john trusts.txt

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john trusts.txt
2013-06-23 21:21:23
john trusts

john trusts
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  1. Trust, Defined
    Trustee holds legal title to specific property under fiduciary duty to manage, invest, safeguard, administer for the benefit of the beneficiaries, holding EQUITABLE TITLE.
  2. Types of Trusts
    1) Express trusts arise from express intention of the owner; 2) Resulting trusts arise from the presumed intention of the owner of the property; 3) Constructive trusts arise in cases involving wrongful conduct/unjust enrichment
  3. Methods of Creating Trusts
    1) self-declaration; 2) transfer of a third person named as trustee; 3) will; 4) exercise of a power of appointment
  4. Consideration Issues
    Not required to make a trust, but it required for a promise to create a trust in the future.
  5. Formal Requirements of Creation
    Must be a 1) settlor who 2) delivers the 3) trust property to a 4) trustee with the 5) intent to create a trust for the benefit of 6) beneficiaries. Must be a 7) lawful purpose and the SoF may required it be in writing
  6. Settlor
    Must have legal capacity who intends to create a trust or make a transfer of assets to trustee
  7. Delivery
    Mere experssion of intention to create a trust, without dlivery of assets, has no legal consequences. DOES NOT APPLY to self-declaration of trust or a testamentory trust
  8. Trust Property
    Must be specific property. Debtor cannot hold his debt in trust, but a creditor can hold the debt of another in trust. Need not be tangible property, but must have assignable interest. Expectancy !=property. Must be ADEQUATELY AND SPECIFICALLY described. Fractional interest in specific property == sufficient
  9. Trustee
    1) Must have capacity. If sole trustee=beneficiary, there's no trust because they merge. 2) No one can be compelled to be trustee. 3) If you do anything w/ the trust, presumed acceptance, UNLESS merely acting to preserve trust property and sends NOTICE of rejection to settlor or all primary beneficiaries. No such thing as trustee by estoppel, must accept trusteeship in manner provided by terms. If will is created w/ no trustee, executor. Individual trustee must post bond, unless waived
  10. Intention to Create a Trust
    "it is my wish" or "my desire" is not enough.
  11. Beneficiaries
    1) Disclaimer: Must be in writing and filed w/i 9 months. Interest in inter vivos must be by written instrument acknowledged bf notary and delivered to trustee no later than 9 months after 1) date on which transfer made; 2) date on which beneficiary attains age of 21; or 3) date on which the event that causes the taker of the itnerest to be finally ascertained and interest indefeasibly vested. 2) Beneficiary must be ascertainable
  12. Trust purposes
    May be created for any purpose that is not illegal. Will fail if 1) enforcement involves commission of a crime; 2) created w/ intent to defeat settlor's creditors; 3) based on illegal consideration. Total restraints on marriage or conditions that ENCOURAGE divroce = void. The beneficiary just gets the money. Forfeiture of interest due to actions of a third party is also void.
  13. Statute of Frauds
    Trusts must be evidenced by a writing by the settlor. Orat trust of personal rpoperty is valid if it names someone other than the settlor or a beneficiary as trustee, provided that, SIMULTANEOUSLY WITH OR PRIOR TO TRANSFER, transferor expresses the intention to create a trust.
  14. Procedural Following Irreconciliable Confilict 1
    ) Court approval upron showing can no longer appropriately serve as trustee; 2) Accounting (property received, receipts and dispersments, property on hand and liabilities)
  15. Writing Req.
    Must be in writing, unless for personal proeprty to a trustee other than the settlor or beneficiary coupled w/ declaration of itnent tocreate a trust simultaneously w/ or prior to the transfer
  16. Revocability
    All inter vivos trusts are revocable and amendable by the settlor unless experssly made irrevocable or unamendable. (If trust is written, any such action must be in writing. Guardian does not have authority to revoke, only a court can do that if in the ward's best interest. Divorce revokes all provisions in favor of a former spouse, but not relativse thereof)
  17. Pourover Will
    Provides a means for adding testemtnary assets to a trust created by testatior during life. Gift is valid even if trust is subject to revocation and amendment and is later amended ANd even if trust is unfunded. NEED NOT BE IN EXISTENCE BEFORE OR EXECUTED CONCURRENTLY WITH WILL, can be executed after.
