Trusts in American Law 1

Basics 2
Sources of Law 2
Vocabulary, Typology, and Illustrative Uses 2
Bifurcation of Ownership 3
A Trust Compared with a Legal Life Es-tate 4
Basic Trust Rules 4
Remedial T 5
Creation of a trust 5
1. Intent to create a trust. 5
Testamentary Trust 6
Inter Vivos Trust 6
2. Ascertainable Beneficiaries 7
Pet & Other non-charitable Purpose Trusts 8
3. Trust Property or RES 9
4. Written Instrument (maybe) 10
Oral Inter Vivos Trusts of Personal Property 10

Trusts in American Law

● A trust is a legal arrangement created by a settlor in which a trustee holds property as a fiduciary for one or more beneficiaries. The trustee takes legal
title to the trust property, which allows the trustee to deal with third parties as owner of the property. The beneficiaries have equitable title to the trust
property, which allows them to hold the trustee accountable for breach of the trustee’s fiduciary duties.
● Trusts may be testamentary, created by will and arising in probate. Or they may be inter vivos, created during the settlor’s lifetime by declaration of trust
or by deed of trust, often as a will substitute to avoid probate

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Basics ● Common law; Restatement of Trusts; State Statutes based on uniform laws.

Sources of Law ● Toward the Uniform Trust Code: The Uniform Trust Code was the first systematic, national codification of American trust law. It has
been enacted in 25 jurisdictions (listed in Duke, at 389).
○ Most of the UTC’s provisions state default rules that may be overridden by the terms of the trust. The only exceptions are the
mandatory rules scheduled in UTC § 105(b), such as a trustee’s duty to follow the terms of the trust and to act in good faith. Any
provision of the UTC that is not scheduled in § 105(b) is a default that may be varied by the terms of the trust.

Vocabulary, ● Settlor, Grantor, Trustor: A person who creates a trust.

Typology, and ● Trustee(s): The party to whom the settlor transfers the trust property; the trustee holds legal title to and exer-cises managerial
Illustrative responsibility over trust corpus or res.
Uses ● Beneficiary: Hold equitable title to and have “beneficial” ownership of trust corpus or res.
● Inter vivos Trust: A trust created during the settlor’s life. An inter vivos trust may be revocable or irrevocable, depending on the intent
of the settlor. An inter vivos trust can be used as a will substitute to avoid probate. At the death of the settlor, the trust property is
distributed or held in further trust in accordance with the terms of the trust. An inter vivos trust may be created either. (1) by declaration
of trust, whereby the settlor declares himself to be trustee of certain property, or (2) by deed of trust, whereby the settlor transfers to the
trustee the property to be held in trust.
○ Modern Presumption that Trust is Revocable: A revocable inter vivos trust permits the settlor to revoke the trust and demand
return of the trust property. The modern presumption is that the trust is revocable.
● Testamentary Trust: A trust created by will (at Settlor’s death). Once established a testamentary trust is irrevocable. Because a
testamentary trust is created by will and arises in probate, it involves a probate transfer.
● Illustrative Uses:
○ Trust for incompetent person
○ Discretionary trust
○ Testamentary marital trusts
○ Trust for minor
● Trust Distinguished from Equitable Charge: If a testator devises property to a person, subject to the payment of a certain sum of
money to a third person, the testator creates not a trust but an equitable charge

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Bifurcation of A. Bifurcation: The hallmark characteristic of a common law trust is bifurcation: The trustee hold legal title to the trust property, but the
Ownership beneficiaries have equitable or beneficial ownership. Two categories of issues arise from this splitting of legal and equitable ownership: (a) the
effect on the rights of third parties with respect to the trust property and the property of the trustee personally (asset partitioning), and (b) the
powers and duties of the trustee and the corresponding rights of the beneficiaries with respect to the trust property and against the trustee
(fiduciary administration)
● a. Asset Partitioning and the Rights of Third Parties: Asset partitioning rules separate the personal property and obligations of an
organization’s insiders from the property and obligations of the organization.
○ Juridical Entity Status: For an organization that enjoys juridical entity status, such as a corporation, asset partitioning is easy.
○ Trust: A trust is not a juridical entity but rather is a fiduciary relationship. A trustee cannot sue, be sued, hold property, or transact
in its own name. Instead the trustee sues, is sued, holds property, and transacts with respect to trust property in the trustee’s
fiduciary capacity as such.
■ Traditional Law: Trustee was personally liable for the debts and obligations arising from ownership of the trust. The
trustee had a right to indemnification out of the trust fund.
■ Modern Law: A creditor of the trustee in the trustee’s fiduciary capacity recovers directly out of the trust fund without
recourse against the property of the trustee personally. A personal creditor of the trustee has no recourse against the trust
property. Modern law effectively splits the trustee into “two distinct legal persons: a natural person contracting on behalf
of himself, and an artificial person acting on behalf of the beneficiaries. The contemporary American trust is in function
(though not in juridical form) an entity.
● b. Fiduciary Administration & the Rights of the Beneficiaries: The trustee has the responsibility for managing the trust property, but
the beneficiaries bear the consequences of the trustee’s actions. To protect the beneficiaries from mismanagement or misappropriation by
a trustee, “in deciding whether and how to exercise the powers of the trustee-ship,” the trustee “is subject to and must act in accordance
with the trustee’s fiduciary duties.”
○ Fiduciary Duty: The law requires the trustee, as a fiduciary, to subordinate her interests to those of the bene-ficiaries.
■ Duty of Loyalty
■ Duty of Prudence

