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Trusts
Finished
| Question | Answer |
|---|---|
| Trust Property and the lack of res property | Where there is no trust property, the trust fails because the trustee has no property to manage. |
| Trust property | may be of any type. |
| Trust Purpose | Trusts may be created for any purposes that is not deemed illegal, contrary to public policy, or impossible to achieve. |
| Trusts and the rule against perpetuities | Applies to trust in res property |
| Dynasty Trusts are | ....are long-term trusts created for the benfit of a settlor's descendants that have certain tax benefits. Normally the Rule Against Perpetuities bars them. However in Wyoming them are allowed in trusts created after July 1, 2003 and ... |
| ...... | (1)instrument states that the Rule does not appply & the trust shall terminate no later than 1,000 years after the trust's creation and (2) the trust is governed by the laws of WY and trustee maintains a bus. here, admins. a trust here, or has residency. |
| Trust Advisor | A trust advisor is a settlor of a trust or another party appointed in the trust and are fiduciaries.. |
| Trust Advisors power (general idea) | (1) perform duties of trustees (2) Advise Trustee (3) Direct, bar, consent investment of trust assets by trustees. (4)Direct the management trust investment assets. (5) Control distributions to beneficaries. |
| Trust Protector | Is any disintested party appointed in the trust instrument or by a court. They are fiduciaries... |
| Powers of a Trust Protector | review page six of lecture outline. |
| Creation of an Express Trusts are generally created in three ways | An inter vivos trust may be created by a DECLARATION of a trust by a property owner stating he holds a property as a trustee in trust or transfer of property by settlor. A testamentary trust is created by a will. |
| Trusts can also be created by... | The exercise of power of appointment or by a promise enforceable under contract law. In WY, they may be created by a Crt too or an agent who has power of attorney. |
| Thus Inter-vivos trust require for creation.... | (1) A present declaration of or transfer of res required basically... as shown by: 1) Declaraction of a trust or 2) Transfer of property and 3) Delivery occurred. 4) Must manifest intent when Trust Res exists. 5) in writing if STOF requires. |
| Testamentary Trusts | To create a trust by will, the intention to creat a trust and the other estentials of a trust must be ascertainable under the Statute of Wills |
| Charitable Trusts rules | 1. Must have indefinite beneficaries 2. Cy Pres Doctrine Applicable 3. May be perpetual. |
| The purpose of a Charitable trust | A charatitable trust must have a purpose to benefit the publc. It is the effect, and not intent of the settlor, that controls purpose and may be expressed in very general terms. |
| A mixed trust | Where the beneficaries of a trust are both charitable and noncharitable, the rules of non-charitable trust do not apply. |
| Charitable Trusts and the Rule Against Perpetuities... | the RaP does not apply to charitable trusts. |
| Transfer of Beneficiaries Interests... | Absent a statute or provision in the trust, a beneficiaries equitable interest of a trust beneficiary is freely alienable. |
| Involuntary Transfers by Creditors: Rights of Creditors | Absent a contrary provision in a statute or the trust, Creditors may reach the equitable interest held by a beneficiary but only the interest and not the principle. |
| Restraints on alienation, known as Spendthrift trusts. | A spendthrift trust is one in which the beneficiary is unable voluntarily or involuntarily transfer his interest in the trust. They are allowed. |
| Spendthrift trust and rights of Creditors? | They are barred from reaching the interest of the beneficiary in the interest. However, the restraint on realization does not restrict income after its been paid out. |
| Restraints on only involuntary Alienation are.... | Are invalid, as contrary to public policy. |
| Effect of Spendthrift Clause on Assignments.... | Causes assignments to be unenforceable. |
| Exceptions to the Creation of Spendthrift trusts.... | 1.Settlor cannot create for his own benefit to avoid creditors except in WYO there is a qualified spendthrift trust allowed. Nor does a Spend. trust bar child support claims, claims by the government, or failure of a trustee to make a timely distribution |
| Wyoming Qualified Spendthrift trust.... | In Wyo. a settlor may create this trust by transferring property to an irrevocable spendthrift trust that specifically states it is a qualified spendthrift trust and is gov. by Wyo. Law. The settlor may be a benef. One of the trustees must be a Wyo. res. |
| A qualified spendthrift trust... | prevents creditors reaching the assets in this trust to settle the settlor's debt. |
