DOCSLIB.ORG

The Rights of Settlor and Beneficiaries Under a Trust

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Rights of Settlor and Beneficiaries Under a Trust 27/09/2017 Cyprus Fiduciary Association Seminar 6, 2017 The Rights of Settlor and Beneficiaries under a Trust 28 & 29 September 2017 Stavros Pavlou Senior & Managing Partner Patrikios Pavlou & Associates LLC A. CYPRUS INTERNATIONAL TRUSTS (‘CITs’) 1 27/09/2017 . The concept of the trust dates back to the Crusaders in the 12th century and is based on the Anglo-Saxon legal system. It was devised to allow continuity of family property and succession in troubled times when the “master of the house” was off to war. Definition of Trust: 2 27/09/2017 . “A trust is an equitable obligation, binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property), for the benefit of persons (who are called the beneficiaries) of whom he may himself be one, and any one of whom may enforce the obligation”. (Azinas and another v Police 2 CLR 16/10/1981) . The International Trusts Law of 1992 (the “CIT Law”) provides that a CIT is constituted when specific requirements are fulfilled: i. The settlor is not a resident of Cyprus during the calendar year immediately preceding the creation of the trust; ii. At least one of the trustees is a resident of Cyprus during the whole duration of the trust; and iii. The beneficiaries, with the exception of a charitable institution, must not be residents of Cyprus, during the calendar year immediately preceding the year in which the trust was created. 3 27/09/2017 B. PARTICIPANTS TO A TRUST Settlor: The legal owner of property who creates a trust by divesting his legal title to the trustee to manage in favour of the beneficiaries. Beneficiary: Receives the beneficial ownership of assets. Age, legal disability, minority is irrelevant. Enforcer: Duty to enforce a CIT for a non- charitable purpose in accordance with the CIT Law. A novel concept found only in Cyprus. Untested in court. Protector: The person, other than the trustee, who has the power to restrict key powers of the trustee. Trustee: . The person who agrees to hold the legal title to the trust assets in its name for the benefit of the beneficiaries under the terms of the trust. Has the legal title to the trust assets, whereas the beneficiary has the beneficial or equitable title thereto. Legal owner and administrator of the trust property. Exercises the powers under the CIT Law and under the trust document. 4 27/09/2017 . The trustee’s main duties are (a) to administer the trust property prudently and (b) to strictly comply with the terms of the trust document. The trustee owes a duty of care to the beneficiaries to perform his role properly. A trustee stands in fiduciary relationship with the beneficiaries which entails that he acts in the utmost good faith. C. TYPES OF TRUST BARE TRUST: no management by the Trustee SHAM TRUST: A trust that may have apparently been created but in reality is not a trust but some other arrangement or simply an empty pretence. IMPLIED, RESULTING OR CONSTRUCTIVE TRUST: by operation of law FIXED TRUST: no discretionary powers of disposition 5 27/09/2017 DISCRETIONARY TRUST: . The trustee has a duty to select from among a class of beneficiaries those who are to receive, and the proportions in which they are to receive, the trust property. DISCRETIONARY TRUST (continued): . The beneficiaries have no fixed right to the capital or income of the trust property, they have only the right to be considered by the trustee when exercising his discretion to select the beneficiaries. No individual beneficiary has a right in rem, the equitable title to the trust assets vests in the class of potential beneficiaries as a whole. During the period that the trustee has not yet exercised his power to select beneficiaries from a class, they cannot terminate the trust and call for a transfer of property. They can only compel the trustee to consider the possibility of making a payment out of income. 6 27/09/2017 D. RIGHTS OF SETTLOR The settlor of a CIT must be: a) of full age, and b) of sound mind c) not a resident of Cyprus during the calendar year immediately preceding the creation of the trust, and d) the bankruptcy, liquidation or proceedings against the settlor at the suit of its creditors does not affect the validity of a CIT created while he was solvent, unless made with the intention to defraud the settlor’s creditors at the time of transferring trust assets. The settlor may restrict or stipulate additional powers and duties to those granted to the trustee by the law. Governing Law: A trust shall be governed by the law chosen by the settlor (s. 12A(1) CIT Law). Right to confidentiality: The settlor’s name shall not be disclosed unless there is a court order. 