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 ○ Subsidiary Rules: Reinforce and elaborate the loyalty and care norms and include the duty of impartiality between beneficiaries;
the duty not to commingle the trust property with the trustee’s own property; and the duty to inform and account to beneficiaries.
○ Damages: A trustee who breaches her fiduciary duties can be liable for compensatory damages to restore the trust estate and trust
distributions to what they would have been without the breach (make-whole compensatory damages), and to disgorgement by the
trustee of any profit to the trustee owing to the breach (unjust enrich-ment).
○ Compensation Denied/Trustee Removed: A trustee may also be denied compensation and removed as trus-tee.
○ The Four Functions of Trusteeship: Trusteeship involves four overlapping functions:
■ (1) custodial—taking custody of the trust property and properly safeguarding it.
■ (2) administrative—accounting and recordkeeping and making tax and other required filings
■ (3) investment—reviewing the trust assets and making and implementing an investment program for those assets as part of
an overall strategy reasonably suited to the purpose of the trust and the needs of the beneficiaries
■ (4) distribution—making disbursements of income or principle to the beneficiaries in accordance with the terms of the
trust

A Trust The creation of a trust usually involves the creation of one or more equitable future interests as well as a present interest in the income.
Compared with ● o Present Interest: Equitable Life Estate
a Legal Life ● o Future Interest: Equitable remainder for life; Equitable contingent remainder in fee simple
Es-tate ● o Settlor’s Interest: Equitable Reversionary Interest

Legal Life Estate:

● A legal life tenant has no power to sell a fee simple unless such a power is granted in the instrument creating the life estate.
● The life tenant has a duty to pay taxes and keep the property in repair
● If the life tenant gets into debt, the creditor can seize the life estate and sell it

Equitable Life Estate—A Trust:

● A trustee usually has broad enough powers to act promptly and to allocate the costs and benefits fairly between life and remainder
beneficiaries
● Third parties need deal only with the trustee
● An equitable trust can be put out of the reach of creditors, protecting an incautious beneficiary from himself.

Basic Trust 1. Same Party Can Wear All Three Hats—Need Duties to Someone Other Than Self: Although there are three distinct parties to a
Rules trust—settlor, trustee, and beneficiary—the same person can wear all three hats at the same time as long as there is another trustee or another
beneficiary. {CT} To have a valid trust, the trustee must owe fiduciary duties to someone other than herself.

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 ● Merger: If O is the sole trustee and also the sole beneficiary, the equitable and legal titles merge, leaving O with absolute legal title, as
under UTC § 402(a)(5).

2. A Trust is not Created Until it is Funded: A trust cannot exist without the trust property, often called the res.
3. A Trust Will Not Fail for Want of a Trustee: A trust may have one trustee or several. A trustee may be an individual or a corporation. A
trustee may be the settlor, a beneficiary, or a third party. In the absence of a trustee, the court one (usually the executor in the case of a
testamentary trust)
4. Active Duties of Trustee: The trustee must have some active duties to perform. If the trustee has no duties at all, the trust is said to be
“passive” or “dry,” and it fails.
● Accounting: A trustee’s duty to maintain and render accurate accounts is a strict one and the trustee has the burden to prove that the
expenditures were made for trust purposes. Jimenez.
● Accepting Trusteeship: The law does not impose trusteeship upon a person unless the person accepts. A trustee has onerous duties and is
exposed to potential liability.
● Withdrawing as Trustee: Under traditional law, once a person accepts appointment as trustee, she can be released from office only with
the consent of the beneficiaries or by court order. UTC § 705 allows for resig-nation by a trustee with 30 days’ notice to all interested
parties.

