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Date: 19-Jan-11From: Steve Leimberg's Estate Planning Newsletter Subject: Wendy Goffe: An Introduction to Lesser Known but Useful Trusts

Wendy Goffe provides LISI members with an incredible resource: a five-part series that examines trusts that are, for want of a better expression, off the beaten path of usual trusts encountered in estate planning. Some, such as constructive trusts, aren’t even really trusts at all.

Given the number of available trusts, Part I of Wendy’s five-part series is intended as an overview to be used as a starting point for further research into the uses of any one particular trust. Wendy describes Part I as a brief outline and introduction, and discusses unusual trusts that still conform to the usual trust model.

Over the next few weeks LISI will provide members with the remaining four installments in Wendy’s series, which are as follows:

Part II - An examination of commercial trusts, or corporations masquerading as trusts.

Part III – A look at trusts without a beneficiary, the so-called “purpose trusts.”

Part IV – An examination of miscellaneous trusts, constructive trusts, and trusts

Leimberg Information Systems

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that defy categorization.

Part V – A discussion of sham trusts -- creative criminal acts using a trust name.

Wendy Goffe is a shareholder with the law firm of Graham & Dunn PC, Seattle, Washington. She is a Fellow of the American College of Trust and Estate Counsel and a member of the ACTEC Journal Editorial Board. She is also a member of the ABA Taxation Section Community Property Comment Project. She has a comprehensive estate planning practice that involves all aspects of estate planning for high net worth individuals and families, advising both individuals and charitable organizations concerning planned giving, probate, and trust administration. Wendy has an extensive and constantly updated analysis of the legal and tax implications of same-gender and other non-traditional family relationships, and an active part of her practice involves this work. She is a former Adjunct Instructor at Seattle University Law School. She is currently a member of the YWCA Planned Giving Committee, The Nature Conservancy Planned Giving Committee, The Seattle Foundation Professional Advisory Council, and the Children’s Legacy Council of the Children’s Hospital Foundation. She is a past member of the Executive Committee of the Estate Planning Council of Seattle, the Acquisition Committee of the Tacoma Art Museum, the Executive Committee of the WSBA Real Property, Probate and Trust Section, and the Ethics Committee of Valley Medical Center. She is also a past member of the Board of Directors and Grants Committee of The Women’s Endowment Foundation, a supporting foundation of the Jewish Community Endowment Fund, Seattle, Washington.

Now, here is Wendy’s commentary:

EXECUTIVE SUMMARY:

This five-part survey of trusts is important for three reasons: First, some of these little-known trusts fill an estate planning need in a way that no other arrangement could. Second, the article explains characteristics of sham trusts, and how to avoid such “trusts.” And, finally, because many of our clients (and, some of our non-estate planning colleagues) assume that if property is in trust, or an entity has “trust” in its name, it must have something to do with estate planning; the article discusses some of the more likely trusts that may be



encountered by you as a result.

FACTS:

EXPRESS TRUST DEFINED:

An express trust is created when a grantor, with intent, transfers legal ownership of property to a trustee, for the benefit and enjoyment of the beneficiary, giving rise to a fiduciary relationship between the trustee and the

beneficiary.1 Trusts involve two distinct elements of ownership of an asset: (1)

legal, and (2) beneficial.2

The Internal Revenue Code of 1986 (the “Code”) does not directly define a trust. However, the Treasury Regulations describe a trust as an entity, the purpose of which is to protect and conserve property for the benefit of beneficiaries “who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for

profit.”3 An entity that is not classified as a trust under Treas. Reg. §301.7701-

4 is a business entity.4

Of course, trusts are taxed at compressed federal income tax rates and reach the top marginal rate earlier than an individual or corporation, so they may incur greater income tax than a business entity. On the other hand, a corporation’s income may be subjected to a second layer of tax. So, the optimal form of entity for tax purposes may not always be obvious, or solely tax driven.

Yet, for the reasons discussed below, in spite of or because of the tax consequences, taxpayers choose to use the trust structure for any number of arrangements that, on their face, might be easier to administer in some other form. Sometimes this is done for reasons that are rational and readily apparent. But sometimes trusts are used only because historically that is how it has been done.

