(Re)Introduction to trusts - PowerPoint PPT Presentation

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(Re)Introduction to trusts
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(Re)Introduction to trusts

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  1. (Re)Introduction to trusts Inter vivos revocable trusts to avoid delays, costs and publicity of probate Testamentary marital trusts to save on estate taxes and protect children from prior marriage Trusts for disabled children Trusts for minors Discretionary trusts to reduce taxes on family wealth, shield beneficiaries from creditors, allow for accommodation to future circumstances
  2. Trust Typology Inter Vivos Testamentary Declaration of Trust or Deed of Trust Creation Will Type of Transfer Nonprobate Probate Revocable Or Irrevocable Revocability Irrevocable
  3. Statistics on Trust Usage(2011) FDIC Banking Data 780,000 private and charitable trust accounts $860 billion in total assets Average account size of around $1.1 million Excludes all trusts for which trustee is not an institution in the Federal Reserve System IRS Tax Data 2 million trust income tax returns $86 billion in gross income $3.5 billion in fiduciary fees $1.9 billion in attorney and professional service fees Excludes all revocable trusts and some irrevocable trusts
  4. (p. 546)
  5. The settlor, trustee, and beneficiaries, p. 547 Settlor Trustee Trust Property Promise to manage property in best interests of Beneficiaries Right to sue Donative or Commercial Transfer Distributions Beneficiaries
  6. Third-party rights Creditors of the Trust Claims re: trust property Trustee as trustee Payments from trust property Claims re: personal property Creditors of the Individual individual Payments from personal property
  7. Trust creation We’ve already seen that it’s simpler to create a trust than to execute a will—no need to satisfy the attestation and witnessing requirements of wills We’ve also seen that trusts require settlors, trustees and beneficiaries (with individuals being able to serve multiple roles for a single trust) Today, we discuss in more detail some of the requirements for creating a trust
  8. Requirements for creating a trust Settlor’s intent to create a trust Presence of a res (the trust property) Designation of beneficiaries A writing or clear and convincing evidence of an oral trust Indiana requires a writing for all trusts, and all states require a writing for testamentary trusts
  9. Lux v. Lux 288 A.2d 701 (R.I. 1972), p. 557 Lux v. Lux All the rest…of my estate…I give to my grandchildren, share and share alike. Any real estate…shall be maintained for the benefit of said grandchildren and shall not be sold until the youngest of said grandchildren has reached twenty-one years of age. Should it become necessary to sell any of said real estate to pay my debts…it is my express desire that said real estate be sold to a member of my family. Did Philomena “intend[] that her real estate be held in trust for the benefit of her grandchildren”?
  10. Lux and settlor intent Did it matter that Ms. Lux did not say she was creating a trust? No Did it matter that Ms. Lux did not appoint a trustee? No—”a trust never fails for lack of a trustee” (the executor became trustee)
  11. Lux and settlor intent Which facts indicated intent to create a trust? She did not give her grandchildren outright ownership of the property The property had to remain unsold until the youngest grandchild reached age 21 The property was to “be maintained for the benefit” of the grandchildren Note the major contrast with wills With wills, form matters a whole lot With trusts, courts look to function
  12. Jimenez v. Lee Jimenez v. Lee 547 P.2d 126 (Ore. 1976), p. 558 Mrs. Diercks makes $500 gifts to all three children, deposited in an account in names of children and Lee. Plaintiff sues, seeking to recover proceeds or original gifts. $1000 1945 1960 1956 Mr. Lee Paternal grandmother purchases $1000 bond for plaintiff, registered in names of plaintiff and plaintiff’s parents. Lee cashes bond and closes bank account, purchasing stock with proceeds as “custodian” for his children. Plaintiff Mrs. Diercks $500
  13. What facts suggested that a trust was created? The court found a trust because (p. 559) Lee’s own testimony and other evidence demonstrated that the $1,500 in gifts were given for the educational needs of his daughter In a letter, Lee acknowledged that he held the funds “in trust” for the children (and Lee was a lawyer) Moreover, a trust—and not a custodianship—is the relationship traditionally created by a gift imposing fiduciary duties upon an adult for benefit of a minor. If a custodianship is intended instead, the donor should specifically say so.
