Part 1: general trusts & estates policies
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- Navigate this page:
- Settlor/Trustor
- Goodman
- Benefits
- Can Avoid Probate Process
- Safety From Challenges
- Issues
- Nat’l Bank of Cheyenne
- Majority
- UTC/Minority
- Fiduciary
- How Can a Trust Protect Beneficiaries From Creditors
- Issue
- Beneficiary’s Creditors for Non-Self-settled trusts
| PART 3: TRUSTT: IS IT A TRUST?
Look out for (1) who the intended beneficiaries are, (2) whether there is adequate property to have throughout the life of the trust and enough to give to everyone, and (3) whether the trustee is capable of managing the trust sufficiently Trust: An entity in which ownership is divided between the trustee (who holds “legal title” to the trust property), and the beneficiary (who holds “beneficial” title) Trustee: Has right to manage the trust property, but obligation to do so in the beneficiary’s interest (not trustee’s), has burden to manage and administer estate (holds title, defends cases, invests, pays taxes, etc.) To sue a trustee to enforce their obligations to beneficiary, have to sue in equity (NOT LAW) Settlor/Trustor: Person who created the trust Beneficiary: Has an obligation to make sure that the trustee is doing things according to trust laws and abiding by the terms of the trust Testamentary Trusts: Created in a testator’s will Transferring non-probate assets into a testamentary trust renders them probate assets – delays distribution, so maybe use inter vivos trusts as receptacle for probate and non-probate assets Testamentary trusts are irrevocable by definition, and testamentary by will Inter Vivos/Living Trusts: Created while settlor is still alive – can avoid probate How Do You Know if The Living Trust Is Revocable or Irrevocable? Historically, if trust said nothing about revocability (Goodman, default was that it was irrevocable) The distinction only applies for living trusts Now (in ½ the states, if the trust is silent on revocability, then the trust is revocable) Revocable Trust: Trustee has reserved the right to revoke the trust during their life Revocable living trusts are subject to the same rules of construction and policy constraints applicable to wills (significant pressure to validate trust where you’re settlor and beneficiary) Benefits: Eliminating estate costs and getting tax savings Cheaper: Tax benefits - revocable trust is a ghost for tax purposes Protect Elderly or Institutionalized Beneficiaries (Long-Term Care) Helps create flexibility in an estate plan and providing for a beneficiary’s needs Can Avoid Probate Process Better management, greater protection, more privacy and are more efficient than property going through probate, lower commission costs or legal fees endured because of going through probate Avoid Ancillary Jurisdiction: Transfer vacation home to revocable living trust Flexibility: Testator makes himself trustee and life beneficiary with broad management powers, designate people entitled to remaining assets at their death Safety From Challenges: Harder to challenge living trusts than a will – remainder beneficiaries of revocable trusts don’t have standing to challenge during settlor’s life Provides for Minor Children: Will should: (1) Nominate custodial guardian to care for minor children in event that parents die, (2) Create a testamentary trust for the children’s benefit (maybe different person than guardian, depends who you trust) Issues: Some of the benefits of having an inter vivos trust, are also reasons not to use it. Cumbersome: Best for wealthy old people than young people who will transfer assets around for awhile still (bad if you’re not good with record keeping) Costly: Cost of drafting a revocable trust and pour over will and then transferring assets might be greater than drafting a will - recording fees and brokerage commissions, costs with registering securities, etc. co-trustee gets commissions Ownership: If a house is owned by a living trust, have to make a connection between contractor and trustee (settlor still has to file an estate tax return, pay creditors) Probate Inevitable: If you have some assets out of the living trust, still have to go through probate anyway. Maybe better to use trust than life estate for: ease in transfer (can’t sell or lease joint tenancy interest, easier to manage (because you’re “owner”)) Pour Over Wills: Everyone who has a revocable living trust must also have a pour over will. There will always be assets that one accumulates during their life which are not in the trust that must be disposed of by a will. A pour over provision in one’s will is used to devise remaining assets into a standby trust (established during settlor’s lifetime) Can designate trustee of the living trust as the successor to certain assets like retirement/life insurance so that consolidates everything These standby trusts are legal, but because there are no assets yet, the trustee has no obligations and beneficiary has no rights until trust becomes funded at testator’s death Some states have statute explicitly validating trust even if unfunded before settlor’s death, and today, courts usually uphold