Classification of Trusts, the Living Trust, and Other Special Trusts Chapter 13

Trusts Express Trust Implied Trust Created in explicit terms for an express purpose Implied Trust Created by operation of law based on implied intent

Express Trusts Private Public Settlor intends to create a trust Trustee is named Beneficiary is named Transfer of property Public Same elements as a private trust, except that a social benefit or charitable purpose is set forth and there is an indefinite class of beneficiaries

Cy-pres Doctrine An equity court may order a gift intended for a charity that is now nonexistent to be given to another charity whose purpose is as near as possible to the purpose of the original charity named by the settlor

Active Versus Passive Trusts The trustee actively manages the trust Passive The trustee has no active duties

Inter Vivos Trust Created during the life of the settlor Can be public or private

Testamentary Trust Created at the time of the settlor’s death or becomes effective upon execution of the settlor’s will

Rule Against Perpetuities Fixes a period within which a future interest must vest Rule: No interest is valid unless it vests no later than 21 years, plus the gestation period, after some life or lives in being at the time of the creation of the interest

Implied Trusts Resulting Constructive Created by operation of law from circumstances implied from the intentions of the parties Can be a remedy to litigation Constructive An involuntary trust created by operation of law to recover property from a person who obtained possession or legal rights illegally or improperly

Miscellaneous Trusts Spendthrift Totten Created for beneficiaries who are financially irresponsible Totten A payable-on-death savings account in a bank in which money is deposited in the depositor's name as trustee for another person named as beneficiary

Miscellaneous Trusts Sprinkling The trustee has authority and discretion to accumulate or distribute income or principal, or both, among beneficiaries in varying amounts

Revocable Living Trusts Same conditions apply as for trusts in general Can be an advantage over a will and can be considered a will substitute since they avoid probate Reduces costs of estate administration

Revocable Living Trusts Avoids publicity No court supervision Tax savings Allows the settlor to manage or dictate assets and distributions after death

Disadvantages of Living Trusts They are costly to create The settlor must transfer assets to the trust and give up control of them during his/her life

Pour-Over Will A will provision in which the testator directs the residue of the estate to go to an existing living trust

Irrevocable Trusts Cannot be changed or the property returned after they have been created Terms may be changed during the settlor’s life, but the trust continues

Trust Administration Duties Pre-Death Manage trust property Preserve and maintain trust property File tax returns

Trust Administration Duties Post-Death Obtain Federal Employer Identification Number Notice to beneficiaries Open a checking account for the trust Transfer funds

Trust Administration Duties Post-Death Collect, preserve, and value assets Pay creditor claims File tax returns Distribute income or principal to beneficiaries