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A relationship created at the direction of an individual, in which one or more persons hold the individuals property subject to certain duties to use and protect it for the benefit of others.

Individuals may control the distribution of their property during their lives or after their deaths through the use of a trust. There are many types of trusts and many purposes for their creation. A trust may be created for the financial benefit of the person creating the trust, a surviving spouse or minor children, or a charitable purpose. Though a variety of trusts are permitted by law, trust arrangements that are attempts to evade creditors or lawful responsibilities will be declared void by the courts.

The law of trusts is voluminous and often complicated, but generally it is concerned with whether a trust has been created, whether it is a public or private trust, whether it is legal, and whether the trustee has lawfully managed the trust and trust property.

The person who creates the trust is the settlor. The person who holds the property for anothers benefit is the trustee. The person who is benefited by the trust is the beneficiary, orcestui que trust.The property that comprises the trust is the trust res, corpus, principal, or subject matter. For example, a parent signs over certain stock to a bank to manage for a child, with instructions to give the dividend checks to him each year until he becomes 21 years of age, at which time he is to receive all the stock. The parent is the settlor, the bank is the trustee, the stock is the trust res, and the child is the beneficiary.

A fiduciary relationship exists in the law of trusts whenever the settlor relies on the trustee and places special confidence in her. The trustee must act inGood Faithwith strict honesty and due regard to protect and serve the interests of the beneficiaries. The trustee also has a fiduciary relationship with the beneficiaries of the trust.

A trustee takes legal title to the trust res, which means that the trustees interest in the property appears to be one of complete ownership and possession, but the trustee does not have the right to receive any benefits from the property. The right to benefit from the property, known as equitable title, belongs to the beneficiary.

The terms of the trust are the duties and powers of the trustee and the rights of the beneficiary conferred by the settlor when he created the trust.

State statutes and court decisions govern the law of trusts. The validity of a trust of real property is determined by the law of the state where the property is located. The law of the state of the permanent residence (domicile) of the settlor frequently governs a trust ofPersonal Property, but courts also consider a number of factorssuch as the intention of the settlor, the state where the settlor lives, the state where the trustee lives, and the location of the trust propertywhen deciding which state has the greatest interest in regulating the trust property.

As a general rule, personal property can be held in a trust created orally. Express trusts of real property, however, must be in writing to be enforced. When a person creates a trust in his will, the resulting testamentary trust will be valid only if the will itself conforms to the requirements of state law for wills. Some states have adopted all or part of theUniform Probate Code, which governs both wills and testamentary 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.

IntentionThe 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 wordtrustis 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 termsdesire, wish, orhope, 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 MatterAn 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, includingPatents, copyrights, andTrademarks. A mere expectancythe anticipation of receiving a gift by will, for examplecannot 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.

TrusteeAny 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 aLabor Unionor social club, usually cannot serve as a trustee.

The United States, a state, or aMunicipal Corporationcan 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 inJoint Tenancywith theRight 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,Incompetencyin 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.

BeneficiaryEvery 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 theRule 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. ThisRule 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,Alienscan 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 familyin which case the class is definiteor 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 settlors 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.

To create an express trust, the settlor must own or havePower of Attorneyover the property that is to become the trust property or must have the power to create such property. The settlor must be legally competent to create a trust.

A trust cannot be created for an illegal purpose, such as to defraud creditors or to deprive a spouse of her rightful elective share. The purpose of a trust is considered illegal when it is aimed at accomplishing objectives contrary to public policy. For example, a trust provision that encouragesDivorce, prevents a marriage, or violates the rule against perpetuities generally will not be enforced.

If the illegal provision pertains to the whole trust, the trust fails in its entirety. If, however, it does not affect the entire trust, only the illegal provision is stricken, and the trust is given effect without it.

A trust may be created by an express declaration of trust, a transfer in trust made either during a settlors 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 TrustA 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 TransfersA 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 settlors lifetime. This is known as an inter vivos trust or living trust.

Powers of AppointmentA 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 donors will, deed, or trust. A person holding a general power of appointment can create a trust according to the donors 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.

ContractsTrusts 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 beneficiarys 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.