For this discussion, trusts can be divided into the following categories:

A. Traditional, private, express trusts funded by a grantor (theoretically, at http://www.leimbergservices.com/openfile.cfm?filename=D:/inetpub/wwwroot/all/lis_notw_1764.html&fn=lis_notw_1764 (3 of 18) [1/20/2011 8:57:42 AM]


least, with donative intent), held by a trustee, and having beneficiaries. For the purposes of this article these include alimony and maintenance trusts, health and education exclusion trusts, Delaware incomplete-gift non-grantor (“DING”) trusts, oral trusts, and secret trusts.

B. Trusts with a commercial purpose that are essentially businesses masquerading as trusts. These include statutory business trusts, investment trusts, environmental remediation trusts, land trusts, liquidating trusts and voting trusts.

C. Purpose trusts, most commonly represented by pet trusts, but also include gun trusts, funeral and qualified cemetery trusts.

D. Constructive trusts, which are really remedies in equity by another name.

E. Certain trusts that defy categorization and are neither a business nor a trust, but have features of both. These include blind trusts, Coogan trusts, rabbi trusts, Totten trusts, IOLTAs and IRETAs.

F. Sham Trusts. These are not legal trusts, but a familiarity with them will help to avoid them and to educate clients as to the limits of trust use.

Each of these categories is discussed in detail below. This discussion is by no means exhaustive. As stated above, it is intended as an introduction to raise awareness of the world of possibilities beyond the usual trust vehicles used in the estate planner’s daily practice.

COMMENT:

I. Traditional Private Express Trusts.

The trusts in this first category are essentially traditional trusts deployed in unusual ways. A private express trust is one that is created gratuitously by a grantor, by transferring property to a trustee, for the benefit of individual beneficiaries. The following trusts fit this traditional trust model. Although one might question the gratuitous nature of the alimony and maintenance trust in many instances, it is assumed to be present for the purposes of this discussion.



A. Health and Education Exclusions Trusts.

The Health and Education Exclusion Trust (“HEET”) is a dynasty trust intended to pay medical and tuition expenses of skip-persons (persons two or

more generations younger than the grantor)5 for generation-skipping transfer

(or “GST”) tax purposes, and avoid a taxable termination.6 “A taxable termination” generally occurs when the last non-skip-person ceases to be a

beneficiary, leaving only skip-persons as beneficiaries of the trust.7 At that point, any trust distributions would be subject to GST tax. IRC §2503(e) excludes “qualified transfers” for tuition and medical expenses from gift taxes, and IRC §2611(b)(1) and §2642(c)(3) exclude such gifts on behalf of a skip-person from the GST tax.

To qualify as a HEET, the trust must have at least one beneficiary that is a non-skip-person, with a substantial present economic interest. Because a charity is a non-skip-person, by vesting a charity with an interest, the trust avoids taxable transfers either upon creation or at the time of any subsequent distribution, unless the charity was included primarily to postpone or avoid application of

the GST.8

There is no guidance as to the definition of “substantial present economic interest.” Many drafting attorneys consider a 10% unitrust amount paid annually to charity sufficient to demonstrate that the charity is a bona fide perpetual non-skip-person beneficiary. Others think that a 5% unitrust amount paid annually to charity to be sufficient. Still others believe that 10%-50% of

the trust’s income must be paid to charity annually.9

An inter vivos HEET can be structured as a grantor or a non-grantor trust. A grantor trust would not be diminished by income tax during the grantor’s lifetime. Of course, upon the grantor’s death, it would cease to be a grantor trust and would instead be taxed as a complex trust.

A non-grantor trust would be able to maximize the use of the charitable deduction. There are no charitable deduction adjusted gross income limitations applicable to trusts as with individual taxpayers. So, a non-grantor trust may



deduct up to 100% of its income for charitable contributions.

