Wills & Trust Chapters 6-9 (Final Exam Review)

POD and TOD Contracts

$ Payable On Death (POD): - Modern Law accepts as Valid despite lack of Wills Formalities Act - Most banks, brokerage houses, mutual funds, and other financial intermediaries allow POD and TOD designations on their accounts **NC: Specific statutes for POD and TOD as Non-testamentary intangible property controlled by the domicile of the decent at death even though the modern trend is for all non-probate transfer to be non-testamentary ... If JTROS: Both parties have power to draw on account but survivor has alone the ownership of the remaining balance at the other's death

Creation of Trust (NC Requirements)

(1) Capacity: same as wills for revocable trusts; - For irrevocable trust, no provision but under UPC it's the same capacity needed to pass property by deed. (2) Intent (3) Definite Beneficiary or Statutorily permitted substitute-- - Charitable trust - Trust for the care of an animal - Trust for non-charitable purpose (4) Trustee has duties to perform: - Fiduciary duties imposed by law and potentially additional duties imposed by trust (5) Separation of legal and equitable interests: - Same person is not the sole trustee and sole beneficiary otherwise its merely a gift

Grounds for Removal of Trustee (BarBri)*

(1) Commission of a serious breach of trust; (2) Legal or practical incapacity to administer the trust; (3) Unfitness for the position (e.g. Habitual drunkenness, commission of a crime involving dishonesty, permanent or long-continued absence from the state, or extreme old age or other practical inability); (4) Refusal to post bond or to account; (5) The existence of a significant conflict of interest; (6) The trustee's insolvency if the court feels that this situation jeopardizes the welfare of the trust; and (7) Extreme friction or hostility between the trustee and the beneficiaries, where such hostility is likely to interfere with the proper administration of the trust. However, the mere existence of friction that does not interfere with proper administration is not a ground from removal.

4 Main Functions of Trusteeship

(1) Custodial: - Taking custody of trust property and properly safeguarding it (2) Administrative: - Accounting and records keeping as well as making tax findings and others (3) Investment: - Involves reviewing trust assets and making/implementing an investment program for those assets as part of overall strategy (4) Distribution: - Making disbursement of income and principal to beneficiary in accordance to trust terms - If trustee has discretion then must be made in good faith and in accordance to needs and circumstances of beneficiaries and terms of trust

Testamentary Trusts (issues)

- Discerning whether a testator intended to create a trust includes construing the will - If intent isn't clearly stated, it must be inferred from the language and structure of the will in light if all the circumstances - No particular words are required -In absence of a trustee, unless contrary intent in will or such an appointment is improper or undesirable, the executor will be named or court will appoint someone else *Court does not want trust to fail for want of a trustee

Other Important Rules and Duties of Trustee to Beneficiaries

- Duty of Impartiality between beneficiaries - Duty not to commingle trust property with own property - Duty to inform and account to beneficiaries

Pension and Retirement Plans: § Defined Benefit Plan

- Employe typically receives an annuity -If benefit is annuitized, no remainder to pass at death - Uncommon today among private employers ($2.3 Trillion)(2012)) -Common today among public employers ($4.6 Trillion (2012))

Pension and Retirement Plans: §Defined Contribution Plan

- Employee owns a specific account - Employee controls investment and distributions in retirement - Remainder passes outside of probate to designated beneficiaries - Favored by private employers ($4.7 Trillion (2012))

Intent to Create

- No particular form of words are necessary to manifest intent to create--not even the words trusts or trustees are required: S must only manifest intent to create a fiduciary relationship so person who is ignorant of trust law can still create a trust because focus is on FUNCTION not FORM (ex: to X for the use and benefit of A) = Trust

Trust Law (Restatement 2d. & Treatises)

- Now US trust law is largely codified by state level legislation based on the UTC - Most provisions of UTC are default rules that can be overridden by terms of trust *Few mandatory ones such as trustee duty to follow terms and act in good faith

Declaration of Trust

- Settlor simply declares himself trustee - Settlor can also be a beneficiary - Declaration of trust of personal property requires not particular formalities *No delivery of instrument of transfer *S only has to manifest an intention to hold certain portion of their property in trust for an ascertainable beneficiary -Trust can be created w/o transfer of property because you only need a manifestation of intent by the settlor to hold certain property, over which he already has legal title, in trust for one or more beneficiaries

Pension and Retirement Plans: § Individual Retirement Account

- Similar to a defined contribution plan, but subject to contract between account holder and custodial institution - Remainder passes outside of probate to designated beneficiaries - IRAs are common ($5.1 Trillion (2012)), may include "roll over" from DC Plan

Creation of a Trust: Elements

A. The Requirements = 1. Capacity 2. Intention 3. Definite Beneficiary (or statutorily permitted substitute) --> §4-402 4. Trustee Designee 5. Separation of Legal and Equitable Interests B. The Methods: 1. Transfer of Property 2. Declaration by owner of holding property as trustee --> §4-401 3. Exercise of Power of Appointment

Life Insurance: What about if you waive your right in a divorce settlement? What happens to the proceeds?

