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Trust - Private Trusts

Law Library - American Law and Legal InformationFree Legal Encyclopedia: Tonnage tax to UmpireTrust - Basic Concepts, Private Trusts, Creation Of Express Trusts, Methods Of Creation, Protection Of Beneficiary's Interest From Creditors

Private Trusts

An express trust is created when the settlor expresses an intention either orally or in writing to establish the trust and complies with the required formalities. An express trust is what people usually mean when they refer to a trust.

Every private trust consists of four distinct elements: an intention of the settlor to create the trust, a res or subject matter, a trustee, and a beneficiary. Unless these elements are present, a court cannot enforce an arrangement as a trust.

Intention The settlor must intend to impose enforceable duties on a trustee to deal with the property for the benefit of another. Intent can be demonstrated by words, conduct, or both. It is immaterial whether the word trust is used in the trust document. Sometimes, however, the words used by the settlor are equivocal and there is doubt whether the settlor intended to create a trust. If the settlor uses words that express merely the desire to do something, such as the terms desire, wish, or hope, these precatory words (words expressing a wish) may create a moral obligation, but they do not create a legal one. In this situation a court will consider the entire document and the circumstances of the person who attempted to create the trust to determine whether a trust should be established.

The settlor must intend to create a present trust. Demonstrating an intent to create a trust in the future is legally ineffective. When a settlor does not immediately designate the beneficiary, the trustee, or the trust property, a trust is not created until the designations are made.

Res or Subject Matter An essential element of every trust is the trust property or res. Property must exist and be definite or definitely ascertainable at the time the trust is created and throughout its existence. Although stocks, bonds, and deeds are the most common types of trust property, any property interest that can be freely transferred by the settlor can be held in trust, including PATENTS, copyrights, and TRADEMARKS. A mere expectancy—the anticipation of receiving a gift by will, for example—cannot be held in trust for another because no property interest exists at that time.

If the subject matter of a trust is totally destroyed, the trust ends. The beneficiary might have a claim against the trustee for breach of trust, however, if the trustee was negligent in failing to insure the trust property. If insurance proceeds are paid as a result of the destruction, the trust should be administered from them.

Trustee Any person who has the legal capacity to take, hold, and administer property for her own use can take, hold, and administer property in trust. Nonresidents of the state in which the trust is to be administered can be trustees. State law determines whether an alien can act as a trustee.

A corporation can act as a trustee. For example, a trust company is a bank that has been named by a settlor to act as trustee in managing a trust. A partnership can serve as a trustee if state law permits. An unincorporated association, such as a LABOR UNION or social club, usually cannot serve as a trustee.

The United States, a state, or a MUNICIPAL CORPORATION can take and hold property as trustee. This arrangement usually occurs when a settlor creates a trust for the benefit of a military academy or a state college, or when the settlor sets aside property as a park for the community.

The failure of a settlor to name a trustee does not void a trust. The court appoints a trustee to administer the trust and orders the person having legal title to the property to convey it to the appointed trustee.

If two or more trustees are appointed, they always hold the title to trust property in JOINT TENANCY with the RIGHT OF SURVIVORSHIP. If one joint tenant dies, the surviving joint tenant inherits the entire interest, not just her proportionate share.

A trustee cannot resign without the permission of the court unless the trust instrument so provides or unless all of the beneficiaries who are legally capable to do so consent to the resignation. The court usually permits the trustee to resign if continuing to serve will be an unreasonable burden for the trustee and the resignation will not be greatly detrimental to the trust.

The removal of a trustee is within the discretion of the court. A trustee can be removed for habitual drunkenness, dishonesty, INCOMPETENCY in handling trust property, or the dissipation of the trustee estate. Mere friction or incompatibility between the trustee and the beneficiary is insufficient, however, to justify removal unless it endangers the trust property or makes the accomplishment of the trust impossible.

Beneficiary Every private trust must have a designated beneficiary or one so described that his identity can be learned when the trust is created or within the time limit of the RULE AGAINST PERPETUITIES, which is usually measured by the life of a person alive or conceived at the time the trust is created plus 21 years. This RULE OF LAW, which varies from state to state, is designed to prevent a person from tying up property in a trust for an unlimited number of years.

A person or corporation legally capable of taking and holding legal title to property can be a beneficiary of a trust. Partnerships and unincorporated associations can also be beneficiaries. Unless restricted by law, ALIENS can also be beneficiaries.

A class of persons can be named the beneficiary of a trust as long as the class is definite or definitely ascertainable. If property is left in trust for "my children," the class is definite and the trust is valid. When a trust is designated "for my family," the validity of the trust depends on whether the court construes the term to mean immediate family—in which case the class is definite—or all relations. If the latter is meant, the trust will fail because the class is indefinite.

When an ascertainable class exists, a settlor may grant the trustee the right to select beneficiaries from that class. However, a trust created for the benefit of any person selected by the trustee is not enforceable.

If the settlor's designation of an individual beneficiary or a class of beneficiaries is so vague or indefinite that the individual or group cannot be determined with reasonable clarity, the trust will fail.

The beneficiaries of a trust hold their equitable interest as tenants in common unless the trust instrument provides that they shall hold as joint tenants. For example, three beneficiaries each own an undivided one-third of the equitable title in the trust property. If they take as tenants in common, upon their deaths their heirs will inherit their proportionate shares. If, however, the settlor specified in the trust document that they are to take as joint tenants, then upon the death of one, the two beneficiaries will divide his share. Upon the death of one of the remaining two, the lone survivor will enjoy the complete benefits of the trust.

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