4/4/2016. Written, formal agreement between at least two persons and impacting at least one more Grantor/Creator/Settlor Trustee/Fiduciary Beneficiary

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1 JulieAnn Calareso, Esq. Burke & Casserly, P.C. 255 Washington Avenue Ext. Suite 104 Albany, NY Written, formal agreement between at least two persons and impacting at least one more Grantor/Creator/Settlor Trustee/Fiduciary Beneficiary Could be Grantor in certain situations Could be Trustee in certain situations Could be both Grantor & Trustee at times Inter Vivos Latin for between the living Testamentary Created through the Last Will & Testament of a decedent Can be established during lifetime of a person but delayed taking effect (held in abeyance ) until the death of a person, such as within an Inter Vivos trust 1

2 Revocable The Grantor retains the right to REVOKE the Trust Irrevocable With limited exceptions, the Grantor cannot REVOKE the Trust Supplemental (or Special) Needs Trusts EPLT ; revocable or irrevocable; first party or third party Irrevocable Life Insurance Trusts (ILITs) Irrevocable Trusts (used in conjunction or independently) Asset Protection (creditor, long term care) Estate Tax planning (completed gift trusts) IRC 2503 Minors Trusts Spendthrift Charitable Trust Coordination with overall estate plan allows for asset management during life and death asset protection in some situations potentially streamlined administration during life and at death Privacy (but see Pour Over Will issue) Reduces likelihood of post-death challenges 2

3 Administration Burden upon Grantor to fund during life Some limited creditor protection losses Surrogate s Court Procedure Act Including 207 which gives surrogate's court of any county has jurisdiction over the estate of any lifetime trust which has assets in the state, or of which the grantor was a domiciliary of the state at the time of the commencement of a proceeding concerning the trust, or of which a trustee then acting resides in the state or, if other than a natural person, has its principal office in the state. Venue for proceedings relating to such lifetime trusts is the county where (a) assets of the trust estate are located, or (b) the grantor was domiciled at the time of the commencement of a proceeding concerning the trust, or (c) a trustee then acting resides, or, if other than a natural person, has its principal office. Estates, Powers & Trusts Law Article 7 Article 8 Charitable Trusts Article 11- Fiduciaries NOTE: Supreme Court also has jurisdiction over lifetime trusts: choose your court carefully Intention to create a trust Valid reason to create one Cannot create a trust that is against public policy Proper compliance with formalities in execution A Grantor, a Trustee, a Beneficiary Funding/Property delivery 3

4 Testamentary Trusts only come into existence at death; the creating instrument (the Last Will & Testament) must be valid Therefore, follow execution provisions for a valid Last Will & Testament as found in EPTL Article 3 EPTL : Any person may by lifetime trust dispose of real and personal property. A natural person who creates a lifetime trust shall be eighteen years of age or older. Person = includes a natural person, an association, board, any corporation, whether municipal, stock or non-stock, court, governmental agency, authority or subdivision, partnership or other firm and the state - EPTL EPTL provides that A lifetime trust shall be irrevocable unless it expressly provides that it is revocable. 4

5 EPTL (a) provides Every lifetime trust shall be in writing and shall be executed and acknowledged by the person establishing such trust and, unless such person is the sole trustee, by at least one trustee thereof, in the manner required by the laws of this state for the recording of a conveyance of real property or, in lieu thereof, executed in the presence of two witnesses who shall affix their signatures to the trust instrument provides A lifetime trust shall be valid as to any assets therein to the extent the assets have been transferred to the trust. Only as good as the efforts that the Grantor takes to put assets into it continues that For purposes of this section, (a) transfer is not accomplished by recital of assignment, holding or receipt in the trust instrument, and (b) in the case of a trust of which the creator is the sole trustee, transfer shall mean in the case of assets capable of registration such as real estate, stocks, bonds, bank and brokerage accounts and the like, the recording of the deed or the completion of registration of the asset in the name of the trust or trustee, and in the case of other assets a written assignment describing the asset with particularity. 5

6 Assignment of Property: Only effective as to assets not capable of registration (not applicable to deeds, stocks, etc.) Matter of Risk, N.Y.L.J., March 25, 2015, at 23, col. 2 (Surr. Ct, NY County - Executor of Estate attempted to claim all decedent s tangible personal property for Estate rather than the Trust because Grantor had done an Assignment of Tangible Personal Property Assignment was 16 pages, but Executor still claimed that each book needed to be itemized, each coin, etc.; Court disagreed, holding that this statute required only a description enabling identification for practical purposes. Empty Trusts? New York does not recognize empty Inter Vivos trusts Seed Trust No statutory provision as to how much must be in a trust in order for it to be valid Can Trust be executed but empty? See Matter of Doman, 68 A.D.3d 862, 890 N.Y.S.2d 632 (2d Dep't 2009) wherein the Grantor created the trust in August but did not transfer the stock until March; trust valid in March Common assets include real estate; stocks; bond; investment accounts; cash; automobiles; other registered assets (anything with a title); personal property by assignment and delivery Itemized Schedule A does not work MAGIC WAND funding does not work Be wary of out of state Revocable Trusts that try to fund with one 6

