Flashcards in NY Trusts Deck (113)
A person appointed by probate court as personal representative
Generally, giving gift of money with a manager.
Two basic kinds of trusts are ____.
(a) Lifetime trust
Person who has died with property to be distributed.
Person nominated in a testator's will to act as personal representative and execute the will provisions.
What are the requirements of a valid trust?
(2) Delivery of legal title to...
(3) Property to a..
(4) Trustee who holds legal title for the benefit of a
(5) Beneficiary with
(6) Intent to create trust for...
(7) a Lawful purpose
(8) in a Validly executed document
True or False: Consideration is required to create a trust?
Federal Gift Tax Exclusion
$14,000 annual amount that can be excluded from gift tax computation for each gift made to a different recipient in a calendar year, and thereby be treated as a gift for tax purposes.
What are the names of people entitled to another's property by intestate succession?
Heirs/Next of Kin/Intestate Beneficaries
When a decedent dies without a valid will and their estate property is distributed pursuant to a state statute.
True or false: Failure to name a trustee in the trust does not matter, the court can appoint someone.
The process of proving a will, or having it declared valid and effective following the death of the testator.
Specialty court that hears and adjusts matters concerning wills and intestate distribution, including administration of estates and other aspects of the testamentary process.
Probate Court aka Surrogate's Court
Whatever remains in the probate estate after the payment of specifically designated gifts or items or cash.
Rule that prohibits the creation of future interests that possibly may vest beyond the period of those lives in being at the date of its creation plus 21 years.
This rule indirectly limits the duration of trusts by placing limits on the creation of future interests within trusts.
Language of the settlor that makes only a non-binding obligatioin.
Gifts made in a will.
A person who has died leaving a valid will.
True or False: Just using the word TRUST does show the intent to create a trust.
Must look at all language and all the facts to determine intent.
What are the most common situations to watch for regarding trusts against public policy?
(a) restricting marriage or
(b) promoting divorce.
BUT if there is some good public policy reason (income to spouse until spouse remarries) it can be valid.
What is the main requirement regarding revocable lifetime trusts?
At least one beneficiary who is not the settlor.
Settloe cannot be the sole beneficiary when also named the sole trustee.
What are the reasons to have a revocable lifetime trust?
(a) manage assets efficiently
(b) helps plan for possible incapacity by avoiding guardianship
(c) avoids probate
What are the key drawbacks to revocable lifetime trust?
Does not avoid taxes
Testamentary gifts to an existing revocable trust called ____.
Such gifts avoid will formalities in the trust
Key requirement for pour over gift to a trust to be valid?
The rust must be in existence OR executed concurrently with the will.
What is a totten trust?
Bank account trust; bank account in depositor's name "as trustee for" a named beneficiary.
True or False: Regarding a totten trust, the depositor makes deposits and withdrawals as she wishes.
Beneficiary only collects when the depositor dies
What is required for express revocation of a totten trust?
Express revocation during lifetime by despositor making a writing naming the beneficiary and financial institution AND having writing notarized AND delivered to bank.
This process can also be used to change beneficiary provided depositor names the new beneficary.
What are three reasons to make a gift to minor under the UTMA?
UTMA = Uniform transfers to minors act
(a) Avoids guardianship proceeding
(b) Avoids a trust (and related court supervision)
(c) Qualifies for the $14,0000 per donee annual exclusion from fed/state gift tax.
What is the purpose of a constructive trust?
Flexible equitable remedy designed to disgorge unjust enrichment that results from wrongful conduct.
What is the PMRT?
Purchase Money Resulting Trust -- NOT RECOGNIZED IN NY.
Arises when a purchaser buys property and has title put in someone else's name (who is not relative) later, purchaser claims no gift was intended and asks title holder for title to the property and the title holder refuses.
What are five major exceptions to spendthrift clauses?
(2) Child support and alimony
(3) Federal Tax Liens
(4) Excess Income beyond that needed for support and education
(5) 10% levy
True or false: spendthrift protection does not apple to any interest retained by the settlor.
