Express Private Trusts

Question 1

What elements are required for creating an express trust?

Answer 1

(1) A settlor with capacity to convey title to the trustee (or agent under POA that expressly authorizes creation on settlor’s behalf)
(2) Intention to create the trust
(3) One or more beneficiaries
(4) A trustee with active duties to perform
* Note that sole trustee and sole beneficiary cannot be same person

(5) Present disposition in trust of identifiable property then owned by the settlor
(6) Trust must have a lawful purpose

Question 2

What capacity is required for settler to convey title to trustee?

Answer 2

Same as a will (or expressly authorize agent to create trust)

Question 3

What intent is required to create a trust?

Answer 3

No particular words create a trust and use of words “trustee” are not conclusive
* Ambivalent words (e.g., “hope”) don’t create enforceable duty
* Court will look at the particular language in the total context of instrument to determine whether an enforceable trust was created
* Need present intent and a plan to create one in the future does not create a trust

Question 4

What does it mean to require definite beneficiaries?

Answer 4

They must be ascertainable
* Unborn person may be beneficiary of trust if they will be identifiable at the time their interest comes into enjoyment (i.e., class gifts OK)
* Beneficiaries presumed to accept unless affirmativelty disclaim

Question 5

What is a “Qualified Beneficiary?”

Answer 5

One who, on the relevant date, is currently eligible to receive a distribution from the trust, or would be eligible to receive distribution if trust terminated (i.e., one who has a vested remainder)

Question 6

What role does VA’s Anti-Lapse Statute play in trusts?

Answer 6

If a beneficiary is dead at the time of the execution of the trust instrument or at the time of the settlor’s death, their descendants take in their place when the beneficiary is the settlor’s grandparent or a descendent of the settlor’s grandparent
* Applies only if trust instrument or provision is revocable immediately before settlor’s death

Question 7

What role does divorce play in trusts?

Answer 7

Divorce decree revokes beneficial interests in revocable trust, but subsequent remarriage revives
* Any provision that confers power on the spouse or appoints the spouse as fiduciary is revoked as soon as one of the spouses files for divorce, annulment, legal separation, or maintenance

Question 8

What are the qualifications of trustee?

Answer 8

Legal age, competent, and capacity to enter Ks
* Noneresident OK so long as they appoint a resident agent for service of process
* Nonresident bank or trust company not authorized to do business in VA cannot serve as testamentary trustee
* If bank or trust company serving as trustee of inter vivos trust, institution may be recipient of “pour-over” gift from settlor’s will

Question 9

How does a trustee accept trusteeship?

Answer 9

• By substantially complying with the acceptance terms in the trust instrument OR
• Accepting delivery of trust property, exercising trust powers or performing trust duties, or indicating acceptance
• If not accepted within reasonable time, presumed to be rejected

Question 10

What if trustee has no duties?

Answer 10

No trust–the settlor must intend to impose enforceable duties on the trustee

Question 11

Is there a bond requirement for trustees?

Answer 11

• No, unless terms of trust require or court determines bond is needed to protect beneficiaries’ interests
• Regulated financial-service institution qualified to do trust business in VA need not give bond even if required by terms of trust

Question 12

How is a trustee compensated?

Answer 12

Either: (a) as specified in trust instrument or, if none, (b) reasonable compensation

Question 13

How may a trustee resign after acceptance?

Answer 13

By either: (a) giving 30 days’ notice to the settlor (if living), all co-trustees and all qualified beneficiaries OR (b) obtaining court approval

Question 14

What are grounds for removal of a trustee by a court?

Answer 14

(1) Serious breach of trust
(2) Lack of cooperation among co-trustees
(3) Unfitness, unwillingness, or persistent failure to administer trust effectively; or
(4) Substantial change in circumstances

NOTE that if settlor had knowledge of grounds for removal before appointing trustee, court may not act where trustee was appointed anyways

Question 15

What is the role of the RAP with respect to trusts?

Answer 15

It is a default rule, but contrary provision in trust will govern (i.e., can create “perpetual trust” in VA)
* “Opt-out” rule

Question 16

How to show familiar with opt-out rule

Answer 16

“The trust does not appear to provide that the Rule Against Perpetuities shall not apply, as permitted under Virginia law. Thus . . .”

Question 17

What is VA’s Rule Against Perpetuities?

Answer 17

Interest is valid if EITHER:
* (1) Valid under common law RAP (i.e., interest is certain to vest, if at all, no later than 21 years after the death of some life in being at the interest’s creation) OR
* (2) Interest actually vests or terminates within 90 years after the interest’s creation

Question 18

How may a trust be created?

Answer 18

(1) Inter vivos or testementary transfer to a trustee
(2) Self-declaration of trust; OR
(3) Exercise of power of appointment

Question 19

What is the delivery requirement?

Answer 19

To create a valid trust, the trust assets must be delivered to the trustee with the requisite intent
* No delivery requirement for declarations of trust (i.e., settlor names themselves as trustee) OR testamentary trusts (where wills law governs)

Question 20

How may an oral trust of real and personal property be created?

Answer 20

Existence and terms must be established by clear and convincing evidence
* Donative transfer, so need not be supported by consideration
* BUT a promise to create a trust in the future is not enforceable without consideration