Remedial T A. Resulting Trusts: A resulting trust arises anytime a trust fails in whole or in part. The courts use it to require the party holding the property
(typically the trustee) to return the property to the settlor (or the settlor’s estate if the settlor is dead).

B. Constructive Trust: Constructive trusts are used to prevent unjust enrichment. *?

Creation of a trust

A. Requirements to Create a Trust: The creation of a trust requires (1) intent by the settlor to create a trust; (2) ascertainable beneficiaries who can enforce a
trust; and (3) specific property, the res, to be held in trust. In addition, if the trust is testamentary or is to hold land, (4) a writing may be required to satisfy the
Wills Act or the Statute of Frauds
1. Intent to A. Intent to Create a Trust: The first requirement or a valid trust is the intent to create a trust. The intent to create a trust exists when one party
create a trust. transfers property to a second party (trustee) with the intent of having the second party retain and manage the property for the benefit of a third
party. Lux. Typical Example: A transfer of property to X “for the use and benefit” of A.
● Evidence of the Party’s Intent: The best evidence of the party’s intent is the words he or she uses with respect to the arrangement. No
particular form of words is necessary to manifest an intent to create a trust. Not even the word trust or trustee is required. The settlor need

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 only manifest an intent to create the fiduciary relationship known by the law as a trust. The focus is on function rather than form.
● A Trust Will Not Fail for Want of a Trustee: A trust may have one trustee or several. A trustee may be an individual or a corporation.
A trustee may be the settlor, a beneficiary, or a third party. In the absence of a trustee, the court appoint one (usually the executor in the
case of a testamentary trust)
● Precatory Language: If the language indicates merely a moral obligation (hope or wish) rather than intent to create a legal obligation, it
is called precatory, and does not create an enforceable trust.

Testamentary A. Testamentary Trust: A testamentary trust is created by will. Discerning whether a testator intended to create a trust involves first looking to
Trust the words in the will and then construing the will. If the testator’s intent is not stated clearly, it must be inferred from the language and structure
of the will in light of all the circumstances.
In a well-drafted will, the testator’s intent to create a trust is stated clearly.
Example: All the residue of my estate I give to _______ as trustee, to be held in trust and disposed of as follows: __________.
Inter Vivos A. Inter vivos Trust: If the trust in question is an inter vivos trust, the words in question will either be in the declaration of trust (if the settlor is
Trust the trustee) or the deed of trust (if someone other than the settlor is the trustee). An inter vivos trust requires that both the expression of the intent
to create a trust and the funding occur while the settlor is alive. {CT}
● 1. Deed of Trust: If the trustee is a third party, the expression of the intent to create a trust is called a deed of trust (whether oral or
written). {CT} A deed of trust does not fund a trust. No particular formalities are required to create an inter vivos trust of personal
property (unlike a testamentary trust—Wills Act—and an inter vivos trust of land—Statute of Frauds). If the court determines that a
transfer of property by O to T was intended to be in trust for the benefit of A, T is subject to fiduciary duties to A.
○ Creating a Trust: Where donors do not expressly direct a third party to hold a gift “in trust,” this is not essential to create a trust
relationship. It is enough if the transfer of the property is made with the intent to vest the beneficial ownership in a third person.
Jimenez.

B. Declaration of Trust: If the trustee is the settlor, the expression of the intent to create a trust is called a declaration of trust. Under a
declaration of trust, the settlor simply declares himself to be a trustee of certain property. The settlor may also be a beneficiary of the trust.
● Same Party Can Wear All Three Hats—Need Duties to Someone Other Than Self: Although there are three distinct parties to a
trust—settlor, trustee, and beneficiary—the same person can wear all three hats at the same time as long as there is another trustee or
another beneficiary. {CT} To have a valid trust, the trustee must owe fiduciary duties to someone other than herself
○ Merger: If O is the sole trustee and also the sole beneficiary, the equitable and legal titles merge, leaving O with absolute legal
title, as under UTC § 402(a)(5).
● Requirements of Declaration of Trust: A declaration of trust of personal property requires no particular formalities. It does not require
delivery of an instrument of transfer. The settlor need only manifest an intention to hold certain of the settlor’s property in trust for an
ascertainable beneficiary.