On the other hand, a non-grantor trust creates an income tax liability for its non-charitable beneficiaries. Distributions paid on behalf of an individual beneficiary may carry out income on behalf of that beneficiary, who would then be required to pay income tax on that distribution under IRC §652 or §662. To complicate matters, any distribution made directly to a skip-person to cover the tax liability would be subject to GST tax. This result might be avoided by having the trustee distribute distributable net income (“DNI”), as defined in IRC §643(a), to the charity, and trust principal to individual beneficiaries. Of course, over time, this would deplete trust principal, but would concurrently reduce the income tax burden on the beneficiaries.

Some commentators have suggested that any distribution to the charity during the year will be treated as carrying out ordinary income (but not capital gains), and is thus made from DNI first, regardless of the order during the year in which the distributions are actually made. Others have suggested that it would be prudent to draft into the document that DNI be deemed to be distributed to charity first up to the amount of the charitable distribution.

The trust instrument should specifically define those distributions that are “qualified transfers,” so that a trustee without familiarity of the Code would have a guide built into the trust document. With respect to education, these include tuition payments to an educational organization described in IRC §170(b)(1)(A)(ii) for income tax purposes (one that maintains a regular faculty and has both a regularly-enrolled body of students and an established curriculum), for the education or training of an individual, if paid on behalf of the skip-

person directly to the educational institution.10 Payments for other expenses, such as books, room, board, and fees, even though made directly, are not qualified transfers and would be subject to GST tax upon distribution.

Qualified transfers for health care are defined as payments to any person who provides medical care (as defined in IRC §213(d) for income tax purposes) as

payment for such medical care.11 Accordingly, qualified transfers for medical care include medical and long-term care insurance premiums, which are within the definition of medical expenses for income tax purposes. Over-the-counter



medications and cosmetic surgery would not be eligible transfers.

Another issue to be aware of is whether the separate share rule,12 (which requires that separate and independent shares of different beneficiaries in the same estate or trust be treated as separate shares or trusts in determining the DNI allocable to the respective beneficiaries), applies.

There is a possibility, with a HEET, that the charitable and non-charitable interests could be treated as separate shares. If this were to happen, once the non-charitable portion no longer has a non-skip-person as beneficiary, any distribution from that share would be treated as a taxable termination for GST

purposes.13 To avoid this result, the trustee should be given broad discretion to determine and vary the annual charitable distribution rather than having it tied to the amount distributed to non-charitable beneficiaries.

HEETs are often funded with the assets from a charitable remainder trust, charitable lead trust, or grantor retained annuity trust. A HEET may also be funded with a life insurance policy so that during the life of the insured it is treated as a conventional irrevocable life insurance trust. Because of the complexities involved with a HEET, it should be considered by clients who have no remaining GST exemption, and have charitable goals as well as a wish to create an education and health care safety net for future generations.

B. DING Trusts.

A Delaware incomplete-gift non-grantor trust, the so-called DING, is a non-grantor irrevocable trust established to avoid state income tax on undistributed

ordinary income and capital gains.14

This type of irrevocable trust must have several key features:

1. It must be self-settled and the grantor must retain the right to distributions to herself.

2. It must be a non-grantor trust for income tax purposes so that it is a separate taxpayer. This is done by requiring the consent of an adverse party as defined in IRC §672(a), for any trust distribution,



and prohibiting the application of any of the grantor trust powers enumerated in IRC §§671-678. The adverse party is typically a distribution committee composed of two permissible beneficiaries of the trust other than the donor.

3. It must be includable in the grantor’s estate for estate tax purposes.

4. The grantor must retain a testamentary special power of appointment allowing the grantor to appoint trust property by will to persons (other than the grantor, his or her estate, his or her creditors, or creditors of his or her estate), and to the extent not so appointed, the trust agreement must provide that the property is to be distributed to the grantor’s issue. As a result, the gifts made by the grantor to the trust, until the property is distributed to a beneficiary other than the grantor, are incomplete under Treas. Reg. §25.2511-2(f).

