Requirements for a Trust

Question 1

What are the three things that use the name “trust”?

Answer 1

1. Express trusts (only REAL trust)
2. Resulting trusts
3. Constructive trusts

(2-3 are EQUITABLE REMEDIES)

Question 2

What is an express trust?

Answer 2

A legal device that allows an owner of property to make transfers of property and to have those assets managed on behalf of someone else (rather than have the beneficiary manage it himself)

(i.e., SETTLOR devises property via TRUST to a TRUSTEE, who manages it on behalf of BENEFICIARY.)

Question 3

What is a Settlor?

Answer 3

The person who creates the trust, i.e., gives legal title to some property

Question 4

What is a Trustee?

Answer 4

One who takes legal title from Settlor and manages the property on behalf of beneficiaries

Question 5

What rights do beneficiaries have in the trust property?

Answer 5

Equitable title to enjoy the distributions from the trust

Question 6

What are the two types of express trusts?

Answer 6

1. Lifetime trusts (set up during the Settlor’s life, i.e., an “inter vivos trust”); AND
2. Testamentary trusts (set up in Settlor’s will)

Question 7

What are the eight requirements for a valid trust?

Answer 7

1. Settlor [makes]
2. Delivery [of legal title to]
3. Property [to]
4. Trustee [who holds legal title on behalf of]
5. Beneficiary [with]
6. Intent [to create a trust with a]
7. Lawful purpose [in a]
8. Validly executed document

(NO consideration necessary!)

Question 8

Who can be a Settlor?

Answer 8

Anyone who is 18 or older AND has capacity to enter into Ks

Question 9

What is delivery for the purposes of the eight requirements of a valid trust?

Answer 9

(Delivery of legal title)

Titled assets must be FORMALLY transferred for delivery to be valid

Question 10

What can be property for the purposes of created a valid trust? (2 requirements)

Answer 10

1. Almost anything can be valid property, PROVIDED THAT it is owned by the Settlor; AND
2. The property MUST be identified, not subject to future determination (i.e., the property must be identified in the trust, not unascertained)

Question 11

Who can be a Trustee?

(Lifetime trust)

(Testamentary trust)

Answer 11

Lifetime trust: Almost anyone can be a Trustee (no court involvement necessary)

Testamentary trust: (Created in court) Anyone can be a Trustee EXCEPT:

1. Anyone under age 18;
2. Judicially declared incompetents;
3. Convicted felons; AND
4. Those incapable due to drunkeness, dishonesty, improvidence…

Question 12

When can a non-resident “alien” serve as a Trustee in NY?

Answer 12

When a NY resident serves as CO-trustee!

Question 13

What if no trustee is named in the trust?

Answer 13

No problem. Court can appoint a trustee in the case where Settlor failed to name a trustee in the trust.

Question 14

Who can be beneficiaries for the purposes of a valid trust?

Answer 14

Beneficiaries MUST be definite and ascertainable.

(If ambiguous, the Trustee holds the resulting trust for the residuary beneficiary OR intestate heirs if no valid will)

(BUT see family exception)

Question 15

What is the “family” exception to the general rule that beneficiaries must be definite and ascertainable?

Answer 15

“Family” or “next of kin” IS considered definite and ascertainable; and the trust will be valid.

(Consult the intestacy statutes for the people who fit the description in the trust)

(“Family” has a legal definition, unlike, e.g., “my best friend”)

Question 16

What is two elements are required to establish “intent” for the purposes of creating a valid trust?

Answer 16

1. The Settlor must INTEND to create an ENFORCEABLE obligation (i.e., non-binding (“precatory”) language is NOT ENOUGH); AND
2. The Trustee must be given DUTIES to perform (i.e., if the Trustee has no duties, it is a “passive trust” = NO trust at all)

(N.B. Simply using “trust” in the document is not sufficient to show intent; the language AND all the circumstances must be accounted for.)

Question 17

What are the three unlawful purposes for the purposes of creating a valid trust?

(i.e., Trusts will generally be valid unless they are for the purposes of one of three categories)

Answer 17

A trust will generally be valid UNLESS:

1. It calls for the commission of a crime;
2. It calls for the destruction of property; OR
3. It contains a condition contrary to public policy (BUT if a non-offensive purpose CAN be found, then okay!)

(Common bar exam hypo: trust restricting marriage or promoting divorce; BUT see exception!)

Question 18

What is the general rule w/r/t trusts that concern marriage?

What is the exception?

Answer 18

Common bar exam hypo: A trust that incentivizes a person to marry someone in particular or get divorced – Generally invalid due to public policy concerns.

BUT, marriage restrictions to members of certain religious OR ethnic groups ARE valid, i.e., are PERMISSIBLE RESTRAINTS on marriage!

(e.g., “To my son Jerry, provided he marries a Jewish woman within seven years after my death.” IS OKAY! …Jerry still has a fairly wide choice)

Question 19

How must a trust be exectued in order to be valid? (3 requirements)

Answer 19

1. Must be in writing;
2. Signed by Settlor AND Trustee; AND
3. EITHER acknowledged by a notary public OR signed by two witnesses.