Louisiana Trusts

What is a trust?

A trust is the relationship resulting from the transfer of title to property by one party (the settlor) to another party (the trustee) to be administered by him as a fiduciary for the benefit of another (the beneficiary)

What are the three roles involved in the trust relationship?

The settlor is the creator of the trust and transfers title to the trustee.

The trustee holds title to the property and administers it as a fiduciary.

The beneficiary is the person for whose benefit the trust is established.

What is the intent requirement for the formation of a trust?

No magic language is need to create a trust; however it must clearly appear that creation of a trust was intended.

Is a trust revokable?

A trust is generally not revokable. A trust is only revokable if the settlor reserves the right to modify or revoke it. If revoked, the trust property returns to the settlor.

If the trust was revokable, trust becomes irrevocable upon the settlor's death.

What is a testamentary trust?

a testamentary trust is one created by donation mortis causa and must be created in a form required by the laws regulating donations mortis causa.

When does a testamentary trust comes into existence?

a testamentary trust comes into existence on the date of the settlor's death.

What is an intervivos trust?

An inter vivos trust is one that is not testamentary and comes into existence upon execution of the trust document.

How may an inter vivos trust be created?

An inter vivos trust may be created by

1. an authentic act or

2. An act under private signature executed in the presence of two witnesses and duly acknowledged by the settlor or by the affidavit of one of the attesting witnesses.

What are the recordation requirements of a trust?

The trust need not be recorded unless the trust owns immovable property. As to immovables, an unrecorded trust instrument has no effect on except between the immediate parties: it is null as to third persons.

If Recordation is required

What must be included in the trust document for it to become a spendthrift trust?

The trust document must include the word "spendthrift"

How is a spendthift trust restricted?

The interest in a spendthrift trust isn't alienable by the beneficiary voluntarily or involuntarily. ( Beneficary may not alienate or encumber his interest in a spendthrift trust)

Is a spendthrift trust exempt from siezure? Exceptions?

The principal and income are generally exempt for siezure.

Exceptions:

1. Judgments for spousal or child support

2. Judgements for necessary supplies rendered or necessary supplies furnished to the beneficiary or a person the beneficiary is obligated to support.

3. Damages from felony crimes that result in a conviction or a plea of guilty.

What must a beneficiary be to take?

A beneficiary must be "in-being" and ascertainable when the trust is created, except for class trusts.

What are the two types of beneficiaries?

Income Beneficiary - one to whom income is payable, presently, conditionally, or in the future.

Principal- one entitled to the distribution of the trust principal.

Can a legitimate be put inside of a trust?

The legitimate of a forced heir may be put inside of a trust.

Income will be distributed as necessary for health, education, support, and maintenance of the forced heir.

**The Forced Heir must be both the Income and Principal Beneficary

Who may be a trustee?

1. Natural persona) must have capacity

b) must be American citizen or resident alien

2. Federally insured depositary institution (FDIC)

a) organized under laws of LA, another state, or U.S.

3. Trust Company authorized under laws of LA or U.S.

May their be more than one trustee?

Their may be more than one trustee

How may a trustee accept the trust?

The trustee's acceptance may be done as part of the trust execution or in a separate writing within a reasonable time.

Acceptance of an appointment by the trustee relates back to the creation of the trust. An acceptance also constitutes acceptance of Jurisdiction of Louisiana courts.

What are the powers and duties of a trustee?

The trustee may buy, sell, lease, mortgage property. The trustee may also borrow money on the credit of the trust estate.

The trustee has a duty to act as a fiduciary to the beneficiary, must be a reasonably prudent administrator, and must use his special skills. The trustee may not engage in self-dealing, and must keep an accounting of the trust.

How often does trust income need to be distributed?

Trust income needs to be distributed at least every six months, unless stipulated otherwise by the settlor.

What happens to a beneficiaries' interest upon death?

General rule:

Principal dies: interest vests in his heirs or legatees

Income dies: Principals become income

Other Accumulated or undistributed income - heirs of income beneficary.

Exception: Trust instrument stipulations:

• Substitute beneficiary if original dies w/o descendants

Legitime:

Substitution only valid if FH beneficiary dies intestate and w/o descendants

When does a trust terminate?

If the settlor does not provide a term, the trust terminates by default in accordance with the rules below:

1. If there is at least 1 income beneficiary who is natural person, the trust terminates at the death of the last income beneficiary who is a natural person.

2. If no income beneficiaries are natural persons but at least 1 settlor is, the trust terminates 20 years from the death of the settlor.

3. If no income beneficiaries and no natural persons, the trust terminates 50 years from its creation.

What is the maximum time trusts can exist?

Settlor may establish term, but it cannot exceed:

1. If at least one settlor and one income beneficiary are natural persons, the trust terminates at the later of the death of the last income beneficiary and 20 years after the death of the settlor.

2. If none of the settlors is a natural person, but at least one income beneficiary is a natural person, the trust terminates at the later of the death of the last income beneficiary and twenty years after the trust's creation.

3. If at least 1 settlor is a natural person but no income beneficiary is a natural person, the trust terminates 20 years from the death of the settlor.

4. If no settlor or income beneficiary is a natural person, the trust terminates 50 years from its creation.

**A trust instrument stipulating a time longer than the maximum time is enforced as though it were for the maximum allowable term.

When may a trust be terminated by a court?

A proper court may terminate a trust if its continuance would defeat or substantially impair the purposes of the trust or if the purpose for which it was created has become impossible or illegal.

When may a trust be terminated by a trustee?

The trustee may terminate the trust if all of the beneficiaries (or representatives) consent and if the market value of the trust is less than $100,000.

What is the effect of the termination of a trust?

Upon termination of the trust, the trust property goes to the principal beneficiaries.