C. Rabbi Trusts.

A rabbi trust is a type of trust commonly used in connection with various non-

qualified deferred compensation arrangements.15 The trust can be revocable, irrevocable or irrevocable only upon the occurrence of a defined event. The

first rabbi trust was set up for the benefit of a rabbi, resulting in the name.16

Highly compensated executives frequently wish to defer the receipt of salary, bonuses and other types of compensation in order to minimize income taxes. Compensation deferral may be particularly attractive to key employees in high tax brackets with adequate cash flows. Employers wishing to accommodate these employees frequently establish deferred compensation plans.

Deferred compensation plans can be funded, unfunded, or somewhere in between. Being “funded” means that the employer sets aside funds now or makes current arrangements (e.g. insurance) to secure payment of the deferred compensation. Funded deferred compensation must be carefully structured to avoid causing the employee to be taxed currently on the deferred benefits.

Funding is desirable from the point of view of an executive deferring compensation, since a funded plan can provide a certain level of assurance that



assets will be available to pay the deferred compensation when payment becomes due at a future date, such as retirement. Moreover, a funded plan can be structured to insure that the employer will not later renege on its promise to pay the deferred compensation, which might occur, for example, if it is taken over in a hostile acquisition.

In Rev. Proc. 92-64, 1992-2 C.B. 422,17 the IRS set forth a model rabbi trust agreement for use in deferred compensation arrangements. The model agreement is intended to serve as a “safe harbor” (i.e., an agreement that if adopted and maintained in accordance with its terms will generally be effective to keep the executive from being treated as having received income when assets are transferred to the trust).

The essential features of the model agreement include the following:

1. The trust qualifies as a grantor trust.

2. The trust can be either revocable or irrevocable, or initially revocable and the irrevocable after the occurrence of certain events.

3. The trustee must be an independent third party.

4. The trust agreement must indicate how and when the employer will make contributions to the trust.

5. The executive must be prohibited from assigning his or her benefits, prior to a distributable event under the plan.

6. No assets may revert to the employer until all benefits are paid.

7. While assets of the trust must be held separate and apart from other funds of the employer, they will not treated as income under IRC §83(a) so long as they are subject to the claims of the employer’s general creditors in the event the employer becomes insolvent, until the employee is vested.

8. Benefit payments to the executive must be suspended if the trustee is notified of the employer’s insolvency.



The fact that the executive will be an unsecured creditor of the employer, if the employer becomes insolvent detracts, considerably from the ability of a rabbi trust to assure executives that funds will later be available to pay deferred compensation. But, this is necessary in order to avoid having the executive taxed currently on the value of assets transferred to the trust.

D. Oral Trusts.

Trusts created in the context of the attorney-client relationship are nearly always reduced to a writing that evidences the identity of the parties, their intent, and its operative terms. However, as a vestige of common law, which recognized oral trusts, the Uniform Trust Code (hereinafter the “UTC”)

acknowledges that under certain circumstances a trust may be created orally.18 Generally, the terms of an oral trust must be proven by “clear and convincing

evidence.”19

The Statute of Frauds, enacted in England in 1677, generally required trusts to

be written.20 In some states the Statute of Frauds still may bar a finding of an

oral trust, or an oral trust involving real property.21

Some states permit a trust to be created orally but require that a written

memorandum with a narrative of the transfer be signed subsequently.22 In other states, even where the intent to create a trust is not evidenced by a written

instrument, the circumstances may be sufficient to find an oral trust.23 And, in other states, if a grantor has entrusted the care of property to another party and there is either an express agreement or intent can be inferred by the conduct of

the parties, an enforceable oral trust may be found.24

When a grantor conveys property subject to an oral trust and the transferee refuses to honor the oral arrangement, the result may be a constructive trust, which is not a trust, but an equitable remedy used to resolve issues between parties as to the ownership of certain property (and which are discussed in Part

IV).25



E. Secret Trusts and Semi-Secret Trusts.

A secret trust is created when a decedent leaves, by testamentary instrument or by intestate succession, property to a person who has agreed to hold the property in trust pursuant to an express or implied agreement.