StatuteStatutes provide for the creation of trusts in various instances. In the case ofWrongful 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.

Various trust devices have been developed to protect a beneficiarys interest from creditors. The most common are spendthrift trusts, discretionary trusts, and support trusts. Such devices safeguard the trust property while the trustee retains it. Once funds have been paid to the beneficiary, however, any attempt at imposing restraint on the transferability of his interest is invalid.

Spendthrift TrustsASpendthrift Trustis one in which, because of either a direction of the settlor or statute, the beneficiary is unable to transfer his right to future payments of income or capital, and creditors are unable to obtain the beneficiarys interest in future distributions from the trust for the payment of debts. Such trusts are ordinarily created with the aim of providing a fund for the maintenance of another, known as the spendthrift, while at the same time protecting the trust against the beneficiarys shortsightedness, extravagance, and inability to manage his financial affairs. Such trusts do not restrict creditors rights to the property after the beneficiary receives it, but the creditors cannot compel the trustee to pay them directly.

The majority of states authorize spendthrift trusts. Those that do not will void such provisions so that the beneficiary can transfer his rights and creditors can reach the right to future income.

Discretionary TrustsA discretionary trust authorizes the trustee to pay to the beneficiary only as much of the income or capital of the trust as the trustee sees fit to use for that purpose, with the remaining income or capital reserved for another purpose. This discretion allows the trustee to give the beneficiary some benefits under the trust or to give her nothing. The beneficiary cannot force the trustee to use any of the trust property for the beneficiarys benefit. Such a trust gives the beneficiary no interest that can be transferred or reached by creditors until the trustee has decided to pay or apply some of the trust property for the beneficiary.

Support TrustsA trust that directs that the trustee shall pay or apply only so much of the income and principal as is necessary for the education and support of a beneficiary is a support trust. The interest of the beneficiary cannot be transferred. Paying money to an assignee of the beneficiary or to creditors would defeat the objectives of the trust. Support trusts are used, for the most part, in jurisdictions that prohibit spendthrift trusts.

The purpose of aCharitable Trustis to accomplish a substantial social benefit for some portion of the public. The law favors charitable trusts by according them certain privileges, such as an advantageous tax status. Before a court will enforce a charitable trust, however, it must examine the alleged charity and evaluate its social benefits. The court cannot rely on the settlors view that the trust is charitable.

To be valid, a charitable trust must meet certain requirements. The settlor must have the intent to create a charitable trust, there must be a trustee to administer the trust, which consists of some trust property, and the charitable purpose must be expressly designated. The beneficiary must be a definite segment of the community composed of indefinite persons. Selected persons within the class must actually receive the benefit. The requirements of intention, trustee, and res in a charitable trust are the same as those in a private trust.

Charitable PurposeA charitable purpose is one that benefits, improves, or uplifts humankind mentally, morally, or physically. The relief of poverty, the improvement of government, and the advancement of religion, education, or health are some examples of charitable purposes.

BeneficiariesThe class to be benefited in a charitable trust must be a definite segment of the public. It must be large enough so that the community in general is affected and has an interest in the enforcement of the trust, yet it must not include the entire human race. Within the class, however, the specific persons to benefit must be indefinite. A trust for the benefit of orphans of veterans of the 1991 Gulf War is charitable because the class or category of beneficiaries is definite. The indefinite persons within the class are the individuals ultimately selected by the trustee to receive the provided benefit.

A trust for designated persons or a trust for profit cannot be a charitable trust. A trust to erect and maintain a hospital might be charitable even though the hospital charges the patients who are served, provided that any profits are used solely to continue the charitable services of the hospital.

As a general rule, a charitable trust may last forever, unlike a private trust. In a private trust, the designated beneficiary is the proper person to enforce the trust. In a charitable trust, the state attorney general, who represents the public interest, is the proper person to enforce the trust.