Divorce Settlements and Life Insurance Policy: (1) The named beneficiary would probably get nothing and would go to the estate of the insured * The Insurance Co. should be free to pay the named beneficiary w/o liability if it has no notice of a change by will but the will beneficiary should be able to obtain relief in restitution by way of a constructive trust impress on the contract beneficiary to prevent UNJUST ENRICHMENT

Durable POA: Springing

Durable POA: (2) Springing POA: effectively only upon incapacitation - Ordinary POA creates agency relationship in which the agent is called the attorney in fact and is authorized to act on behalf of the principal - Simple POA: limited by CL rule that agent authority ends on principals incapacity - Durable POA is effective during incapacity of principal and until principal dies and can be drafted to be effective immediately upon signing or only principals incapacity

Durable POA: Effective Now

Durable POA: 1) Effective right now even though not incapacitated and if you become incapacitated its still effective

Equitable Reversionary Interest

ER Arises in Two Ways: (1) Express trust fails or makes incomplete disposition (2) One person pays the purchase price for property and causes title to be taken in the name of another who isn;t a natural object to purchaser's bounty *NC: If I have a pour-over will into a trust that never had any property in it during my lifetime, then it is deemed to be an IV trust

Duties of Trustee owed to Beneficiaries of Trust

Law requires that a Trustee, as a Fiduciary, subordinate her interest to those of the beneficiaries These include: - Duty of Loyalty - Duty of prudence Other Important Rules: (1) Duty of Impartiality; (2) Duty not to Commingle; (3) Duty to inform and account

Other Will Subs --> #2 Life Insurance (Basics)

Life Insurance: (a) Commonly used to insure against lost income on death of wage earner (b) Amount suitable depends on age, wealth, and family circumstances of the insured---balanced the affordable premiums with protecting family financial security (c) Mistake people make is not insuring person who works inside the home * 2 Different Types of Insurance (see next 2 cards)

Trustee: Duty of Prudence

The trustee is held to an objective standard of care and must administer trust in a manner suited to the purpose of the trust and needs for beneficiaries

Marital Property Systems--> E/S How much should the Surviving Spouse receive? *Depends on Theory

§ Partnership Theory (Modern): - E/S justified because surviving spouse contributed to decedent's wealth - Surviving spouse should be entitled to one-half of decedent's property acquired during marriage § Support Obligation (Traditional): - Older view that marriage entails a support obligation - Support Implies: (1) Smaller % applied to all of the decedent's property; (2) A Minimum Amount; (3) Accounting for other resources available for support of survivor

Pure v. Impure Will Substitutes

§ Pure - Life insurance - Pension accounts - Joint Accounts - Revocable trusts § Impure - Joint Tenancies Will Substitutes *** - Tend to be asset specific - Avoid probate - Are not subject to the Wills Act

Marital Property Systems

§ Separate Property System: - No automatic sharing of earnings; whatever spouse earns or acquires is his or hers - Protection against disinheritance provided through elective share § Community Property - Property earned or acquired during marriage is community property. - No elective share, because each spouse owns all earnings during marriage in equal, undivided shares . *** Majority of States (including NC) = Separate Prop. sys

Why use a trust?

§ Settlor control --> Settlor can make a single transfer and control the benefits of that transfer for years to come through the means of a trust § Beneficiary protection/care --> beneficiary receives the benefits of the asset without owning or controlling the assets or having the manage them § Singular ownership and multiple beneficial interests--> rather than fractionalizing the ownership of assets, a trust allows for singular ownership and multiple beneficial interests that are extraordinarily flexible

Creation of a Trust (NC Methods for a Property transfer)

§ Transfer of Property - Testamentary or inter vivos by a settlor to person as trustee including by: - Pour over will - Designated of the trust as beneficiary of life insurance or other death benefit § Declaration by owner of holding property as trustee § Exercise a Power of Appointment

Waiving the Right to the Elective Share: Premarital or Postnuptial Agreement

§ Uniform Premarital Agreement Act (1983): - Party opposing premarital enforcement must prove agreement was: (a) Not voluntary; OR (b) Unconscionable when executed *Adopted in about half of the States § Uniform Premarital and Marital Agreement Act (2012) -Supersedes UPAA - Expressly validates postnuptial marital agreements - Applies same substantive standards (see §9, pg. 538) to the enforceability of both premarital and postnuptial agreements

