Types of Trusts Flashcards
Are trusts revocable?
All trusts are presumed irrevocable unless the trust explicitly authorizes revocation.
Can a person be both settlor and sole beneficiary of a revocable lifetime trust?
No, need at least 1 beneficiary who is not the settlor.
What roles can settlor play in a revocable lifetime trust?
Settlor can be trustee, an income beneficiary (as long as there is at least one other beneficiary), settlor can retain the power to terminate or amend the trust.
Why make a revocable lifetime (inter vivos) trust?
1) Helps manage assets efficiently, especially if trustee is a professional trustee.
2) Helps plan for possible incapacity by avoiding a guardianship proceeding
3) Avoid probate (No part of the principal of a trust goes through the settlor’s estate in probate).
What are the downsides of a revocable lifetime trust?
Doesn’t avoid taxes, and if settlor keeps power to revoke the full trusts assets are included in gross estate for estate tax purposes.
What is a pour-over gift?
Key requirement?
A pour-over gift is a gift made in a will to an existing revocable trust.
It is valid.
Key Requirement is:
- The trust must be in existence OR executed concurrently with the will.
May the trust designated for the pour-over gift be unfunded?
Yes, the trust to which the pour-over gift may be unfunded.
What is a benefit of a pour-over gift?
It’s easier to modify than a will.
Can a settlor create a pour-over gift into a trust created by someone else?
Yes, no prob.
What are the two ways to have life insurance proceeds be paid into a trust?
1) Insured can create a revocable trust [lifetime] and name the trustee of the trust as policy beneficiary.
2) Create a testamentary trust and have the life insurance policy contract name “the trustee named in my will” as the life insurance beneficiary.
What is a Totten Trust?
How is it created?
2 Key characteristics?
A Totten Trust is a bank account in the depositor’s name “as trustee for” a named beneficiary.
Poor man’s trust.
Key:
1) Depositor makes deposits and withdrawals as he wishes throughout his lifetime.
2) Beneficiary has no beneficial interest during depositor’s lifetime, but gets whatever is in the account when the depositor dies. **
What must be said to create a Totten Trust?
Either in trust for, as trustee for, or ITF.
What are the 4 ways to revoke a Totten Trust account?
a) Withdraw all the money in the account
2) Express Termination during the lifetime of the depositor by making a writing naming the beneficiary and financial institution and having the revocation notarized and delivered to the bank.
3) Revocation in a will; this must comply with the same requirements for revocation during lifetime. (I.e., will must name beneficiary, financial institution, etc.)
4) Death of the beneficiary also results in having a Totten Trust revoked and the money in the account goes free and clear to the *depositor*.
(The dead beneficiary’s heirs get NOTHING. It’s like the trust never happened.)
What happens when the beneficiary of a Totten Trust dies before the depositor?
The depositor takes the money free and clear! Nothing for the heirs of the beneficiary!
How can a depositor change the beneficiary of a Totten Trust?
Same as a revocation:
A notarized statement to the financial institution, naming the financial institution, old beneficiary, and new one.
When can creditors reach a Totten Trust?
ANYTIME. Creditors can reach the Totten Trust account balance EITHER before OR after the depositor’s death, since it is a form of revocable trust.
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Distinguish Totten Trusts from Joint Bank Accounts
Are Joint Bank Accounts Trusts?
JBAs are not trusts.
They are made “John and Jane with the right of survivorship”
After one of the parties in a joint bank account dies, can anyone block the money from going to the survivor of the JBA?
Generally not. ONLY if
1) Clear and convincing evidence shows that a survivorship was not intended when the account was established, AND
2) that the account was created only as a matter of convenience to the depositor.
Then the survivorship language can be set aside.
This is a hard requirement to satisfy!
Who owns a joint bank account?
Each JBA account holder owns 1/2 of the account.
What happens if joint bank account holder cashes the whole account out prior to the other JBA owner’s death?
He severs and destroys the JBA, and owes the excess removed over his 1/2 share to the other party/executor if other party has since died.
Why make a gift to a minor under the Uniform Transfers to Minors UTMA act?
1) It avoids a guardianship proceeding
2) It avoids a trust (and thus the court supervision of a trust)
2) It qualifies for the $14,000 per donee annual exclusion from federal and state gift tax.
How do you make a gift under the Uniform Transfers to Minors Act?
1) Make gift to a custodian (not a trustee)
2) That specifies that it is made under the UTMA
UTMA gifts can be made in a will so long as the same required statutory language is used.
What are the duties of a UTMA custodian?
1) Hold, manage and invest the property under a prudent person standard
2) Pay over to the minor or for the minor’s needs what part of the property that the custodian deems advisible
3) Pay what is left of the property to the minor when the minor turns 21 (for a post Jan 1 1997 gift), 17 for pre Jan 1 1997)
(Note the custodian doesn’t actually hold legal title like a trustee does)
What are the tax consequences of a donor naming himself as the UTMA custodian?
Entire amount of gift is includable in custodian’s gross estate for tax purposes.