Restatement (Third) of the Law of Trusts §18 (2003), describes the circumstances where a secret trust arises, as follows:

1. Where a testator devises or bequeaths property to a person in reliance on the devisee’s or legatee’s expressed or implied agreement to hold the property upon a particular trust, no express trust is created, but the devisee or legatee holds the property upon a constructive trust for the agreed purposes and persons.

2. Where a property owner dies intestate relying upon the expressed or implied agreement of an intestate successor to hold upon a particular trust the property acquired by intestate succession, no express trust is created, but the intestate successor holds the property upon a constructive trust for the agreed purpose and persons.

Olliffe v. Wells is considered the first case to distinguish a secret trust and a

semi-secret trust.26 A secret trust arises when a testamentary instrument itself does not reflect intent to create a trust, but a promise is made to do so. A semi-secret trust arises when a testamentary instrument reflects the intent to create a trust, but the agreed-upon terms, including the intended beneficiaries, the

purposes, or both, are not disclosed in the agreement.27

In some states, to avoid unjust enrichment, the devisee or legatee of a secret trust can be compelled to hold the property in constructive trust (or, with

respect to a semi-secret trust, a resulting trust) for the intended beneficiaries.28

The burden of proof to prove the existence of a secret or semi-secret trust and therefore impose a constructive trust is upon those claiming to be beneficiaries. With respect to the secret trust, the existence of the agreement must be proven

by clear and convincing evidence.29 With respect to the semi-secret trust the http://www.leimbergservices.com/openfile.cfm?filename=D:/inetpub/wwwroot/all/lis_notw_1764.html&fn=lis_notw_1764 (11 of 18) [1/20/2011 8:57:42 AM]


terms need not be proven, only clarified. For both semi-secret trusts and secret trusts, the intended beneficiaries must prove the essential terms of the trust by a

preponderance of the evidence.30

In practice, state laws make it difficult to intentionally form a secret trust. In most states there is a duty to keep beneficiaries informed about the trust, which

is non-waivable.31 Section 813 of the UTC sets forth a duty of the trustee to

inform and report.32 Some states, such as Delaware, authorize a trust provision

allowing a trustee not to inform a beneficiary for a finite period of time.33 Under Washington law, it is not clear whether RCW 11.97.010, which provides the grantor with the right to relieve the trustee of certain duties, might permit the existence of a secret trust. But logically, except with respect to blind trusts, discussed in Part IV, most state laws hold that a beneficiary has some right to request sufficient information in order to enforce his or her rights under the

trust agreement.34

Because of the inherent difficulties in proving the existence and terms of a secret trust, or the terms of a semi-secret trust, in practice assertions about such trusts are mostly used by a disappointed heir as one of many methods to seek equitable relief, along with intentional or tortious interference with an

inheritance and imposition of a constructive trust (discussed in Part IV35

F. Alimony and Maintenance Trusts.

Close cousins of traditional trusts are alimony and maintenance trusts. There is an exception to the general grantor trust rules for certain trusts formed in connection with a divorce. These are generally known as alimony trusts or maintenance trusts (depending upon applicable state law), or “Section 682 Trusts,” because they are governed by IRC §682. Under IRC §682(a), if an alimony trust is structured to pay income to an ex-spouse pursuant to a dissolution decree, separation decree, or written separation agreement, the payee, not the payor, will be taxed on the income received (even though the trust income would otherwise be taxable to the payor under the grantor trust



rules).36 IRC §682 also applies to payments from a trust created by the payor/ex-spouse prior to the dissolution and not incident to it, but included in the settlement.

The governing instrument of an alimony trust typically provides that the trust’s income shall be distributed to the former spouse or for the former spouse’s benefit until the earlier of: (a) the former spouse’s having received a stated amount of money; (b) the death of the former spouse; or (c) a specific term. At the termination of the former spouse’s interest, the trust often continues for the benefit of the children of the payor spouse.

An alimony trust may be particularly useful where a business owner cannot or does not want to sell an interest in the family business to make payments to his former spouse or where the business lacks the liquidity to redeem the stock of the former spouse. The business owner could fund an alimony trust with equity in the family business, shifting the income generated by the equity interest to the former spouse for a defined term. The business owner could even serve as trustee and the trust instrument could provide that at the termination of the former spouse’s interest, the equity interest reverts back to the business owner.