  18. Way to Provide for Settlor's Future Incapacity
    Trust to yourself w/ life estate, remainer to other people. Settlor can name self as trsutee to serve as long as she has capacity.
  19. Life Insurance
    Can pay to the "trustee named in my will" as the policy beneficiary. Also valid for employee death benefits.
  20. Joint Owner of Bank Account
    If there's an agreement that it passes to someone else on death, that controls to protect the bank, even if the Will provides otherwise. Valid if it was signed by the party who died, even if survivor didn't UNLESS survivorship is b/t husband and wife funded w/ community property, then both spouses must sign.
  21. Durable Power of ATtorney
    1) Must be signed and Acknolwedged before a notary public; 2) atuhorizes another person to act on behalf of the principal. Not affected by principal's later incapacity unless it says so. Can make "springing durable power," which becomes effective on incapacity. third parties who rely on the power without knowing it's revoked are protected. Terminates on divorce, but not on bankruptcy. Appointment of a guardian of estate terminates it.
  22. Distinctive Rules Re: Charitable Trusts
    1) May be perpetual; 2) Must be a charitable purpose (substantial amount of social benefits: religion, education, relief of povery, medical research -- can be proud "to be used for charitable purposes") 3) must be in favor of reasonably large segment of public at large; 4) may be reformed under "cy pres" when specific charitable purpose can no longer be accomplished (means as near as possible -- but has to be judicial proceeding)
  23. Rule of Perp
    Must be stated in the trust.
  24. TX Cy Pres Statute
    If a will or trust violates the RAP, instrument shall be reformed or construed so to carry out settlor's general intent as FAR as possible within the period of the rule. DOES NOT APPLY TO NONCHARITABLE TRUSTS (i.e., if the charitable purpose can no longer be attained) and only applies to private trusts w/r/t RAP
  25. Charitable Trust Enforceability
    Attorney General, is a proper party to any suit concerning a charitable trust; must certify a copy of the petition to the AG by registered or certified mail so he can decide whether or not he wants to come.
  26. If specifically named charitable beneficiary ceases to exist
    Trustee does not need to bring a judicial cy pres; however, must name a new entity and give notice to AG. Naming a new charity to carry out same charitable purpose.
  27. Honorary Trust
    Like where you have a principal to use for purposes of washing a car or maintaining a garden. Trustee is on her honor in deciding whether to perform. If she chooses to perform, great. If not, gift fails and it goes to the residuary. Also, look at for RAP here.
  28. Trust Animals
    Animals alive during settlor's lifetime can be beneficiaries. Individuals named in the instrument creating the trust can be used as measuring lives; trust property not used for animal's care distributed to settlor if living, otherwise, under will or intestacy.
  29. Purchase Money Resulting Trust
    Presumption that happens if A pays purchase price for land and takes it in B's name. Evidence is admissible gift. If relative, presumed gift and need c+c evidence
  30. Constructive Trust
    Now a trust. Equitable remedy whose object is to disgorge unjustment enrichment. Elements 1) wrongful conduct; 2) unjust enrichment. TRUST CODE DOES NOT APPLY.
  31. Life Insurance Proceeds if you Kill Someone
    Distributed as though killer predeceased the insured victim, goes to alternate beneficiary. Otherwise, insured's estate.
  32. Spendthrift Clauses
    Full effect in TX: protect a trust beneficiary's interest from creditors by prohibiting voluntary assignment or involuntary trasnfer of the beneficiary's interest. Judgment creditor cannot reach beneficiary's interest in spendthrift trust by garnishment or attachment.
  33. Exception to Spendthrift Clauses
    1) contract for necessaries; 2) Child Support Obligations; 3) Any interest retained by the settlor (he's the owner, otherwise, you could just set up your whole income in trust); 4) Federal Tax liens. But if you breach trust and give creditors money, estoppel applies. Also, you can reach income after it is paid out.
  34. Discretionary Trusts
    Creditor can reach funds of the settlor to the maximum extent the trustee could make a distribution to him.
  35. Support Trusts
    "Income to my daughter Dolly, remainder to her children, except if the trustee determines that income is insufficient for Dolly's support, principal can be distributed in its sole discretion, not subject to any challenge." -- Dolly has CoA to compell distribution she shows is needed. It was to provide support, not give trustee discretion. Remaindermen would haev cause for an excessive distribution. NOTE: Creditor who furnishes necessaries can reach a support trust.
