VII Trusts
A. Introduction
Categories of participants:
Grantor, creator, settlor
Trustee
Beneficiary
Not testamentary by statute
Do not need to comply with the Statute of Wills
Do not need to comply with Statute of Frauds
Inter vivos trust = lifetime trust
Set up during life of beneficiary
Usually created by written document
i. Indenture of trust = bilateral K
ii. Deed of trust
Reasons to have trust:
Flexibility: can customize document to do exactly what you want
i. Can also change managers
ii. Can change investments
On-going management over a long period
i. For protection can attach strings
ii. Like spendthrift, etc
Allows sequential beneficiaries
= will substitute, non-probate transfer
Don’t need to worry about guardians or court supervision
Disadvantage:
i. Have to pay trustee
ii. Have to make sure property gets into the trust
Uniform Trust Code
§401 Methods of Creating Trust
i. Transfer of property to another person as trustee during settlor’s life or by will
ii. Declaration by owner of property that owner hold property as trustee OR
iii. Exercise of power of appointment in favor of trustee
§402 Requirements for Creation
i. Settlor must have capacity
ii. Settlor must indicate intention to create trust
iii. Trust must have definite beneficiary or be
1. charitable trust
2. trust for care of animal (§408)
3. trust for noncharitable purpose (§409)
iv. trustee must have duties to perform
v. same person cannot be sole trustee and sole beneficiary
vi. beneficiary is definite if ascertainable now or will be in future
vii. power in trustee to select beneficiary from indefinite class is valids
California §§15000-19403
§15206 Statute of Frauds: Trust must be created by
i. Written instrument signed by trustee (or authorized agent)
ii. Written instrument conveying trust property signed by settlor
iii. Operation of law
§15207 Oral Trust
i. Can establish condition of oral trust with clear and convincing evidence
ii. Oral declaration alone not sufficient evidence of trust
No oral trust for real property (see §15206)
Other sources of information:
Restatement Second of Trusts
Restatement Third of Trusts
B. Express Trust
Definition
R3d Trust §2 Definition
i. Trust = fiduciary relationship with respect to property resulting from manifestation of intent to create relationship by subjecting the person holding title to duties for benefit of beneficiary
Trustee = legal holder of property
Doctrine of merger = if legal and equitable interest merge, trust is destroyed
i. Separate parties must hold legal and beneficial interests
ii. If settlor is trustee and beneficiary, must have an additional beneficiary
iii. Restatement 3d Trusts §44, cmt c:
1. Can create trust for unborn child, but if no child born within rule against perpetuities, interest merges
2. named other beneficiaries upon death
3. remainder to his wife, who was contesting b/c she wants 100%
ii. Issue: Is a trust created by a mere declaration of intent to create a trust?
iii. Holding: Yes because there is definite property and subject matter, as well as intent.
iv. Rationale:
1. While a trustee needs to accept and handle the subject matter, the trustee was the settlor here
2. there is no merger problem b/c there were other beneficiaries
a. equitable interest was divested by naming other beneficiaries
3. where the settlor is the trustee, no need to transfer title b/c trustee already holds title
v. Notes:
1. Heggstad: a mechanism whereby we get the court to confirm who owns the property. (RE) RE held in trust without a deed is valid.
a. A trust in relation to real property is not valid unless:
i. §15206 Statute of frauds (CA)
1. What we need is a written instrument (any kind signed by the trustee) or the trustee’s agent
a. We need this signed by the transferee which is the trustee, so this shows they accept this and assume the responsibilities.
2. Buy a written instrument conveying the trust property signed by the settler, or by the settlor’s agent if authorized in writing to do so OR
3. By operation of law
b. With declaration of trust you never need to retitle it