them. (Estate of Canales) UPC §2-511: Validates will provision “pouring” assets into an inter vivos trust Historically challenged because will directed assets to be distributed in accordance with an invalid testamentary doc (revocable trust, invalid because it lacked property) Now argued that the standby trust is valid because: (1) incorporation of the trust creation document by reference, in which the will references a document already in existence (the existing standby trust), and (2) facts of independent significance (where creation of the trust’s has significance apart from disposing of probate assets) Yet, if revocable trust is modified after the will was executed, it cannot be incorporated by reference, as it is no longer a document in existence at the time the will was executed. Similarly, can argue that a living trust has a standby trust has no independent purpose other than to receive testamentary disposition. Today under UPC §2-511, provision of testamentary additions to trusts Even if trust wasn’t a legally active/funded at time of death, still valid as long as: (1) was ID in the will, (2) its terms were in a writing separate from the will, and (3) the trust was executed before, at the same time, or after will execution Irrevocable Trust: When created, settlor cannot change it An irrevocable trust should not be revoked in a manner which is contrary to its express provision because of the suggested expediency of the beneficiary (Nat’l Bank of Cheyenne) What kind of a trust is it? Mandatory Trust: Direct trustee to give beneficiary specific amounts, no discretion “I direct my trustee to distribute x, anything not distributed shall be added to Z” Discretionary Trusts: No mandatory obligation on trustee, just act at their discretion Trustee distributes “at its sole discretion” whatever principal required for something Pure: Beneficiary has NO right to receive payments of income/principal Discretionary support trust: Determining how much to pay for specific things or if you have discretion up to some certain cap Support Trust: Money set aside for the maintenance of someone (like $ for college) Usually has an ascertainable standard of living, what they should be supported to “As necessary for the comfort, support and maintenance of the beneficiary” Private Express Trust: Used mostly for estate planning Created to manage assets for minors, incapacitated, or flexible distributions to family Honorary Trusts: Not a real trust, but sometimes allowed There is no possible ascertainable beneficiary, but if the purpose is honorable, not impulsive or illegal, the trust will continue so long as the trustee will honor the terms of the trust Ex: Leona Helmsley: NY allowed dog trusts, then when dog died, went back to a charitable trust Constructive Trust: Remedial device used by courts to achieve results which don’t otherwise Equitable device – no “intention” to make a constructive trust but if you have legal title but can’t in good conscience retain beneficial interest, then equity converts holder of legal title into trustee Resulting Trust: When settlor intends to create a trust, but trust fails for some reason A "resulting trust" is not really a trust at all but is instruction to trustee about what to do with money left in a trust that has come to a dead end. Settlor alive usually will be sent back to settlor, if Dead estate through will or intestacy if not Purchase Money Resulting Trust: Pay for something which is to be given to someone else, you have beneficial title to the property – recipient holds title in trust for the person who pays Perpetual Care Trust: Allows for the maintenance of your burial site (but no beneficiary) Charitable Trust: Has no ascertainable beneficiaries, not subject to the RAP Enforced by a division of the state, not by beneficiaries, benefits for income tax purposes UTC §405 (2000): (1) relief of poverty; (2) advancement of education; (3) advancement of religion; (4) promotion of health; (5) gov’t/municipal purposes (BUT NOT political party); or (6) or the trust preforms other purposes which are beneficial to the community. Ex: Barnes Foundation - Even though explicitly didn’t want it moved, a sufficient general charitable purpose was found, built new museum with same layout and rooms, new lighting How do you modify a charitable trust? Cy Pres Doctrine of Charitable Trusts (“close enough” for changed circumstances) This doctrine applies to determine what courts do with trusts that can no longer perform their function/purpose because of changed circumstances. Policy: If you just undo the wishes of philanthropists after a certain period of time, reduces the number of people who are giving for charitable reasons Court must find: (1) Settlor had a general charitable purpose broader than specific purpose, If no general purpose, then there is a resulting trust property goes to Settlor’s estate (2) The purposes of which have become unlawful, impossible or impracticable to preform Majority: Trust is unlawful, impracticable, or impossible to achieve; (no waste) Minority /UTC §413(a): Unlawful, impracticable, impossible to achieve, or wasteful Is it a valid trust? (1): Settlor With Mental