types of trusts, termination and trustee duties unit 4
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Types of Trusts, Termination and Trustee DutiesUnit 4
The TrustFiduciary relationship created at the
direction of an individual.One or more persons hold the individual’s
property.Held subject to certain duties to use and
protect it for the benefit of others.
Why use a Trust?Flexible device in estate planning.Must be in writing in accordance with the
Statute of Frauds if real property involved.Administration of a charitable institution.Protection of beneficiaries against creditors.Preservation and creation of equitable future
interests in certain property.
AdvantagesFunds for children’s educations.Funds to support spouse and family
members.Tax savings.Avoids probate.Settlor determines feasibility of transfers and
may have ability to alter if necessary during lifetime.
Allows management by another.
Elements of a TrustSettlor – person creating the trust. Also
referred to as Trustor or Grantor.Trustee – person to whom the property is
transferred.Corpus – legal title to the property of
another. Also referred to as Trust Property.Beneficiary – person for whose benefit the
property is held.
Title to the Trust PropertyEquitable Title – right to benefit or profit
from the property.Legal Title – ownership.Trustee holds legal title.Beneficiary hold equitable title.
TrusteeHas fiduciary duty to perform in accordance
with the terms of the Trust.Duties may include managing property,
keeping accurate records, preserving the property, collecting debts, distributing income and filing tax forms.
Can be the Settlor or appointed by the Settlor.
Holds title for the benefit of another person.
Trust FormationTestamentary Trust – Trust formed through a
Will.Must comply with Statute of Wills.
Inter Vivos Trust – Trust formed during Settlor’s lifetime.Must comply with Statute of Frauds.
SettlorMust own an interest in the property
transferred to the Trust.Must be competent to enter in a valid
contract.Revocable Trust – Settlor retains right to
cancel or revoke the Trust.Irrevocable Trust – Settlor does not retain the
right of rescission or revocation.
BeneficiaryMust be definitely stated or described in the
Trust.Need not be competent to enter into a valid
contract – can be a minor, insane person, incompetent, or public or private corporation.
Trust may be created because beneficiary lacks the capacity to manage the property transferred.
Express and Implied TrustsExpress Trusts are established by the
Settlor’s voluntary action.Implied Trusts are imposed by the court
when the intent to form a Trust is presumed or imposed on property by equity courts when intent is lacking.
Express TrustsOral declaration of the Settlor.Written document executed by the Settlor.If the Trust involves real property must be in
writing – Statute of Frauds.Private and Public Express Trusts.Active or Passive Express Trusts.
Private - PublicTrustee hold the legal title to the property for
the benefit of the named beneficiaries.Settlor conveys the property to the Trustee.Private - provide support to family members –
ensure trust corpus managed and not diminished and retain flexibility to make changes as needed.
Public – beneficiary is the public, community or specific group.
Active - PassiveActive – Trustee given powers and duties to
perform for management or administration of the Trust for the benefit of the beneficiaries.
Passive – Trustee has minimal, formal or mechanical duties or responsibilities, without administrative duties.
Inter Vivos Express TrustsTrust, which may be public or private, and is
effective during the lifetime of the Settlor. Revocable – after conveyance of property to
the Trustee, Settlor retains some control.Irrevocable – Settlor does not retain any
control.Inter Vivos Trust – Living Trusts.
TaxationIrrevocable Trust not subject to probate or
estate taxes as a separate legal entity.Settlor of an irrevocable trust may be liable
for gift taxes.
Revocable Inter Vivos TrustsProbate avoidance document – provides for
transfer of property to beneficiaries upon the Settlor/Trustor’s death.
Settlor transfers all property into the Trust.Settlor usually serves as Trustee – maintains
control. Successor Trustee – takes over upon the
death of the Settlor/Trustee.
AdvantagesAvoids expenses and delays of probate
proceedings.Privacy as to distribution as not part of a
court record.Retaining of control over trust property.Savings on death taxes – state and federal.
DisadvantagesTrust more costly to prepare than a Will.Changing of title to property as transfers
made to the Trust.Pour-Over Will created to ensure inclusion of
any property that was not transferred.
Irrevocable Inter Vivos TrustsCannot be revoked by the Settlor.Control of the property transferred to
Trustee.Property protected from Settlor’s creditors.
Other TrustsTestamentary – part of Will and gift made
after Settlor’s death.Implied – created by presumed intent of
Settlor or imposed on property by equity court.
Resulting – based upon presumed or implied intent when disposition of property incomplete.
More TrustsConstructive – implied, passive trust to
correct fraudulent transfers, returning property to proper party.
Spendthrift – minimizes waste of trust income by a restrictive clause preventing beneficiary from transferring interest or from creditors reaching trust property.
Totten – bank account is beneficiary.
Marital TrustsMarital Living – married couple uses one
document for all shared ownership property. Each can designate beneficiaries.
Marital Life Estate – property in trust with income to surviving spouse.
Q-Tip – trust income to surviving spouse paid at least annually, postponing estate tax until surviving spouse dies.
Other InterestsReversions – interest held by Settlor in
portion of property not included in the Inter Vivos Trust.
Remainders – beneficiary receives the trust property after income beneficiaries’ rights exhausted.
Termination – upon satisfaction of trust’s purpose.
Rules and DoctrinesRule Against Perpetuities – absolute and
unconditional interest in property must occur not later than 21 years after some “life in being”.
Doctrine of Worthier Title – devise to heir same as would be received by descent.
Cy-Pres Doctrine – substitute charity in a trust if the beneficiary charity no longer exist.
Tasks for this UnitSeminarQuizDiscussion BoardAssignment
Trusts and WillsFor the first Discussion Question consider
what can a client accomplish with a trust that they cannot accomplish with a will?
What can a client accomplish with a will that they cannot accomplish with a trust?
Which would be better for you and why?
Spotlight on the ProfessionFor the second Discussion Question you will
first interview a paralegal and/or attorney working in Estate Planning and Administration.
Report three things that you learned from your interview.
Did anything surprise you? What did you find especially relevant to your
role as a paralegal professional?
Discussion Board InstructionsPost your thoughts and responses to the
Discussion Board as to each question.Read and comment on posts from your
colleagues. Do not hesitate to pose questions to your
colleagues.Discuss constructively with your
colleagues their posts and positions.Post as early in the week as possible to
foster interaction
Draft a TrustYou should have already read about Kingston
and Donna Lear, the fictional family discussed in Basic Wills, Trusts, and Estates for Paralegals on pages xxiv and in the Situational Analyses of Chapters 1, 2, and 3.
Draft a trust for the Lear family. Assume that they want to establish the trust to
pay for their grandchildren's educations, and then have the corpus distributed equally to the grandchildren at some point in time when they are all adults.
The Lears’ TrustThe Lears want to place publicly traded
stocks and bonds in the trust, valued at $387,000, plus $100,000 in cash.
The Evan Jones Trust, found on pages 99-100 in Chapter 4 of your text, will be helpful for this assignment.
Next WeekThis week we addressed the types of Trusts,
Termination and Trustee Duties.Next week is the Midterm Week. We will
not have a seminar, nor will you be answering any Discussion Board Questions or taking a quiz.
You will be submitting essays responding to 4 questions.
Midterm EssayDiscuss in detail the three main purposes of
estate planning. Also, describe and discuss at least three estate planning strategies that can be used to reduce estate taxes.
Analyze how different classes of trusts are created and terminated.
Identify the functions of the probate court. Analyze the requirements of a valid will in
your state. Also, discuss the various clauses that may be included in a will.
Unit 6Begins November 17 and our seminar is on
November 18.We will address Wills.
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