Incapacity: Property Management

¶ Conservatorship: - Court-appointed conservator has power over property similar to that of a trustee ¶ Revocable Trust: - Successor trustee can act with respect to trust property immediately and without judicial involvement ¶ Durable Power of Attorney: - Agent authorized to act with respect to any of the principal's property, but only while principal is alive

2 Issues that Arise from Bifurcation

(1) Effects on rights of 3P with respect to trust property/property of trustee personally: - Traditional Law = because the trustee holds legal title to trust property, they were personally liable to debts/obligations arising from ownership of that trust property and then offset by indemnification out of trust fund - Majority Rule = Trustee's Creditor in fiduciary capacity recovers directly out of trust fund without recourse against property of trustee personally and personal creditor of trustee has no recourse against trust property - NC = traditionally a Creditor friendly state (2) Powers and duties of Trustee and corresponding rights of beneficiary with respect to trust property and against the Trustee

Tests to Determine which Non-Probate transfers are subject to Survivor's Election

(1) Illusory Transfer [most common]: - Valid trust but counts as part of the assets subject to elective share - Key Question is the amount of control retained by decedent after transfer (2) Intent to Defraud: - Did the D intent to defraud the survivor * Objective: control retained, amount of time between transfer and death, degree to which survivor is left without interest in the property (3) Present Donative Intent: - Whether D had present donative intent to transfer interest in property - Did he intend to make a present gift (4) Multifactoring Balancing: - Absorbed elements from all three approaches

Trusts and Interests

(1) Income interests and remainder interests - A beneficiary receives the income produced by the assets of the trust - A beneficiary receive the trust corpus at the end of the income period - Most trusts are two or three generational trusts - Current income beneficiary gets current possessory interest then to next generation for life then remainder to next (2) Support Interests: Trustee applies income or corpus of the trust, or both, as is necessary to provide for the support of the beneficiary - As testator determines in his or her discretion for maintenance and support of the beneficiary - NC has traditionally recognized (3) Discretionary Interests: Trustee is given authority to exercise his discretion in making transfers to beneficiaries

Five Major Types of Non-Probate Succession

(1) Revocable InterVivos trust (2) Life Insurance (3) Various Types of POD Accounts (4) Transfer on Death (TOD) Securities Accounts (5) Pension Accounts, primarily of individual by his own industry

Must there be a Writing to have a created a trust? (Wills Act or SoF)...

* If a trust is testamentary or holds land then a writing may be required to satisfy the Wills Act or SoF § General Rule= there is no writing requirement to create a trust

Miscellaneous Additional Rights [Marital Property]

* Social Security- Surviving spouse entitled to worker's benefits * Pension and Retirement Accounts = ERISA gives spouse of employee survivorship rights to pension plan * Spousal Allowance = NCGS §30-15. An Allowance of $30,000 for the surviving spouse's support for one year after the death of the deceased spouse * Dower and Curtesy: "abolished". Replaced with NCGS §29-30. Election of surviving spouse to take life interest in lieu of intestate share provided * Child's Allowance: §NCGS 30-17. Every child (under 18 generally) is entitled an allowance $5,000 for the child's support for the next ensuring the death of the parent. * Homestead Exemption: NC Const. Art X, Sec. 2 --> (2) Exemption for benefit of children. (3) Exemption for benefit of surviving spouse. (if no minor children and until remarriage)

§ Planning for Incapacity: Big Issues and Tools

*Asset Management/Financial Care Issues - Tools - Joint Accounts - Convenience Accounts - Trusts [More to Come] - Durable Power of Attorney - Conservators: Guardian of the Estate * Health Care Issues- Tools (A) Instructional Directives (Living Wills) --Specifies treatment in end-of-life situation or in the event of incompetence (B) Proxy Directives (Health Care Power of Attorney)- Designates an agent to make health care decisions for the patient (C) Hybrid or Combined Directives- Incorporates both of the first two approaches, that is, directs treatment preferences and designates an agent to make substituted decisions. (D) Guardianships

Non-Probate Transfers of Real Property

*Less suited for Non-Probate Transfer (a) Joint Tenancy and Tenancy By The Entirety: - Many family homes owned as JT or TE and upon upon death the other spouse gets the property absolute and no probate is necessary because nothing passes to the survivor (b) TOD for Real Property - NC doesn't have this - Testator can identify beneficiary who will succeed to land on testator's death by recording a TOD deed but during testator's lifetime the beneficiary has no interest and testator retains power to transfer to others or revoke designation

What happens when T intends to create trust but doesn't name a Trustee?

