Creation of Trusts

Question 1

What is a trust?

Answer 1

Arrangement for making gifts of property/management of assets. Trustee holds legal title to trust assets for the benefit of beneficiaries.

Trustee has burdens of ownership (managing), beneficiaries have equitable title and benefits of ownership

Question 2

*Requirements for Trust

Answer 2

Settlor (grantor)… delivers… title to Trust Property… to a trustee… for the benefit of beneficiaries with intent to create a trust.

Trust must be for a lawful purpose.

No consideration required.

Settlor: must have legal capacity (over 18, capacity to convey title)

Question 3

Delivery

Answer 3

only for inter vivos trusts (not testamentary) that name third party as trustee

Must be delivery of subject matter of trust (by settlor or his agent), with intent to convey legal title to trustee

Question 4

Trust Property

Answer 4

Subject matter of trust must be certain and identifiable

If no property, look for promise to create trust-must be supported by consideration

Trust duties attach when property received

Question 5

*Trustee

Answer 5

*NO TRUST FAILS FOR LACK OF TRUSTEE; CT. WILL APPOINT

Must have legal capacity (e.g. 18 years of age, capacity to K, etc.)

Only persons, banks, trust companies given trust powers in their charters, and charities (charitable trusts only) can be trustees (not unincorporated associations).

Question 6

Trustee’s Bond

Answer 6

Individuals: must post bond to secure faithful performance of duties unless settlor waived

Corporate trustee: No bond (corporate assets serve as security)

Question 7

What if no trustee is named?

Answer 7

If intent to create trust clearly manifested but no trustee named or available (death, resigns, incapacitated,) and none is named, court will appoint suitable trustee.

if trust created by will, court usually appoints executor named in will)

Question 8

Can someone be compelled to serve as trustee against their wishes?

Answer 8

Nobody can be compelled to serve as trustee (to accept fiduciary duties)

Court will appoint trustee

Question 9

*What constitutes acceptance of trust office by trustee named in trust instrument?

Answer 9

Trustee’s signature, signifying acceptance of the trust; or

Acceptance by conduct, if person exercises trust powers or duties (e.g. placing assets in trust, investing assets)

But not mere inspection for environmental concerns

Question 10

If trustee wants to resign, what steps must he take?

Answer 10

Court approval that he can no longer serve as trustee; and

Provide an accounting (property initially received + receipts and disbursements + property on hand and liabilities)

Question 11

What if trustee of real property has no trust powers or duties to perform?

Answer 11

no trust is created. Legal title to assets vest in beneficiary

Question 12

Intention to Create Trust

Answer 12

Settlor must manifest intent for trust. Look to settlor’s words or conduct.

*Precatory language not enough (wish, desire, hope, request, etc.)

Question 13

*Beneficiaries

Answer 13

Beneficiaries Must Be Ascertainable

“Relatives” or “family” is valid;

“Friends” is too indefinite

Charitable trust cannot be for the benefit of identifiable private individuals

“My insolvent brothers”

*Settlor can be beneficiary; also, sole beneficiary (but not if sole trustee)

Question 14

Trust purposes

Answer 14

(any lawful purpose): Fails if
Used for commission of crime or tort, intent to defeat creditors, destruction of property

Total (not partial) restraints on marriage and conditions that encourage divorce are void; property transfers fully to beneficiary

Question 15

Statute of Frauds

Answer 15

All trusts must be in writing unless a transfer of personal property e.g. (stocks and bonds) to a trustee other than the settlor or beneficiary and transferor express intent to create a trust prior simultaneously or before the transfer.

Question 16

• rejection of trustee role

Answer 16

if person named trustee exercises powers or performs duties under the trust, he is presumed to have accepted the trust unless he is merely acting to preserve trust property and promptly sends notice of rejection to settlor or all primary beneficiaries.

e.g. if trust gives piece of property to beneficiary, proposed trustee does an inspection and then promptly sends letter that it is rejecting trust, trustee not liable

Question 17

*Overarching rule

Answer 17

courts want to honor the intent of the settlor

Question 18

• examples of precatory language:

Answer 18

“I hereby leave my…” and “wish” not enough

Need “shall” “must” or “transfer” not “wish” “want”

Question 19

• Merging titles to the trust

Answer 19

a trustee for a trust holds legal title to the trust corpus for the benefit of the
beneficiary(s).

The beneficiary(s) own equitable title to the corpus

However, a trust in which the trustee and the beneficiary are the same party is not valid under Texas law, as in that case, the legal title and
the equitable title merge into one party, eliminating the purpose of the trust

Question 20

*Is a trust that lists nobody and just says “for safekeeping” valid?

Answer 20

No, there must be named beneficiaries of the trust (or charitable purpose in the case of charitable trusts).

“safekeeping” is not a valid beneficiary

Question 21

*Requirements for trusts of real property?

Answer 21

Statute of frauds

• must be in writing
• reasonably describe the property