NY Bar Wills & Trusts 2012
|What is the savings statute?||The savings statute is a rule of construction. If the grantor creates a specific contingency, the savings statute creates a presumption that the parties intended that the contingency would occur with in 21 years from the date of the instrument, thereby rescuing the transaction.|
|What is the Suspension Rule?|| The suspension rule deems void any estate in which the conveying instrument suspends the absolute power of alienation for longer than the lives in being at the creation of the estate plus 21 years.|
Look for fragmented ownership or contingent interest that exist over a period of time.
|What rules regarding future interest can invalidate a trust in NY?||The RAP and the Suspension Rule.|
|What are the traditional requirements to create a trust?|| 1. intent|
2. trust property
3. valid trust purpose
5. for lifetime trusts: in writing, signed by the settlor and one trustee, and either notarized or witnessed by two witness who also sign
5. for testamentary trusts, will's act applies
|What is the intent required to create a trust?|| The only intent required is the intent to separate equitable and legal title to property.|
Precatory language is an expression of wish or desire, instead of intent to create an actual trust.
A gift, failing for lack of delivery, may be construed as a trust (provided it's in writing and formalities are met). Courts are hesitant to do so.
|What kind of property can make up the corpus of the trust?||All actual property or an interest in property can be trust property. Mere expectancy cannot be trust property.|
E.g., future profits cannot be the trust corpus, "whatever profits I make day trading, in trust for my daughter" is invalid, but "$50,000 in trust with the profits stemming from that amount to my daughters" is valid
|What is a valid trust purpose?|| Cannot be illegal or against public policy.|
Unreasonable marital restraints are against public policy.
There can be a charitable purpose (see other card).
|What are valid beneficiaries?|| There must be a beneficiary that is sufficiently definite who is cab able of enforcing the terms of the trust against the trustee.|
The beneficiary must be ascertained or ascertainable at the time they'll take.
|What are they types of express personal trusts?||1. lifetime, inter vivos trusts|
- presumed to be irrevocable
- a pour-over trust is created during life, but funded at death
- at Totten trust is a bank account where the depositor retains control over the money, can use the money for herself, and can revoke at any time.
- a life insurance trust, is like a pour-over trust but where the funds of the trust come from a life insurance policy
** also the UTMA allows gifts to minors by setting up a custodial account to manage the property until the child reaches the age of 21
2. A trust created at death is a testamentary trust.
- created by will
- a secret trust, looks like a testamentary gift, but it was created in reliance on the named beneficiary's promise to hold it for another, the named beneficiary may present extrinsic "clear and convincing" evidence to prove the promise and the court will impose a constructive trust.
|What makes a charitable trust different from a personal express trust?|| 1. RAP|
2. charitable purpose, no defined beneficiary
3. enforced by the attorney general
|What is a legitimate charitable purpose?|| 1. relief of poverty|
2. promotion of education or religion
3. promotion of good health
4. governmental or municipal purpose
5. other purpose benefiting the community at large or a particular segment of the community at large (look for a large number of beneficiaries)
|Are trust for the benefit of pets authorized?||Yes, trusts for the benefits of pets are specifically allowed by the EPTL but they expire after 21 years.|
|How does Cy Pres work?||Cy Pres allows for the terms of the charitable trust to be modified if the original purpose becomes illegal, impracticable, or impossible.|
rule statement—cy pres for a will
The doctrine of cy pres provides that no disposition of property for religious, educational, or benevolent purposes otherwise valid under the law, is invalid by reason of the indefiniteness or uncertainty of the persons designated as the beneficiaries.
|Types of Remedial Trusts|| 1. honorary trusts|
2. resulting trusts
3. constructive trust
|What is an honorary trust?|| A trust is one that is not created for charitable purposes but that does not have a private beneficiaries. If trustee agrees to the terms, the court will allow an honorary trust to exist to for 21 years. If the trustee fails to abide by the terms the court will impose a resulting trust.|
(example, for the care of a specific plot in a cemetery)
|What is a resulting trust?||A resulting trust is created when a trust fails in some where or when there is an incomplete disposition of trust property. The trustee does not get to keep the property outright. Instead the trustee must return it to the settlor or the settlor's estate.|
|What is a constructive trust?||A constructive trust is an equitable remedy to prevent unjust enrichment in the event of some kind of wrongful conduct. To impose a constructive trust there must be:|
(1) the sharing of a confidential or fiduciary relationship between the transferor and the transferee,
(2) a promise,
(3) a transfer in reliance on the promise, and
(4) unjust enrichment.
Since a constructive trust is an equitable remedy, demand for a constructive trust may only be brought in supreme court.
|Types of Actual Trusts|| 1. support trust|
2. mandatory trust
3. discretionary trust
|What is a mandatory trust?|| In a mandatory trust the trustee is required to pay out a certain about to the beneficiary.|
O to T, with amount to A when she turns 21.