Capacity and Intent Precatory/Mandatory Language: In deciding whether a settlor intended to create a trust or not, courts look at whether the language was precatory or mandatory. There is a presumption that precatory words do not create a trust (states a wish, but no action required). Words construed as mandatory only when the settlor expresses clear intent to impose an enforceable duty on the trustee In contrast, mandatory language imposes a duty. Words will be construed as mandatory if surrounding circumstances show that the language is meant as mandatory (Levin v. Fisch) Precatory: It is my wish that this money is held for X’s education Mandatory: I instruct X as trustee to hold this money in trust for Y UTC § 402(a)(1): Settlor must have the mental capacity to create a valid trust Can be subject to the same challenges of fraud, duress, or undue influence Intent for Testamentary & Revocable Inter Vivos Trust: Same as intent to make a will (1) Know the nature of the business they’re conducting (making a will), (2) recollect the property to dispose of (the natural objects of their bounty), (3) scope of their property, and (4) put them together in a coherent plan Intent for Irrevocable Inter Vivos Trust: Gift: Mental capacity to make a gift (will plus “understand the effect that the disposition may have on future financial security of settlor/donor and of those who depend on them”) Transaction: Settlor possess capacity to K (when trust isn’t a gift it’s more like a transaction) (2): Ascertainable Trust Property (specific boundaries) Every trust must have some property in its protection (RST §2), definite enough to be ascertained Description: Property is properly described in a way that it’s ascertainable (attached as a schedule) Even a nominal amount is enough to validate a trust, but contingent or remainder beneficiaries only have standing to challenge management if it’s irrevocable Exception: Both expectancy and standby trusts are invalid when unfunded, as they have no legal effect until they are funded with ascertainable property The two types of trusts are differentiated by the form of the expected future property Expectancy – Recipient of expectancy from an estate Clara Mayo Case: Living trust document signed, but no property (pension/life insurance), BUT because the trust wasn’t funded in the life, and this was just an expectancy trust, it was found to be invalid Standby – Recipient of life insurance or pour over will Speelman v. Pascal: Upheld trust funded with future profits (considered property because they had a legal title to them) (3): Ascertainable Beneficiary (Beneficiary has EQUITIBLE title) Every trust must have at least one beneficiary (RST §44) – someone must have the power to enforce the trust – sometimes issues if defined vaguely, or don’t name entirely Moss v. Axford: Some courts allow extrinsic evidence to identify the intended beneficiary Non-Human beneficiaries: Historically not allowed, but NY has a statute (Leona Helmsley) Charitable Trusts: Don’t need named beneficiary (and not for unborn kids either!) (4): Compliance with Applicable Formalities For That Type of Trust Declaration of Trust: If trustee and settlor are the same (can be oral or written) Transfer: Most jurisdictions don’t require transfer because settlor doesn’t have to transfer property to themselves (but not all – some require change of deed to say “settlor as trustee”) Deed of Trust: A trust document that creates a trust but names someone other than settlor as trustee Transfer: Evidence of showing transfer, through recording deed/account chain of title Could be accomplished through a schedule attached to the trust instrument Express Trusts: NY Express Trust: Requires signatures of settlor and one trustee (unless settlor is sole trustee), and acknowledgement by a notary OR 2 witnesses’ signatures Heapes v. Heapes: Under the trust instrument, some affirmative action beyond merely a change in property title was required to take assets out of the trust Reasoning: Language of the trust like a K – when assets are being withdrawn, something beyond taking title to them is required to take them out of the trust Trust required a “duly executed instrument” to amend trust – like a signed memo Oral Trusts: Most states only allow oral trusts to be for personal property Most transfers of real property run into statute of frauds issues requiring a writing UTC/Minority: sanctions oral trusts for both land and personal property but require trust's terms and intent be proved by clear and convincing evidence Majority: most states require no writing to establish a trust of personal property (only require that there be sufficient proof of terms of trust and intent) but most require some kind of writing to create trusts of land; Goodman v. Goodman: Did the father orally give the tavern to his mother to hold in trust for his children until they reached the age of majority, or was it a gift to the mother? Holding: Express oral trust. Even though no writing is required in most states, the grandmother had an obligation to hold the tavern in trust for the grandkids because there was a valid oral trust created. Rule: A trust can