  14. Why did Lee claim he was a custodian, not a trustee? As a custodian he could use the property for the “benefit” of the minor; as a trustee, he could use it only for education purposes Because he did not kept clear records, he was better off if he was not restricted in use of the funds As a custodian, he would escape liability because the statute of limitations would have run If he was a custodian, the statute of limitations on his duty to account elapsed two years after Betsy reached majority, or in 1968. If he was a trustee, the statute of limitations did not begin to run until he accounted (which he had never done).
  15. Why did the daughter sue Lee? There was not a lot of money at stake—perhaps something over $2,000 in the end How would the lawsuit affect Lee when he wrote his will? Maybe their relationship was irreparably frayed
  16. Demonstrating intent I, JOHN DOE, of Indianapolis, Indiana, declare myself trustee of the "______ DECLARATION OF TRUST," consisting of the property identified on the attached Schedule of Property, which property and all additions, investments, and accretions shall be administered upon the following terms: If your client wants a “precatory trust” (page 562), then the language also should be clear: “I wish, but do not legally require, that C permit D to live on the land.”
  17. Outright gifts To complete an outright gift, rather than a gift in trust, there generally must be a delivery and acceptance of the gift Actual delivery Constructive delivery (e.g., a key to a house so the donee can pick up the painting given as a gift) Symbolic delivery (e.g., a writing such as the letter in Speelman)
  18. Requirements for creating a trust Settlor’s intent to create a trust Presence of a res (the trust property) Designation of beneficiaries A writing or clear and convincing evidence of an oral trust Indiana requires a writing for all trusts, and all states require a writing for testamentary trusts
  19. Creation of a trust:Necessity of trust property A trust is not valid without a trust property or res It need not be a sizeable amount of property, it need not be a present interest, and it need not be an interest that is certain to vest at some point Even though the property requirement is not a substantial one, it can still result in the failure of an intended trust, as some of our cases for today demonstrate
  20. Establishing a res “Settlor herewith deposits the sum of One Dollar ($1.00) as the initial corpus of the trust”
  21. Unthank v. Rippstein,386 S.W.2d 134 (Tex. 1964), p. 569 Unthank v. Rippstein
  22. Why didn’t Craft create a valid trust? Did he designate a beneficiary? Yes. Iva Rippstein Did he demonstrate intent to create a trust? Actually, he demonstrated intent to create a will when he stated that he was binding his estate to make the monthly payments—and Texas allows holographic wills The court should have found a valid holographic will (certainly more like a will than Kuralt’s letter) Did he identify any trust property? Only by implication, which the court concluded was not sufficient. As a result, the court found an unenforceable promise
  23. Brainard v. Commissioner91 F.2d 880 (7th Cir. 1937), p. 572 Brainard v. Commissioner Stock trading is profitable. Brainard pays himself $10,000 as trustee and distributes profits among trust beneficiaries. Brainard orally declares trust of expected profits from stock trading in 1928 for benefit of wife, mother, and minor children. Beneficiaries declare trust income on 1928 income tax return Dec. 1927 1928 1929 Did trust arise in 1927, with Brainard’s oral declaration, prior to making the profits? No, according to the court, since the profits did not come into existence until they were earned. But why aren’t future profits a res?
  24. Can future profits be a res? The Brainard court was obviously worried about making it too easy for someone to evade taxes. After all, we have an oral declaration, and Brainard traded under his own name. Of course, what constitutes a trust for most purposes may differ from what constitutes a trust for tax purposes. Recall that the creation of a revocable inter vivos trust provides a number of advantages, but does not reduce tax obligations (page 439). See the note on page 576 for further discussion.
  25. Speelman v. Pascal Speelman v. Pascal,178 N.E.2d 723 (N.Y. 1961), p. 572 Pascal makes various attempts to produce show. Pascal acquires exclusive rights to produce musical and film based on Shaw’s “Pygmalion.” License to expire in 1956. Pascal promises, in writing, a portion of the profits of the (still unproduced) show to Miss Kingman (aka Miss Speelman). Pascal dies. July 1954 1952 Feb. 22, 1954 “Did the delivery of this paper constitute a valid, complete, present gift to [Speelman]…?”