True or false: Express trust is the only real trust, other concepts using "trust" are really just equitable remedies.
Resulting trust and constructive trusts = equitable remedies.
What is the definition of an express trust?
A legal device that allows an owner of property to make transfers of property and to have those assets managed on behalf of someone else.
What are the two kinds of express trusts?
(1) life time - set p during the lifetime of the person who created the trust, who we call settlor of the trust.
(2) Testamentary trust - set up in settlor's will
What are the eight requirements for a valid trust?
(1) SETTLOR who makes...
(2) DELIVERY of legal title to...
(3) PROPERTY to a...
(4) TRUSTEE who holds legal title for the benefit of a
(5) BENEFICIARY with...
(6) INTENT to create a trust for...
(7) a LAWFUL PURPOSE
(8) in a VALIDLY EXECUTED document.
True or false: Settlor must be at least 18 years old and have capacity to enter into contracts.
True or false: valid property for a trust can be almost anything, including property settlor has an expectancy in.
Settlor must own property, not just have a mere expectancy of ownership in the future.
What are the exceptions to the general rule that the potential trustee for a testamentary trust can be anyone?
(a) under 18 years old
(b) Judicially declared incompetents
(c) convicted felons
(d) those incapable bc of drunkeness, dishonesty, etc.
When can a non-resident alien serve as trustee?
(1) Related to the decedent AND
(2) a NY resident serves as co-fiduciary
True or false: If a settlor fails to name a trustee, the trust fails.
The court can appoint someone.
What result if the beneficiaries named in a trust are AMBIGUOUS?
The trustee holds in a resulting trust for the residuary beneficiary of a will.
Thus, beneficiaries must be definite and ascertainable, no ambiguity.
True or false: A beneficiary listed as someone's "family" or "next of kin" is considered definite and ascertainable?
The trust will not fail.
A decedent dies without a valid will and their estate property is distributed pursuant to a state statute.
J gives $200,000 in cash to her oldest daughter, M in trust, with the statement, "I would like the trust in come to be paid to my youngest son, S, for life, with the remainder going to S's son Charles."
Is this a valid trust?
No. The language "would like" is PRECATORY language and does not impose an enforceable obligation.
Creating a trust for the commission of a crime, destruction of property and conditions against public policy are all examples of ____?
Trust with UNLAWFUL PURPOSE.
Watch for trusts that restricting marriage OR promoting divorce.
True or false: Marriage restrictions to members of a certain RELIGION or ETHNIC GROUP are valid as permissible partial restraints on marriage?
What are the formal requirements for trust writings?
Must be in WRITING, signed by both settlor and trustee, and either
(1) acknowledged by notary or
(2) signed by 2 witnesses.
True or false: All trusts are presumed to be irrevocable unless the trust explicitly authorizes revocation.
What is the main requirement of a revocable lifetime/inter vivos trust?
Must include 1 beneficiary who is not settlor.
Settlor cannot be both sole beneficiary and sole trustee (legal and actual title would be joined).
What are reasons to have a revocable lifetime/inter vivos trust?
Manage assets efficiently; avoid guardianship; avoid probate.
What are the reasons NOT TO HAVE a revocable lifetime/inter vivos trust (consequences)?
Doesn't avoid taxes.
What is a pour-over gift?
Testamentary gift (gift made in a will) to an existing revocable trust - OK.
Generally, what is a revocable lifetime (inter vivos) trust?
The interest in a revocable lifetime trust passes to the beneficiary during the settlor's lifetime and becomes possessory on the settlor's death.
A pour over gift from a will --> revocable trust is VALID.
How can an insured make policy proceeds payable to a trust?
(1) Create an unfunded revocable insurance trust and name the trustee of the trust as policy beneficiary.
(2) Have a trust be a testamentary tryst and have the life insurance policy contract name "the trustee name din my will" as the life insurance policy beneficiary.
What are at least 4 types of trusts?