arise or be implied from the circumstances as a result of the presumed intention of the parties as gathered form the nature of their transaction (“5”): Valid Trustee (Not required to have, but usually do – trustee has LEGAL title) If the trust doesn’t name a trustee or if the named trustee doesn’t qualify (they’re dead, decline to serve, incapacitated), not valid if clear intent to create a trust – court can appoint a trustee Duties: (1) Fiduciary - Must act in good faith in the best interests of the beneficiaries and in accordance with settlor’s objectives, (2) Communication - Notify beneficiaries of the trust, trustee’s ID, nature of beneficiary’s interest, right to receive info about management Application: If a trust imposes no active duties on the trustee, then it’s a “passive” trust, and beneficiary has legal AND equitable title – normally invalid today Merger Doctrine: Can name the sole trustee as one of the beneficiaries, or multiple trustees as multiple trustees BUT CANNOT have sole trustee be sole beneficiary (UTC §402(a)(5)) Good Practice: T can protect himself by carrying out regular accounting given to ben’s (notice for things gone wrong, starts SOL for mistakes occurring during the accounting period) How Can a Trust Protect Beneficiaries From Creditors? Trusts are a mechanisms for protecting assets the settlor knows a beneficiary isn’t capable of managing Normally, a beneficiary can execute an assignment of his rights to the trust to another person as a way to get around it and get cash now BUT if trustee is limited to paying sums for beneficiary’s support or maintenance, then there may be limits on their ability to cover creditor’s demands Spendthrift Trusts: Most common mechanism for keeping assets away from a beneficiary’s creditors Merger doctrine applies to spendthrift trusts – so if sole beneficiary becomes sole trustee, trust terminates and creditors can get access to property Valid if: Beneficiary (1) is prohibited from voluntarily assigning or selling his or her interest in the trust, and (2) Has their interest protected from involuntary garnishment by creditor/legal process Invalid if: (1) Self-Settled Trust, (2) (child support, spousal maintenance (UTC §503(a) states) (3) Creditor who provided services for protection of a beneficiary’s interest in the trust For attorney’s fees defending a beneficiary’s interest in their trust property (4) State or federal government claim, and (5) claims for necessaries (if maintenance trust??) Scheffel v. Krueger: Molested son, sent to prison, had a discretionary support thrust with a spendthrift clause, plaintiff claims assets were fraudulently moved to hide $$ from her Issue: Can the tort creditor get access to funds from his discretionary trust? Holding: No. Courts deferred to the legislature, said that neither of the two exceptions applied, so there was nothing he could do – bad case but can’t overrule legislature Creditors have no right to rely on property held in trust, because that property is inalienable and not liable for debts of beneficiary. The beneficiary only gets interest in accrued income from trust, not the right to alienate the trust property itself (Broadway Bank v. Adams) Imposes a duty on creditors to search the database for wills and find restrictions, Policies For: Ensure settlor’s intent - freedom of testation for settlor to do what he wants with $$ Nichols v. Eaton: Spendthrift trusts aren’t unfair to creditors – they can ascertain restrictions on beneficiary’s income and decide whether to credit NY has a default spendthrift provision unless the trust explicitly writes it out Policies Against: Then beneficiary can’t voluntarily assign interest in trust property John Gray: Testamentary trusts are public records, but inter vivos trusts are not, so no way for a creditor to know, might not be a reckless creditor Better for society to allow a claim for tort/child support than to protect ben. from bad habits How do creditors normally get access to trust assets, How can Settlors Protect Assets? Garnishment: Creditor can garnish a stream of income/trust disbursement available to debtor If it’s not a spendthrift trust, trustee can be served with process by creditor seeking to attach claim to beneficiary’s interest in the trust Beneficiary’s Creditors for Non-Self-settled trusts (where settlor is not a trust B) Directory: outlines outlines -> Chabot College Fall 2010 Course Outline for Computer Application Systems 60 business software applications/general accounting outlines -> Adil Khan Contracts Midterm outline- waldron outlines -> Remedies for breach of promise (1) The Interests Protected outlines -> Basic Process for Assessing Damages: 97 Select interest that deserves vindication 97 a. Restitution 97 outlines -> Chapter Five: Written Documents 1 Unsigned Documents 1 outlines -> Cases and Materials on Contracts outlines -> College of Science and Health outlines -> Evidence outline outlines -> 2. Act, Omission, Status or Circumstances 4 Consequences and Causation 8 Introduction to Mens Rea and Intent 10 Levels of Fault 11 Download 0.55 Mb. Share with your friends:
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