  26. Can future profits be a res? Technically, the issue in Speelman is whether we have a valid gift rather than a trust, but the same question arises—is there a property right being transferred? Yes, we have the assignment by Pascal to Speelman of an enforceable right of Pascal to future sums. According to the court, there was “nothing left for Pascal to do in order to make an irrevocable transfer to plaintiff of part of Pascal’s right to receive royalties from the productions. . .” (page 575, end of opinion).
  27. Can future profits be a res? What in the letter (page 573) suggests that Pascal had not transferred his right to Speelman? The second paragraph of the letter which states that Pascal’s lawyer will confirm the arrangement “in a legal form.”
  28. Note 1, page 575 Brainard involved the oral testimony of interested witnesses to establish a trust that avoided taxes An oral declaration of trust is permissible, but the possibility of fraud leads courts to apply other requirements strictly What about the fact that Pascal had a contract that entitled him to future profits while Brainard was promising profits from the sale of stocks that he might not even have owned at the time? This view is supported by the Restatement provision cited in the note, but note also that the Field case cited on page 575 by the Speelmancourt did not involve an existing contract
  29. Note 2, pages 575-76 Looks like Brainard. We have a gratuitous promise. No gift because there was no delivery of a gift or written instrument. No trust because O did not declare a trust and no res. This counts as a trust. The stocks that O already owns constitute the res. This is how we make Brainard’s trust look like it has a res. If Brainard declared himself trustee of stock which he already owned and stipulated that the dividends would go to him while the other beneficiaries would receive the capital gains, the practical effect is the same as a trust of the future profits in stock trading, but the stock would provide a corpus (Restatement (Third) of Trusts, § 41, comment b).
  30. Note 2, pages 575-76 Looks like Brainard, but now we have a notarized writing. On the other hand, still no res. If we follow the logic of Brainard, no valid trust. If we think Brainard was driven by the fact of an oral declaration with interested witnesses, then maybe this case comes out differently. We have an invalid trust, per Brainard.
  31. Requirements for creating a trust Settlor’s intent to create a trust Presence of a res (the trust property) Designation of beneficiaries A writing or clear and convincing evidence of an oral trust Indiana requires a writing for all trusts, and all states require a writing for testamentary trusts
  32. The requirement of trust beneficiaries A trust must have one or more ascertainable beneficiaries—if we can’t identify the beneficiaries, the trust will fail—there must be someone to whom the trust owes fiduciary duties and who can call the trustee to account Charitable trusts need not have ascertainable beneficiaries Trusts for one’s descendants may have currently unascertainable beneficiaries when the trusts are created
  33. I therefore give and bequeath to my trustees all my property embraced within the classification aforesaid in trust to make disposal by the way of a memento from myself, of such articles to such of my friends as they, my trustees, shall select. Clark v. Campbell Clark v. Campbell133 A. 166 (N.H. 1926), p. 579 Testator Trustees Must “the bequest for the benefit of the testator’s ‘friends’…fail for the want of certainty of the beneficiaries”? Friends Yes. One can designate relatives, or subsets thereof, but not “friends.”
  34. Indefinite beneficiaries A power in a trustee to select a beneficiary from an indefinite class is valid. If the power is not exercised within a reasonable time, the power fails and the property subject to the power passes to the persons who would have taken the property had the power not been conferred. Uniform Trust Code § 402(c), Ind. Code § 30-4-2-1(f) But outside UTC states, the drafting lesson is not to create a power in a trustee to appoint among an indefinite group. Give the power to the selector individually, rather than as a trustee (note 1, p.581)
  35. The will of Marilyn Monroe, p. 582 Did Monroe intend to create a trust? The words “it being my desire” are precatory words, and she said “give and bequeath” so no trust, and Strasberg takes as a devisee. (But some courts would say the words demonstrate intent to create a trust, especially since the executor is the contingent taker.) 2) If Monroe intended a trust, did she designate an ascertainable beneficiary? No ascertainable beneficiaries, so trust fails, and personal effects go to the residue of the estate.
  36. The rest of the story Strasberg never distributed any of Monroe’s personal effects to the friends or colleagues to whom Marilyn was devoted In fact, he requested the return of several of Marilyn’s possessions that she had given to a colleague When Strasberg died, he left a will granting Marilyn’s personal effects to his wife, who, like her husband, chose not to give any of Marilyn’s personal effects to friends or colleagues of Marilyn