Cy Pres DoctrineThe doctrine ofCy Pres, taken from the phrasecy pres comme possible(French for as near as possible), refers to the power of a court to change administrative provisions in a charitable trust when the settlors directions hinder the trustee in accomplishing the trust purpose. A court also has the power under the cy pres doctrine to order the trust funds to be applied to a charitable purpose other than the one named by the settlor. This will occur if it has become impossible, impractical, or inexpedient to accomplish the settlors charitable purpose. Because a charitable trust can last forever, many purposes become obsolete because of changing economic, social, political, or other conditions. For example, a trust created in 1930 to combat smallpox would be of little practical value today because medical advances have virtually eliminated the disease. When the cy pres doctrine is applied, the court reasons that the settlor would have wanted her general charitable purposes implemented despite the changing conditions.

The cy pres doctrine can be applied only by a court, never by the trustees of the trust, who must execute the terms of the trust. Trustees can apply to the court, however, for cy pres instructions when they believe that the trust arrangements warrant it.

The terms of a trust instrument, when a writing is required, or the statements of a settlor, when she creates a trust, set specific powers or duties that the trustee has in administering the trust property. These express powers, which are unequivocal and directly granted to the trustee, frequently consist of the power to sell the original trust property, invest the proceeds of any property sold, and collect the income of the trust property and pay it to the beneficiaries. The trustee also has implied powers that the settlor is deemed to have intended because they are necessary to fulfill the purposes of the trust.

A settlor can order the trustee to perform a certain act during the administration of the trust, such as selling trust realty as soon as possible and investing the proceeds in bonds. This power to sell is a mandatory or an imperative power. If the trustee fails to execute this power, he has committed a breach of trust. The beneficiary can obtain a court order compelling the trustee to perform the act, or the court can order the trustee to pay damages for delaying or failing to use the power. The court can also remove the trustee and appoint one who will exercise the power.

Courts usually will not set aside the decision of a trustee as long as the trustee made the decision in good faith after considering the settlors intended purpose of the trust and the circumstances of the beneficiaries. A court will not tell a trustee how to exercise his discretionary powers. It will only direct the trustee to use his own judgment. If, however, the trustee refuses to do so or does so in bad faith or arbitrarily, a beneficiary can seek court intervention.

A trustee, as a fiduciary, must administer the trust with the skill and prudence that any reasonable and careful person would use in conducting her own financial affairs. The trustees actions must conform to the trust purposes. Failure to act in this manner will render a trustee liable for breach of trust, regardless of whether she acted in good faith.

A trustee must be loyal to the beneficiaries, administering the trust solely for their benefit and to the exclusion of any considerations of personal profit or advantage. A trustee would violate her fiduciary duty and demonstrate a conflict of interest if, for example, she sold trust property to herself.

A trustee has the duty to defend the trust and the interests of the beneficiaries against baseless claims that the trust is invalid. If the claim is valid, however, and it would be useless to defend against such a challenge, the trustee should accede to the claim to avoid any unnecessary waste of property.

Trust property must be designated as such and segregated from a trustees individual property and from property the trustee might hold in trust for others. This requirement enables a trustee to properly maintain the property and allows the beneficiary to easily trace it in the event of the trustees death or insolvency.

Generally, a trustee is directed to collect and distribute income and has the duty to invest the trust property in income-producing assets as soon as is reasonable. This duty of investment is controlled by the settlors directions in the trust document, court orders, the consent of the beneficiaries, or statute. Some states have statutes that list various types of investments that a trustee may or must make. Such laws are known as legal list statutes.

One of the principal duties of a trustee is to make payments of income and distribute the trust principal according to the terms of the trust, unless otherwise directed by a court. Unless a settlor expressly reserves such power when creating the trust, she cannot modify its payment provisions. In addition, the trustee cannot alter the terms of payment without obtaining approval of all the beneficiaries. Courts are empowered to permit the trustee to deviate from the trust terms with respect to the time and the form of payment, but the relative size of the beneficiaries interests cannot be changed. If a beneficiary is in dire need of funds, courts will accelerate the payment. This is called hastening the enjoyment.

The creation of a trust is actually a conveyance of the settlors property, usually as a gift. A trust cannot be cancelled or set aside at the option of the settlor should the settlor change his mind or become dissatisfied with the trust, unless the trust instrument so provides. If the settlor reserves the power to revoke or modify only in a particular manner, he can do so only in that manner. Otherwise, the revocation or modification can be accomplished in any manner that sufficiently demonstrates the settlors intention to revoke or modify.