O to T, interest to A for life, then to B.
|What is a discretionary trust?||A discretionary trust give the trustee discretion about how much to pay out and sometimes who to pay. Under this type of trust the beneficiary has no standing to challenge the actions of inactions of the trustee unless there is a clear abuse of discretion. |
look for terms: "absolute discretion," "may pay," "from time to time as the trustee sees fit"
|What is a support trust?||A support trust requires the trustee to pay out to the beneficiary in accordance with some specified objective standard.|
|What rights to a settlor's creditors have to the trust property?||The creator of a revocable trust retains an interest in the trust principal because the creator can revoke the trust and recover the trust prinipal. In contrast, when a trust is irrevocable, the creator has no interest in the trust principal.|
|What rights do a beneficiaries' creditors have to the trust property?||A creditor's rights to trust property depend on the kind of trust and the kind of debt.|
In a mandatory trust, the creditor can get the trust property to the extent of the mandatory component because the beneficiary that an entitlement to that amount.
In a discretionary trust the creditor does not have a right to the trust property.
|What is a spendthrift trust?||A spendthrift trust expressly restricts the beneficiary's power to voluntarily or involuntarily transfer his equitable interest, and therefore prevents creditors from getting at the trust property. In NY all trusts are presumptively spendthrift unless the grantor has given the beneficiary the power to assign or alienate his interest.|
Spendthrift protection only applies to the creditors' ability to receive payment directly from the trust. Thus once trust income is in the hands of the beneficiary, the creditor may directly attach those funds.
|What are the exceptions to spendthrift provisions where creditors can get trust assets?||The following creditor's are not subject to the spendthrift limitations:|
1. children and spouses enforcing support judgments
2. people providing necessities (food, doctors)
3. the government
4. judgment creditors may levy put to 10% of a beneficiary's income derived from the trust.
5. And as a last resort, after the creditor has exhausted all other options, a creditor may attach income or assets that re beyond what is needed to provide for support and education.
6. fraudulent transfers for the purpose of defrauding or defeat creditors will be invalid.
|When can a trust be terminated?||A revocable trust may be terminated by the settlor during pursuant to the terms of the trust.|
An irrevocable trust can be terminated with the consent of the settlor and the beneficiaries. In NY a remainder in heirs or next of kind does not create a beneficial interest requiring consent.
A trust automatically terminates when the purpose has been accomplished.
A trust cannot be terminated if a material purpose remains. A spendthrift trust has a material purpose of asset protection the beneficiary, thus the trust cannot be terminated.
|When can a trust be modified?||Generally, a trust may be modified if an unanticipated change in conditions, frustrates the trust's term or purpose.|
(example: unexpected tax treatment probably meets this)
New York requires the express reservation of the right to modify a trust. Absent such express authority, a creator of a trust can modify a trust only with the consent of all beneficiaries, provided the modifications do not interfere with the trust's primary purpose.
|When can a trustee be removed?||incapacity, breach, conflict of interest, serious disagreement, or poor performance|
|trustee's allocation of trust assists|| Generally, life beneficiaries are entitled to trust income, and remaindermen are entitled to trust principal, thus all assists received by the trustee must be allocated to either income or principal and it must be balance to treat present and future beneficiaries fairly.|
|Uniform Principal & Interest Act (UPAIA)||The modern approach to asset allocation in many jurisdictions, including NY, is governed by the Uniform Principal & Interest Act.|
This approach focuses on total return of the trust portfolio regardless of classification of assests as principal or interest. Under the Act, the trustee may recharacterize items and reallocate investment return as he deems necessary to fulfill the trust purposes. The trustee may not make adjustments under the Act if he is also a beneficiary.
|UPAIA factors to balance||-settlor's intent|
-likely duration and purpose of the trust
-identities and circumstances of the beneficiaries
-relative needs for regularity of income, preservation and appreciate of capital, and liquidity
-net amount allocated to income under other sections of thea ct
-anticipated effect of economic conditions on income and principal
-anticipated tax consequences of the adjustment
|unitrust||In a unitrust the distinction between income and principal don't matter because the lifetime beneficiaries are entitled to a fixed annual share (4%) of the value of the trust principal|
|What is a power of appointment?|| The power of appointment delegated to someone else int he future to decide who takes the interest in the future.|
(O to A for life, then to whom ever A designates.)
donor grants the power
donee holds the power
objects are people for whom the power cant e exercised
|Duties and responsibilities of the trustee|| A trustee has all the powers over the property as if it were his own unless otherwise provided.|
The trustee owes an absolute duty of loyalty and prudence* to the beneficiaries.
The trustee cannot self-deal.