7 By the Grantor herself, with appropriate powers having been retained within the Trust document By the Grantor s Agent under a Power of Attorney, if permitted in the Trust and in the Power of Attorney Perosi v. LiGreci, 98 A.D.3d 230, 2d Dep t. (2012) EPTL a revocable lifetime trust can be revoked or amended by an express direction in the creator's will (Last Will & Testament) which specifically refers to such lifetime trust or a particular provision thereof (b) Any amendment or revocation authorized by the trust shall be in writing and executed by the person authorized to amend or revoke the trust, and except as otherwise provided in the governing instrument, shall be acknowledged or witnessed in the manner required by paragraph (a) of this section, and shall take effect as of the date of such execution. 7

8 7-1.17(b) continues Written notice of such amendment or revocation shall be delivered to at least one other trustee within a reasonable time if the person executing such amendment or revocation is not the sole trustee, but failure to give such notice shall not affect the validity of the amendment or revocation or the date upon which same shall take effect. No trustee shall be liable for any act reasonably taken in reliance on an existing trust instrument prior to actual receipt of notice of amendment or revocation thereof. EPTL may apply if the Revocable Trust fails to recite provisions for Grantor to revoke/modify All persons beneficially interested in the Trust may consent to modification/ revocation Lifetime beneficiaries Grantor Others Both Beneficiaries after the death of the Grantor Grantor s Estate (but why?) Others 8

9 Possible considerations for income provisions Remember, Grantor is being taxed on the interest/dividends/income HEMS Health, education, maintenance and support Coordinate with accountant: if income goes out to other beneficiary, who pays the income tax? Possible considerations for principal Grantor has full access to it Is there a provision for restricting Grantor s access to it during period of incapacity? Absence? Do not restrict use of principal, but can trigger removal/suspension of Grantor s status as Trustee during period of disability (don t forget to define it) Lifetime gifts out of Trust for benefit of others? Trustee owns the assets in the Trust EPTL 7-2.1(a) provides that Except as otherwise provided in this article, an express trust vests in the trustee the legal estate, subject only to the execution of the trust, and the beneficiary does not take any legal estate in the property but may enforce the trust. 9

10 EPTL 7-2.1(c) A trust may acquire property in the name of the trust as such name is designated in the instrument creating said trust. Any property, so acquired can be conveyed, encumbered or otherwise disposed of only in such name by a conveyance, encumbrance or other instrument executed by: (1) the person or persons authorized by the instrument creating said trust; or (2) the person or persons authorized by a resolution duly adopted by the trustees; or (3) a majority of the trustees unless the instrument creating said trust otherwise provides. EPTL itemizes powers given to fiduciaries, which includes Trustees EPTL (c) permits court to authorize certain actions EPTL contains the Principal and Income Act, EPTL contains the Prudent Investor Act Co-trustees have title jointly with right of survivorship, EPTL 6-2.2(d), so when one dies the other succeeds to title to the whole. 10

11 Consider naming successors for lifetime of Grantor in the event of disability of Grantor Consider allowing Grantor to name successor trustee to act if Grantor merely does not want to act (not disabled, but not interested) Successor at death of Grantor Who? How many? Acting together? Who can name successors? Grantor in original document Grantor during her life pursuant to a retained power within the Trust Another Trustee A Trust Protector A court Including the right of beneficiaries under SCPA 709 to object to the appointment of successor Trustee Liability of Successor Trustees Not for actions of another Trustee; consider having resigning Trustee account and have accounts settled Not for actions of beneficiaries, but consider including provisions in document as well 11

12 EPTL (b)(12): Under this section's subparagraph (a), when the sole or surviving trustee dies the trust property does not pass as part of his estate; rather it vests in the court with jurisdiction over the trust (Supreme Court for lifetime trusts, Surrogate's Court for lifetime and testamentary trusts; see SCPA 207). If trust property still needs administration, court can appoint a successor trustee unless the trust provides otherwise. If trust has terminated, court may still appoint a successor if it believes the appointment necessary. The beneficiaries of the trust are entitled to notice of the application for appointment of a successor trustee. Once appointed the successor has the same powers, duties and liabilities as the original trustee. SCPA 2309 Commissions of trustees under wills of persons dying, or lifetime trusts established, after August 31, 1956 Read it carefully; it is complex What is it? A person who can modify the Trust, be given other powers, and can participate in the Trust s existence with or without fiduciary obligations New York does not have a Trust Protector Statute Uniform Trust Code does, and provides that the terms of a trust may confer on a trustee or other person a power to direct the modification or termination of the trust. Unless the trust instrument provides otherwise, a person, other than a beneficiary, who holds a power to direct is presumptively a fiduciary who, as such, is required to act in good faith with regard to the purposes of the trust and the interests of the beneficiaries. 12