7 27/09/2017 The settlor may reserve the powers included in section 4A of the CIT Law, which include inter alia: . To revoke/amend the terms of a trust, or powers arising from it. A CIT is irrevocable unless an express power of revocation of the settlor is provided; . To advance, distribute pay or otherwise apply income or capital; . To issue binding directions to the trustee in connection with the purchase, retention, sale, management, lending, pledging or charging of the trust property; To require that any power or discretion of a trustee is exercised with the consent of the settlor or any other person specified in the trust. The reservation or granting to a settlor the above rights shall not in any way affect the validity of the trust nor delay its execution but it may affect the evaluation of the Court as to whether it is a sham trust. Letter of wishes: . Guidance provided by a settlor to the trustees as to how they should exercise their powers and discretion. Usually accompanies a discretionary trust. It is not binding on the trustees. The beneficiaries do not have a right to inspect a letter of wishes (Breakspear v Ackland [2008] 3 WLR 698). It is confidential to the trustees. A letter of wishes can only be disclosed by order of the Court if there are good grounds for doing so. 8 27/09/2017 E. THE RIGHTS OF BENEFICIARIES 1. Entitled to the beneficial interest of the trust property . Replacing trustees does not affect the beneficiary’s right to the property. The beneficiary has a right in rem in respect of property held in a bare or fixed trust. Beneficiaries of a discretionary trust, of full age and capacity, ascertained by the trustee and acting together as a group are considered to have a proprietary interest in the trust property. 2. The powers of the beneficiaries where the trustees are in breach of the trust 9 27/09/2017 . In cases where the trustee acts below the required standard of care or acts against the terms of the trust or the law, then: (a) The beneficiary may bring a personal claim against the trustee for losses caused to the trust fund by breach of the trustee’s duty of care. (b) The beneficiary may apply for a court order compelling the trustee to act and administer the trust in accordance with the trust documents and the law. 3. Right of the beneficiary to call for the transfer of trust property A. The right to call for a transfer where the beneficiary is absolutely entitled A beneficiary can compel the trustee to distribute and transfer trust property if the beneficiary is absolutely entitled to that trust property. 10 27/09/2017 B. The right of the beneficiary to bring the trust itself to an end The rule of Saunders v Vautier: . All beneficiaries of a trust who have an interest in the trust property (full age and capacity and must all consent) can end a trust and request the transfer of the property to them even if this overrides the wishes of the settlor. The beneficiaries must act together as a group and must form the whole beneficial interest in the trust property. 4. Right of beneficiaries of a discretionary trust to be considered . The trustee owes a fiduciary duty to beneficiaries of a discretionary trust to consider them individually as potential beneficiaries and make reasonable efforts to notify all members belonging to a class of beneficiaries before exercising his discretion to select. 11 27/09/2017 . Beneficiaries, members of a class, can expect the trustees to consider making allocations to them in a way that reflects what can be reasonably expected from them, considering practicalities. The larger the class, the less onerous the duty of the trustee to consider everyone: ‘trustee must make a survey of the range of objects [i.e. beneficiaries] or possible beneficiaries as will enable them to carry off their fiduciary duty… a trustee with a duty to distribute among a very large class would surely never require the preparation of a complete list of names. He would examine the filed by class and category depending on how much money he had to give away and the means at his disposal’. (McPhail v Doulton [1971] AC 424) 12 27/09/2017 5. Right to recover trust property from third parties . A beneficiary may bring a proprietary claim against a third party to recover trust property. This is achieved by “following” the trust property itself into the hands of a third party (as long as that third party did not purchase the legal title to the property from the trustee in circumstances where the third party did not know, and should not have known, of the beneficiary’s interest).
Load more

Recommended publications
  • Discretionary Distributions, 26Th Annual Estate Planning
    DISCRETIONARY DISTRIBUTIONS Given By Frank N. Ikard, Jr. Ikard & Golden, P.C. Austin, Texas Advanced Estate Planning and Probate Course 2002 June 5-7, 2002 Dallas, Texas CHAPTER 40 FRANK N. IKARD, JR. IKARD & GOLDEN, P.C. Attorney at Law 106 East Sixth Street, Suite 500 Austin, Texas 78701 (512) 472-2884 EDUCATION: - University of Texas School of Law, J.D., 1968 - University of the South and University of Texas, B.A., 1965 - Phi Alpha Delta PROFESSIONAL ACTIVITIES: Board Certified, Estate Planning and Probate Law, Texas Board of Legal Specialization American Bar Association, Real Property Probate and Trust Law Section, Estate and Trust Litigation and Controversy Committee American College of Trust and Estate Council, Fellow 1979 - present Member, Fiduciary Litigation Committee; Chairman, Breach of Fiduciary Duty Subcommittee Greater Austin Crime Commission, 1999 - present Board of Director, 2000 - 2001 Real Property Probate and Trust Law Section -American Bar Association, Estate and Trust Litigation Committee; Continuing Legal Education Subcommittee Real Estate, Probate and Trust Law Section, State Bar of Texas, Member and Past Chairman; Past member of the Trust Code Committee and Legislative Committee Texas Academy of Real Estate, Probate and Trust Lawyers, Co-Founder and Member Board of Directors, Texas Bar Foundation, Fellow 1991 - present Travis County Bar Association, Estate Planning and Probate Section The Best Lawyers in America, 1993-2000 Fifth Circuit Judicial Conference, 1983 SPEECHES AND PUBLICATIONS: Specialty Drafting Regarding the Fiduciary, Travis County Bar Association, Probate and Estate Planning Seminar, March 2001 Fiduciary Duties: What are They and How to Modify Them, Texas Banker’s Association Estate Administration Seminar, October 2000.