(1) Revocable Lifetime (inter vivos) Trust
(2) Pour Over Gift
(3) Life Insurance Proceeds
(4) Totten trust
(5) Joint Bank Account
(6) Uniform Transfer to Minor Act
(7) Charitable Trust
What is a totten trust?
Trust like alternative; specifically a bank account in the depositor's name "AS TRUSTEE FOR" a named beneficiary.
True or false: the depositor of a totten trust makes deposits/withdrawals as they wish during their lifetime.
True or False: Beneficiary has beneficial interest during depositor's lifetime AND gets whatever is in the account when depositor dies.
Beneficiary has no interest until depositor's death.
What are ways to revoke a totten trust?
While no particular words are required for creation, four ways to revoke include:
(1) Withdraw all money from account
(2) Express revocation during lifetime of depositor by naming BENEFICIARY & FINANCIAL INSTITUTION, and having the revocation NOTARIZED and DELIVERED to bank.
Revocation in a will must comply with above requirements.
True or False: death of a named beneficiary for totten trust results in REVOCATION of totten trust and the money goes free and clear to depositor.
How can a depositor change the beneficiary of totten trust?
Expressly, named BENEFICIARY, FINANCIAL INSTITUTION, NEW BENEFICIARY and have NOTARIZED and DELIVERED to bank.
True or False: Creditors can never reach balance of totten trust?
Creditors can reach benefits of totten trust account either Before or After the depositor's death.
How can anyone block the money of a JOINT BANK ACCOUNT from going to the surviving joint tenant?
Joint Bank Accounts are not totten trusts!
Joint tenants each own 1/2 of account.
Money can be blocked from automatically going to surviving joint tenant if CLEAR AND CONVINCING EVIDENCE shoes that a survivorship was not intended when the account was established.
What are three reasons to make a gift under UTMA?
Uniform Transfer to Minors Act - Trust like alternative.
To avoid guardianship, avoid creation of trust (& court supervision), qualifies for $14,000 exclusion from fed/state gift tax.
What are the duties of a UTMA custodian?
Custodian = similar to trustee.
Duties = manage as prudent person; pay proceeds over to minor as deemed advisable; pay remainder of value to minor at minor's 21 birthday or 18 (for pre-jan 1997 gifts).
True or false: UMTA does not create a trust; it is a special statutory conservatorship, where the custodian does not hold legal title.
True (minor holds legal title).
What is the key requirement regarding charitable trusts? (and remaining 4)
(1) Charitable Trust must have INDEFINITE BENEFICIARIES and they must be a REASONABLY LARGE GROUP;
(2) charitable purpose
(4) cy pres may be used to change trust
(5) AG represents beneficiaries of charitable trust
Settlor created a trust "to provide scholarships for the benefit of descendants of settlor," is this a valid charitable trust?
What about trust "to benefit all orphans in Syracuse?"
Trust for "descendants" does not create a charitable trust, group not large enough.
HOWEVER, trust for "all orphans in Syracuse," is large enough group to qualify.
Honorary Trusts and constructive trusts are examples of what?
honorary trust --> no human being is the beneficiary of a private trust.
constructive trust --> equitable remedy designed to rectify unjust enrichment that results from wrongful conduct.
True or False: Pet trusts are an example of a non-trusts (honorary trust).
FALSE - while pet trusts (and cemetary trusts) are technically honorary trusts (no human beneficiary) they are acknowledged as exceptions.
What is a PMRT?
Purchase Money Resulting Trust --> arises when a purchaser buys property and has title put in someone else's name; and later purchaser claims no gift was intended aand asks title holder for the property and title holder REFUSES.
Most states would find a PMRT and allow the purchaser to compel the title holder to give up title -- BUT NOT NY.
True or false: NY recognizes Purchase Money Resulting Trust and would compel the title holder to give up title.
Is there an exception to the no-PMRT rule in NY?
YES --> if there is CLEAR AND CONVINCING evidence that the grantee has expressly or impliedly PROMISED to reconvey the land to the purchaser, then a constructive trust can be imposed to benefit the purchaser, then a CONSTRUCTIVE TRUST can be imposed to benefit the purchaser.
