types of trusts, termination and trustee duties unit 4

34
Types of Trusts, Termination and Trustee Duties Unit 4

Upload: christian-norton

Post on 12-Jan-2016

223 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Types of Trusts, Termination and Trustee Duties Unit 4

Types of Trusts, Termination and Trustee DutiesUnit 4

Page 2: Types of Trusts, Termination and Trustee Duties Unit 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.

Page 3: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 4: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 5: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 6: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 7: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 8: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 9: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 10: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 11: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 12: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 13: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 14: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 15: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 16: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 17: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 18: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 19: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 20: Types of Trusts, Termination and Trustee Duties Unit 4

Irrevocable Inter Vivos TrustsCannot be revoked by the Settlor.Control of the property transferred to

Trustee.Property protected from Settlor’s creditors.

Page 21: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 22: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 23: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 24: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 25: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 26: Types of Trusts, Termination and Trustee Duties Unit 4

Tasks for this UnitSeminarQuizDiscussion BoardAssignment

Page 27: Types of Trusts, Termination and Trustee Duties Unit 4

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?

Page 28: Types of Trusts, Termination and Trustee Duties Unit 4

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?

Page 29: Types of Trusts, Termination and Trustee Duties Unit 4

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

Page 30: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 31: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 32: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 33: Types of Trusts, Termination and Trustee Duties Unit 4

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.

Page 34: Types of Trusts, Termination and Trustee Duties Unit 4

Unit 6Begins November 17 and our seminar is on

November 18.We will address Wills.