The trustee has s duty to disclose and account.
|What is the trustee's duty of prudence?||The trustee, under his duty of prudence has a duty to diversify. The trustee may have a duty to feel and diversity, even if the trust directs otherwise, but may have to go tot he court to seek a modification of the trust.|
NY adopted UPIA: uniform prudent investor act
-invests for total return, don't have to invest for income
- doesn't look at each investment separately
- requires diversification
-"custom tailored investment strategy"
-review is not based on hindsight
trustess may delegate investment functions - T is liable if agent acts irresponsbly
|Trustee's duty of loyalty||Rule 1: self-dealing is not allowed|
can't buy estate property
can't sell proerpty to the esate
disloyal to the beneficiares
indirect self deal - to family members
can't take advantage of trust info
like loyalty - must be impartial - can't unduly favor one beneficiary
when S has allowed it
when T has
Rule 2: "no further inquiry" rule
doesn't matter if it's fair (or beneficial)
once there's a breach there is a cause for remedy
|Rule statement for distribution to issue [in a will/by intestacy]||The term issue refers to lineal descendants, including children, grandchildren, great grandchildren and the like. [Absent a statement in the will to the contrary,/For property passing though intestacy] New York has adopted the per capita by representation approach to distributing property. This approach divides property equally among the survivors within a particular generation.|
[A will may specify that assets are to be distributed to by another method, such as a per stirpes distribution. This is a method of distributing an estate share whereby a class of devisees share only in the inheritance to which the deceased individual in the prior generation would have been entitled. Such distribution is not necessarily equal among all members of a generation. A strict per stripes approach make the first division of assests is made at the "child" level even if there are not surviving children. A modern per stripes approach makes the division at the first generation that has surviving issue.]
|Rule statement for a residual legacy||A residual legacy is a legacy of the estate remaining when all claims against the estate and all specific, general and demonstrative legacies have been satisfied.|
|when doesn't adoption cut of inheritance from or through natural parent||close family adoptions for people dying after 8/31/87 where |
1. decedent is adopted child's biological grandparent or descendent of a biological grandparent
2. the adoptive parent is married to a biological parent.
[step kids adopted by their biological parent's new spouse can still inherent from both biological families]
|valid will execution|| in writing,|
signed by testator,
published to two witnesses,
signed by those witnesses
|signing requirement||signing must be at the end of the document|
|capacity requirement|| 18 years old and is capable of knowing:|
- nature of the acts
- nature, character, and value of his property
- fact that he is executing a will
- natural objects of his bounty
- the object of the attempted disposition
|witness requirement|| witness, in their conscious presence|
they need not be in the same room with each other
the will must be "published" to them, meaning they must know they are signing a will.
|grounds for challenge of a will|| improper execution|
lack of capacity
|insane delusion||belief about the world which there is no factual or reasonable basis and that the testator has despite reason and evidence to the contrary|
|undue influence|| - burden of proof is on the challenger|
- presumption when there is a confidential relationship and suspicious circumstances
|standing to contest a eill||The contestant must be someone who would take in intestacy if the will or part of the will was struck down.|
|no-contest clause||A no-contest clause provides that if someone contests a will, that person will lose her share of the will|
No-contest clauses are valid in NY, but limits it's breadth by deeming that some challenges will not trigger a no-contest clause.
Those challenges include:
1. claim that the will is a forgery
2. claims on behalf of a minor or incompetent
3. an objection to the jurisdiction of the court
If a contestant wins any of these challenges, the will and thus the no-contest clause, will be struck down.
|preference of personal representative||If not named in the will or codicil:|
1. surviving spouse
2. children of the descendant
3. grandchildren of the descendant
4. parents of the descendant
5. siblings of the descendant
6. any other person whois a distribute and eligible to qualify, with a preference toward persons receiving a larger share of the estate
|living wills||valid in NY, health care instructions|
|durable powers of attorney||A durable power of attorney gives someone else the power to make decisions in the event of incapacitation.|
A power of attorney or durable power of attorney terminates on any of the following occurrences:
1. death of the principal
2. revocation of the POA
3. incapacitation (unless durable)
4. revocation of the agency
5. agent dies
6. court revokes
7. purpose completed
|incorporation by reference||New York prohibits the incorporation of other documents into a will and does not allow documents that have not been executed with testamentary formalities to be incorporated by reference into the will, except in cases of pour-over trusts|
|presumption of will revocation||In New York, if a decedent was in possession of her will before her death, but the will is lost or unable to be found amongst the testator's personal effects, a rebuttable presumption arises that the decedent destroyed the will with intent to revoke it.|
If, however, there is proof a will has been destroyed, but there is no evidence the testator intended to revoke the will, then the will can still be probated if there is clear and convincing evidence of the lack of intent to revoke, and the contents of the will can be proven.
|partial revocation by physical act||...|