    [Show full text]
  • TEN FACTS EVERY TRUST BENEFICIARY SHOULD KNOW by Helping a Beneficiary Fter Years of Working with Fami- About Its Terms
    Estate Planning: Trusts TEN FACTS EVERY TRUST BENEFICIARY SHOULD KNOW By helping a beneficiary fter years of working with fami- about its terms. It is only by reference to lies to establish trusts, and with the specific provisions of the benefi- understand the essential Aindividual trust beneficiaries, it ci a r y ’s own trust that the beneficiary will vocabulary and concepts of has become clear to me that there is a fully understand how they apply to him need for better understanding by the or her. the trust relationship, an persons creating trusts and, more impor- advisor can increase the t a n t l y, by beneficiaries, about what a Key parties trust is, and how trusts work. The trust agreement defines the key chances that the beneficiary I r o n i c a l l y, the beneficiary, who is the parties to the trust relationship: will be able to truly benefit very person for whom a trust is estab- • the “grantor” or “settlor” lished, is often quite confused about contributes funds to the trust and from the trust fundamental trust concepts. generally sets its terms; By Patricia M Angus In my view, the education of family • the “trustee” is the individual, members, especially beneficiaries, is as bank or trust company who is important as the creation of legal struc- responsible for holding the trust tures and the proper investment of assets funds and implementing its to ensure the preservation and growth of terms; family wealth and enhance the benefi- • the “beneficiary” is a person ciary’s life.
    [Show full text]
  • 20 Things You Need to Know About Selecting a Trustee and Selecting Trustee Powers
    20 Things You Need To Know about Selecting a Trustee and Selecting Trustee Powers Stephen R. Akers, Attorney Bessemer Trust Dallas, TX Wednesday, November 5, 2014 8:00 am – 9:15 am Copyright © 2014 Bessemer Trust Company, N.A. All rights reserved. August 22, 2014 Important Information Regarding This Summary This summary is for your general information. The discussion of any estate planning alternatives and other observations herein are not intended as legal or tax advice and do not take into account the particular estate planning objectives, financial situation or needs of individual clients. This summary is based upon information obtained from various sources that Bessemer believes to be reliable, but Bessemer makes no representation or warranty with respect to the accuracy or completeness of such information. Views expressed herein are current only as of the date indicated, and are subject to change without notice. Forecasts may not be realized due to a variety of factors, including changes in law, regulation, interest rates, and inflation. TABLE OF CONTENTS I. NON-TAX FACTORS ......................................................................................................................... 1 A. Legal Capacity ................................................................................................................................. 1 1. General Statutory Requirements ................................................................................................. 1 2. Requirements for Corporate Trustee ..........................................................................................
    [Show full text]
  • A Handbook for Trustees (2020 Edition)
    A Handbook For Trustees (2020 Edition) Administering a Special Needs Trust TABLE OF CONTENTS INTRODUCTION AND DEFINITION OF TERMS ................4 Pre-paid Burial/Funeral Arrangements .............. 11 Grantor .....................................................4 Tuition, Books, Tutoring ................................ 11 Trustee .....................................................4 Travel and Entertainment ............................. 11 Beneficiary .................................................4 Household Furnishings and Furniture ................ 11 Disability ...................................................4 Television, Computers and Electronics .............. 11 Incapacity ..................................................4 Durable Medical Equipment ........................... 12 Revocable Trust ...........................................5 Care Management ...................................... 12 Irrevocable Trust ..........................................5 Therapy, Medications, Alternative Treatments ..... 12 Social Security Disability Insurance ....................5 Taxes ...................................................... 12 Supplemental Security Income .........................5 Legal, Guardianship and Trustee Fees ............... 12 Medicare ...................................................5 Medicaid ....................................................5 LOANS, CREDIT, DEBIT AND GIFT CARDS .................. 12 THE MOST IMPORTANT DISTINCTION .........................5 TRUST ADMINISTRATION AND ACCOUNTING .............
