Trust - Barbri & Elder Care

  1. Trustee v. Ben (who holds what)
    1. Trustee: legal title - all burdens of ownership

    2. Ben: equitable title - benefits of ownership
  2. Trust - Requirements (6)
    1. Settlor (over 1, capacity, higher test than cap for Will)

    2. Delivery (not necessary for declaration)

    • 3. Res: Certain and identifiable; includes future event
    • - X for life; Y thereafter - Y can convey in trust during X life

    4. Trustee (but Trust doesn't fail for lack of Trustee; court appoints)

    5. Beneficiaries - no oral test to ID ben?

    6. Intent

    consideration is not a requirement
  3. Res
    trust property

    a promise to give property later is not res, unless supported by consideration b/c K law applies and trust attaches when X receives property
  4. Trustee
    1. capacity to K and execute deed

    2. entity - only banks w/ trust powers

    3. post fiduciary bond unless settlor waives (corp never required to post bond)

    4. reasonable compensation and reimbursement (not 5% in/out rule)
  5. Trustee (random items)
    - can't force to serve

    - don't need to accept in writing (can accept by conduct)

    - bank resigns w/ court upon showing can no longer appropriately serve; must give accounting (received/distributed/now on hand) - unless trust agreement specifies otherwise
  6. If Trustee has no power under agreement
    then it is not a trust

    must owe duty to someone
  7. Beneficiaries (non-charitable)
    1. definite and ascertainable

    2. interest must vest no later than lives in being + 21 years
  8. Beneficiaries (charitable)
    - can't be identifiable individual

    - not subject to ROP
  9. Resulting Trust
    Term court applies when trust fails

    "to friend for life, then to Sam"

    Resulting trust for Sam (but actually receives outright)
  10. Precatory Language
    "hope that, desire that"

    - not binding
  11. To X for use of Y on a check
    = valid trust

    no need to state "in trust" or "as trustee"
  12. Trust Purpose (lawful)
    • 1. commision of crime (run drug operation)
    • - trust can be created, but heirs of defrauded party can bring action to recover

    2. destruction of property (knock down house)

    • 3. unlawful condition against public policy
    • - encourage divorce
    • - complete restraint on marriage (can cut off at 2nd marriage though b/c intent was to support while SS was a widow)?
    • - if case, then beneficiary takes outright
  13. Trust - in writing necessary for personal property
    personal property - not necessary if

    1. transfer to Trustee other than settlor or beneficiary; and

    2. coupled with declaration of intent w/ or prior to transfer
  14. in writing (real property)
    Yes, must be in writing
  15. Revocable Trust
    1. all trusts revocable unless state otherwise

    2. any revocation/amendment must be in writing (even to oral trust)

    3. Guardian can't revoke/amend (only court)

    4. divorce revokes all in favor of divorce spouse unless re-executed or part of k/divorce proceeding
  16. Pour over Will to unfunded rev trust
    - don't need to fund during life; not even $1

    - exception to incorporation by reference
  17. "this letter is to amendm my turst as follows..."
    1. don't need W

    2. trust law controls

    3. had intent and is in writing
  18. Statute allows beneficiary designation

    1. trustee under my will; and

    2. also authorizes employee benfits to Trustee under will or revocable trust
  19. Right of Survivorship (who needs to sign)
    Only the decedent needs to sign, unless

    CP account between H/W

    Also, during life, ownership of joint account is proportionate to contributions

    must survive 120 hrs
  20. Durable Power of Attorney (fun facts)
    1. signed and acknowledged

    2. no affected by later disability if contains that language

    3. third party w/o knowledge of revocation or dead is protected

    4. divorce revokes x spouse powers (but not bankruptcy)

    5. G' revokes
  21. Charitable Trusts
    1. no RAP, but cy pres reformed if individual if ssecondary beneficiary - "to charity while charitable, then to X -> if not charitable during X's lifetime, then...

    2. purpose: "for charitable purpose" "for arts" is enough

    3. reasonably large segment of population: (no individuals)

    4. cy pres: judicial proceeding if charitable purpose can no longer be served to modify
  22. Cy Pres (court)
    "to cure polio"

    Once cured, cy pres or dissolve and give to heirs?

