Wills, Trusts, and Estates

Trust


A trust is a legal arrangement where a settlor conveys property to a trustee to hold as a fiduciary for one or more beneficiaries.

Trusts can either be testamentary trusts or inter vivos trusts.

Testamentary Trust

Testamentary trusts are trusts created by will that arise during probate.

All testamentary trusts are inherently irrevocable trusts.

They are often used with pour-over wills.

Inter Vivos Trust

Inter vivos trusts are trusts created when the settlor is alive.

Declaration of Trust

A declaration of trust is when one declares himself to be a trustee of his property for another. UTC § 401(2). No special formalities are required. (Though it is a bad idea to rely on an oral declaration of trust.)

The settlor can also be named as a beneficiary of the trust but not the only beneficiary or his titles would merge.

Unlike a deed of trust or an outright gift, a declaration of trust does not require delivery of the property. If something seems to be a gift but does not deliver the property, it might be a declaration of trust.

Inter vivos trusts are the most common and useful type of trust.

Irrevocable Trust

Irrevocable trusts are trusts that cannot be altered or revoked by the settlor.

Revocable Trust

Irrevocable trusts are trusts that can be altered or revoked by the settlor.

Upon the death of the settlor of a revocable trust, the trust naturally becomes irrevocable because the potential revoker is dead.

Although often very similar to a will, revocable trusts do not require wills formalities. Under modern law, settlors can just opt in or out of the probate laws applying.

Trustees of revocable only owe fiduciary duties to the settlor. Beneficiaries have no rights.

Under the UTC, revocable trusts can be amended at any time by any method that manifests clear and convincing evidence of his intent to do so. UTC § 602(c).

Trusts, while often just used in place of a will, can also be used to maintain control of one's property after death. This can allow it to provide for disabled persons or minors, to ensure that it is is slowly, to go to those in the lowest tax brackets, or to ensure to goes to someone else after the first beneficiary's death.

Bifurcation

Trusts bifurcate ownership. The trustee has legal title, while the beneficiary has equitable title.

Trusts can also be bifurcated in time. The most common form is giving someone the right to the income now, while giving someone else the right to the remainder in the future.

To create a trust, there must be:

  1. Intent to create a trust
    • The settlor does not have to understand trust law or even know the term "trust". He just has to manifest intent to create the fiduciary relationship that a trust comprises. E.g., transferring property "for the use and benefit" of another creates a trust.
  2. Ascertainable beneficiaries
    • They do not need to be ascertainable when the trust is created. Only at some point within the period of the rule against perpetuities.
    • Ascertainable beneficiaries are not needed for trusts made for charitable purposes. All states also allow pet trusts for pet animals and statutory-purpose trusts for certain other non charitable purposes, like grave maintenance. UTC § 408 & UTC § 409.
  3. Specific property—a res
  4. A writing (if it is a testamentary trust or a trust to hold land)

UTC § 402.

A trust will not fail for want of a trustee. A court can just appoint one.

Precatory Trust

A precatory trust is when someone expresses his wishes on how his property be used but does not expressly require so. Courts may or may not find such language to be actual intent to form a trust.

Deed of Trust

Deeds of trust are documents that create inter vivos trusts while the settlor is alive. UTC § 401(1). No special formalities are required. (Technically, deeds of trust do not even have to be written unless they are for real property, but relying on oral deeds of trust is a horrible idea.)

Deeds of trust require delivery of the property to the trustee.

Declaration of Trust

A declaration of trust is when one declares himself to be a trustee of his property for another. UTC § 401(2). No special formalities are required. (Though it is a bad idea to rely on an oral declaration of trust.)

The settlor can also be named as a beneficiary of the trust but not the only beneficiary or his titles would merge.

Unlike a deed of trust or an outright gift, a declaration of trust does not require delivery of the property. If something seems to be a gift but does not deliver the property, it might be a declaration of trust.

Res

A res is a specific piece of property included in a trust.

The res of an inter vivos trust must be delivered to the trustee if created by a deed of trust.

Resulting Trust

A resulting trust is an equitable reversionary interest that arises by operation of law in two cases:

  1. An express trust fails or makes an incomplete disposition
    • Examples:
      • O gives X property in trust to pay the income to A for life, then to A's descendants. A dies without descendants. X becomes trustee of the property for O then. The remainder interest of the trust just results back.
      • O gives $10,000 in trust to pay $4,000 to A over 5 years. $6,000 reverts to being in trust for O.
  2. One person pays the purchase price for property and causes title to be taken in the name of another who is not a natural object of his bounty
    • Examples:
      • If A buys a farm but puts it in B's name, B becomes a trustee for A.
      • If A gives B money to buy a farm, B becomes a trustee for A.
      • If A gives B money to buy a farm or buys him a farm himself but says that the money/farm is a gift, A just owns the farm.

The trustee never gets the property.

The beneficiary of a resulting trust can demand to get the property in trust back. It does not have to be held in trust forever.

Rule Against Perpetuities

No interest is good unless it must vest, if at all, within 21 years of the death of a life in being at the time the interest is created.

Oral Trust

Oral trusts are valid unless it is a testamentary trust or a trust holding real property but it must be established by clear and convincing evidence. UTC § 407.

You can transfer property at death by pre-death oral instructions though. Fournier.

Secret Trust

Secret trusts are where the will makes an absolute bequest, without manifested intent to create a trust, but where the beneficiary promised to use the property in a certain way. This promise is then enforceable (creating a constructive trust) to prevent unjust enrichment, and extrinsic evidence is allowed to establish the proof of the promise.

Semi-Secret Trust

A semi-secret trust is when the will names a trustee, but not a beneficiary. Semi-secret trusts fail for want of an ascertainable beneficiary, even if the testator told the trustee outside the will how to distribute it.

The more modern approach is to allow extrinsic evidence to find a beneficiary for semi-secret trusts, but most states do not follow this.

Revocable Trust

Irrevocable trusts are trusts that can be altered or revoked by the settlor.

Upon the death of the settlor of a revocable trust, the trust naturally becomes irrevocable because the potential revoker is dead.

Although often very similar to a will, revocable trusts do not require wills formalities. Under modern law, settlors can just opt in or out of the probate laws applying.

Trustees of revocable only owe fiduciary duties to the settlor. Beneficiaries have no rights.

Under the UTC, revocable trusts can be amended at any time by any method that manifests clear and convincing evidence of his intent to do so. UTC § 602(c).