    [Show full text]
  • Trust-Drafting Essentials
    Trust-Drafting Essentials Edward L. Perkins JD, LLM (Tax), CPA Gibson & Perkins, PC www.gibperk.com [The following material is an excerpt from the Pennsylvania Trust Handbook, by Edward L. Perkins, JD, LLM, CPA] CHAPTER SEVENTEEN OVERVIEW AND INTRODUCTORY PROVISIONS §17.1 Overview A trust is essentially an instrument of property transfer, but unlike a sale or an outright gift, a transfer of property by trust is unique in that the settlor/transferor can impose terms and conditions on use and disposition of the property long after the transfer is complete. Just what the nature of the terms and conditions imposed will depend in large part on the specific objectives that the settlor is trying to achieve by transferring the property in trust. In Pennsylvania, a trust can only be legally created if the settlor executes a written document.1 The objective of the trust document is to define the terms and conditions of the property transfer. Because a transfer by trust will of necessity involve a settlor, the trust property, trust beneficiaries, and one more trustees, how those terms and conditions are defined in the document will also define the relationship of the settlor, the trust beneficiaries, and the trustee to the trust property. This Chapter and the Chapters that follow will offer some insight into how to approach the drafting of effective trust documents. §17.2 Before You Draft In any trust, there are certain fundamental elements of the trust which must be identified and defined before you can draft an effective document. These include the following: – The Trust Purpose – What is the purpose that the settlor is trying to achieve in establishing the trust? In many trusts, there will be more than one purpose to be served.
    [Show full text]
  • Understanding Trusts
    UNDERSTANDING TRUSTS Trusts are a powerful tool for tax and financial planning. The usefulness of a May 2017 trust is based on the fact that a trustee can hold property on behalf a single beneficiary, or a group of beneficiaries, for their benefit while maintaining CONTENTS control over the property. This can be useful from a tax perspective, as it allows income of the trust to be shared with beneficiaries who may be taxed at a lower What is a trust? rate than the trust while not giving up control over the property. Types of trusts Inter-vivos trusts As you will see later in this bulletin, one of the most common uses of a trust is to Testamentary trusts allow for family income and capital gain splitting. In this regard, a trust is frequently used when implementing tax planning where the intention is to split The 21-year rule income amongst lower-income earning family members by way of paying Managing your trust dividends out of a private corporation. You should be aware that in its 2017 Conclusion budget, the federal government announced its intention to release a paper that will address this type of planning, along with other tax planning strategies that it believes also allow high-income earning individuals to gain tax advantages. The purpose of this paper will be to set out the nature of these types of issues in more detail, as well as to outline proposed policy responses. Since, at the time of publication of this bulletin, the paper has not yet been released, we are unable to predict what the impact on the future of tax planning using trusts will be.
    [Show full text]
  • The Rights of Creditors of Beneficiaries Under the Uniform
    The University of Akron IdeaExchange@UAkron Akron Law Publications The chooS l of Law January 2002 The Rights of Creditors of Beneficiaries under the Uniform Trust Code: An Examination of the Compromise Alan Newman University of Akron School of Law, [email protected] Please take a moment to share how this work helps you through this survey. Your feedback will be important as we plan further development of our repository. Follow this and additional works at: http://ideaexchange.uakron.edu/ua_law_publications Part of the Estates and Trusts Commons Recommended Citation Alan Newman, The Rights of Creditors of Beneficiaries under the Uniform Trust Code: An Examination of the Compromise, 69 Tennessee Law Review 771 (2002). This Article is brought to you for free and open access by The chooS l of Law at IdeaExchange@UAkron, the institutional repository of The nivU ersity of Akron in Akron, Ohio, USA. It has been accepted for inclusion in Akron Law Publications by an authorized administrator of IdeaExchange@UAkron. For more information, please contact [email protected], [email protected]. The Rights of Creditors of Beneficiaries under the Uniform Trust Code: An Examination of the Compromise Alan Newman In the summer of 2000, the National Conference of Commissioners on Uniform State Laws approved and recommended for enactment the Uniform Trust Code (the “U.T.C.,” or the “Code”).1 Article 5 of the U.T.C. includes provisions addressing, among other things, the rights of creditors of trust beneficiaries to reach trust assets when the trust instrument includes a spendthrift clause or provides for distributions to be made to or for the benefit of the beneficiaries at the trustee‟s discretion.