    AG argues still other diseases and go w/ INTENT
  23. Cy Pres

    When can Trustee reform w/o court
    - if charitable organization is no longer in existence or not a 501

    - but must give AG notice
  24. Honorary Trust (not animal)
    $25k to take care of my car

    - not a real trust (no enforceable duty)

    - Trustee decides whether to enforce; also only lasts 21 years

    if Truste doesn't want to perform, then resulting trust
  25. Honorary Trust (animals)
    $25k to use for my cat

    - enforceable trust; enforceable by person named (or court appointed)

    - only animals alive at Testator's lifetime

    - use individual in instrument as measuring life

    - terminates at animal's death

    - remainder to estate/will (or settlor if alive)
  26. Purchase Money Resulting Trust
    • A pays $ for land to X
    • B takes title to land

    A can compel conveyance at any time

    But: evidence admissable to show gift/loan

    If A&B related, assumed a gift (can rebut)
  27. Constructive Trust
    Equitable result (not really a trust)

    - wrongful conduct; and

    - unjust enrichment
  28. Beneficiary kills decedent
    - treated as though killer predeceased (by statute)

    - Life Insurance: goes to named successor beneficiary on policy - by statute (no constructive trust).

    - if no successor, then to estate

    - Estate assets: B treat as predecased; in constructive trust for successor
  29. Constructive Trust Ex.
    • W1: all to A&B
    • W2: all to X (but never signed due to A&B preventing it)

    = constructive trust for X held by A&B (though A&B never really hold funds)
  30. Exceptions to Spendthrift
    1. K for necessities

    2. child support

    3. interest retained by settlor (including rev trust)

    4. fed tax liens

    (normally creditor can't reach, even if settlor assigns)
  31. Fraudulent Transfer
    made with intent to defeat, delay or defraud creditors
  32. Spendthrift Ex: "100k to Trustee; income for life to G and S", "upon death of G, p and i to S"
    Creditor of G:

    • - can reach G's 1/2 income
    • - can't reach principal
    • - can't reach any interest of S

    all Trustee needs to say is "this is spendthrift trust"
  33. Spendthrift Language Requirements
    as little as "this is a spendthrift trust" is enough
  34. Spendthrift Ex 2

    "100k to Trustee - discretionary distributions to G"
    Creditor of G can attach up to amount Trustee could distribute to G

    here, 100%

    even if purely discretionary (in TX at least)
  35. Discretionary Distributions (Ben rights)
    "may distribute for support at discretion of T, without challenge by any person"

    Ben can compel distributions (abuse of discretion to not make distributions)

    purpose of trust is for support, not to give Trustee discretion (even if purely discretionary as to support!)

    if distributions in excess of support, remainderman can sue

    so, can her creditors reach support amount?! since she can compel!?
  36. Purely discretionary (B rights)
    Not HEMS standard

    Can not compel and creditors can not reach
  37. Discretionary for Support

    "income at Trustee's discretion for support"
    B can compel distributions for support

    can creditor for non-necessities?

    Creditor who provided necessities? YES
  38. Trust Jx and Venue
    JX: DC and statutory probate courts over intervivor and testamentary trusts

    • venue:
    • Ind Trustee: county residency or situs

    2 ind Trustees: situs

    corp: situs of T office
  39. Trustee powers in Code
    if FS owners could do it, so can Trustee, unless expanded or restricted by Trust terms

    • except:
    • - self-dealing
    • - imprudent investments
  40. Self-dealing
    1. Trustee can't borrow funds (except: corp trustee interim deposits; and settlor can allow investment in corps own CDs)

    2. Trustee can't buy/sell to itself (exc: corp can w/ court order)

    3. Trustee can't loan to Trust

    4. can't profit from serving as Trustee (confidential info)

    5. corp Trustee can't buy own securities (can retain though)

    6. Can't commingle w/ own assets (if do, then if goes up, used T funds; if goes down, used own funds)

    Settlor can't waive above as to corp Trustee
  41. Breach Fiduciary Duty - Self-dealing (Trustee)
    • - ratify
    • - sue for Losses (surcharge)
    • - sue for constructive trust

    SOL: 4 yrs, but doesn't begin until resignation/dies, accounting or repudiates trust
  42. UPIA
    Modern Portfolio Theory:

    • - look at total return
    • - prudence of act measured at conduct, not hindsight

    - maintain custom tailed investment strategy w/ regard to purpose of trust

    - role of each investment and expected total return

    - duty to diversify (can't just keep all 1 stock)
  43. Allocation of P to i
    "where appropriate" look at:

    • - purpose of Trust
    • - intent of settlor w/ respect to B's
    • - net amount of p/i available
    • - increase/decrease of value of assets
    • - does trust even allow distribution of p?
    • - tax consequences
  44. principal or income?
    - delay rental: income

    - royalty bonus: allocate equitably (15% p)

    - production payments: any "interest" = income, rest is p

    - IRA: weird

    - liquidating assets: 10% income / 90% p

    - from entity: income, unless cap gains

    - stock dividend : P

    - Trustee's commission: 50/50
  45. principal or income (expenses)
    Ordinary Expenses (every year): from income

    Capital Expenditures: from P

    Trustee's commission: 50/50%
  46. Trustee Liability on K and Tort
    K: no personal liability unless fails to disclose acting as Trustee

    Tort: liable, but reimbursed if acting in business action for Trust
  47. Exculpatory Clause
    doesn't relieve for bad faith, gross neg, or fraud
  48. Remedy - breach of Trust
    • 1. compel to perform duties
    • 2. enjoy from committing breach
    • 3 copel to redress / restore assets
    • 4. order accounting
    • 5. appoint receiver / administrator
    • 6. removal
    • 7. reducy / deny compensation
    • 8. impose constructive trust
    • 9. trace and recover trust property and void act
    • 10. any other appropriate relief
  49. Can B bring action against 3rd party?
    1. no, b/c B holds legal title

    2. exceptions:

    - Trustee unable or unwilling

    - 3rd party participated w/ Trustee in committing breach of trust
  50. Termination of Trust (who can and when?)
    Trustee or Beneficiary:

    1. if purposes of Trust have been / can't be / illegal to fulfill

    2. . changed circumstances, then modify/terminate will further purpose

    3. achievement of tax purposes

    4. if continuiation of Truste not necessary to achieve material purposes
  51. Division and Merger of Trust
    for any reason, but usually tax purposes
  52. Trustee powers last until
    reasonable time after termination to:

    - wind up

    - make distributions
  53. Adjectives w/ HEMS
    doesn't affect HEMS standard

    doesn't include in estate/expose to creditors
  54. QTIP - pre-82
    doesn't qualify for marital deduction
  55. Trust:

    - income for life
    - at death, principal to kids
    • - QTIP able
    • - if no QTIP election made, it is still terminable interest

    Can be QTIP or Bypass based upon planning elections
  56. i to X for life, then to charity (charitable deduction?)
    no, must use CRT
  57. Medical and Tuition exception to gift taxes
    - unlimited, but must pay directly to provider

    - paying off tuition debt does NOT qualify
  58. Retained interest
    - $100k to irev trust for kids, but G keeps income for life

    - at death, $110k in trust

    = gift of 100k, but $110k is included in estate

    (just explain on 706 and get exclusion back)
  59. A Trust
    142 trust

    protect medicaid applicant under age of 65

    not for income test

    protects "Assets" and qualifies due to excessive assets

    no look-back or waiting period

    anything remaining at end to state to pay back medicaid
  60. B Trusts
    Miller Trust

    passes Income Test

    Pension, SS, other payments

    distributes as much income as would not disqualify applicant from medicaid benefits

    at death, remaining is payable to state in reiumbsement for medical expenses paid by medicaid
  61. C Trust
    Pooled Supp Needs Trust

    implemented and managed by non-profit

    remaining asests to State to reimburse for medicaid expenses
  62. Special Needs Trust
    for disabled beneficiary

    typically for inheritance/gifts

    distribute to B as much income and principal as will not disqualify B from medicaid

    Distributions limited to distributions in favor of disabled B's special needs

    pay back to Gov't?
  63. Lookback
    36 months to anyone but trust

    60 months to trust
  64. Penalty Period
    amount transferred divided by average monthly cost for care in area = months won't receive benefits
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Trust - Barbri & Elder Care