- A Court will appoint a trustee rather than allow the trust the fail. § General Rule: Executor will be named trustee when the testator fails to name one because we know the testator regarded the executor as a suitable fiduciary.

Powers and Duties of a Trustee to Beneficiaries

- A trust cannot sue, be sued, hold property or transact in its name-- the trustee does this as trustee of the trust - Trustee has all the powers over trust property that a legally, unmarried individual would have over individually owned property ... - BUT, beneficiaries NOT the trustee bear the consequences of trustees exercising their power

Durable POA

- Agent authorized to act with respect to any of the principals property but only while the principal is alive * 2 Kinds of Durable POA

Deed of Trust

- An InterVivos trust of land must satisfy the SoF - An InterVivos trust for personal property has NO particular formalities

Ascertainable Beneficiary Principle

- Beneficiary doesn't have to be ascertained when the trust is created but only ascertainable * If at time trust becomes effective beneficiaries are too indefinite to be ascertained the attempted trust will fail This principle is NOT: - Applicable to charitable trust - Modern trend is moving toward allowing pets and other non-charitable purposes (i.e. Honorary Trust)

Trusts (cont...)

- Can be created to provide financial support for survivors, structure commercial enterprises, etc. - Trusts separate the benefits of ownership from burdens of ownership (bifurcation of ownership)... - It supplies managerial intermediation by separating beneficial ownership from managerial responsibility

UPC Elective Share Scheme

- Determine the "augmented estate" - Determine the Marital Portion of the Augmented Estate -- % based on years of marriage - 50% of the "Marital Portion of the Augmented Estate" = The Elective Share Amount See 2--209

Disclaimer or Resignation by Trustee

A Trustee who has not accepted the trust--either expressly, by implication, or by contracting in advance to do so--can disclaim and refuse appointment arbitrarily. However, he cannot accept a trust in part and disclaim it in part. Also, after having accepted the trust, the trustee cannot thereafter disclaim; the problem then becomes one or resignation (see Below)

Removal of Trustee (BarBri)*

A court has the power to remove a trustee or to refuse judicial confirmation of the appointment of a trustee in a will. (Denial of confirmation will be ordered when the named trustee is incompetent or declines to serve.)

Who is a definite beneficiary in NC?

A definite beneficiary is definite if they can be ascertained now or in future, subject to applicable RAP *NC: has repealed the RAP as it applies to trusts

Trust (defined)

A legal arrangement created by a settlor in which a trustee holds property as a fiduciary for one or more beneficiaries...

UPC §6-101 (1990, rev. 1998) Nonprobate Transfers on Death

A provision for nonprobate transfer on death in an insurance policy, contract of employment, bond, mortgage, promissory note, certified or uncertificated security, account agreement, custodial agreement, deposit agreement, compensation plan, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement, or other written instrument of a similar nature is nontestamentary. . .

What is an Elective Share or a Right to Dissent?

A statutorily-created right in a surviving spouse intended to prevent a deceased spouse in a separate property jurisdiction from "disinheriting" the surviving spouse * If the propertied spouse died intestate, the surviving spouse would receive an intestate share *If propertied spouse is divorced, the other spouse would receive an equitable distribution of the property owned by the propertied spouse * * * Georgia is the ONLY state that does not provide an elective share (right to dissent) to a surviving spouse.

Chapter 8: Limits on Freedom of Disposition--- Protection of the Spouse and Children

A. Protection of the Surviving Spouse B. Intentional Omission of a Child C. Protection Against Unintentional Omission

TE Removal-- Beneficiaries Cannot Compel Removal Without Grounds

Absent grounds for removal, the beneficiaries cannot compel the removal of a trustee, unless this power is granted to them by the trust instrument. The power to remove a trustee without grounds may also be reserved by the settlor.

Qualifications of Trustee: Administrative Capacity [BarBri]*

Although a party may have capacity to take and hold property as a trustee, he may not have the capacity to administer it. (Ex: Minors or insane persons may take title to property, but because their contracts or acts are usually voidable, they are generally held to lack capacity to administer the trust. Such a trustee will be removed by the court and replaced with a qualified trustee.)

