Types of Trusts

Question 1

What is the presumption regarding the revocability of trusts in IL?

Answer 1

All trusts are presumed to be irrevocable unless the trust explicitly states it may be revoked.

Question 2

What is the main requirement for an inter vivos trust?

Answer 2

That there is at least one beneficiary who is BOT the settlor. Settlor cannot be the SOLE beneficiary when also named the SOLE trustee.

Question 3

What roles can a settlor play?

Answer 3

A trustee
A beneficiary for life
Settlor’s estate can be a beneficiary
Settlor can retain power to terminate/amend the trust

Question 4

What are some reasons to have a revocable lifetime/inter vivos trust?

Answer 4

1. Manages assets efficiently, particularly using a professional trustee
2. Helps plan for possible incapacity by avoiding backup trustees
3. Avoids probate proceedings
4. Avoids guardianship proceedings

Question 5

Will an inter vivos trust go into probate?

Answer 5

NO, no part of the principal will go to probate

Question 6

What is probate?

Answer 6

The process of proving a will, or having it declared valid and effective following the death of the testator.

Question 7

What are some reasons NOT to have a revocable lifetime trust?

Answer 7

1. It does not avoid taxes
2. If a settlor keeps an income interest, or keeps a power to revoke, the FULL trust assets will be included in settlor’s GROSS estate for federal estate tax purposes

Question 8

What is a pour-over gift?

Answer 8

Gifts made in a will to an existing revocable trust

Question 9

What are the requirements for a pour-over gift?

Answer 9

1. Trust must be in existence OR
2. Executed concurrently with the will AND
3. The trust must be identified in the will

Question 10

What are the benefits of a pour-over gift?

Answer 10

Such gifts avoid will formalities in the trust

Trusts can be changed during the lifetime of the settlor more easily than a will.

Question 11

Can you give a pour-over gift into a trust you (settlor) did not create?

Answer 11

Yes, can be to any existing trust.

Question 12

Can you give a pour-over gift into a trust that is otherwise empty?

Answer 12

yup, they are valid even if the trust was unfounded or partially funded during testator’s life.

Question 13

R executes his will on Jan 3, 2004. In his will, he provides the bulk of his estate will go to a trust that would pay the income “to his daughter A for life, with the principal then to B” His lawyer drafted the trust document a week before, but forgot to have R sign it. Lawyer realized his mistake and calls R back, and R signs the trust document on Jan 10, 2004. Is this a valid pour-over?

Answer 13

NO, trust must previously exist or concurrently when gift is executed, otherwise void.

Question 14

How can an insured settlor make life insurance proceeds payable to a trust?

Answer 14

1. Insured can create an unfunded revocable insurance trust and name the trustee of the existing trust as policy beneficiary OR
2. Have the trust be a testamentary trust and have the life insurance policy contract name “the trustee named in my will” as the beneficiary.

Question 15

In IL, can you direct insurance proceedings to a testamentary trustee even if the will isn’t in existence at the time of the designation?

Answer 15

YES

Question 16

Can you handle proceeds from a savings account or pension plan the same way as life insurance?

Answer 16

yes.

Question 17

What is a Totten trust?

Answer 17

Essentially a bank account in the depositor’s name “Trustee for” a named beneficiary.

Question 18

M opened a bank account, and the account name is “M as Trustee for J”. Is this a valid Totten trust?

Answer 18

yup

Question 19

What are two key factors to remember about a Totten trust?

Answer 19

1. Depositor makes deposits and withdrawals as he wishes during the depositors lifetime
2. Beneficiary has no beneficial interest during the depositor’s lifetime, but gets whatever is in the account when depositor dies.

Question 20

Must you use any particular words to create a Totten Trust?

Answer 20

No, “ITF” has been deemed sufficient

Question 21

How can you revoke a Totten Trust?

Answer 21

1. Withdraw all the money
2. Manifest an intention to revoke during lifetime
3. Revoke via will
4. Death of beneficiary

Question 22

What happens when the named beneficiaries die?

Answer 22

Totten trust is revoked and money goes free and clear to depositor.

Question 23

How do you change the name of the beneficiary?

Answer 23

Notarized statement sent to the financial institution, naming the old beneficiary and the new one.

Question 24

Can creditors of the depositor reach the Totten trust?

Answer 24

YES, either before OR after the depositor’s trust.

Question 25

What are the elements of a Joint bank account?

Answer 25

1. Each joint account holder holds 1/2 of account, regardless of who makes deposits
2. Generally has right of survivorship.

Question 26

How can you challenge a joint account holder’s right of survivorship?

Answer 26

If you show clear and convincing evidence that a survivorship was not intended when the account was established and the account was opened only as a convenience to the depositor. Hard requirement to satisfy.

Question 27

Henry opened an account naming himself and Henry Jr. as joint account holders, depositing 100,000. Who owns what during Henry’s life?
What if Henry is dying, and Henry Jr. withdraws all the money, now worth $200,000. Can Henry Jr. be forced to return $$?

Answer 27

$50,000, $50,000

Yes, Henry’s executor sues Henry Jr to recover money that Jr took DURING Henry’s life, must return whatever he took in excess of the initial $50,000 gift.