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 C. Failed Gift: Where a donor has the intent to make a gratuitous inter vivos gift, but the gift fails for want of delivery (typically the donor dies
before making the delivery), the donee may try to save the failed gift by recharacterizing the donor’s intent as the intent to create a trust. The
donee will argue that when the donor expressed the intent to create a trust, the donor also appointed herself trustee, thereby, “delivering” the
property from herself as settlor to herself as trustee. Because a trust will not fail for want of a trustee, the donee will then ask the court to appoint
a successor trustee and instruct and instruct him or her to transfer the property to the donee, thereby satisfying the delivery requirement for the
gift, but only be recharacterizing the failed inter vivos gift as an intent to create a trust. {CT}
● Inter vivos gift: A valid inter vivos gift requires (1) present donative intent; (2) delivery; and (3) acceptance. Acceptance is generally
presumed but can be rebutted on a showing that the gift would pose onerous burdens on the acceptee.
○ Delivery: In contrast to a declaration of trust, an outright gift requires the donor to deliver the prop-erty to the donee. Delivery can
be constructive (i.e., a key) or symbolic (i.e., certificate of title), rather than actual, but delivery of some kind is required. Intention
alone is not enough to perfect the gift. Consequently, if a donor manifests an intention to make a gift but fails to complete
delivery, the manifestation might be recharacterized as a trust.
■ Constructive Deliver: A constructive delivery gives the donee the means of obtaining the property, such as a key.
■ Symbolic Delivery: A symbolic delivery something symbolic of the object, for example a written instrument handed over
when manual delivery is impracticable
● Inter vivos gift vs. Declaration of Trust: A gift which is imperfect for lack of a delivery will not be turned into a declaration of trust for
no better reason than that it is imperfect for lack of a delivery. Courts do not supply conveyances where there are none. This is true, even
though the intended donee is a charity.
● One can orally constitute himself a trustee of personal property for the benefit of another and thereby create a trust enforceable in equity,
even though without consideration and without delivery. However, he must in effect constitute himself a trustee. There must be an
express trust, even though oral. It is not sufficient that he declares himself a donor. While he need not use the term “trustee,” nor even
manifest an understanding of its technical meaning or the technical meaning of the term “trust,” he must manifest an intention to impose
upon himself enforceable duties of a trust nature. Hebrew University I.
● Restatement: A gift of personal property can be perfected on the basis of donative intent alone if the donor’s intent to make a gift is
established by clear and convincing evidence. RS3d Prop. § 6.2. A failure to satisfy the formality of delivery can be excused as harmless
error if there is clear and convincing evidence of donative intent.

2. A. Ascertainable Beneficiaries—The Beneficiary Principle: A private trust must have one or more ascertainable beneficiaries to whom the
Ascertainable trustee owes fiduciary duties and who can call the trustee to account. See UTC § 402(a)(3) (2000). The beneficiaries need not be ascertained
Beneficiaries when the trust is created—only ascertainable (i.e., the unborn children of O are ascertainable—the court will appoint a guardian ad litem). If at
the time the trust becomes effective the benefi-ciaries are too indefinite to be ascertainable, the attempted trust will fail for want of an
ascertainable beneficiary.

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 ○ Not Ascertainable: “Friends” (see Clark).
○ Ascertainable: Relatives, heirs, next-of-kin, siblings, children, issue, nephews, nieces, relations, unborn children)

B. Exception—Public Trusts & Charitable Trusts: The beneficiary principle applies to private but not to public trusts and charities. Clark.
Charities cannot have ascertainable beneficiaries. {CT}

C. Exception—Honorary Trusts: See Below

D. Power of Appointment:
1. Traditional Rule: If there is a transfer in trust for members of an indefinite class of persons, no enforceable trust is created, but the
transferee has a discretionary power to convey the property to such members of the class as he may select. The power of appointment is
discretionary; it is a non-fiduciary power. It cannot be given to a trustee. See Clark.
2. Modern Rule: A power in a trustee to select a beneficiary from an indefinite class is valid. If the power is not exercised within a
reasonable time, the power fails and the property subject to the power passes to the persons who would have taken the property had the
power not been conferred. UPC § 402(c).

Pet & Other A. Modern Trend: The trend in the cases, codified by the UTC, has been toward allowing enforceable trust for pet animals (§ 408) and certain
non-charitable other non-charitable purposes (§ 409).
Purpose Trusts ● 1. Accommodating Trusts for Pets and Other non-charitable Purposes.
○ A pet animal, being property, cannot be the beneficiary of a trust because it cannot bring suit to enforce the trustee’s fiduciary
duties.
○ A trust for the care of a particular animal is not a charitable trust because it is not a valid charitable purpose.
○ People want non-charitable trusts for (1) the care of pets; (2) the maintenance of graves; and (3) the saying of masses
○ To accommodate the desire for trusts for non-charitable purposes and for pet animals in particular, two adapta-tions have evolved:
(a) common law honorary trusts, and (b) statutory pet and other non-charitable purpose trusts.