In re Estate of Jackson (Okla. 2008) Omitted Child Statute

Applicable Statute: "When any testator omits to provide in his will for any of his children, or for the issue of any deceased child unless it appears that such omission was intentional, such child, or the issue of such child, must have the same share in the estate of the testator, as if he died intestate, and succeeds thereto as provided in the preceding section." UPC §2-302 Pretermitted Heir in NC §31-5.5

Removal of Trustee-- Effect of Settlor's Knowledge of Grounds Prior to Appointment

Circumstances that might constitute grounds from removal, such as the existence of conflicting interests, need not be acted upon by a court where such circumstances were known to the settlor at the time she created the trust. - The existence and knowledge of grounds at the time the trust was created, however, are not conclusive, and in extreme cases a court may nevertheless proceed to remove the trustee. The terms of the trust are significant, of course, in this regard.

Chapter 7: Non-Probate Transfers and Planning for Incapacity

Class #14 and #15 of Bowser's Slides

State Street Bank & Trust v. Reiser

Creditor Protection Rules? Issue: Whether a Bank can recover against trust assets in order to pay a debt owed by the estate of the settlor of the trust? Hold/Rule: When a person places property in trust and reserves the right to amend/revoke or direct disposition of principal and income then the settlor's CREDITORS MAY, following the death of the settlor, REACH the extent not satisfied by settlor's estate, those assets owned by the trust over which the settlor had control over at the time of his death. *Under Traditional Law: The Creditor of a settlor had no recourse against the property of settlor's revocable trust unless settlor was also a beneficiary because the settlor's power to revoke and take back the property wasn't considered equivalent to ownership of the property * Modern Law: Settlor's power to revoke the trust and take back the property is regarded a n equivalent to ownership and trust property is subject to the claims of settlor's creditors in life and death *Creditors cannot reach certain other non-probate transfers - Joint tenancies, life insurance proceeds and retirement benefits and US Savings Binds with POD

E/S Issues: How should the Non-probate assets to be included in the calculation be identified?

Difficult question-- Best Options: * The Delaware and NC Method: The assets to be included in the calculation are those that would be included in the Gross Estate under Federal Estate Tax rules: * See The UPC Augmented Estate

Elective Share Rules for Non-Probate Transfers

General Rule: Trust property over which the decedent spouse had general power of appointment is NOT included in the estate of the deceased subject to an E/S if the trust was created by a third party - POA means ability to give himself trust property - *** Only included in E/S is trust created during marriage by deceased spouse because "but for" them artificially distancing the property from that estate by the creation of the trust and for all practical purposes having absolute control over and use of the property, it would have been in the estate and part of E/S but third party has no obligation to support someone else's spouse and property owned by thirf party has never been part of someone else's spouse's E/S... * Majority = An insolvent spouse cannot be compelled by ordinary creditor to take E/S * Majority = Value of E/S will be counted towards survivors available resources in determining MediCaid availability

Beneficiaries of A Trust (Rules and requirements)

Generally, a trust cannot exist without someone to enforce it. Thus, a beneficiary is necessary to the validity of every trust except charitable trusts (which can be enforced by the state AG although beneficiaries are indefinite) and so-called honorary trusts ( e.g. trusts for animals or to maintain graves). A private trust requires that there be definite beneficiaries (or at least that the beneficiaries will be ascertainable within the period when all interest must vest under the RAP)***

Beneficiaries

Have equitable title to trust property, which allows them to hold trustee accountable for breach of trustee's fiduciary duty; usually entitled to periodic distribution from trust income or principal

Equitable Charge

If a person devises property to another person subject to payment of a certain sum of money to a 3P = Equitable Charge (NOT a trust)

Effect of Promise to Create Trust (from BarBri)*

If the settlor promises gratuitously to create a trust in the future, a trust arises in the future only if, at that time, the settlor manifests anew his intention to create the trust. -Often this promise will be to hold property in trust when the property is acquired. -On the other hand, if the promise is supported by consideration, the trust can arise in the future, when the property is acquired, without any further manifestation of intent.

Precatory Trust Language

If the testator refers to wishes, hopes, recommendations that property be used by devisee in a particular way then language DOES NOT clearly indicate whether testator intended to create trust with fiduciary duties on devisee or merely an unenforceable moral obligation

Written Trust

In general, law of trust does not require writing for a valid trust. - For trusts that do require a writing, courts will impose a constructive trust if an oral fails for noncompliance with Wills Act or SoF

Qualifications of a Trustee: Capacity to Acquire or Hold Title for One's Own Benefit [BarBri]*

In the absence of a statute, anyone who has capacity to acquire or hold title to property for his own benefit has CAPACITY to take property as a trustee. - Unincorporated associations can be trustees only where they can hold title to property for their own benefit. - If a partnership cannot hold title to property, a purported transfer to the partnership in trust may be deemed to be a transfer to the partners individually as trustees.

