Types of trusts Flashcards
TYPES OF TRUSTS
What are the 9types of trusts, trust-like alternatives, and non-trusts called trusts?
THE 9 TYPES OF TRUSTS, TRUST-LIKE ALTERNATIVES, and NON-TRUSTS called TRUSTS ARE:
- ————–TRUSTS——————
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
—————TRUSTS-LIKE ALTERNATIVES——————
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
—————NON-TRUSTS called TRUSTS——————
7) Honorary Trusts: No human being is the beneficiary of a private trust (but allowed for pets and care of cemetery/burial grounds)
8) Constructive Trusts: Flexible equitable remedy allowed to disgorge unjust enrichment that results from misconduct
9) Resulting Trust: Not a trust but an equitable remedy (e.g. a PMRT BUT PMRT NOT recognized in NY)
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 enrichment
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
REVOCABLE LIFETIME TRUST
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 beneficiaries of the principal so long as there is at least 1 other beneficiary that is NOT the Settlor
ROLE OF SETTLOR IN REVOCABLE LIFETIME TRUST
What roles can a settlor play in a revocablelifetime trust?
The Settlor can play many roles as follows:
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
BENEFITS and DRAWBACKS OF A REVOCABLE LIFETIME TRUST
What are good reasons for having a lifetime trust be revocable?
Reasons TO HAVE a revocable lifetime/inter-vivos trust:
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)
Reasons NOT to have a revocable lifetime/inter-vivos trust:
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
POUR-OVER GIFT
What is a “pour-over” gift?
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
BENEFIT = Trusts can be changed during the lifetime of the settlor in ways that are somewhat easier than changing a will
“Pour over” is not limited 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
NOTE: this is a STATUTORY EXEMPTION to the rule that a trust must have identifiable property to be valid
Life insurance proceeds: There are two (2) ways an insured can make life insurance proceeds payable to a trust:
- Insured can create an unfunded recovable insurance trust AND name the trustee of the trust as the insurance policy beneficiary;
OR - 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
NOTE: Proceeds from saving accts or pension plans: can be handled like insurance
TOTTEN TRUST
What is a Totten Trust?
MOST HIGHLY TESTED TRUST MATERIAL!!!!
Totten Trust = A trust-like alternative, which is a bank account in the depositor’s name “as trustee for” a named beneficiary
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 gets whatever is in the account when the depositor dies
REVOCATION OF TOTTEN TRUST
What are 4 ways to revoke aTotten Trust?
HIGHLY TESTED MATERIAL
Four (4) ways to revoke a Totten Trust account:
1) Withdraw all the $$ in the account
2) Express revocation during lifetime by depositor bY (NEED ALL 5):
(i) making a writing; AND
(ii) naming the beneficiary; AND
(iii) naming the bank; AND
(iv) notorizing the writing; AND
(v) delivering it to the bank
3) Revocation in a will (MUST comply with the same reqs for revocation during lifetime, above)
4) Death of the beneficiary (money goes free/clear to depositor)
Change of BENEFICIARY for Totten Trusts
How can a Totten Trust depositor change the beneficiary?
HIGHLY TESTED MATERIAL
For a Totten Trust, the change of beneficiary is made the same way as express revocation:
(NEED ALL 5):
(i) making a writing; AND
(ii) naming the OLD and NEW beneficiaries; AND
(iii) naming the bank; AND
(iv) notarizing the writing; AND
(v) delivering it to the bank
CREDITOR ACCESS to TOTTEN TRUSTS
Are the depositor’screditors allowed to access the $$ in a Totten Trust account?
HIGHLY TESTED MATERIAL
YUP!
Creditors of the depositor can ALWAYS reach the Totten Trust account balance EITHER before OR after the depositor’s death
JOINT BANK ACCOUNT
What is a joint bank account?
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
UNIFORM TRANSFER TO MINORS ACT
What is the Uniform Transfers to Minors Act (UTMA)?
The UTMA allows giftsto benefit minors and transfer principal once they turn 21
UMTA gifts are NOT part of a trust!
Three (3) reasons to make a gift to a minor under
UTMA:
1. Avoids guardianship proceedings,
2. Avoids the trust structure and hence having to have ct supervision of a trust and all of the associated costs
3. Qualifies for the $14k per donee annual exclusion from federal and state gift tax
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)
DUTIES OF CUSTODIAN UNDER UMTA
What are the 3 duties of the custodian p/t the UMTA?
Duties of an UTMA Custodian:
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; AND
3) Pay residual balance of property to the minor when he turns 21
CHARITABLE TRUSTS
What are 5 key aspects of charitable trusts?
Five (5) key things to remember re: Charitable Trusts:
1) Charitable trusts MUST have INDEFINITE beneficiaries, and they must be a reasonably LARGE group CANNOT have specific, named persons as beneficiaries
CAN have a trust for Masses for relatives
GOOD LANGUAGE = (i) “to benefit all orphans in Syracuse”; OR
(ii) “to pay for the costs of Masses for the repose of souls of the testator, his deceased parents, and other relatives”
BAD LANGUAGE = (i) “to provide schollys for the benefit of the decendants of the settlor”; OR
(ii) “all my children”; OR
(iii) “to benefit all the orphans living next door to me”
2) Charitable trusts must be for a CHARITABLE purpose Health, education, and religion
3) Charitable trusts MAY be PERPETUAL
They are NOT subject to the Rule Against Perpetuities (carveout)
4) 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
BUT: IF the market value of the assets is less than $100,000 and the EXPENSE of ADMINISTERING the trust is NOT ECONOMICAL, the trust can be terminated and assets given outright to the beneficiary.
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
HONORARY TRUST
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
CEMETERY TRUSTS: for the perpetual care and maintenance of cemeteries and burial plots (classified as charitable trusts to avoid RAP even tho no human beneficiaries)