○ a. Honorary Trusts: In an honorary trust, the transferee is not under a legal obligation to carry out the settlor’s stated purpose
(hence the qualifier honorary), but if the transferee declines or neglects to do so, she holds the property upon a resulting trust and
the property reverts to the settlor or the settlor’s successors See In re Searight’s Estate.
■ Rule Against Perpetuities: In drafting an honorary trust, care must be taken not to violate the Rule Against Perpetuities.
Under the common law Rule, an honorary trust for a non-charitable purpose is void if it can last beyond all relevant lives
in being at the creation of the trust plus 21 years. If the trust is for a pet, the pet is not a validating life.
● Searight is inconsistent with orthodox understanding of the common law Rule Against Perpetuities.

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 ○ b. Uniform Acts & Other Statutes: Almost every state has enacted legislation that permits a trust for a pet animal for the life of
the animal and often other non-charitable purposes such as perpetual maintenance of a grave.
■ UTC & UPC Approach: A trust for a pet animal or certain other non-charitable purposes is valid, but the court is
authorized to reduce the amount of the trust property if it is excessive. See UTC §§ 408–409 (2000) and UPC § 2-907
(1990, rev. 1993). The UPC and UTC authorize a person named by the settlor or the court to enforce the trustee’s fiduciary
duties.

● UTC § 408.
○ (a) A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the
death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor's lifetime,
upon the death of the last surviving animal.
○ (b) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so
appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to
appoint a person to enforce the trust or to remove a person appointed.
○ (c) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines
that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of
the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor's
successors in interest.

B. Some Options for Pets After Owners Die

● Precatory Request: Generous gift in Will or Trust Agreement outright to a trusted beneficiary with a clearly precatory request that the
beneficiary use as much of the funds as are needed to care for the pet for its remaining lifetime (“I wish but do not legally require . . .”).
● Honorary Trust; Statutory Trust; Pet Life Care Center

3. Trust A. Trust Property Required for a Valid Trust: The second requirement for a valid trust is that the trust must be funded—some property must
Property or be transferred to the trustee. (1) A trust is not created until some property is transferred to the trust (to the trustee), and only property transferred
RES to the trust is part of the trust. (2) The property transferred can be any interest that is transferable (i.e., real property, personal property, money
(even as little as a dollar or a penny), leasehold interests, possessory estates, future interests (even contingent remainders), life insurance policies,
choses in action, royalties, animals). {CT}
● Future Profits and Other Expectancies: An expectation or hope of receiving property in the future, or an interest that has not
come into existence or has ceased to exist, cannot be held in trust.
● 1. Exception for Revocable Trust with a Pour-Over Will: In the case of revocable trust connected with a pour-over will, many state
statutes do not require property to be in the trust at the time of the execution of the trust.

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 B. Contrast Failed Gift: Where a donor promises to make a gift of a particular asset but then dies before delivering it, the frustrated donee may
try to save the gift my recharacterizing the promise as a declaration of trust that also constituted funding and then ask the court to appoint a
successor trustee and order delivery to complete the gift.
● Example: (“The declarant must express an intent to declare a trust over specific property”)
4. Written A. Generally—No Writing Requirement: The law of trusts, standing alone, does not require a writing to create a valid trust. An oral inter vivos
Instrument trust of personal property, whether by declaration or by transfer to another as trustee, is enforceable.
(maybe) ● Exception for Testamentary Trusts & Trust of Land: However, a testamentary trust must be in writing to satisfy the Wills Act, and an inter
vivos trust of land must be in writing to satisfy the Statute of Frauds.

Oral Inter A. Oral Inter vivos Trust & Personal Property: As a general rule, inter vivos trusts do not have to be in writing, unless the trust holds real
Vivos Trusts of property. {CT}
Personal ● 1. Versus Testamentary Trust: A trust where the trustee is to deliver personal property at the settlor’s death, if funded inter vivos, is an
Property inter vivos trust and does not have to be in writing. {CT}
● 2. UTC § 407 (2000). Evidence of Oral Trust. Except 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.
○ Oral Testimony as Proof: An oral trust that provides for the disposition of personal property at the death of the settlor may be
proved by oral testimony. Fournier.
■ Testimony probably should be by a disinterested party like an attorney for it to constitute clear and convincing evidence.

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