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Trusts > Types of Trusts > Flashcards

Types of Trusts Flashcards

1
Q

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

A

A settlor cannot be the sole beneficiary and the sole trustee

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2
Q

What roles can the settlor play?

A
  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
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3
Q

Why would someone have a revocable lifetime trust?

A
  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
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4
Q

What is a pour-over gift?

A

A testamentary gift to an existing revocable trust as beneficiary

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5
Q

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

A
  1. The trust must be in existence or

2. Executed concurrently with the will

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6
Q

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

A

No, it can be gifted to any existing trust

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7
Q

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

A

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

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8
Q

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

A

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

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9
Q

What is a Totten trust?

A

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

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10
Q

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

A

He may make withdrawals or deposits without restriction

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11
Q

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

A

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

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12
Q

What are the four ways to revoke a totten trust?

A
  1. Withdraw all the money in the account
  2. Express revocation
  3. Revocation by will
  4. Death of beneficiary
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13
Q

How do you expressly revoke a totten trust?

A

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

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14
Q

How do you revoke a totten trust by will?

A

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

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15
Q

Can the depositor change the beneficiary of a totten trust?

A

Yes, in the same way as an express revocation.

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16
Q

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

A

Yes, before and after the death of the depositor

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17
Q

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

A

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

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18
Q

What language creates a joint bank account?

A

“John and Jane with right of survivorship”

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

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19
Q

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

A

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]

20
Q

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

A

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

21
Q

How is the joint account severed?

A

When one joint holder withdrawals more than their half.

22
Q

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

A

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.

23
Q

How are gifts made under UTMA?

A

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

24
Q

Can gifts under UTMA be made in a will?

A

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

25
Q

What are the duties of a UTMA custodian?

A
  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
26
Q

What are the tax consequences for UTMA conservatorships?

A

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

27
Q

What are the beneficiary requirements for charitable trusts?

A
  1. Must be indefinite beneficiaries
  2. Must be reasonably large group

Exception - trust for Mass for relatives OK

28
Q

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

A

Health, education, religion

29
Q

Can charitable trusts last indefinitely?

A

Yes (private express trusts may not)

30
Q

Can cy pres be used to change a charitable trust?

A

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

31
Q

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

A

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

32
Q

What is an honorary trust?

A

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

33
Q

What happens when an honorary trust is created?

A

It goes to the residuary of the estate.

34
Q

When does a private trust not require a human beneficiary?

A
  1. Pet trusts

2. Cemetery trusts (classified as charitable)

35
Q

What is a constructive trust?

A

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

36
Q

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

A

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

37
Q

What is a resulting trust?

A

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

38
Q

What is a purchase money resulting trust?

A

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.

39
Q

Are purchase money resulting trusts permitted in New York?

A

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

40
Q

What is NY’s statutory Spendthrift rule?

A

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

41
Q

Must the trust agreement specifically include the spendthrift protection?

A

No, it is the default rule unless affirmatively rejected.

42
Q

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

A

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

43
Q

What is typical spendthrift clause language?

A

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

44
Q

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

A

When the income beneficiary receives it

45
Q

What are the five major exceptions to the spendthrift clause?

A
  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)
46
Q

How is excess income determined under the spendthrift exception?

A

It’s based on the beneficiary’s lifestyle

47
Q

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

A

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

Trusts (6 decks)

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