  36. Trust Jurisdiction
    Distrct Courts and Statutory Probate Courts have concurrent jurisidction over all proceedings regarding inter vivos trusts and testamentary trusts
  37. Venue
    If individual: i) county of trustee's residence or ii) county in which situs of trust has been mitained. Two of more individual trsutees: county in which situs maintained.
  38. Accounting
    Entitled, on demand, within 12 months after cretions and successive at the same intervals.
  39. Restrictions on Accounting
    Not allowed for people entitled or permitted to receive distributions from the trust or who would receive distribution if the trust was terminated (first tier remaindermen), but any others can be restricted or eliminated (e.g., to A for Life, then B, but if B is dead, then C -- A and B can't be restricted, C can)
  40. Texas Trustee Powers ACts
    If a fee simple owner can do it, so can a trustee. Model answer: "The Texas Trust Code, which applies to all trusts in Texas except to the extent trustee's pwoers are expanded or limited by the settlor, gives broad fiduciary powers to the trsutee. Specifically, the Trust code expressly authorizes a trustee to DO WHATEVER THE QUESTION SAYS" (except self-dealing or imprudent investments)
  41. Six Powers a Trustee can Exercise in managing Real Property Held in Turst
    1) sell property at public or private sale; 2) lease proeprty for any term the trsutee deems appropriate; 3) give a mortgage; 4) make improvement; 5) make repairs; 6) give mineral leases; 7) partition and subdivide property
  42. Self-Dealing
    1) Trustee cannot borrow trust funds or use trust assets as collateral for a personal loan; 2) trustee cannot buy or sell trust assets to itself (unless corporate then on court order); 3) Trustee cannot loan funds to the trust and any interest earned must be returned. Any security received in connection with is invalid; 4) Trustee cannot profit from being a trustee (except for compensation) by taking advantage of confidential info received or accepting a bonus for investing trust funds in a start-up company; 5) corporate trustee cannot buy its own stock as a trust asset(but can retain such stock when received in trust, if it's a prudent investment). Self Dealing also applies when you loan or sell soemthign to a relative, or if a business, to an officer, director, partner, employee, or principal SH. CAN loan funds to a Beneficiary though.
  43. Breach of Fiduciary Duty
    If trustee does this, beneficiary can bring an action to remove trustee AND 1) ratify the transaction and waive breach of trust; 2) bring surcharge action for resulting loss. If the case indolves self-dealing, under the "no further inquiry" rule, breach of fiduciary is auto wrong. Only issue is damages; 3) if trustee still has the proeprty, can petition for constructive trust.
  44. SoL
    It is 4 years, but it does not run against fiduciary unless and until he 1) repudiates the trust (denies the existence of a trust w/r/t to the proeprty); 2) dies or resigns; 4) gives an accounting that makes fill disclosure of the facts upon which the action is based.
  45. Insurance
    Duty to protect and prseerve assets includes duty to insure them, if that's what a prudent person would do.
  46. Co-Trustees
    Majority Rules, but affirmative duty to prevent a breach of the trust. So, try to make them not do it, if unsuccessful: 1) do not participate in the transaction; 2) express dissent in writing.
  47. Uniform Prudent Investor Act
    Trustee must establish and mtain custom-tailored investment strategy that will effecuate settlor's intent as to purposes of the particular trust, taking factors as: 1) economic conditions; 2) possible effect of inflation/deflation; 3) tax consequences; 4) role that each investment plays within the overall trust portfolio; 5) the expected total return from income and capital gain; 6) needs for liquidity; 7) an asset's special relationship or value to the purpose of the trust or beneficiary; 8) any differing interests of the income beneficiaries or remaindermen (4 and 5 are the important ones) Product is not measured by hindsight.
