Trusts and Estates
I) Lifetime Transfers
a) A Valid Gift
i) Voluntary transfer of property made without consideration.
(1) Requirements:
(a) Donative intent on the part of the donor,
(b) Delivery of the property to the donee, and [must divest the donor of “dominion and control”]
(i) Physical delivery [actual possession]
1. Symbolic delivery [a written instrument of gift (deed of gift)](writing should be signed by the donor, identify the donor and donee, describe the subject of the gift, and specify the nature of the interest given)
a. Third Person delivery – the third party must be acting on behalf of the donee (i.e., an expression of release of dominion and control on the part of the donor)
(c) Acceptance of the gift by the donee.
(i) Property cannot be forced upon a donee, the donee may disclaim(refuse to accept) the gift, which must be 1) timely and 2) comply with relevant state statutes.
(2) The Property Interest Transferred by the Donor
(a) Where a donor has reserved significant rights, the validity of the gift may be challenged at some time after the transfer is made.
b) Inter Vivos Gift
i) Father sent son a letter gifting him a Klimt painting. [Gruen v. Gruen]
c) Conditional Gift
i) Requirements:
(1) The condition must be clear.
ii) Ordinarily, an inter vivos gift is made unconditionally.
iii) Courts sometimes find that a gift has been made subject to a condition, such as marriage of the donor to the donee.
iv) The court resided in a “no fault” jurisdiction and found that the gift of the engagement ring was predicated on the condition of marriage. When the marriage did not occur, the ring should be returned. [Fierro v. Hoel]
d) Causa Mortis Gift
i) Requirements:
(1) A gift is made in apprehension of approaching death form some existing sickness or peril;
(2) The donor dies form such sickness or peril without having revoked the gift;
(3) There is actual, constructive, or symbolic delivery of the gift to the donee or to someone for him; and
(4) The evidence reveals the donor’s present intent to pass title to the fit.
ii) E.g., [McCarton v. Estate of Watson]
e) Tax Consequences of Lifetime Gifts
i) Federal Law imposes a gift tax on a donor when he or she makes a “transfer of property by gift.” (whether the transfer is in trust or otherwise, direct or indirect, and whether real property of personal, tangible or intangible) [IRC §§ 2501, 2511]
ii) The Donor must have parted with “dominion and control” before a gift tax will be imposed. [Treas. Reg. § 25.2511-2]
iii)
f) Capacity to Make a Gift
i) Valid if:
(1) Transferor is able to understand the act of transfer and is acting of her own free will.
ii) Invalid if:
(1) Mental deficiency,
(2) Undue influence, or
(3) Fraud
iii) Challenges may be made by:
(1) Transferor or a legal representative, during the transferors life, or
(2) Some person having standing, after the transferor’s death.
iv) Standing:
(1) When a person will receive a direct pecuniary benefit if the challenge succeeds –
(a) E.g., When the challenger will take by intestacy if a lifetime gift is invalidated, or will take under a prior will if a later will is invalidated.
v) Mental Capacity:
(1) Must understand the nature and extent of his or her property,
(2) Know the “natural objects of his or her bounty” [close relatives and friends], and
(3) Understand the disposition of property the person is making.
vi) Undue Influence:
(1) Influence that overcomes the free will of the donor.
(2) Contestant bears the burden (usually clear and convincing evidence).
(3) If evidence is sufficient, then the burden shifts to the proponent to rebut.
(4) Confidential Relationship – A relationship in which one person has a duty to the other not to disclose proprietary information.(e.g., attorney-client, friends, parent-child, etc.)
(a) E.g., (1) father’s delegation of his financial and legal affairs to son evidenced that fa
erson and wishes to set aside a portion of his or her earned income for retirement.
(ii) Keogh Plan – a qualified retirement plan set up by a sole proprietorship or partnership, as opposed to a single individual.
(3) Bank, Brokerage, and Mutual Fund Accounts
(a) Accounts over which the depositor retains explicit lifetime dominion while designating beneficiaries to take on his death.
(b) E.g., Joint bank accounts.
(c) Convenience Account
(i) An apparent joint account, but without right of survivorship, established by a creator to enable another person to withdraw funds at the creator’s direction or for the creator’s benefit.
1. Unlike a true joint account, only one person, the creator, has an ownership interest in the deposited funds.
2. Convenience accounts are often established by those who need a financial manager’s help and want to make it easy for the manager to pay bills.
3. Although the manager’s name is on the account, he or she does not contribute any personal funds to the account and can write checks or make withdrawals only at the direction of or on behalf of the creator.
(d) Brokerage accounts – an account that is nominally joint, the beneficial owner of the securities may deal with them as though he has not made the cotenancy designation, but on the owner’s death the cotenant succeeds to the securities or other account proceeds.
(4) The Revocable Inter Vivos Trust
(a) Revocable Trust – in most states the power to revoke a living trust must be reserved expressly in the document. If the document provides for a specific method of revocation, the settle must follow that method.
