Trusts ALL.txt

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twiggy924
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26871
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Trusts ALL.txt
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2010-07-15 09:24:02
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Twiggy924 Trusts ALL
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Trusts
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  1. RAP Review
    • 1) No interest is valid if it could vest later than any life in being at the time of the creation of the interest plus 21 years
    • 2) Vested when
    • - no condition precedent needs to be satisfied, and
    • - exact identity of the taker is known
    • 3) NY RULE
    • - age contingencies reduced to 21 years
    • - admin contingencies reduced to 21 years
    • - women presumed infertile at age 55
    • - ignore possibility of adoption
  2. NY RULE against suspension of power of alienation
    • 1) An interest is void if it suspends the power of alienation for a period longer than lives in being plus 21 years
    • 2) Power to alienate is suspended when there are NO persons who could, together, transfer fee simple title
    • - needs consent of both income and remainder beneficiaries
  3. NY Rule against suspension of power of alienation: When does the issue arise?
    • 1) Spendthrift trusts (bc beneficiary cannot voluntarily alienate), or
    • 2) Life estate created in
    • - unborn person (can't agree to alienate), or
    • - open class (unascertained persons can't agree to alienate)
  4. Trustee's powers
    • 1) NY Fiduciary Powers Act (FPA): controls powers exercisable w/o
    • - court order, or
    • - express authorization in the trust
    • 2) Trustee can do almost anything, except:
    • - engage in self-dealing***
    • - borrow money on behalf of the trust
    • - continue a business (unless court gives approval)
  5. 5 Prohibitions on Self-Dealing***
    • Trustee CANNOT
    • 1) buy or sell trust assets to himself
    • 2) borrow trust funds
    • 3) lend money to trust
    • 4) profit from position as trustee (e.g., confidential info)
    • 5) buy own stock as a trust investment
  6. 2 Affirmative duties on Self-Dealing***
    • Trustee MUST
    • 1) segregate trust property from personal property, and
    • 2) earmark assets as trustee ("John as trustee for XYZ trust")
  7. Remedies for breach of Trustee's fiduciary duties
    • Beneficiary may
    • 1) remove trustee
    • 2) ratify transaction and waive breach
    • 3) sue for any loss ("surcharge action")
    • Note: breach of fiduciary duty is an automatic wrong
    • - good faith is NOT a defense
    • - reasonableness is NOT a defense
  8. Actions against third-parties?
    Beneficiary cannot sue a BFP for value who lacks notice of trustee's breach of duty (i.e., no knowledge of self-dealing)
  9. Indirect Self-Dealing
    • Self-dealing rules also apply to transactions with
    • - relatives of trustee
    • - business, of which trustee is an officer, employee, partner, or principal
  10. Exculpatory clauses
    • 1) Cannot be used to shield fiduciary breach in a testamentary trust
    • 2) But can be used to exculpate trustee of an inter-vivos trust
  11. Trustee's powers
    • 1) NY Fiduciary Powers Act (FPA): controls powers exercisable w/o
    • - court order, or
    • - express authorization in the trust
    • 2) Trustee can do almost anything, except:
    • - engage in self-dealing***
    • - borrow money on behalf of the trust
    • - continue a business (unless court gives approval)
  12. 5 Prohibitions on Self-Dealing***
    • Trustee CANNOT
    • 1) buy or sell trust assets to himself
    • 2) borrow trust funds
    • 3) lend money to trust
    • 4) profit from position as trustee (e.g., confidential info)
    • 5) buy own stock as a trust investment
  13. 2 Affirmative duties on Self-Dealing***
    • Trustee MUST
    • 1) segregate trust property from personal property, and
    • 2) earmark assets as trustee ("John as trustee for XYZ trust")
  14. Remedies for breach of Trustee's fiduciary duties
    • Beneficiary may
    • 1) remove trustee
    • 2) ratify transaction and waive breach
    • 3) sue for any loss ("surcharge action")