Farkas v. Williams (Ill. 1955)

Issue: Must the Trust be executed with Wills Act formalities? Trust included: Right to Revoke, Right to Income, Right to Principal, Right to Change Beneficiary, Fiduciary Enforcement... Holding: The Court's answer is NO, because Williams parted with some of the incidents of ownership. Whatever Williams parted with, Farkas received. Therefore, it was not just a testamentary transfer.

Cook v. Equitable Life Assurance Society

Issues: (1) Never changed beneficiary in what insurance policy required him to do but did not in the Holographic document (2) Court Says that there should have been STRICT COMPLIANCE: Why? - Strict Compliance = Maj. Rule - Exceptions of the Strict Compliance Rule: (a) Society waived strict compliance with own rules (b) Beyond power of insured to comply literally with regulations (c) Insured pursued it correctly but died before new certificate issued ***NC = Strict Compliance according to the terms of the insurance contract with NO exceptions

Revocable Trusts: The Modern Will Substitute What is a trust and how does it work?

It is a relationship of Three Roles: - A "settlor" or "grantor" or "trustor" = the one who transfers the assets - A "trustee" = the one who holds the assets for the benefit of those designated by the settlor -A "beneficiary" = the one for whose benefit the assets are held, managed and disbursed

What is a revocable trust and how does it work?

It is a trust that can be altered, amended or revoked at ANY TIME by the Settlor into which the Settlor's assets during life--receiving the benefit of the assets during the life at the Settlor's death. It is commonly coupled with a "pour-over will" (pour over into) by which any of the Settlor's assets that had not been transferred during life are devised to the trust at the death to be disposed of in the same manner as the other trust assets.

Trustee: Duty of Loyalty to Beneficiaries

The Trustee must administer the trust solely in the interest of the beneficiaries

Precatory Expression and Trusts creations (BarBri)*

Most courts today infer from such language that no trust was intended, but only that the transferor wished his desires to be known so that the transferee could comply with them if willing to do so. This inference may be overcome if: 1) The directions are definite and precise, not vague; 2) The directions are address by a decedent to his executor or administrator, or to one who otherwise occupies the position of a fiduciary under the will; 3) Failure to impose results in an "unnatural" disposition by a testator (e.g. a close relative takes no interest under the will); or 4) Extrinsic evidence shows that the transferor had been supporting the alleged beneficiary prior to executing the instrument, and the beneficiary would not have sufficient means of support absent a finding that a trust was created *(e.g. A gives property to B with what appears to be precatory directions to use the property for C's benefit, but evidence shows that A had always supported C, suggesting that A intended to impose enforceable trust obligations on B.)

Resignation by Trustee

Once a trustee has accepted appointment, he cannot resign without permission of the appropriate court, unless: (i) authorized to do so by the terms of the trust, or (ii) consent is given by ALL of the beneficiaries, ALL of whom have capacity to give this consent. The acceptance of a trustee's resignation is within the discretion of the court.

Life Insurance Settlement Options

Options Include: Lump sum, interest for years followed by principal, or periodic payments of interest and principal

Settlor/Grantor/Trustor

Person who creates trust

Medieval Times (Feudal System) and Trusts

Precursor to trusts = use §Friar couldn't own property so it would be conveyed to friends of friars for friar's use - Feoffee: Trustee - Feoffor: Settlor - Cestui que use: Beneficiary

How does a Trust actually work?

Remember that a trust is not an entity but rather a fiduciary relationship that gives the trustee separate personal and fiduciary selves for dealing with Creditors and the role of administration is safeguarding the beneficiary from mismanagement and misappropriation by trustee * Modern trust is more than will substitute --> used as managerial intermediation by imposing ongoing financial administration to ensure property managed and distributed by trustee in accordance with settlor's wishes as expressed in terms of trust rather than whims of beneficiaries * NC has adopted the UTC almost in its entirely ---some parts are different (85% of the time its identical)

Creation of Trust (review of elements)

Requirements: § Capacity: - Capacity to make lifetime transfer is higher in most states than to make testamentary transfer * Majority: Same as required for making a will § Intention § Definite beneficiary or substitute § Trustee duites § Separation of legal and equitable interests ***Methods: - Transfer of property - Declaration by owner of holding as trustee - Exercise of Power of Appointment

What is "Res"..?

Res = Trust property §Traditional Law: The trust exist without trust property -It need not be land or substantial sum of money (ex: can be 1.00) -Only requirement is that there must be a specifically identified interest in property -Expectation or hope of receiving property in the future or interest that hasn't come into existence or ceased to exist cannot be held in trust

Declaration of Trust RULE*

Rule: A gift imperfect for lack of delivery will NOT be turned into declaration of trust - Not sufficient to just declare yourself a donor, you must manifest an intention to impose upon self enforceable duties of trust nature

Trustee's Breach of Duty... What is Beneficiary entitled to?