What is a spendthrift clause?
Clause that prohibits voluntary and involuntary transfers of a beneficiary interests.
In NY, all income interests are automatically given spendthrift protection.
True or false: In NY, all income interests are automatically given spendthrift protection.
Income interests of a beneficiary cannot be transferred or reached by the beneficiary's creditors unless a provision is inserted in the trust instrument expressly authorizing such transfers
Judith created a trust "to pay income for life to Jane, then on Jane's death the principal of the trust is to be transferred to Philip."
Who can a spendthrift clause protect?
JANE, the income beneficiary OR Phillip the remainder, or both.
In NY, Jane gets automatic spendthrift protection.
"No beneficiary of this trust shall have the power to assign his or her interest, not shall such interest be reachable by beneficiary creditors..."
Typical language for _____?
The effect of spendthrift clause --> keep creditors at bay.
What are the major excepts to spendthrift clauses?
(1) Creditors who furnish necessities
(2) Child support and alimony
(3) Federal tax liens
(4) Excess income beyond that needed for support and education (standard based on LIFESTYLE of beneficiary), and
(5) The 10% Levy
What is the 10% levy?
Exception to spendthrift clause protection.
All creditors share in the levy, 10% shared by all creditors (not 10% each).
What is the self-settled trust rule?
Big limitation to spendthrift clause -- spendthrift protection does not apply to any interest retained by the settlor.
When is trust modification appropriate?
Only when the objectives of the trust would be DEFEATED OR SUBSTANTIALLY IMPAIRED without modification.
What is the modification test?
(1) Find out primary intent of settlor regarding trust purposes.
(2) Look at specific directions within trust instrument and DETERMINE WHETHER THEY WOULD VIOLATE SPECIFIC INTENT, if so, then those directions can be changed by court.
True or false: Trusts are relatively easy to terminate in NY?
Trusts are hard to terminate in NY, they are irrevocable and unamendable unless power to revoke or amend made EXPRESSLY.
What is the exception to the general rule that trusts are hard to terminate in NY?
Settlor can terminate if -- ALL BENEFICIARIES CONSENT, but this is often impossible since no one can consent for minor or beneficiary who is mentally incompetent.
Trustee's powers are governed by ____?
New York Fiduciary Powers Act (FPA) which controls not only what a trustee can do, but also what an executor or administrator of decedent's estate can do.
True or false: Trustee can do virtually anything under his power as trustee.
TRUE - with some exceptions.
TRUSTEE CAN --> sell, lease, mortgage real property, make ordinary repairs, consent, compromise or settle claims, manage.
TRUSTEE CAN NOT --> self-deal, borrow money, continue a business.
What are the relevant specific rules regarding the prohibition of self-dealing by trustee?
(1) Buy/Sell assets -- trustee cannot buy or sell assets to himself (absolute rule)
(2) Borrow funds -- trustee cannot borrow trust funds (absolute rule)
(3) Lend money -- trustee cannot lend money to the trust (absolute rule).
(4) Profit -- trustee cannot profit from serving as trustee (except for appropriate trustee fees)
(5) Own stock -- corporate trustee cannot buy its own stock as a trust investment
Buying assets to himself, borrowing funds, profiting from service --> all examples of ____?
Self-dealing acts for trustee.
If a trustee takes advantage of confidential information received while trustee, this is an example of?
Self-dealing for profit -- WHICH IS PROHIBITED.
What are two affirmative duties of a trustee regarding self-dealing?
Segregate and Earmark
(1) Segregate --> Trustee must segregate trust assets from his personal assets
(2) Earmark --> trustee must earmark trust assets by titling them in trustee's name
What are the remedies for breach of fiduciary responsibilities?
(a) Beneficiary sues to remove trustee
(b) Beneficiary ratifies transaction and waives breach
(c) Beneficiary sues for loss (surcharge action)
What is the no further inquiry rule?
