Wills, Trusts and Estate Planning Types of Trusts, Termination and Trustee Duties Unit 4

The Trust Fiduciary 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.

Advantages Funds 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 Trust Settlor – 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 Property Equitable Title – right to benefit or profit from the property. Legal Title – ownership. Trustee holds legal title. Beneficiary hold equitable title.

Trustee Has 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 Formation Testamentary 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.

Settlor Must 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.

Beneficiary Must 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 Trusts Express 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 Trusts Oral 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 - Public Trustee 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 - Passive Active – 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 Trusts Trust, 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.

Taxation Irrevocable 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 Trusts Probate 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.

Advantages Avoids 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.

Disadvantages Trust 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 Trusts Cannot be revoked by the Settlor. Control of the property transferred to Trustee. Property protected from Settlor’s creditors.

Other Trusts Testamentary – 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 Trusts Constructive – 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 Trusts Marital 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 Interests Reversions – 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 Doctrines Rule 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 Unit Seminar Quiz Discussion Board Assignment

Trusts and Wills For 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 Profession For 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 Instructions Post 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 Trust You 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’ Trust The 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 Week This 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 Essay Discuss 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 6 Begins November 17 and our seminar is on November 18. We will address Wills.