1. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Legal Terminology Fifth Edition by Gordon W. Brown PowerPoints prepared by Kimberly Lundy

2. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Chapter 28 Trusts

3. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Trust oTrust – right of ownership to property held by one person for the benefit of another. nLegal title (full, absolute ownership) is separated from equitable title (the right of beneficial enjoyment) in the property. nProperty held in trust is called corpus, trust res, trust fund, trust property or trust principal.

4. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Parties to a Trust oPerson who establishes trust – called the settlor, grantor, trustor, or donor. oTrustee – person who holds legal title for the other’s benefit is the. oBeneficiary – person who holds beneficial title (also called cestui que trust).

5. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Testamentary Trusts oTestamentary trust – created by a will; comes into existence on death of testator.

6. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Living Trusts oLiving trust (or inter vivos trust) – created by settlor while alive and established by a document called a trust deed or trust indenture. nConveyance in trust – settlor conveys legal title to trustee for benefit of another. nDeclaration of trust – settlor declares in writing they are holding legal title for benefit of another.

7. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Living Trusts – Types oIrrevocable living trust – settlor loses complete control over corpus during lifetime and cannot make changes. oRevocable living trust – settlor may rescind or make changes at any time.

8. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Spendthrift Trust oSpendthrift trust – designed to provide a fund to maintain a beneficiary who spends improvidently. nRestricted or disallowed in some states.

9. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Charitable Trusts oCharitable trust (or public trust) – established for charitable purposes. nBeneficiary must be uncertain to settlor. nNot affected by rule against perpetuities (provides that interest in property is void unless it vests not later than 21 years after some life in being, plus gestation period, at time of trust’s creation) – can last forever.

10. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Charitable Trusts – Types oCharitable remainder trust – donor or a beneficiary retains income for life after which corpus goes to charity. oCharitable remainder annuity trust – fixed amount of income given annually to beneficiary, remainder to charity). oCharitable remainder unitrust – fixed percentage of income given annually to beneficiary with remainder to charity.

11. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Cy Pres Doctrine oCy pres doctrine (as near as possible) – when original purpose of a trust can no longer be fulfilled, court allows trust fund to be held for a closely related purpose.

12. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Sprinkling Trust oSprinkling trust (or spray trust) – allows trustee to decide how much goes to each beneficiary. nAlso called discretionary trust.

13. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Implied Trust oImplied trust – arises by implication of law from conduct of parties. Two kinds: nResulting trust – arises where transfer of property is made to one person but purchase price is paid by another. nConstructive trust – imposed by law to avoid unjust enrichment when legal title was obtained by fraud.

14. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Precatory Trust oPrecatory trust – an express trust that sometimes arises from polite language used in a will.

15. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Pour-Over Trust oPour-over trust – provision in a will leaving a bequest to a trustee of an existing living trust. When testator dies, will pours the gift into trust.

16. Brown: Legal Terminology, 5 th ed. © 2008 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. Marital Deduction Trust oMarital deduction trusts make maximum use of marital deduction to federal estate tax. nCredit-shelter trust, A–B trust, bypass trust or exemption equivalent trust – reduce taxation of second spouse to die by limiting their estate to non- taxable amount. nQualified terminable interest property ( QTIP) trust – gives all trust income to surviving spouse for life with principal passing to someone else on spouse’s death.