| Interests Settlor may retain and the trust remain irrevocable are.... | A settler may retain an interest in (1)current trust income:(2) a charitable remainder trust: (3) up to 5% in total unitrust and (4) a qualified personal residence trust. |
| Powers a Settler may retain and do not make an irrevocable trust revocable: | (1) the power to veto distributions from the trust: (2) a presently exercisable or testamentary power of appointment: (3) the power to appoint trustees, T-advisors, T-protectors and (4) the power to serve as an T-Advisor. |
| Qualified Transfer Affidavit | A qualified transfer (i.e. a transfer to a Qual. Spendthrift trust to a qualified trustee) requires an affidavit stating that.... |
| ..... | (1) Set. has full right, title, & title to transfer property. (2)Transfer will not render S insolvent. (3) S doesn't intend to defraud creditors. (4) No other court actions against S are pending...... |
| ..... | (5) S is not in default of child support payments by more than 30 days. (6) S doesn't contemplate filing for bankruptcy (7) transferred property is not fruits of illegal activity. (8) S has and will maintain personal liability insurance. |
| An existing trust may become a qualified spendthrift trust.... | A settlor, trustee, or T-protector of an existing irrevocable trust may elect to treat a trust as a QST with creditor protection relating back to date of election by mod. trust to comply with the earlier reqs. |
| Discretionary Trust | If the trust has the power to pay income to the benficiary or accumulate it or has the power to appoint income among several benef. how he sees fit, the benef. doesn't have a right to the income until trustee exercises the power. |
| Termination and Modification of Trusts | (1) By terms of the trust (2)by the Settlor (3)By the Beneficiaries (4)By a Court (5) By the Trustee |
| Termination of a trust by the Settlor | A settlor may revoke or amend a trust UNLESS the terms expressly state that it is irrevocable. |
| Termination by the beneficiaries | If all the beneficiaries consent, and trustee is willing, and so is the settlor the trust may be modified or terminated. May also do so w/o consent of settlor, as long as no material purpose of the trust would be frustrated. |
| Material purposes to be aware of... | (1) Distribution of principle at designated age. (2) Preserve property for a remainderman (3) Provide successive enjoyment by life tenant and remainderman. (4) Spendthrift provision are NOT material purposes... |
| Termination or Modification by ... A COURT HURF LA DURF | Where none of the above options work, a frustrated party may seek Crt modification if (1) the trust could've modified if all the benficiaries had consented and(2) the interest of any non-consenting benef. will not be harmed. |
| Grounds for Court termination and modification | (1) Unanticipated Circumstances (unanticipated by the settlor that frustated purpose)or continuation of the trust would be wasteful or impracticable. (2) Uneconomic trust or tax purposes (3)Reformation (2) |
| Trustee may terminate the trust if.... | (1) its an economic trust: trust is for < 50k (150k in WYO) and is insufficient to cover the costs of administration. |
| Termination by a trust protector | A noncharitable irrevocable trust may me modified or terminated by a trust protector provided that the terms for the trust authorizes a trust protector and grant him such power. |
| Powers of a trustee | G/R: Trustee may exercise those power explicitly or impliedly conferred upon her. Such as.... (1) Powers conferred in the trust: (2) All powers an unmarried person has over her own property:.... |
| ..... | (3)Those powers that are appropriate to achieve the proper investment, management, and distribution of trust property. (4) Powers conferred by the UTC, unless limited by terms of the trust..... |
| UTC powers | (1) Collect and Hold Assets (2) operate a business (3) acquire an individ. interest in a trust asset (4) invest trust assets, sell or encumber them (5) enter into a lease (6) pay taxes (7) insure assets (8) make distributions (9) prosec. and def. |
| Joint Powers | Where there are co-trustess, and they do not agree, they may act by majority decision. |
| Duties of the Trustee | (1)Duty to administer the trust... (2) Duty of Loyalty (3) Duty to Report (4) Duty to Seperate Trust Property and Keep records---no commingling (5)Duty to enforce claims and Def. (6) Duty to preserve the trust and make it productive..... |
| Duty to administer Trust | (1) Trustee w/special skills is held to a higher standard (2) Loyalty and Impartiality (3) Reasonable Cost Reimbursement Permitted. |
| Duty of Loyalty | No Self dealing. |
| Beneficiaries Right in Case of Prohibited Transactions... | A beneficiary affected by a self dealing transaction by the trustee may treat it as void unless: (1) it was authorized by the terms of the trust or a cour: (2) Failed to bring suit w/in prescribed period: (3) consent, ratified, or released the trustee.... |
