Types of trusts Flashcards
What are the 6types of trusts and trust-like alternatives?
1) Lifetime (inter vivos) trust: trust created during settler’s lifetime Can be revocable ONLY IF expressly stated in trust instrument 2) Testamentary trust: a trust that is created by will Gifts made in a will to an existing revocable trust is OK (A “Pour-Over” Gift) 3) Charitable trust: an indefinite life trust for a reasonably large group of beneficiaries ————— 4) Totten trust: a/k/a a bank account in the depositor’s name “as trustee” for the named beneficiary 5) Joint bank account: a joint account w/ right of survivorship (NOT a Totten trust) 6) NY Uniform Transfers to Minors Act (UTMA): holds property in trust for a minor, supporting the minor and desolving at age 21
What are 3 non-trusts?
1) Honorary trust: no human being is the beneficiary in a non-charitable trust 2) Constructive trust: designed to disgorge unjust inrichment 3) Purchase money resulting trust (PMRT): results when a purchaser buys property in someone else’s name & expects a later takeback, which is disputed NOT recognized in NY
When is a lifetime trust revocable?
General rule: ALL trusts are PRESUMED to be irrevocable, UNLESS the trust explicitly authorizes revocation Req for revocable lifetime (inter vivos) trust =at least 1 beneficiary who is NOT the settler To be clear: Settlor’s estate CAN be one of the benefiicaries of the pricnipal so long as there is at least 1 other
What roles can a settlor play in a revocablelifetime trust?
1) Settlor can be a trustee 2) Settlor can be an income beneficiary 3) Settlor’s estate can be ONE of the beneficiaries of the principal SO LONG AS there is at least 1 other beneficiary 4) Settlor can retain the pwr to TERMINATE or AMEND the trust
What are good reasons for having a lifetime trust be revocable?
1) Manages assets efficiently (can use a professional trustee) 2) Helps plan for a possible incapacity by avoiding a guardianship proceeding by the ct 3) Avoids probate (i.e. the process of proving a will to be valid) NOT GOOD reasons… 1) Does NOT avoid taxes 2) If settlor keeps an interest income, or keeps a pwr to revoke, then the FULL trust assets will be incl’d in the settlor’s gross estate for federal estate tax purposes
What is a “pour-over” gift?
A testimentary gift (made in a will) to (i)an EXISTING revocable trust; OR (ii) a trust executed CONCURRENTLY with the will Trusts can be changed during the lifetime of the settlor in ways that are somewhat easier than changing a will “Pour over” is not ltd to trusts created by the settlor, BUT it can be to ANY existing trust (inc those executed by other persons) Pour-over gifts are valid EVEN IF the trust was unfunded, or only partially funded, during the settlor’s lifetime Life insurance proceeds: Insured can create an unfunded recovable insurance trust AND name the trustee of the trust as the insurance policy beneficiary Insured can setup a testamentary trust and have the life insurance policy K name “the trustee in my will” as the life insurance policy beneficiary Proceeds from saving accts or pension plans: can be handled like insurance
What is a Totten Trust?
A trust-like alternative, which is a bank account in the depositor’s name “as trustee for” a named beneficary No particular words are req’d to create a Totten Trust account (i.e. CAN open an account w/ “Dan Depositor ITF Ben Beneficiary”) Depositor makes deposits and withdrawals as he wishes during the depositor’s lifetime (NO restrictions) Beneficiary has NO beneficial interest during the depositor’s lifetime, BUT get whatever is in the account when the depositor dies
What are 4 ways to revoke aTotten Trust?
1) Withdraw all the $$ in the account 2) Express revocation during lifetime by depositor making a writing naming (i) the beneficiary + the bank; (ii) notorizing the writing; AND (iii) delivering it to the bank 3) Revocation in a will (MUST comply with the same reqs for revocation during lifetime, above) 4) Death of the beneficiary (money goes free/clear to depositor)
How can a Totten Trust depositor change the beneficiary?
