
An inter vivos trust is created during the grantor’s lifetime
A testamentary trust will begin when the grantor dies and he has provided for a trust in his will
A disadvantage of a revocable trust
It is included in the gross estate
Cy pres trust
defined in many legal dictionaries means “as close as possible.
Used with Comparable charitable trusts
Transferring of Cash
would complete the creation of the trust
