TX Trusts and Fed Estate Gift Tax Flashcards
1
Q
type of title held by beneficiaries
A
equitable
2
Q
type of title held by trustee
A
legal title
- has burden of ownership (duty to manage, invest, insure, safeguard, etc.)
3
Q
delivery
A
must be delivery of the subject matter of the trust, with intent to convey legal title to the trustee
4
Q
trust property
A
- to have a trust, legal title to specific interest in property must be conveyed to the trustee
- subject matter of trust must be certain and IDed
- if no trust property, there is no trust
5
Q
surety bonds for individuals v. corporate trustees
A
individual - must post fiduciary surety bond to secure faithful performance of duties unless settlor waived the requirement corporate trustee (bank or trust company) - does not have to give bond because security is given by bank's general corporate assets
6
Q
compensation a trustee is entitled to
A
reasonable compensation
7
Q
what happens if no trustee is named in a trust
A
- no trust ever fails for lack of trustee
- court will appoint if no one named or if trustee dies or resigns
- also, no one can be compelled to be a trustee
8
Q
what constitutes acceptance of the trust office by the trustee named in the trust
A
- trustee’s signature, signifying acceptance of trust OR
- acceptance by conduct (i.e. exercise of trust power)
9
Q
what if irreconcilable differences arise between trustee and bens and trustee resigns
A
- court approval upon showing that trustee can no longer appropriately serve as trustee
- must give accounting (1. property initially received 2. receipts and disbursements 3. property now on hand + liabilities)
10
Q
if named trustee has no powers or active duties to perform…
A
no trust arises… trustee must owe duty to someone
11
Q
trustee by estoppel is not recognized in TX… what is it
A
person acting as trustee without formal and proper appointment has no authority to deal with trust property and bens are not estopped from suing to recover for resulting losses
12
Q
resulting trust
A
NOT a trust… used when a trust fails for some reason
13
Q
precatory words
A
- hope
- request
- I would like
- non-binding to create enforceable trust obligation
14
Q
words needed to create a valid trust
A
no particular words are needed… question of intent
15
Q
trust purposes that are prohibited by law
A
- trust calls for commission of crime
- trust calls for destruction of property
- unlawful condition against public policy (encouraging divorce OR total restraint on marriage)
16
Q
all trusts must be in writing except
A
transfer of personal property to a trustee other than the settlor or ben coupled with declaration of intent to create trust simultaneously with or prior to the transfer
17
Q
revocable trusts
A
- all intervivos trusts are revocable and amendable to the settlor unless expressly stated otherwise
- any revocation or amendment must be made in writing
- guardian does not have authority to revoke trust
- divorce revokes all revocable provisions in favor of former spouse and relatives who are not relatives of settlor
18
Q
pourover will
A
- settlor can name herself trustee
- provides means for adding testamentary assets to a trust created by T during lifetime
- need not be in existence before or executed concurrently with will
19
Q
right of survivorship valid in joint bank account if…
A
signature card was signed by the party who has died, even if the survivor didn’t sign
- UNLESS HandW CP then both signatures required
20
Q
rules for charitable trusts
A
- not subject to RAP
- must be for charitable purpose
- must be in favor of reasonably large segment of public
- when specific charitable purpose no longer accomplished it may be reformed in judicial proceedings under cy pres
21
Q
RAP
A
- no interest is good unless it must vest, if at all, no later than 21 years after some life in being at the interest’s creation
- purpose is to limit the duration of private trusts
22
Q
cy pres perpetuities reform statute
A
if will or trust violates RAP the instrument shall be reformed or construed so as to carry out the settlor’s general intent as far as possible within the period of the rule
23
Q
who can enforce a charitable trust
A
attorney general
24
Q
if named charitable ben under a trust ceases to exist, or ceases to qualify as a charity for tax purposes the trustee may…
A
- name a new charity as ben without court approval
- trustee must give notice of the selection to the AG
- replacement charity must have similar or same charitable purpose as the failed charity
25
if charitable trust purpose has changed or is no longer possible...
cy pres (as near as possible)
- judicial proceeding required
- look to general charitable intent and specific direction
26
purchase money resulting trust example
A pays purchase price for land and puts the title in B's name. A and B are not related. Later A brings suit to impose a resulting trust in his favor contending he did not intent to make a gift to B but had some other reason for taking title in B's name
27
purchase money resulting trust
- evidence admissible to show gift or loan of purchase price
| - does not apply if family because presumption is gift but can be rebutted by CandC evidence
28
constructive trust
- not a trust
- equitable remedy whose object is to disgorge unjust enrichment
- requires wrongful conduct AND unjust enrichment
29
spendthrift clause
- protects trust bens interests from creditors by prohibiting voluntary assignment OR involuntary transfer of the bens interest
- given full effect in TX
30
exceptions to spendthrift clauses
- Ks for necessaries
- child support obligations
- interest retained by settlor (revocable trust)
- federal tax liens
31
can creditors reach income after it has been distributed from a spendthrift trust
YES - once income is distributed it is no longer subject to the trust or its spendthrift clause
BUT creditors would have to file suit each time ben received a distribution
32
trust bens are entitled to accounting on demand no sooner than...