The beneficiary(s) is entitled to an election among remedies that include: - Compensatory damages to restore trust estate - Trust distributions to what the pre-breach (Restitution by constructive trust) - Disgorgement by the trustee of any profit to trustee owing to breach - Removal of trustee * Trustee must put good faith efforts to create an income to current beneficiary but also leave income for remainder beneficiary so this allows the trustee to make some high risk and conservative investments (Principals and Income Act).

UPC §2-511 (1990) Testamentary

SECTION 2-511. UNIFORM TESTAMENTARY ADDITIONS TO TRUSTS ACT (1991). (a) A will may validly devise property to the trustee of a trust established or to be established (i) during the testator's lifetime by the testator, by the testator and some other person, 154 or by some other person, including a funded or unfunded life insurance trust, although the settlor has reserved any or all rights of ownership of the insurance contracts, or (ii) at the testator's death by the testator's devise to the trustee, if the trust is identified in the testator's will and its terms are set forth in a written instrument, other than a will, executed before, concurrently with, or after the execution of the testator's will or in another individual's will if that other individual has predeceased the testator, regardless of the existence, size, or character of the corpus of the trust. The devise is not invalid because the trust is amendable or revocable, or because the trust was amended after the execution of the will or the testator's death. ***(b) Unless the testator's will provides otherwise, property devised to a trust described in subsection (a) is not held under a testamentary trust of the testator, but it becomes a part of the trust to which it is devised, ...

UTC § 602 (2000, rev. 2003) Revocation or Amendment of Revocable Trust

SECTION 602. REVOCATION OR AMENDMENT OF REVOCABLE TRUST. (a) Unless the terms of a trust expressly provide that the trust is irrevocable, the settlor may revoke or amend the trust. This subsection does not apply to a trust created under an instrument executed before [the effective date of this [Code]]. (b) If a revocable trust is created or funded by more than one settlor: (1) to the extent the trust consists of community property, the trust may be revoked by either spouse acting alone but may be amended only by joint action of both spouses; (2) to the extent the trust consists of property other than community property, each settlor may revoke or amend the trust with regard the portion of the trust property attributable to that settlor's contribution; and (3) upon the revocation or amendment of the trust by fewer than all of the settlors, the trustee shall promptly notify the other settlors of the revocation or amendment. (c) The settlor may revoke or amend a revocable trust: (1) by substantial compliance with a method provided in the terms of the trust; or (2) if the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by: 102 (A) a later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust; or (B) any other method manifesting clear and convincing evidence of the settlor's intent. (d) Upon revocation of a revocable trust, the trustee shall deliver the trust property as the settlor directs

UTC §603 (2000, rev. 2004) Settlor's Powers; Power of Withdrawal

SECTION 603. SETTLOR'S POWERS; POWERS OF WITHDRAWAL. (a) While a trust is revocable [and the settlor has capacity to revoke the trust], rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor. (b) During the period the power may be exercised, the holder of a power of withdrawal has the rights of a settlor of a revocable trust under this section to the extent of the property subject to the power.

[B] Intentional Omission of a Child: Rights of Descendants to a Forced Share?

Some statutes protect ONLY after-born or after-adopted children from being disinherited. Other states protect ALL children from unintentional omission which does not provide for the child in the will. These statutes generally assign an intestate interest share to that omitted child. In two FORMS: (1) Conclusive Presumption= that any child not named in the will was unintentionally omitted. (2) Rebuttable presumption = That the omission was unintentional unless there is evidence that the omission was INTENTIONAL (see OKLA Statute pg. 585 and In re Estate of Jackson)

UTC- Statutory Purpose Trust

Statutory purpose trust: for pet or non-charitable purpose like maintenance of graves, etc... - Typically authorize court to reduce excessive trust property and provide for enforcement by settlor or court appointee - Almost every state has authorized trusts for pets and maintenance ...

Life Insurance and Testator's "Superwill"?