| .... | ....(4) it involved a transaction b/f the trustee became a trustee. |
| Restriction on Self-dealing may be... | waived by the settlor |
| Duty to Report | In Wyoming that only applies to qualified beneficiaries. |
| Duty to preserve Trust Property and Make it productive | Involves: (1) Collecting Claims (2)Lease Land or Manage it: (3)Properly record docs/pay taxes, secure insurance. (4) Invest Trust Funds. |
| Investments | In Wyoming, are controlled by the UPIA and only if no contrary provision exists in the trust instrument. |
| Uniform Prudent Investor Act | Wyoming has adopted it. |
| Standard of Care for Investments | Trustee must invest and manage as REASONABLE PRUDENT INVESTOR WOULD. (1) Trustees w/Special Skills will be held to a higher standard. (2) Must be loyal and impartial. |
| A reasonable prudent investor standard: | Prudent evaluated under to overal investment strategy: (1) Any type of investment allowed. (2) Look for Diversification/ Risk v. Reward. |
| Factors to consider in Making Investment Decisions | (1) Gen. enconomic conditions (2) Inflation/deflation (3) tax consequences (4) role of investment in portfolio (5) expected return (6)Other resources of Bene. (7) Need for liquidity, preservation of capital, etc. (8) Any special relationship of ben |
| Delegation of Investment and Management Functions is... | permitted |
| Liabilities of a trustee | Remedies for a breach of trust: specific performance, injunction, repayment and suspension of trustee. |
| Damages to Beneficiaries for Breach: | A trustee is liable for the greater of (1) the amount necessary to restore the trust property absent the breach or (2) the trustee's profit from the breach. |
| A trustee is not liable for a breach when... | (1) they reasonable rely or (2) Beneficiaries accepts the breach (3) Exculpatory clauses (but provisions limiting breaches to bad conduct or reckless disregard are void). |
| Liability of Co-Trustees | A co-trust is not liable if he did not participate in a breach AND did try to prevent the breach or compell its tredress. |
| Trustees liability to 3rd parties: Contracts | Trustee is liable for contracts to 3rd parties in a representative capacity unless he did not indicate he was acting in this capacity, then he is personally liable. |
| Trustees liability to 3rd parties: Torts | A third party may sure sue the trust for tortious conduct, as well as the trustee personally--if he was at fault, but NOT by virtue of respondeat superior. |
| Liabilities of Third Parties to the Trust... | A third party who knowingly participates in a breach of trust by the trust is liable for the resulting loss to the trust estate. |
| Allocation of receipt and expenses btw. income and principle accounts | Wyoming has enacted the Uniform Principal and Income Act: It allows a trustee, absent a contrary provision in the instrument, power to reallocate the investment portfolio return. see page 18 of lecture outline. |
| The power to reallocate the investment portfolio return imposes... | a duty of fairness to all beneficiaries... |
| Adjustment power...(factors to be considered) | (1) Nature, purpose, and expected duration of the trust (2) Intent of the Settlor (3) Circum. of the benefs. (4) need for liquidity, regular income, preservation of capital (5) nature of the trusts assets.. |
| .... | (6) net amount allocated to income and the affect on the principle (7) actual and anticipated economic conditions (8) tax consequences |
| Adjustment is not permitted when..... | IF RESULT WOULD HAVE ADVERSE TAX CONSEQUENCES! |
| Conversion of a an "Income Trust" to a "Total Return" Unitrust | Because of the tension btw. an income only beneficiary and remainderman, a trustee may convert the income only trust into an Total Return Unitrust |
| A total return investment prvides that ... | instead of receiving a trusts income, the beneficiary receives a percentage of the total principle of the trust principle, valued annually. |
| Will substitutes | (1)Revocable Inter-Vivos Trusts (2)Life Insurance Trusts (3)Totent Trust Bank Accounts (4)Uniform Transfers to Minors |
| Revocable Inter-Vivos Trusts | This is an interest that passes to the beneficiary during the Settlor's life, but becomes possessory upon their death. |
| Advantages of a Revocable Trust | (1)Management of Assets (2) Planning for Incapacity (3) Avoidance of Probate (4) Secrecy (5) Choice of Law (6) Defeat Spouse's Forced Share. |
| Pour Over Gift from Will to Revocable Trust... | Allowed and (1) the trust may be established before, after, or concurrently with the will: (2) Trust may be amendable and revocable:(3) Gift is valid even though trust unfunded during Settlors lifetime. |
| Life Insurance Trusts are: | Contingent Beneficiary Trusts and payable to testamentary trustee. |
| Trusts arising as a matter of law and constructive trusts.... | See outline pg. 21. Good Luck |
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