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Methods Of Creation

A trust may be created by an express declaration of trust, a transfer in trust made either during a settlor's lifetime or under her will, an exercise of the power of appointment, a contractual arrangement, or statute. The method used for creating the trust depends on the relationship of the settlor to the property interest that is to constitute the trust property.

Declaration of Trust A trust is created by a declaration of trust when the owner of property announces that she holds it as a trustee for the benefit of another. There is no need for a transfer because the trustee already has legal title. An oral declaration is usually sufficient to transfer equitable title to personal property, but a written declaration is usually required with respect to real property.

Trust Transfers A trust is created when property is transferred in trust to a trustee for the benefit of another or even for the benefit of the settlor. Legal title passes to the trustee, and the beneficiary receives equitable title in the property. The settlor has no remaining interest in the property. A transfer in trust can be executed by a deed or some other arrangement during the settlor's lifetime. This is known as an inter vivos trust or living trust.

Powers of Appointment A power of appointment is the right that one person, called the donor, gives in a deed or a will to another, the donee, to "appoint" or select individuals, the appointees, who should benefit from the donor's will, deed, or trust. A person holding a general power of appointment can create a trust according to the donor's direction by appointing a person as trustee to hold the trust property for anyone, including herself or her estate. If that person holds a special power of appointment, she cannot appoint herself.

Contracts Trusts can be created by various types of contractual arrangements. For example, a person can take out a life insurance policy on his own life and pay the premiums on the policy.

The insurer, in return, promises to pay the proceeds of the policy to an individual who is to act as a trustee for an individual named by the insured. The trustee is given the duty to support the beneficiary of this trust from the proceeds during the beneficiary's life. The insured as settlor creates a trust by entering into a contract with the insurance company in favor of a trustee. The trust, called an insurance trust, is created when the insurance company issues its policy.

Statute Statutes provide for the creation of trusts in various instances. In the case of WRONGFUL DEATH, statutes often provide that a right of action exists in the surviving spouse or executor or administrator of the decedent with any recovery held in trust for the designated beneficiaries.

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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