Term
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Definition
legal device that allows owner of property to make transfers of property and to have those assets managed on behalf of someone else
-lifetime/inter vivos or testamentary (set up in will) |
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Term
| requirements for valid trust |
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Definition
1. settlor, who makes a
2. delivery, of legal title to
3. property, to a
4. trustee, who hold legal title for benefit of a
5. beneficiary, with
6. intent, to create trust for
7. lawful purpose
8. in a validly executed document
NO CONSIDERATION REQUIRED |
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Term
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Definition
1. settlor must intend to create an enforceable obligation; precatory language NOT sufficient
2. trustee must be given duties to perform |
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Term
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Definition
1. in writing;
2. signed by both settlor and trustee; AND
either: (i) acknowledged by notary; OR (ii) signed by 2 witnesses |
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Term
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Definition
| ALL trusts presumed irrevocable UNLESS trust explicitly authorizes revocation |
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Term
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Definition
1. at least one beneficiary who is NOT settlor (i.e., settlor cannot be sole beneficiary)
2. but, settlor can be a trustee, income beneficiary for life, estate can be a beneficiary of principal if 1 other beneficiary, and settlor can retain power to terminate or amend trust
-avoids probate, but does NOT avoid taxes |
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Term
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Definition
testamentary gifts to an existing revocable trust
-trust must be in existence OR executed concurrently with the will
-NOT limited to trusts created by settlor
-valid even is trust unfunded or partially funded during settlor's lifetime
-can also make life insurance pour-over by naming trustee the policy beneficiary or trustee named in will for testamentary |
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Term
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Definition
bank account in depositor's name "as trustee for" a named beneficiary
-depositor makes deposits and withdrawals as she wishes during lifetime
-beneficiary has NO interest during depositor's lifetime, but gets whatever is in account at death
-revocation (also change of beneficiary):
1. withdraw all money
2. expressly revoke during lifetime in writing naming beneficiary and bank AND having revocation notarized and delivered to the bank
3. revocation in a will
4. death of beneficiary |
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Term
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Definition
-NOT totten trusts-
-if clear and convincing evidence shows survivorship was NOT intended when established and opened ONLY for convenience, survivorship can be set aside
-each joint account holder owns 1/2 no matter who deposits the money |
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Term
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Definition
1. must have indefinite beneficiaries and reasonably large group
2. must be for a charitable purpose
3. NOT subject to RAP
4. cy pres can be used to change-->purpose no longer possible so change to near what settlor intended
5. AG reps beneficiaries, therefore he is an indispensable party and has standing to sue to enforce |
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Term
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Definition
equitable remedy designed to disgorge unjust enrichment resulting from wrongful conduct
-trustee's only duty is to convey property to the person who in equity should have it |
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Term
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Definition
protects beneficiary's interest from creditors by prohibiting voluntary and involuntary transfers of beneficiary's interest
-in NY, automatic if not expressly written out; but, ONLY for income interests
-to spendthrift remainder beneficiary (one who gets principal), clause must be expressly stated in the trust |
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Term
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Definition
1. creditors who furnish necessities
2. child support and maintenance
3. federal tax liens
4. excess income beyond that needed for support and education (depends on life style of beneficiary)
5. creditors 10% levy (available to judgment creditors; shared by ALL creditors)
6. any interest retained by settlor |
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Term
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Definition
only appropriate when objectives of the trust would be defeated or substantially impaired if trust not modified
1. find primary intent of settlor regarding trust purposes;
2. look at specific directions to determine whether, because of changed circumstances, those specific directions would now frustrate the primary intent, and IF SO court can modify
3. court can authorize invasion of principal if income is not enough to carry out settlor's purpose |
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Term
| trust termination by settlor |
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Definition
generally, trusts are irrevocable and unamendable
exception: settlor can terminate if ALL beneficiaries in being consent (difficult because no one can consent for minors or incompetents)
note: heirs/next of kin not considered beneficiaries therefore consent not required from them |
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Term
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Definition
trustee can do ALMOST anything to manage the corpus of the trust, such as:
1. sell any real/personal property
2. mortgage property
3. lease property
4. make ordinary repairs
5. contest, compromise, or settle claims |
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Term
| trustee powers exceptions |
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Definition
trustee cannot:
1. self-dealing
2. borrowing money on behalf of trust
3. continuing a business without court approval, in which case trustee liable for losses incurred |
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Term
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Definition
when trustee engages in the following, beneficiary can demand an accounting from him then ratify or challenge the wrongdoing
1. trustee cannot buy or sell trust assets to himself (absolute prohibition)
2. trustee cannot borrow trust funds (absolute prohibition)
3. trustee cannot lend money to the trust (absolute prohibition); any interest earned on such a loan must be returned to the trust and any security given is invalid
4. trustee cannot profit from serving (e.g., cannot take advantage of confidential info) except for appropriate fees
5. corporate trustee cannot buy its own stock as a trust investment |
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Term
| trustee self-dealing affirmative duties |
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Definition
1. duty to segregate trust assets from personal assets; remedy:
(i) if commingled funds used to buy an asset that goes down in value, conclusive presumption that personal funds were used;
(ii) if the asset goes up in value, conclusive presumption that trust funds were used
2. duty to earmark trust assets by titling them in trustee's name |
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Term
| remedies for breach of fiduciary duties |
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Definition
1. beneficiary can sue to remove trustee
2. beneficiary can ratify the transaction and waive the breach
3. beneficiary can sue for any loss (surcharge action) |
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Term
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Definition
breach of a fiduciary duty by engaging in self-dealing is an automatic wrong and no further inquiry need be made
-good faith and reasonableness are NOT defenses |
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Term
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Definition
testamentary trust: cannot be used to shield trustee from liability for breach of a fiduciary duty
lifetime trust: can be used |
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Term
| personal liability of trustee in contract |
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Definition
1. if trustee signed on behalf of trust, no personal liability
2. if signed personally and merely mentions trust, personal liability; but, trustee can be reimbursed if:
(i) contract was within trustees powers; AND
(ii) was acting in the course of proper administration |
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Term
| personal liability of trustee in tort |
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Definition
1. trustee personally liable for all torts by him or employees (absolute)
2. can get reimbursement if:
(i) acting within powers; AND
(ii) NOT personally at fault |
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Term
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Definition
1. trustee must manage the property of the trust on behalf of beneficiary by investing the corpus of the trust
2. NY adopted the Uniform Prudent Investor Act, which gives broad latitude to choose investments
3. trustee can pursue "modern portfolio": custom tailored investment strategy
(i) must consider role each investment plays within overall trust portfolio
(ii) must consider expected total return from income and capital gain
-prudence NOT measured by hindsight
-trustee can exercise adjustment power and allocate capital gains to income |
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