  48. Adjustment Power
    Some bullshit with trusta in allocating capital gain and principal and how it can be allocated to income. Power to adjust total return between income and principal and allocate capital gain and principal to income. Factors: 1) purpose and expected duration of trust; 2) itnent of the settlor as to respective itnerests of B's; 3) net amount of ordinary income and capital gain available for allocation; 4) circumstances of B's 5) need for liquidity, regularity of income, prseervation and appreciation of capital; 6) any increase or decrease in value of trust assets; 7) whether trust gives trustee a power to distribute capital; 8) effect of economic conditions and effects of inflation, deflation; 9) anticipated tax consequences (2, 6, 7 important)
  49. Life/Remainder Bullshit based on UPIA
    Interest, rental income, cash dividends on stock = income. Eminent domain award, insurance proceeds for property destroyed by fire = principal.
  50. Allocation is presumed equitable if it follows federal income tax depletion
    15%. i.e., 100k bonus and royalty, allocate 15k to principal and 85k to income. (NOTE, existing trusts can do the old 27.5% rule)
  51. For Penson Plans , annuities, and IRAS that name trust as B distributions allocated
    To income until payments equal 4% of the plan's or IRA's value at the beginning of the accounting period (Jan 1, usually). Everything else = principal.
  52. For receipts from "liquidating assets"
    10% to income and 90% to principal.
  53. All money received from an enetity
    Is allocated to income. All receipts other than money = principal.
  54. Expenses
    Ordinary expenses charged against income; capital charged against princpal. Ordinary, e.g., come up every year, property taxes, insurance premiums, mortgage interest payments, ordinary repairs; CAPTITAL = capital improvements, expenses relating to enviro matters, estate taxes, principal payments
  55. Trust Code, Generally
    All provisions are "defaults". SEttlor can write own. Only rules cannot waive: 1) cannot limit req that trust cannot be created for illegal purpose, trustee commit crime or tortious act or contrary to public policy; 2) can't exculpate trustee from liability for breach of trust commited in bad faith, intentional or reckless indifference; 3) cannot limit SoL; 4) cannot limit duty to respond to demand for accounting; 5) cannot limit court's power to exercise Jurisidction to modify or terminate trust, remove trustee, require bond, or deny compensation
  56. Trustee Liability
    Not personally liabile on a contract unless she fails to disclose her representative capacity; liable for torts commited by self or agents, but entitled to reimbursement from trust if common incident of business activity in which trsutee was properly engaged in. Must sue trustee, not trust.
  57. Exculpatory Clauses
    Valid, but strictly construed. Does not, of itself, authorize self-dealing. also can't relieve bad faith or gross negligence.
  58. Can B bring direct action against third party who causes injury to trust property?
    No. Trustee should -- holds legal title. EXception 1) T unwilling or unable; 2) third party partcipating w/ trustee in commiting breach of trust.
  59. Termination of Trust
    1) terminates automatically according to terms.
  60. General Stuff re: Termination of Modification of Terms
    1) Upon petition of a trutee or B, court may order that trustee be changed, that terms be modified, that drustee be directed to do acts that are not authorizes, or prohibited from doing acts that are required, or that trust be terminates if following tests met: 1) purposes of the trust have been fulfilled or are illegal or impossible; 2) changes cirucmstances, modification or termination will further purposes; 3) achievement of tax purposes: modification or termination is necessary for tax objectives. Must be done via a hearing unless, division of trust into two trusts, or merger of two trusts into one trust. Can be done for any reason, but usually for taxes.
  61. Termination of uneconomic trust
    Trustee of trust having a value of <50k, on notice to B, may terminate w/o court approval if cost of admin does not justify
  62. How long can trustee continue to exercise trust powers after terminations
    May continue to exercise for reasonable time needed to 1)n wind up; 2) make distributions
  63. Estate Tax
    Exemption = 5 million. If you die in 2011, if decedent's gross estate is < 5 million, no return needed.
  64. Other Tax Stuff
    1) Unlimited marital deduction under both gift tax and estate tax. Any proeprty passing into spouse's outright ownership qualifies for marital deduction.
  65. Lifetime Gift Deduction
    No gift tax must be paid by a donor unless cumultive lifetime taxable gifts exceed 5 million. You have to file a return, but no tax paid.
  66. Life Ins and Community Property Issues
    Proceeds are taxable in person who died's estate for estate tax purposes, but Diane doesn't have to pay tax on it as income.
  67. 13k per donee annual tax exclusion
    If you give 13k per person, you don't have to file a return AND it doesn't count against your 5 million
  69. Revocable TRusts
    Incomplete Gifts. Does not have to file gift tax until it gets paid at.