    • Note: breach of fiduciary duty is an automatic wrong
    • - good faith is NOT a defense
    • - reasonableness is NOT a defense
  15. Actions against third-parties?
    Beneficiary cannot sue a BFP for value who lacks notice of trustee's breach of duty (i.e., no knowledge of self-dealing)
  16. Indirect Self-Dealing
    • Self-dealing rules also apply to transactions with
    • - relatives of trustee
    • - business, of which trustee is an officer, employee, partner, or principal
  17. Exculpatory clauses
    • 1) Cannot be used to shield fiduciary breach in a testamentary trust
    • 2) But can be used to exculpate trustee of an inter-vivos trust
  18. Trustee or Beneficiaries can Modify trust when
    • 1) Objectives of the trust would be defeated or substantially impaired, if trust is not modified or
    • 2) Focus on PURPOSE of the trust
    • - determine primary intent of Settlor
    • - can modify specific directions whose continued enforcement would frustrate the primary purpose
  19. Termination by Settlor?
    • 1) NY RULE: in absence of express contrary language, all trusts presumed to be
    • - irrevocable, and
    • - unamenable
    • 2) Exception: Settlor can terminate an irrevocable trust if
    • - all beneficiaries in being consent
    • - NB: no one can consent for a beneficiary who is a minor or incompetent (not even parents or guardians)
  20. Major types of trusts
    • 1) Revocable inter-vivos trusts
    • 2) Pour-over trusts
    • 3) Totten trusts***
    • 4) Joint bank accounts***
    • 5) Charitable trusts
    • 6) Non-trusts
    • 7) Spendthrift trusts***
  21. Revocable Inter-vivos trusts: Main requirements
    • Main requirements
    • - at least one beneficiary who is NOT the Settlor
    • - Settlor cannot be the SOLE beneficiary when also named
    • - the SOLE trustee
  22. Revocable Inter-vivos trusts: Permissible roles for the Settlor
    • Permissible roles for Settlor
    • - can be "a" trustee (but not sole)
    • - can be income beneficiary
    • - can be remainder beneficiary, IF at least one other is named
    • - can retain power to terminate or amend the trust
  23. Revocable Inter-vivo trusts: Tax impact
    • 1) Does NOT avoid taxes
    • 2) Full value of trust includible in Settlor's gross estate if he:
    • - keeps and income interest, or
    • - keeps power to revoke
  24. Pour-Over Trusts: Key Requirements
    • At time of the "pour over" gift,
    • 1) Trust must be in existence, or
    • 2) Trust executed at the same time as the Will
  25. Pour-over trusts: Possible to "pour over" into any trust?
    • Yes
    • "Pour over" gift can be into any trust, not just ones created by the Settlor
  26. Pour-over trusts: How to "pour over" life insurance proceeds to a trust
    Name trustee as the beneficiary of the insurance policy
  27. Totten Trusts: Creation
    • 1) Depositor can deposit or withdraw as he/she wishes during lifetime
    • 2) Beneficiary get whatever is in account at Depositor's death
    • 3) No particular words required; can be
    • - "as trustee for X"
    • - "in trust for X"
    • - "ITF"
  28. Totten Trusts: Revocation
    • 1) Withdrawal of all money
    • 2) Express revocation during lifetime. Requires
    • - writing signed by depositor
    • - identifies the beneficiary and bank
    • - notarized and delivered to bank
    • 3) Testamentary revocation
    • - must follow same procedure for lifetime revocation
    • 4) Beneficiary predeceases Depositor
  29. Totten Trusts: Change of Beneficiary
    • Depositor can change through same method as revocation
    • - signed writing notarized
    • - names old beneficiary and new one
    • - delivered to bank
  30. Totten Trusts: Reach of Creditors
    • Creditors of the Depositor can always reach account balance, either before or after death.
