Types of Trusts

Question 1

What is the main rule for creating a revocable lifetime trust?

Answer 1

A settlor cannot be the sole beneficiary and the sole trustee

Question 2

What roles can the settlor play?

Answer 2

1. Can be a trustee
2. Income beneficiary
3. Retain the power to terminate or amend the trust
4. Provide for payment of trust principle to estate so long as there is at least one other beneficiary

Question 3

Why would someone have a revocable lifetime trust?

Answer 3

1. Efficient management of assets
2. Plans for possible incapacity
3. No part of the principle of a trust goes through the settlor’s estate in probate

Question 4

What is a pour-over gift?

Answer 4

A testamentary gift to an existing revocable trust as beneficiary

Question 5

What are the key requirements for a pour-over gift to a trust to be valid?

Answer 5

1. The trust must be in existence or

2. Executed concurrently with the will

Question 6

Does the pour over gift have to be to a trust created by the person making the gift?

Answer 6

No, it can be gifted to any existing trust

Question 7

Are pour over gifts valid if the trust was unfunded or partially funded during the settlor’s lifetime?

Answer 7

Yes, this is a statutory exception to the common law identifiable property requirement

Question 8

Can life insurance proceeds be given as a pour-over gift?

Answer 8

Yes, in two ways.

1. Created unfunded revocable insurance trust and name trustee as policy beneficiary
2. Create testamentary trust and have policy pay “trustee named in my will”

Note: same for pension plan / savings account

Question 9

What is a Totten trust?

Answer 9

It’s a bank account in the depositor’s name as trustee for a named beneficiary.

Question 10

What are the powers of a depositor / trustee of a Totten trust?

Answer 10

He may make withdrawals or deposits without restriction

Question 11

What interest does the beneficiary have in a totten trust during the depositor / trustee’s lifetime?

Answer 11

None. The beneficiary receives only what is in the trust when the depositor dies.

Question 12

What are the four ways to revoke a totten trust?

Answer 12

1. Withdraw all the money in the account
2. Express revocation
3. Revocation by will
4. Death of beneficiary

Question 13

How do you expressly revoke a totten trust?

Answer 13

Depositor sends a notarized writing naming both the beneficiary and the financial institution to the bank

Question 14

How do you revoke a totten trust by will?

Answer 14

An express revocation in writing in the will naming both the beneficiary and the financial institution

Question 15

Can the depositor change the beneficiary of a totten trust?

Answer 15

Yes, in the same way as an express revocation.

Question 16

Can creditors of the depositor reach the account balance of the totten trust?

Answer 16

Yes, before and after the death of the depositor

Question 17

What is the difference between a totten trust and a joint bank account?

Answer 17

There is no trustee-beneficiary relationship in a joint bank account.

Question 18

What language creates a joint bank account?

Answer 18

“John and Jane with right of survivorship”

“John and Jane, payable to either, or to the survivor of them”

Question 19

If one party to a joint account dies, can anyone block the money from going to the survivor on the account?

Answer 19

Yes, if clear and convincing evidence shows that survivorship was not intended when the account was established and the account was opened only as a matter of convenience to the depositor

[HARD STANDARD TO SATISFY]

Question 20

How much of a joint account does each joint holder own?

Answer 20

One half of the joint account, regardless of who deposits the money

Question 21

How is the joint account severed?

Answer 21

When one joint holder withdrawals more than their half.

Question 22

What is created under the Uniform Transfers to Minors Act (UTMA)?

Answer 22

Not a trust, but a special statutory conservatorship. The custodian does not hold legal title. The minor hold legal title as the owner of the property.

Question 23

How are gifts made under UTMA?

Answer 23

They are made to a custodian, specifying that it is being made under UTMA

Question 24

Can gifts under UTMA be made in a will?

Answer 24

Yes, so long as they are made to a custodian, specifying that it is being made under UTMA

Question 25

What are the duties of a UTMA custodian?

Answer 25

1. Hold, manage, invest as a prudent person 2. Pay to the minor his needs / what is deemed reasonable 3. Pay what is left to the minor when he turns the designated age of majority

Question 26

What are the tax consequences for UTMA conservatorships?

Answer 26

If donor is custodian, amount of gift is included in donor's estate for tax purposes.

Question 27

What are the beneficiary requirements for charitable trusts?

Answer 27

1. Must be indefinite beneficiaries 2. Must be reasonably large group Exception - trust for Mass for relatives OK

Question 28

What are the common charitable purposes for which trusts are created?

Answer 28

Health, education, religion

Question 29

Can charitable trusts last indefinitely?

Answer 29

Yes (private express trusts may not)

Question 30

Can cy pres be used to change a charitable trust?

Answer 30

Yes, if the stated purpose of the trust can no longer be accomplished, the court may use cy pres to make the trust resemble as closely as possible the settlor's intent

Question 31

How has the duty of representing the beneficiaries of a charitable trust?

Answer 31

The Attorney General. He is an indispensable party to the suit and the AG and donor both have standing to sue to enforce the trust's terms

Question 32

What is an honorary trust?

Answer 32

An honorary trust results when there is an attempt to create a private trust without an individual human beneficiary / no intent to create a charitable trust

Question 33

What happens when an honorary trust is created?

Answer 33

It goes to the residuary of the estate.

Question 34

When does a private trust not require a human beneficiary?

Answer 34

1. Pet trusts | 2. Cemetery trusts (classified as charitable)

Question 35

What is a constructive trust?

Answer 35

A flexible equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct

Question 36

What is the duty of a trustee in a constructive trust?

Answer 36

To convey the property to the person who, in equity, should have the property

Question 37

What is a resulting trust?

Answer 37

It's not a trust at all, but an equitable remedy.

Question 38

What is a purchase money resulting trust?

Answer 38

A PMRT arises when a purchaser buys property and has title put in someone else's name. Later, the purchaser claims no give was intended and asks the titleholder for title to the property. Most states would allow the purchaser to compel the titleholder to give up the title.

Question 39

Are purchase money resulting trusts permitted in New York?

Answer 39

NO! Unless, there is clear and convincing evidence that the grantee expressly or impliedly promised to re-convey

Question 40

What is NY's statutory Spendthrift rule?

Answer 40

It protects a trust's beneficiary's interest from creditors by prohibiting voluntary or involuntary transfer of the beneficiary's interest

Question 41

Must the trust agreement specifically include the spendthrift protection?

Answer 41

No, it is the default rule unless affirmatively rejected.

Question 42

Does the statutory spendthrift rule protect the trust's principal?

Answer 42

No. It protects only the income interest. The remainder beneficiary (the one who gets the principal) has no protection unless it is explicitly stated in the trust

Question 43

What is typical spendthrift clause language?

Answer 43

No beneficiary of this trust shall have the power to assign his or her interest, nor shall such an interest be reachable by the beneficiary's creditors by attachment, garnishment, or other legal process

Question 44

When can creditors touch trust money protected by a spendthrift clause?

Answer 44

When the income beneficiary receives it

Question 45

What are the five major exceptions to the spendthrift clause?

Answer 45

1. Creditors who furnish necessities 2. Child support / alimony 3. Federal tax liens 4. Excess income beyond that needed for support and education (last resort) 5. 10% levy provided by CPLR (shared)

Question 46

How is excess income determined under the spendthrift exception?

Answer 46

It's based on the beneficiary's lifestyle

Question 47

Does spendthrift protection apply to an interest retained by the settlor?

Answer 47

No! Same with revocable trusts. If the settlor can touch it, so can the creditors.