Trusts Flashcards
(44 cards)
What is NY’s Savings Statute?
Creates a presumption that the vesting of an estate is contingent upon the occurrence of an event and that the trust creator intended that contingency to occur within 21 years from the date of the instrument. (Rescues from RAP)
E.g., implies “within 21 years” before a contingency that may violate RAP
What are the three types of trusts?
Three kinds:
(1) Express Trusts = created by express intention of the owner of property. Private express or charitable.
(2) Resulting Trusts
(3) Constructive Trusts
NYS presumes that a trust is [revocable/irrevocable].
Irrevocable and not amendable
Fertile Octogenarian Rule
For RAP
Generally: Presumes that any person can have children
NYS: Abolished the rule.. Presumes that a man over 14yo and women over 12yo are fertile. Presumes that women over 55yo is not fertile. Additional proof of infertility can be demonstrated and possibility of adoption is disregarded.
New York’s Suspension Rule
aka
“Rule Against Suspension of the Absolute Power of Alienation”
Voids any estate in which the conveying instrument suspends absolute power of alienation for longer than the lives in being plus 21 years.
To satisfy the rule, someone must have the capacity to convey the state in fee simple within a life + 21 years.
Tested along with RAP.
“Income to my daughter, B, for life and on the death of B, the income shall go to B’s children for the remainder of their lives” = violates Suspension Rule.
Trustee-Beneficiary Merger Rule
Generally: If the same person is a beneficiary and a trustee, title merges and the trust terminates.
NYS: Eliminated merger. Allows the trustee to be a beneficiary if there are others who hold a beneficial interest as well. If not, court may appoint a co-trustee.
Parties to a Trust
Creator = establishes the trust Trustee = manages the trust and holds legal title Beneficiary = benefits from the trust and holds equitable title. Can enforce the trust instrument. (NY law does not allow use of extrinsic evidence to determine the beneficiary. Instrument must name or sufficiently designate one.)
Private Express Trust Elements (Typical Trust)
(1) Intent. Expressed orally, in writing, or by conduct. (Unless lifetime trust, which must be in writing, notarized, and witnessed by two persons.) Ambiguities will destroy the trust.
(2) Trust property (“res”). Must be (a) specifically identified and (b) segregated.
(3) Valid trust purpose. Must be legal and not restricted by statute or against public policy.
(4) Ascertainable beneficiaries. Special allowance for unascertainable unborn children, class gifts, and charitable trusts.
(5) In new york, must be in writing, signed by settlor and trustee, and notarized or executed in presence of two witnesses.
What is needed to create an inter vivos trust?
Elements:
(1) in writing
(2) signed by settlor and one trustee
(3) either (a) notarized or (b) executed in the presence of two witnesses who also sign the instrument.
Pour-over trust
A trust established before or concurrently with a will. The will will contain a provision that distributes property to the trust.
Elements:
(1) Trust is identified in the will
(2) executed before or concurrently with the will.
Totten Trust
A designation given to a bank account in the depositor’s name as “trustee” for a named beneficiary. Depositor retains control of the account during his lifetime. Can be revoked by will.
Contrast this with a “joint and survivor” bank account, which gives beneficiary access to the proceeds during the account holder’s lifetime and is not revocable by will.
Life insurance trust
Grantor assigns a policy or the proceeds to the trust and names a beneficiary.
NY allows life insurance trusts to remain unfunded (no res) until the death of the grantor.
Testamentary Trusts
Trusts created in a will or a document incorporated by reference into a will. (Note: NY does not recognize incorporation by reference, so the trust must be in the will itself.)
Normally, will not be revocable or destructible unless the will authorizes them. NY law allows courts can terminate if it is no longer economically feasible to administer the trust.
If the trust fails the requirements of the statute of wills, can be turned into a constructive or resulting trust if “secret” or “semi-secret.”
Charitable Trust
Elements
(1) Stated charitable purpose
(2) exists for benefit of the community at large or a class of persons with varied membership
Supervised by supreme court or surrogate’s court
Not subject to RAP.
5 legitimate charitable purposes:
(1) The relief of poverty;
(2) The advancement of education or religion;
(3) The promotion of good health;
(4) Government or municipal purposes; and
(5) Other purposes benefitting the community at large or a particular segment of the community.
Cy pres doctrine
Allows a court to modify a charitable trust to seek an alternative charitable purpose if the original charitable purpose becomes illegal, impracticable, or impossible to perform. Must be “as near as possible” to original purpose.
Inefficiency is not enough to invoke cy pres
Honorary Trusts
Trust with no permissible private beneficiaries. Trustee is on their “honor” to administer the trust because there are no beneficiaries to enforce the trust. But Trustee is under no legal obligation.
To avoid RAP, NY limits honorary trusts to 21 years.
Remedial Trusts
Trust where the sole duty of the trustee is to convey property to the beneficiary. After that, trust terminates. Created by law as equitable remedy.
Types:
(1) Resulting Trust
(2) Constructive Trust
Resulting Trust
If a trust fails with incomplete disposition of property, court may create resulting trust that requires holder of the property to return the property to the settlor or the settlor’s estate. Prevents unjust enrichment.
NY does not recognize a purchase-money resulting trust.
Constructive Trusts
Requires wrongful conduct: settlor causes fraud, duress, undue influence, breach of duty, or detrimental reliance by a third party on a false representation. Also homicide.
Defense: Unclean hands
Evidentiary Standard: Clear and convincing
Elements:
(1) Sharing of confidential or fiduciary relationship between the transferor and transforee
(2) a promise
(3) a transfer in reliance of the promise
(4) unjust enrichment
Gift-over clause
Provides for disposition of property if the trust fails. NY honors gift-over clauses.
Spendthrift Trust
Spendthrift trusts expressly restrict beneficiary’s power to alienate, both voluntarily and involuntarily. Offers the dead-hand control of the mandatory trust but combines it with the asset protection (from creditors) of the discretionary trust. NY gives beneficiaries no right to alienate or assign interest unless grantor provides otherwise. Thus, most trusts are spendthrift trusts.
Prevents beneficiary’s creditors from getting at trust. Also prevents beneficiary’s interest from bankruptcy proceedings.
Spendthrift Exceptions
NY provides exceptions to spendthrift restrictions:
(1) children and spouses entitled to support
(2) individuals providing basic necessities to the beneficiary
(3) holder of federal tax liens
(4) excess income beyond that needed for support and education
(5) 10% levy to judgment creditors in any case against the beneficiary. This 10 percent is shared by all creditors
(6) transfers containing a fraudulent conveyance with the purpose to delay, defraud, or defeat creditors.
Chaflin Doctrine
Trustee can block trust termination when the trust has an unfulfilled material purpose.
Some trusts have intrinsic unfulfilled purposes:
(1) discretionary trusts
(2) support trusts
(3) spendthrift trusts
(4) age-depedent trusts
How can you modify / revoke / terminate a trust?
Two ways:
(1) Settlor expressly reserves the right to modify or terminate the trust
(2) Settlor AND all beneficiaries give consent (Minors and incompetent individuals cannot give consent.) (Those with remainder interests are not required to give consent in NY.)