    • Rationale: Totten trust is nothing more than a revocable trust
  31. Joint Bank Accounts: Challenging ROS
    • Clear and convincing evidence must show that
    • 1) survivorship not intended, and
    • 2) account opened solely for depositor's CONVENIENCE
  32. Joint Bank Accounts: Who is entitled to what share?
    • 1) Each owns HALF the balance, regardless who contributed the amount
    • 2) During life, each can withdraw up to half the total balance contributed
    • 3) At death, survivor takes all
  33. Joint Bank Accounts: NY Uniform Transfers to Minors Act (generally)
    • 1) Gifts must be made to a "custodian"
    • 2) Gift must specify that it is made uner the NY UTMA
    • 3) Gift can be testamentary or inter-vivos
  34. Joint Bank Accounts: Custodian's duties under UTMA
    • 1) Manage and invest under prudent person std
    • 2) Custodian has discretion to pay over what is "advisable"
    • 3) Must pay balance of account to minor upon turning 21 (18 for pre-1997 gifts)
  35. Joint Bank Accounts: UTMA tax consequences
    • 1) Depositor names himself as Custodian: amount of gift included in gross estate
    • 2) Someone else named Custodian: amount of gift not included in Depositor's gross estate
  36. Charitable Trusts
    • 1) Beneficiaries must be indefinite and large group
    • 2) Charitable purpose required
    • 3) Not subject to RAP
    • 4) Cy Pres applies
    • 5) Attorney General represents beneficiaries
    • a) AG must be named as party
    • b) AG or donor have standing to sue to enforce trust terms
  37. Honorary Trusts
    • Trust will fail and gift will pass to residuary estate if beneficiary is NOT a human being
    • Exceptions
    • 1) Pet trusts: May last for lifetime of pet w/o violating RAP
    • 2) Cemetery trusts: No RAP violation (treated as charitable trusts)
  38. Constructive Trusts
    • 1) Equitable remedy: disgorge unjust enrichment from wrongful conduct
    • 2) "trustee's" only duty tis to convey property to person who, in equity, should rightfully have the property
  39. Resulting Trusts
    Look for a transfer of property where the donor expects that take the property back at sometime in the future
  40. Resulting Trusts: Purchase money resulting trust (PMRT)
    • 1) Arises when P buys property, has title put in someone else's name, but P later expects to take back title to the property
    • 2) NY does NOT recognize PMRT
    • - Result: P cannot get property back
    • - EXCEPTION: Clear and convincing evidence that grantee had expressly or impliedly PROMISED to reconvey property to P
  41. Spendthrift Clauses: Generally
    • 1) Protects beneficiary's interest from creditors
    • 2) Prohibits voluntary or involuntary transfer of a beneficiary's interest
    • 3) NY RULES: Spendthrift protection
    • - automatically applied to income interests
    • - but does NOT automatically apply to remainder interests (provision must be express as to remainders)
    • 4) Does NOT apply to any interest retained by Settlor
  42. Spendthrift Clauses: Exceptions (creditors CAN reach trust income)
    • 1) Necessities furnished
    • 2) Child support and alimony creditors
    • 3) Federal tax liens
    • 4) Excess income beyond that needed for support and education (look to beneficiary's accustomed lifestyle)
    • 5) NY 10% levy (all creditors share 10% together)***[FREQUENTLY TESTED]
  43. 8 requirements for a valid (express) trust
    • 1. SETTLOR who makes a
    • 2. DELIVERY of legal title to
    • 3. PROPERTY to a
    • 4. TRUSTEE holds legal title for the benefit of a
    • 5. BENEFICIARY with
    • 6. INTENT to create a trust for a
    • 7. LAWFUL PURPOSE in a
    • 8. VALIDLY EXECUTED document
  44. Who can be a Settlor?
    Anyone at least 18 years old with legal capacity to enter into K
  45. What is required for Delivery?
    Titled assets (e.g., land, registered stock) must be FORMALLY TRANSFERRED for delivery to be valid
  46. Property
    • 1. Must be presently identifiable
    • 2. Settlor must own property now
    • a. mere expectancy of future ownership is not enough
  47. Trustee
    • 1. Inter vivos trusts: Almost anyone can be a trustee
    • 2. Testamentary trusts: trustee can be anyone except
    • a. under 18 y/o
    • b. adjudicated incompetent
    • c. convicted felons
    • d. incapable b/c of drunkennes, dishonesty, want of understanding, or improvidence
    • e. non-resident alien, but only if
    • i) related to decedent, and
    • ii) NY resident serves as CO-fiduciary
  48. Beneficiaries
    • 1. Must be "definite and ascertainable"
    • a. "Family" or "next of kin" is as definite and ascertainable
    • 2. If ambiguous, trustee holds property in a "resulting trust" for the residuary beneficiary
  49. Intent
    • 1. Must intend to create an enforceable obligation in the trustee
    • - Trustee must be given duties
    • - Beneficiaries may enforce duties
    • 2. Precatory words do not make enforceable obligations
    • 3. Use of word "trust" not enough; consider
    • - all facts, and
    • - all language
    • to determine intent
  50. Lawful Purpose
    • 1. Trust cannot
    • - call for commission of crime
    • - call for destruction of property
    • - have a condition against public policy
    • 2. Against public policy (invalid)
    • - restricts marriage (to anyone)
    • - promotes divorce
    • 3. NOT against public policy (valid)
    • - income to widows until remarriage
    • - marriage restricted to certain religious or ethnic groups
  51. Trust Execution
    • Must be in writing, signed by both Settlor and Trustee, and either
    • a) acknowledge by a notary public, or
    • b) signed by 2 witnesses

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