Same method as express revocation: 1) Notorized stmt; 2) Delivered to the bank; AND 3) Naming the OLD beneficiary and the NEW beneficary
Are the depositor’screditors allowed to access the $$ in a Totten Trust account?
YUP! Creditors of the depositor can ALWAYS reach the Totten Trust account balance EITHER before OR after the depositor’s death
What is a joint bank account?
An accountw/ the right of survivorship created by SPECIFIC WORDS of survivorship (NOTE: this is NOT a Totten Trust) Ea. joint acct holder owns 1/2 of the account, NO MATTER who deposits the money (i.e. if ONE person makes 100% of the deposits, it’s considered a gift of 1/2 to the other party) Account is irrevocable to the extent the right of survivorship remains in tact If one of the parties dies, a creditor would need CLEAR and CONVINCING evidence that survivorship was NOT intended by the parties (very hard req to satisfy) Withdrawal of more than 1/2 by a depositor w/o the other’s consent destroys the right of survivorship
What is the Uniform Transfers to Minors Act (UTMA)?
The UTMA allows giftsto benefit minors and transfer principal once they turn 21 (or 18 for pre-1997 gifts) UMTA gifts are NOT part of a trust! Avoids:guardianship proceedings, the trust structure and ct supervision of a trust Gifts under UTMA are made to a CUSTODIAN (although legal title remains with minor) AND it MUST specify that it is made under the NY UTMA UTMA gifts CAN be in a will so long as the statutory language (above) is made Tax considerations: 1) Qualifies for the $14k per donee annual exclusion from federal and state gift tax 2) If the donor names himself as custodian, then the amt of the gift is includible in the custodian’s gross estate for federal/state tax purposes (BUT if he names someone else, then it’s NOT included as a part of the estate)
What are the 3 duties of the custodian p/t the UMTA?
1) Hold, manage and invest property under a “prudent person” std 2) Pay over to the minor to provide for needs whatever the custodian deems advisable 3) Pay residual balance of property to the minor when he turns 21 (OR 18 for pre-1997 gifts)
What are 4 key aspects of charitable trusts?
1) Charitable trusts must have INDEFINITE beneficiaries, and they must be a reasonable LARGE group CANNOT have specific, named persons as beneficiaries CAN have a trust for Masses for relatives GOOD LANGUAGE = “to benefit all orphans in Syracuse” “to pay for the costs of Masses for the repose of souls of the testator, his deceased parents, and other relatives” BAD LANGUAGE = “to provide schollys for the benefit of the decendants of the settlor” “all my children” “to benefit all the orphans living next door to me” 2) Charitable trusts must be for a CHARITABLE purpose Health, education, and religion Cy Pres doctrine can be used to change the trust If the stated purpose can no longer be accomplished, the ct may use its pwr to make the trust “as near as possible” to what the settlor wanted 3) Charitable trusts MAY be PERPETUAL They are NOT subject to the Rule Against Perpetuities (carveout) 4) The Atty General (AG) has the duty of representing the beneficiaries of charitable trusts in the state AG is an indispensable party to any suit on construction or enforcement AG and the donor have proper standing to sue to enforce the trust’s terms
What is an honorary trust?
An “honorary” trust is a non-trust that is NOT for charitable purposes and has no individual beneficiaries (e.g. $1k to Fred as trustee, “to use the trust income to maintain my rose garden”) An attempt to put money into an “honorary” trust leads to the funds being included in the residuary estate (i.e. whatever remains in the probate estate after the pmt of specifcially designated gifts of items or cash) NOTE: A private trust normally must have a human being as beneficiary;EXCEPT… Pet Trusts: a valid pet trust can last for no longer than the duration of the pet’s lifetime Someone designated in the will, or appt’d by the ct, can enforce the trust and make sure the trust’s purposes are carried out Ceremony Trusts: for the perpetual care and maintenance of ceremonies and burial plots (classified as charitable trusts to avoid RAP even tho no human beneficiaries)