12 months after trust was created and to successive accountings on demand at same intervals
33
trustee has decanting power... what does that mean
- cannot be exercised so as to impair bens interests or name new bens
- trust must have same bens and same distribution powers
- only trustee's admin powers can be changed
34
TX trustee powers act (paraphrased)
if fee simple owner can do it, so can TX trustee EXCEPT
- self dealing or
- imprudent investment
35
things a trustee CANNOT do
- cannot borrow trust funds
- cannot buy or sell trust assets to itself
- cannot loan funds to trust
- cannot profit from serving as trustee
- corporate trustee cannot buy its own stock as trust asset
36
can trustee loan trust funds to ben
YES - subject to general test of prudence
37
modern portfolio theory of investing that looks to total return
trustee must establish and maintain custom-tailored investment strategy that will effectuate settlor's intent as to the purposes of the particular trust looking to
- role that each investment plays within overall portfolio
- expected total return from income and capital gain
38
receipts allocated to trust income
interest, rental income, cash dividends on stock, delay rental
39
receipts allocated to trust principal
eminent domain condemnation award, insurance proceeds
40
receipts from liquidating assets (patents, copyrights) that will decline in value over time allocate...
10% to income and 90% to principal
41
rule for trustee liability on Ks
trustee is not personally liable on a K unless she fails to disclose her representative capacity (opposite from the executor rule)
42
can ben bring direct action against 3rd party who causes injury to trust property
no, trustee holds legal title so he is the one who should sue
43
when does a trust terminate
- automatically according to terms
- upon petition of trustee or ben if i) purpose of trust has been fulfilled ii) changed circumstances iii) achievement of tax purposes
44
termination of uneconomic trust
after giving notice to bens, the trustee of a trust having value less than $50k may terminate the trust without court approval if trustee determines the cost of admin does not justify its continuation
45
after trust terminates, trustee may continue to exercise trust powers for the reasonable time needed to
- wind up trust affairs
| - make distribution to bens
46
current estate tax exemption
$5.45 million
47
an individual named as trustee of a trust may...
be a ben, as long as the individual is not the sole trustee and sole ben
48
groups that represent a definite class of bens
- my descendants
- the employees of my company
- my daughter's family
49
why are trusts made revocable unless expressly made irrevocable
if revocable, the settlor can modify or amend the trust even though the trust instrument is silent as to the power to alter or amend
50
how can a purchase money resulting trust be rebutted
by evidence that the person providing consideration intended to make a gift to the title holder
51
constructive trust characteristics
- equitable remedy
- prevents parties from profiting by their wrongful conduct
- differs from expressive trust
52
A is in breach of fiduciary duty to B. As a remedy, the court may impose a constructive trust as long as...
A wrongfully acquires or retains property
53
spendthrift clause
prohibits a ben from voluntarily or involuntarily transferring his intent in a trust
54
the trust principal is subject to spendthrift protection as long as...
the settlor does not retain an interest in it
55
UPIA
- default rule and may be expanded, restricted or eliminated by the provisions of a trust
- to deviate from it, the trust language must be specific
56
proceeds from a life insurance policy or other K in which the trust or trustee is named ben are allocated to...
principal
57
a trustee may not represent both her personal interests and the interests of the trust in the same transaction because...
a trustee owes a duty of undivided loyalty to the trust
58
T breaches his duty by using trust assets to secure a personal loan and the lender does not obtain a valid security interest if...
he knew or had reason to know that the assets belonged to a trust
59
to remedy a breach of trust that has occurred or may occur the court may...
- compel trustee to perform trustee's duties
- enjoin trustee from committing a breach of trust
- compel trustee to redress breach of trust, including compelling to repay money
- order trustee to account
- void an act of the trustee
60
when a prohibited transaction occurs, a trust's bens may
either ratify the transaction or hold the trustee personally liable
61
who has standing to bring an action concerning a charitable trust
- attorney general (charged with statutory duty to represent the public and all potential beneficiaries of a charitable trust)
- settlor also has special interest in trust
62
trustee may name a new charitable ben upon giving notice to the AG but only when...
the replacement charitable ben has the same or similar charitable purpose as the failed ben
- where the funds are to be diverted to a different charitable purpose a judicial cy pres proceeding must be brought