A Section 682 Trust presents a number of advantages:

1. It is not subject to IRC §71(b)(1)(D), which requires taxable support payments to terminate at the death of the transferee ex-spouse, and thus, it may continue on for the benefit of the children at the death of the payee/ex-spouse (but will no longer be taxable as an alimony trust).

2. An alimony trust can protect the payee/ex-spouse from the death or financial insolvency of the payor prior to all of the payments being made.

3. It also gives the payor the assurance that transferred property remaining at the death of the payee will be passed to the residuary beneficiaries named in the agreement.

4. It may be professionally managed by a neutral third-party trustee,



who can act as an intermediary between the former spouses.

5. It may avoid the IRC §71(f) recapture rules applicable to front-loading direct alimony payments, and as a result, alimony payments may be made from a trust in decreasing amounts without penalty.

6. It is not subject to the “Anti-Lester” Rule that requires the transferor ex-spouse, not the transferee ex-spouse, to include in income any payments (except child support payments) that terminate

upon the occurrence of a contingent event related to a child.37 For example: If ex-husband were to make payments to ex-wife for her support until their child graduates from high school, IRC §71(c) would require ex-husband to include these payments in his income, not ex-wife, because of the contingent event related to their child. If these payments were instead made from a trust, the remainder of which is to revert to ex-husband upon the happening of an event related to their child (e.g., graduation), the application of IRC §71(c) would be avoided, and IRC §682(a) would cause the payments to ex-

wife to be included in her gross income.38 (The special treatment of income distributions for alimony under IRC §682 is not available for trust distributions for child support payments; the payor/ex-spouse would be taxed on these distributions under the normal grantor trust rules.)

The downside of an alimony trust is that it may be under-funded. There is also the possibility that it is over-funded or funded with assets that appreciate more than expected, resulting in more value passing to the residuary beneficiaries than expected. Both of these possibilities should be contemplated when drafting the agreement.

Part II in this series will discuss the history of purpose trusts, and will examine a few ways in which they are commonly used.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!



Wendy Goffe

CITE AS:

LISI Estate Planning Newsletter #1764 (January 19, 2011) http://www.leimbergservices.com Copyright 2011 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission

CITATIONS:

1 See Restatement (Third) of the Law of Trusts §2 (2003).

2 Id.

3 Treas. Reg. §301.7701-4(a).

4 Treas. Reg. §301.7701-2.

5IRC §2613.

6 See Roy M. Adams, David A. Handler & Deborah V. Dunn, A New Twist on Sec. 2503(e): Health and Education

Exclusion Trust (HEET), 139 Tr. & Est. 18 (July 2000), and Michael N. Delgass & Deborah S. Gordon, HEET Wave, 144 Tr. & Est. 20 (Mar. 2005) for a thorough analysis of HEETs.

7 IRC §2612.

8 IRC §2652(c)(2). The charitable beneficiary or beneficiaries may be specifically identified, or the trustee may be

given the discretion to choose the charities.


http://www.leimbergservices.com/

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9 These ranges are based on provisions of the Code where 5% is a threshold amount, including IRC §4942,

describing minimum distributions for private foundations and IRC §664, setting the minimum unitrust amount for charitable remainder trusts.

10 IRC §2503(e)(2)(A) and the Treasury Regulations thereunder. See also IRC §170(b)(1)(A)(ii) and the Treasury

Regulations thereunder, which define a qualifying educational organization.

11 See also IRS Publication 502: Medical and Dental Expenses.

12 IRC §663(c).

13 Treas. Reg. §26.2654-1(a)(1)(i).

14 See Thomas R. Pulsifer & Todd A. Flubacher, Eliminate a Trust’s State Income Tax, 145 Tr. & Est. 30 (May

2006); Bruce D. Steiner, The Accidentally Perfect Non-Grantor Trust, 144 Tr. & Est. 28 (Sept. 2005). See also PLRs 200731019 (May 1, 2007), 200729025 (Apr. 10, 2007), 200715005 (Jan. 3, 2007).