Breach of a fiduciary duty by engaging in self-dealing is an AUTOMATIC wrong and no further inquiry need be made.
Good faith AND Reasonable -- not defenses!
What is indirect self-dealing?
Loans or sales made to relatives of trustees
How do exculpatory clauses relate to fiduciary duties?
CANNOT be used to shield trustees from liability for breach of fiduciary duty in a TESTAMENTARY TRUST; but
CAN BE used in a life time (inter vivos) trust.
How can a trustee be held personally liable in CONTRACT actions?
If trustee signed ONLY ON BEHALF OF TRUST --> no personal liability.
If trustee signed PERSONALLY and merely mentioned trust, then trustee has personal liability.
Trustee signed contract as "mary Jones, Trustee of J Jones Trust," personally liable?
YES, because she just noted that she was trustee of J Jones Trust.
Trustee signed contract as "Mary Jones, as Trustee of the J Jones Trust, and not individually," personal liability?
No , because this language shows the contract was with the TRUST, not the trustee.
Even if trustee is found personally liable, how can the trustee be reimbursed by the trust?
(1) Contract was within the powers of trustee, and
(2) Trustee was acting in the course of proper administration of the trust.
How is the trustee held personally liable in tort?
Trustee is personally liable for all torts by trustee or trustee's employee (no exceptions).
Trustee can deal with liability by purchasing liability insurance.
How can a trustee get reimbursed for liability in TORT?
(1) Trustee must have been acting within trustee's powers and
(2) trustee was not personally at fault.
What are the key rules regarding trustee's investment power?
May pursue modern investment theory, Consider overall result, consider return
Modern Investment theory --> trustee can pursue what UPIA (Uniform Prudent Investor Act) calls theory of modern portfolio theory of investment = where trustee can create CUSTOM TAILORED INVESTMENT STRATEGY for particular trust.
Overall --> trustee must consider role reach investment plays within OVERALL TRUST PORTFOLIO.
Return --> trustee must consider the EXPECTED TOTAL RETURN from income and capital gain.
True or false: Regarding trustee investment power, prudence is measured by hind-sight.
FALSE. Prudence measured at time when investment decision was made, not later.
True or False: Trustee can exercise adjustment and allocate capital gains income under his investment power.
What is the definition of the RAP?
Rule Against Perpetuities --> NO interest is valid if it could vest later than any life in being (LIB) at the time of creation of the interest, plus 21 years.
What does it mean when an interest has "vested?"
An interest has vested when there is no condition that has to be satisfied, and the exact identity of the taker is unknown.
At common law, if there is any possibility (no matter how remote) that an interest could vest, than lives in being plus 21 years -- it is void.
What is the effect of the NY perpetuities reform statute?
AUTOMATICALLY reduces all age contingencies to 21 years, thus saving a gift that would otherwise be void under RAP.
J conveyed Blackacre to his son Ralph for life, remainder to the first of Ralph's children to reach thirty (30).
Does the gift over to the first of Ralph's children to reach 30 violate RAP?
MBE: YES, gift void because vesting period could take longer than LIB + 21 years.
NY: NO; bc the NY RAP reform statute automatically reduces age contingencies to 21.
J conveyed Blackacre to his son Ralph for life, remainder to the First National Bank, in trust, to pay the income to my grandson Ronald for life, and then to pay the principal to any child of Ronald who reaches 30.
(a) Does in the income interest to Ronald violate RAP?
(b) Does the principal interest in a child of Ronald who reaches 30 violate RAP?
(a) No - interest immediately vested.
(b) On MBE - yes.
NY: No, because the reform rule reduces the age contingency automatically to 21.
What is the definition of the NY Rule Against Suspension of the Power of Alienation?
Any interest is void if it suspends the power of alienation for a period longer than lives in being plus 21 years, that is, when there are no persons who could, together, transfer fee simple title.
When is the suspension of alienation a likely concern?
(1) Spendthrift income interests are in trust OR
(2) A life estate is created in an unborn or in an open class that may possibly income unborn persons.