13 Types of Powers: Each power granted to a trust protector, whether management or distribution power, can be further organized into five different types: 1.Authorizing or directing the trust protector to monitor something relating to the trust; 2.Requiring the trustee to secure the consent of the trust protector in order to take action; 3.Empowering the trust protector to veto an action taken by the trustee; 4.Empowering the trust protector to initiate action unilaterally; and 5.Empowering the trust protector to direct the trustee to take a certain action. Source: Designing Trust Protectors and Their Powers, By Craig C. Reaves, CELA, available at ts_wills/designing_trust_protectors_and_their_powers.aspx Why use one? 1. To Monitor the trustee. Either because beneficiary cannot or as a cost saving mechanism 2. To guide the trustee regarding trust distributions and/or regarding investment decisions. 3. To empower someone to change the trust in order to adapt to future changed circumstances, such as changes in the law, the beneficiaries, or the trust assets. Source: Designing Trust Protectors and Their Powers, By Craig C. Reaves, CELA, available at ts_wills/designing_trust_protectors_and_their_powers.aspx Considerations Attorney as Trust Protector Fiduciary vs Non-Fiduciary role Scope of authority during lifetime of Grantor, during disability of Grantor, after death of Grantor 13

14 What is a spendthrift? a person who spends money in an extravagant, irresponsible way What is a spendthrift provision? Specific provision in the Trust document itself that precludes a beneficiary for alienating, assigning, pledging, transferring away either a current interest or a future interest in the Trust With limited exceptions, absent a provision in the document, all interests are alienable See EPTL What protection does a spendthrift provision offer? EPTL permits a grantor to create a spendthrift income interest for a beneficiary other than herself EPTL (a) A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator Common law permits Grantor to apply spendthrift provisions to a beneficiary s principal interest Statutory spendthrift protection for income interests EPTL 7-1.5(a)(1) says that if you want the income interest to be assignable, document must provide so (must override statute) In addition, even though income interest is inalienable, if Trust makes more than $10,000 of income, beneficiary can transfer excess to certain class of family members 14

15 Creditor rights are important in New York EPTL permits creditors to reach any income not needed for education and support of beneficiary if no valid direction for income accumulation is given EPTL 7-1.5(d) prevents spendthrift provisions from defeating matrimonial obligations and child support obligations (cannot avoid legal obligation of support by invoking the spendthrift provisions) Tax accounting vs Trust Accounting During Grantor s lifetime, if beneficiaries include others instead of or in addition to Grantor, understand difference between two Consider, if Trustee is other than Grantor, doing summary or settlement of Trustee actions periodically Keep meticulous records Use Grantor s Social Security Number during lifetime At death, cannot use Social Security Number and must secure EIN Consider drafting a provision within the Trust to permit assets to remain titled as-is during administration period even though EIN is to be used Still requires notification to all financial institutions of new EIN but doesn t require retitling 15

16 Revocable Trusts become irrevocable upon the death of the Grantor Consider this carefully when contemplating single Grantor or dual Grantor trust Consider bifurcating the Trust corpus and giving first-deceased spouse certain rights, and surviving spouse other rights i.e., can surviving spouse revoke trust after death of first spouse? All? In part? Do beneficiaries of first deceased spouse have a vested interest at that death, or is vested interest delayed until death of surviving spouse? Can be revoked/terminated at any time during Grantor s lifetime by re-vesting (re-titling) assets into Grantor s individual name Provisions for uneconomical trusts under EPTL What is it? Last Will & Testament that directs that all assets in decedents estate (probate estate or estate under Voluntary Administration) be paid over to the Trustee of the Revocable Trust Why use it? A catch all device to rectify improper or incomplete funding; a fix to the oops, I forgot situation Why avoid it? 16

17 To use or not to use? Different counties do things differently If Rev Trust is being used for privacy, Pour Over will obviates that because Rev Trust now goes to Court, too If Rev Trust is being used because of lack of family history/family tree, Pour Over will doesn t help (now must also do family tree) Perhaps better in Small Estate/Voluntary Administration setting To use or not to use? Consider simple Will to name beneficiaries; consider simple Will to only one named beneficiaries What is scope of your representation and commitment to client? If you supervise funding of Revocable Trust, you may feel better with a Pour Over Even then, BE CAREFUL refunds, unknown inheritances, forgotten assets can cause issues Grantor single or dual Trustees Initial, successor in event of disability, successor in event of death Powers given to them (statutory or otherwise) Authority to act independently or requirement to act jointly Statutory Commissions vs custom; corporate fiduciary vs private 17

18 Name of the Trust During Grantor s lifetime and after death Beneficiaries Income during lifetime of Grantor and after death Principal during lifetime of Grantor and after death Rule Against Perpetuities Is this Trust continuing for period of time after Grantor s death, or is it to be wrapped up shortly thereafter? Inclusion or Omission of Trust Protector Trustee powers and duties to account? Statutory powers or more? During Grantor s lifetime and afterward Pour Over Will vs simple Will Funding Including attorney s role and obligation for funding or following up on funding Instructions on naming beneficiaries or retitling assets Best practices for maintaining relationship with Grantor and current/future Trustees 18

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