Types of Trusts Flashcards
Revocability
All trusts are presumed to be irrevocable unless the trust explicitly authorizes revocation
Revocable Lifetime Trusts
Main req: at least 1 beneficiary who is not the settlor; settlor cannot be the sole beneficiary when also named the sole trustee
Settlor can play many roles:
- can be a trustee
- can be income beneficiary for life
- Settlor’s estate can be one of the beneficiaries of the principal so long as there is at least one other beneficiary
- can retain power to terminate or amend the trust
“Pour-Over” Gifts
Testamentary Gifts to an existing revocable trust are OK
Reqs:
(1) trust must be in existence, OR
(2) executed concurrently with the will
can be to any existing trust, including those executed by other people
valid even if unfunded trust
Life Insurance Proceeds
2 ways an insured can make life insurance proceeds payable to a trust:
1- insured can create an unfunded revocable insurance trust and name the trustee as policy beneficiary
2- have the trust be a testamentary trust and have the life insurance policy contact name the “trustee named in my will as the life insurance policy beneficiary
proceeds of savings accounts or pension plans can be handled the same way as life insurance proceeds
Totten Trusts (trust-like alternative)- creation
bank account in the depositor’s name “as trustee for” a named beneficiary
depositor makes deposits and withdrawals as he or she wishes during the depositor’s lifetime
-beneficiary gets whatever is left when depositor dies
says “ITF” or “in trust for”
Totten Trusts- revocation
1- withdraw all money
2- express revocation during lifetime by depositor making a writing naming the beneficiary and financial institution and having the revocation notarized and delivered to bank (can change beneficiary this way too)
3- revocation in a will; must comply with same requirements for revocation during lifetime
4-beneficiary predeceases depositor
-creditors can reach b/c it is revocable
Joint bank accounts- a trust-like alternative- setting aside rights of survivorship
expressly states right of survivorship
can anyone block money from going to the survivor of the joint tenancy?
- if clear and convincing evidence shows that a survivorship was not intended when the account was established, and that the account was opened only as a matter of convenience to the depositor, then survivorship language can be set aside
Join bank accounts- who owns what?
Each joint account owner owns 1/2 of the joint account, no matter who deposits the money, and if one person makes the entire deposit it is considered a gift of one-half to the other account holder
Uniform Transfers to Minors Act; Trust-like alternative- creation
Gifts under UTMA must be made to a custodian and it must specify that it is made under the UTMA
-can be made in a will so long as the required statutory language is used
Reasons for:
- avoids guardianship proceeding
- avoids formalities of a trust
- qualifies for $14,000 per donee annual exclusion from federal and state gift tax
Uniform Transfers to Minors Act- Duties of a UTMA custodian
- hold, manage and invest the property under a prudent person standard;
- pay over to the minor or for the minor’s needs what part of the property that the custodian deems advisable; AND
- pay what is left of the property to the minor when the minor turns 21 (for a post-Jan 1, 1997 gift) or 18 (for a pre-Jan 1, 1997 gift)
- If Donor names himself as custodian, the amount of the gift is included in the custodian’s gross estate for federal and state taxes
- if donor names someone else as custodian, then the amount of the gift is not included.
Charitable Trusts
5 things to remember:
1) must have indefinite beneficiaries, and they must be a reasonably large group
- cannot have specific, named persons as beneficiaries
2) must be for a charitable purpose (which are not subject to RAP)
3) may be perpetual
4) Cy Pres may be used to change trust
- if the stated purpose of the charitable trust can no longer be accomplished, or the designated charity goes out of existence, the court may use this to make the trust as near as possible to settlor’s intent.
5) The Attorney General has the duty of representing the beneficiaries of charitable trusts in NY
- AG is an indispensable party to any suit on construction or enforcement of a charitable trust
- the AG and the donor have standing to sue to enforce trust’s terms
Non-Trusts: honorary trusts
where no human being is the beneficiary of a private (i.e., non-charitable) trust
- exceptions:
(i) pet trusts: can last no longer than pet’s life and anyone designated by the will or appointed by the court can enforce
(ii) cemetery trusts: trusts for perpetual care and maintenance of cemeteries and burial plots are valid charitable trusts
Non-Trusts: Constructive Trusts
- simply an equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct
- “Trustee’s” only duty is to convey the property to the person who, in equity, should have it
Non-Trusts: Resulting Trust
Equitable Remedy
Purchase Money Resulting Trust (NOT RECOGNIZED IN NY): applies when a purchaser buys property and has title put in someone else’s name and later purchaser claims no gift was intended and asks for title back and the holder refuses.
-most states would find this to create a PMRT which would allow the purchaser to compel the title holder to give up title BUT not in NY
-HOWEVER, if there is clear and convincing evidence that the grantee had expressly or impliedly promised to re-convey the land to the purchaser, then a constructive trust can be imposed to benefit the purchaser
Statutory Spendthrift Rule and Protection from Creditors
(1) protects a trust beneficiary’s interest from creditors by prohibiting voluntary or involuntary transfer from the beneficiaries interest
(2) NY allows these. Automatically applies to income interests. For principal, must be expressly stated.
Effect: keeps creditors at bay
Exceptions:
(a) creditors who furnish necessities (ex- food, clothing, shelter)
(b) child support and alimony
(c) federal tax liens
(d) excess income beyond that needed for support and education
(e) 10% levy provided by CPLR 5205(e) (which is shared among all creditors)
does not apply to any interest retained by the settlor