15 ERISA generally requires assets of an employee benefit plan to be held in trust. While many aspects of the law

governing such trusts are based on traditional common law principles, a unique body of law has developed around them as well. This body of law is within the general purview of ERISA attorneys and other employee benefit specialists and beyond the scope of this discussion.

16 PLR 8113107.

17 As modified by Notice 2000-56, 2000-2 C.B. 393, for the model trust for use in rabbi trust arrangements.

18 UTC §407, which provides that “[e]xcept as required by a statute other than this [Code], a trust need not be

evidenced by a trust instrument, but the creation of an oral trust and its terms may be established only by clear and convincing evidence.”

19 Id. This is generally a higher standard of proof than is in effect in many states. Id., cmt, p. 58, (citing

Restatement (Third) of the Law of Trusts § 20 Reporter’s Notes (Tentative Draft No. 1, approved 1996)). The comments also provide that “Absent some specific statutory provision, such as a provision requiring that transfers of real property be in writing, a trust need not be evidenced by a writing. States with statutes of frauds or other provisions requiring that the creation of certain trusts must be evidenced by a writing may wish specifically to cite such provisions.”

20 Charles II, 1677: An Act for Prevention of Frauds and Perjuryes, Statutes of the Realm: Volume 5: 1628-80

(1819), pp. 839-842, at http://www.british-history.ac.uk/report.aspx?compid=47463 (last visited Jan 3, 2011) ; superseded by the Law of Prosperity Act, Stat. 15 Geo. V., c 20, §53 (1925).

21 For an in-depth discussion of those states permitting oral trusts of land, and the variations on the treatment of

such oral trusts, see Frank S. Berall, Oral Trusts and Wills: Are They Valid?, 33 Est. Plan. 17 (Nov. 2006).



22 Id. at 19; UTC §407.

23 See Berall, Oral Trusts and Wills, supra n. 21, n. 27-30 and accompanying text.

24 Id. at 20.

25 UTC §102, cmt, p. 9; UTC §402(a)(3).

26 130 Mass. 221 (1881).

27 Restatement (Third) of the Law of Trusts §18, cmt c (2003).

28 Id. §18, cmt a.

29 Id. §18, cmt h.

30 Id.

31 See, e.g., Cal. Prob. Code 16061.2, 16062, 16061.5, 16060, 16061.

32 See Dana G. Fitzsimons Jr., Navigating the Trustee’s Duty to Disclose, 23 Prob. & Prop. 40, 42 (Jan./Feb. 2009)

(hereinafter “Trustee’s Duty to Disclose”) for a discussion concerning the disclosure requirements under the UTC and its varying application by state.

33 Del. Code. §3819(c).

34 Restatement (Third) of Trusts §82; UTC §813. See also Trustee’s Duty to Disclose, supra n.32 for a discussion

of these sections and their application in various states.

35 Martin L. Fried, The Disappointed Heir: Going Beyond the Probate Process to Remedy Wrongdoing or Rectify

Mistake, 39 Real Prop. Prob. & Tr. J. 377, 379 (Summer 2004).

36 Treas. Reg. §1.682(a)-1(a)(3). The beneficiary reports distributions as income, to the extent of the trust’s

distributable net income received. IRC §652(a).

37 IRC §71(c)(2). In Comm’r v. Lester, 366 U.S. 299, 81 S.Ct. 1343, 6 L.Ed. 2d 306 (1961), the Court held that for

an order in which child support and spousal support are combined, the entire amount is deductible as spousal support. IRC §71(c) reversed the court’s holding in Lester by providing that, regardless of the label, any payments subject to a contingency associated with a child will be considered non-deductible support.

38 If the amount of a Section 682 Trust distribution is not specifically allocated between alimony and child support,

all of the trust income distributed would be included in the recipient’s taxable income. IRC §682(a); Treas. Reg. §1.682(a)-1(a)(3).



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