Superwill: The testator's will trumps beneficiary designations in all non-probate transfers *Would solve problem of updating beneficiary designations unless forgotten non-probate transfers

Trustee (legal title and prop)

Takes legal title to trust property, which allows them to deal with 3P as owner of property - Self-settled trust: Settlor is the sole trustee

Life Insurance: Type #1 Term Life Insurance

Term Life Insurance: 1.) Simplest and most common 2.) Contract that obligates insurance company to pay the named beneficiary if the insured dies within the policy term-- 5yrs, 10yrs, up to 30yrs 3.) No saving feature or cash surrender value so less expensive 4.) Some allow for conversion to permanent insurance at the expiration of term irrespective of subsequent changes in the insured's health

The UPC Augmented Estate: § 2-203 (+ 204-207)

The Augmented Estate: UPC §2-203, the "Augmented Estate" equals the value of the couple's combined assets, and is composed of the sum of four elements: (1) §2-204 -- The Value of the decedent's net probate estate; (2) §2-205-- The Value of the decedent's nonprobate transfers to others, consisting of will-substitute type IV transfers made by the decedent to others than the surviving spouse (3) §2-206-- The Value of the decedent's nonprobate transfers to others, consisting of will-substitute type IV transfers made by the decedent to the surviving spouse (4) §2-207 -- The value of the surviving spouses's net assets at the decedent's death, plus any property that would have been in the surviving spouse's nonprobate transfers to others under 2-205 had the surviving spouse been the decedent

Elective Share (E/S) Issues: Should Non-Probate assets be included in the calculation?

The Non-probate revolution (the advent of perfect will substitutes) has made it essential to include non-probate assets in the calculation. If they were not included, deceased spouses could easily disinherit a surviving spouse by transferring nearly all of his/her property through non-probate means. See Sullivan and Myers

Types of Trusts

Trust can be either be: § Testamentary: created by will and arising in probate - Irrevocable - Settlor of testamentary trust is a testator § Inter-vivos: Created during settlor's lifetime by declaration of trust of deed of trust - Often as a will substitute to avoid probate - Can be revocable or irrevocable depending on intent of settlor

Application of Subsidiary Law of Wills: Construction Rules UTC §112

UTC §112: Rules of Construction: The Rules of construction that apply in this State to the interpretation of and disposition of property by will also apply as appropriate to the interpretation of the terms of a trust and the disposition of the trust property.

Merger of Title Where Sole Trustee Is Also Sole Beneficiary

Where the Sole Trustee, who holds LEGAL TITLE, and the Sole Beneficiary, who holds EQUITABLE TITLE, are one and the same person, there is a merger of the legal and equitable titles. If the trustee does not hold precisely the same interests, both legal and equitable, there is no merger and the trust continues. The existence of either multiple trustees or multiple beneficiaries will normally preclude merger.

Life Insurance: Type #2 Whole Life Insurance

Whole Life Insurance: 1) AKA --> Ordinary or Straight life insurance which combines insurance with savings plan 2) Policy eventually comes paid up or endowed, after which no further premiums are owed 3) Permanent so very expensive 4) Newer and less expensive variations as universal or variable life insurance

Trust Typology: Inter Vivos Trust

§ Creation Method = Declaration of Trust or Deed of Trust § Type of Transfer = Nonprobate § Revocability= Revocable (until death) Or Irrevocable

Trust Typology: Testamentary

§ Creation Method: - Will & Therefore must satisfy Will Formalities § Type of Transfer: - Probate § Revocability: - Irrevocable

Trust Creation: Common Beneficiary Interests

§ Income Interests and Remainder Interests: - A beneficiary (or many beneficiaries) receive the income produced by the assets of a trust; a beneficiary (or many beneficiaries) receive the trust corpus at the end of the income period. § Support Interests: - The trustee applies income or corpus of the trust (or both) as is necessary to provide for the support of the beneficiary § Discretionary Interests: - The trustee is given the authority to exercise his/her discretion in making transfers to a beneficiary (or many beneficiaries).

Trust v. Legal Life Estate

§ Legal life tenant has no power to sell a fee simple or mortgage or lease the property - All remainder men must allow it or get judicial approval § Legal life tenant must generally pay taxes and keep property in repair and LE can be seized by creditor whereas in equitable LE can be out of reach of creditors and protect beneficiaries § Abolish the legal life estate because a trust has a far better way of handling a life interest § Legal LE has disappeared except in homemade wills or negligence or Medicaid planning in NC (Ex: To O for life then remainder to kids --> that's not an asset of O for Medicaid eligibility)

Revocable Trusts in Contemporary Practice

§ Lifetime Consequences: -Property management by fiduciary - Planning for Incapacity - Keeping title clear - No federal income, gift, or estate tax benefits § Probate Avoidance - Avoid ancillary probate - Continuity in property mgmt - Privacy and more difficult to contest than a will - Not subject to ongoing Court supervision - More leeway than a will in choice of law - Uncertainty about subsidiary law of wills - Probate non-claim statute may not be applicable *See Pg. 465 (Textbook)