The period of time for which a trust is to operate is usually expressly prescribed in the trust instrument. A settlor can state that the trust shall last until the beneficiary reaches a particular age or until the beneficiary marries. When this period expires, the trust ends.

When the duration of a trust is not expressly fixed, the basic rule is that a trust will last no longer than necessary for the accomplishment of its purpose. A trust to educate a persons grandchildren would terminate when their education is completed. A trust also concludes when its purposes become impossible or illegal.

When all the beneficiaries and the settlor join in applying to the court to have the trust terminated, it will be ended even though the purposes that the settlor originally contemplated have not been accomplished. If the settlor does not join in the action, and if one or more of the purposes of the trust can still be attained by continuing the trust, the majority of U.S. courts refuse to grant a decree of termination. Testamentary trusts cannot be terminated.

Abts, Henry W. 2002.The Living Trust: The Failproof Way to Pass Along Your Estate to Your Heirs.3d ed. New York: McGraw-Hill.

American Law Institute. 2003.Restatement of the Law, Trusts.St. Paul, Minn.: American Law Institute.

Kruse, Clifton B., Jr. 2002.Third-Party and Self-Created Trusts: Planning for the Elderly and Disabled Client.Chicago: Section of Real Property, Probate, and Trust Law, ABA.

Rothschild, Gideon, Daniel S. Rubin, and Jonathan G. Blattmachr. 1999. Self-Settled Spendthrift Trusts: Should a Few Bad Apples Spoil the Bunch?Journal of Bankruptcy Law and Practice(November/December).

Honorary TrustResulting TrustVidal v. Girards Executors.

n. an entity created to hold assets for the benefit of certain persons or entities, with a trustee managing the trust (and often holding title on behalf of the trust). Most trusts are founded by the persons (called trustors, settlors and/or donors) who execute a written Declaration of Trust which establishes the trust and spells out the terms and conditions upon which it will be conducted. The Declaration also names the original trustee or trustees, successor trustees, or means to choose future trustees. The assets of the trust are usually given to the trust by the creators, although assets may be added by others. During the life of the trust, profits and, sometimes, a portion of the principal (called corpus) may be distributed to the beneficiaries, and at some time in the future (such as the death of the last trustor or settlor) the remaining assets will be distributed to beneficiaries. A trust may take the place of a will and avoid probate (management of an estate with court supervision) by providing for distribution of all assets originally owned by the trustors or settlors, upon their death. There are numerous types of trusts, including revocable trusts created to handle the trustors assets (with the trustor acting as initial trustee), often called a living trust (or inter vivos trust) which only becomes irrevocable on the death of the first trustor; irrevocable trust which cannot be changed at any time, charitable remainder unitrust which provides for eventual guaranteed distribution of the corpus (assets) to charity, thus gaining a substantial tax benefit. There are also court-decreed constructive and resulting trusts over property held by someone for its owner. A testamentary trust can be created by a will to manage assets given to beneficiaries. (See:living trustinter vivos trustcharitable remainder trustconstructive trustresulting trusttrusteetrustorsettlordeclaration of trusttestamentary trust)

Associated concepts:antitrust lawscombination in restraint of tradetrust(Confidence),nounassurancebeliefcertaintyconfident expectationconvictioncredencecredulityfaithfidesfiduciareassurancereliancetrustworthiness

Associated concepts:breach of trust, office of trust, public trusttrust(Custody),nouncarechargecontroldutyguardianshipholdingkeepingmanagementobligationpossession and controlpower overprotectionsafety

Associated concepts:beneficiary of trust,business trustcestui que trustcharitable trustconstructive trust, continning trust, corpus of trust, de facto trust,declaration of trustdiscretionary trust, dormant trust, dry trust, execution of trust,executory trust, express trust, implied trust, parol trust, presumptive trust, principal of a trust, private trust, residuary trust, resultant trust, revocable trust, shifting trust,special trustspendthrift trusttotten trust, trust agreement, trust certificate,trust companytrust deed, trust estate, trust funds, trust mortgage, trust receipts