    [Show full text]
  • Non-Charitable Purpose Trusts: Past, Present, and Future
    University of Kentucky UKnowledge Law Faculty Scholarly Articles Law Faculty Publications Fall 2016 Non-Charitable Purpose Trusts: Past, Present, and Future Richard C. Ausness University of Kentucky College of Law, [email protected] Follow this and additional works at: https://uknowledge.uky.edu/law_facpub Part of the Comparative and Foreign Law Commons, and the Estates and Trusts Commons Right click to open a feedback form in a new tab to let us know how this document benefits ou.y Repository Citation Ausness, Richard C., "Non-Charitable Purpose Trusts: Past, Present, and Future" (2016). Law Faculty Scholarly Articles. 591. https://uknowledge.uky.edu/law_facpub/591 This Article is brought to you for free and open access by the Law Faculty Publications at UKnowledge. It has been accepted for inclusion in Law Faculty Scholarly Articles by an authorized administrator of UKnowledge. For more information, please contact [email protected]. Non-Charitable Purpose Trusts: Past, Present, and Future Notes/Citation Information Richard C. Ausness, Non-Charitable Purpose Trusts: Past, Present, and Future, 51 Real Prop. Tr. & Est. L.J. 321 (2016). This article is available at UKnowledge: https://uknowledge.uky.edu/law_facpub/591 NON-CHARITABLE PURPOSE TRUSTS: PAST, PRESENT, AND FUTURE Richard C. Ausness* Editor's Synopsis: This Article focuses on non-charitable purpose trusts and how they enable estate planners to better carry out their clients' objectives. Specifically, it explores the history ofnon-charitable purpose trusts and summarizes the differences between private trusts, charitable trusts, and non-charitablepurpose trusts. This Article also examines the treatment of non-charitablepurpose trusts in England and the United States prior to the promulgation of the Restatement of Trusts in 1935.
    [Show full text]
  • Trust Law in the United States. a Basic Study of Its Special Contribution Ugo Mattei UC Hastings College of the Law, [email protected]
    University of California, Hastings College of the Law UC Hastings Scholarship Repository Faculty Scholarship 1998 Trust Law in the United States. A Basic Study of Its Special Contribution Ugo Mattei UC Hastings College of the Law, [email protected] Henry Hansmann Follow this and additional works at: http://repository.uchastings.edu/faculty_scholarship Recommended Citation Ugo Mattei and Henry Hansmann, Trust Law in the United States. A Basic Study of Its Special Contribution, 46 Am. J. Comp. L. Supp. 133 (1998). Available at: http://repository.uchastings.edu/faculty_scholarship/1290 This Article is brought to you for free and open access by UC Hastings Scholarship Repository. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of UC Hastings Scholarship Repository. For more information, please contact [email protected]. TOPIC II.A.3 HENRY HANSMANN & UGO MATTEI Trust Law in the United States. A Basic Study of Its Special Contribution In the United States, academic commentary and law school cur- ricula continue to focus on the private trust in its historical role as a device for intrafamily wealth transfers, a rather technical and nar- row ground to approach our topic. Vastly more important is today the enormous - though commonly neglected - role that private trusts have come to play in the American capital markets.' To take just the most conspicuous examples, pension funds and mutual funds, both of which are generally organized as trusts, together now hold roughly forty per cent of all U.S. equity securities and thirty per cent of corpo- rate and foreign bonds.2 Similarly, turning from the demand side to the supply side of the securities markets, asset securitization trusts are now the issuers of a large fraction of all outstanding American debt securities - more than $2 trillion worth.3 This report rather then following the details of trust law as de- scribed in American law books will focus on the general economic functions served by a separate law of trusts.
    [Show full text]
  • The Strength of Beneficiaries' Rights Under English Law and the Laws of the Caribbean States
    The Strength of Beneficiaries’ Rights Under English Law and the Laws of the Caribbean States The Honourable Mr Justice David Hayton, Judge of the Caribbean Court of Justice A Transcontinental Trust Conference in Geneva Geneva 19 June 2013 Informa Connect gathers millions of professional and commercial customers. Their mission is to give access to extraordinary people and exceptional insight. They provide unique opportunities to learn, establish relationships and do business. They do this through a range of products and services, from digital platforms to live events like the Transcontinental Trust Conference. Remarks By The Honourable Mr Justice David Hayton, Judge of the Caribbean Court of Justice, On the occasion of The Transcontinental Trust Conference in Geneva 19 June 2013 The general background as to beneficiaries’ rights As Millett LJ (as he then was) stated1, “There is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts.” In recent years, however, many settlors have increasingly wished to diminish their beneficiaries’ rights so far as possible. Draftspersons have accommodated these wishes to the extent that they consider possible and many Caribbean States have responded by enacting legislation making clear how far it is possible to diminish beneficiaries’ rights. Indeed, the Cayman Islands went so far as to enact Special Trust Alternative Regime legislation to create special trusts known as STAR trusts where what would normally be the beneficiaries’ rights against the trustees are held only by an enforcer or enforcers appointed pursuant to the terms of the trust or by order of the court.
    [Show full text]
  • Supplemental Needs Trust Trustee Guidelines
    TRUSTEE GUIDELINES FOR ADMINISTRATION OF A SUPPLEMENTAL NEEDS TRUST Steven Banks Administrator / Commissioner Saratu Grace Ghartey Chief Program Accountability Officer TM Human Resources Administration Department of Homeless Services Department of Social Services TABLE OF CONTENTS GETTING STARTED 6 RESPONSIBILITIES OF A TRUSTEE 7 MANAGING THE SUPPLEMENTAL NEEDS TRUST 7 BANK ACCOUNTS 8 INVESTMENT ACCOUNTS 8 OBTAINING A BOND 9 RECEIVING INCOME ON BEHALF OF THE BENEFICIARY 9 MAKING PAYMENTS ON BEHALF OF YOUR BENEFICIARY 10 LARGE ASSETS 12 PROTECTING TRUST ASSETS 13 MAINTAINING TRUST ASSETS 13 SELLING TRUST ASSETS 13 KEEPING RECORDS 13 DOCUMENTS TO KEEP 14 REPORTING TO DSS 15 ANNUAL ACCOUNTING 15 WHAT HAPPENS TO MY ACCOUNTING 16 CLOSING THE SNT 17 DEPLETION OF THE FUNDS 17 DEATH OF THE BENEFICIARY 17 REIMBURSEMENT OF MEDICAID 17 CONTACT US! 19 3 DEFINITIONS As the trustee of a Supplemental Needs Trust (SNT), you may have many questions about what you need to do and how to do it. This booklet should answer most of those questions. It will explain what your responsibilities are and how to fulfill them. First, let us define some important terms that you need to know. The most important are Trust, Beneficiary and Trustee. Trust Fiduciary Duty Self-Dealing An arrangement where The legal relationship the Using your position as someone’s property or Trustee has to the benefi- the Trustee to benefit money is legally held ciary. Because the Trustee yourself or someone or managed by someone manages the beneficiary’s else. else or by an organization money, the Trustee must (such as a bank).
    [Show full text]
  • Tricks and Traps of Trust Loans to Beneficiaries
    TRICKS AND TRAPS OF TRUST LOANS TO BENEFICIARIES Presented and Prepared By: Lauren J. Wolven 312-476-7574 [email protected] and Carrie A. Harrington 312-475-7553 [email protected] Levenfeld Pearlstein, LLC 2 N. LaSalle St. Suite 1300 Chicago, Illinois 60602 www.lplegal.com A. Why Would A Trustee Make Loans to a Beneficiary? a. In many cases an outright distribution may not be allowed by the trust document, but the trust or the law allows a trustee to make loans of trust assets. b. An outright distribution will increase a beneficiary’s taxable estate, but a loan will not. c. A secured loan may provide needed assistance to a current beneficiary while preserving assets for remainder beneficiaries. The loan may provide that upon the death of the borrower-beneficiary, such individual’s estate is liable for making payments on the loan and only if such estate is insolvent should the remaining balance be deducted from the beneficiary’s share of trust assets. d. A loan will assist a beneficiary while still requiring the beneficiary to contribute to the purchase for which he or she is using the loan. Individuals often create trusts to avoid giving large sums of money outright to others. Loans may be useful to protect this intent. e. A loan from a trust with multiple beneficiaries will assist one beneficiary without making an outright distribution that would exceed such beneficiary’s “share” of the trust assets. B. Considerations When Making a Loan to a Beneficiary a. Who has authority to execute loan or guarantee documents? i.
    [Show full text]