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TEXT SAMPLE
XIV. Methods Of Creating And Validating Trusts A. Methods
of creating a trust--A trust may be created by: (FS §736.0401(1)) 1. Transfer
of property to another person as trustee during the settlor's lifetime, (FS
§736.0401(1)), or 2. Transfer
by will or other disposition taking effect on the settlor's death, (FS
§736.0401(1), or 3. By
the owner's declaration that identifiable property is now held by the
trustee, (FS §736.0401(2)) or, 4. By
the exercise of a power of appointment in favor of a trustee (FS
§736.0401(3)). B. Requirements
for trust creation--A trust is created only if (all of the following
apply): (FS §736.0402(1)) 1. The
settlor has capacity to create the trust, (FS §736.0402(1)(a)),
and 2. The
settlor indicates an intent to create the trust, (FS §736.0402 (1)(b)), and 3. The
trust has a definite beneficiary [with "beneficiary" being
defined in §736.0402(2) as one who "can be ascertained now or in the
future, subject to any applicable rule against perpetuities"] (FS
§736.0402(1)(c)), unless that trust is: a. a
charitable trust under FS §736.0405 (FS §736.0402(1)(c)1), or b. an
animal care trust under FS §736.0408 (FS §736.0402(1)(c) 2), or c. a
noncharitable trust without an ascertainable beneficiary under FS §736.0409
(FS §736.0402(1)(c)3), and 4. The
trustee has duties to perform, (FS §736.0402(1)(d)),
and 5. The
same person is not the sole trustee and sole beneficiary, (FS §736.0402(1)(e)). C. Validity
of trustee to select beneficiary from indefinite class, if exercised in a
reasonable time, otherwise lapse to alternate takers--A power of a trustee
to select a beneficiary from an indefinite class is valid; however, if the
power is not exercised within a reasonable time, the power fails and the
property subject to power passes to persons who would have taken the property
had the power not been conferred (FS §736. 0402(3)). FS
§736.0401(1)-(3) Methods of creating trust provides that a trust may be created by: (1) transfers of
property to another person as trustee during the settlor's lifetime, or
transfer by will or other disposition taking effect on the settlor's death, or
(2) by the owner's declaration that identifiable property is now held by the
trustee, or (3) by the exercise of a power of appointment in favor of a
trustee. Uniform
Trust Code commentary to UTC §401 Methods Of Creating
Trust indicates that this
section is modeled after §17 Restatement (Second of Trusts (1959) and §10
Restatement (Third) of Trusts (Tentative Daft No. 1 approved 1996). Under the
funding methods described above, a trust is not "created" until it
receives a transfer of property. For a
definition of what constitutes an adequate property transfer, the commentary
refers to §§74-86 Restatement (Second) of Trusts (1959) and §§40-41 Restatement
(Third) of Trusts (Tentative Draft No. 2, approved 1999). Further, adequate
funding does not require that the property transferred be
"substantial", thus for instance, a revocable designation of a
trustee as beneficiary of a life insurance policy is sufficient. This principle
is underscored in UTC §103(11) defining "property" very broadly. [Note, Although
this subsection refers to property transfers to a trustee, the trust is validly
created even when no trustee is in place--specifically referring to §2 comment
i. Restatement (Second) of Trusts (1959) & §2 comment g. Restatement
(Third) of Trusts (Tentative Draft No. 1., approved 1996); and even when there
is no notice to or acceptance by the trustee--specifically referring to §§35-36
Restatement Second of Trusts (1959) & §14 Restatement (Third) of Trusts
(Tentative Draft No. 1, approved 1996). The
commentary further indicates that a trust may be created by a promise granting
enforceable rights in one who immediately or later holds them in
trust--specifically referring to §10(e) Restatement (Third) of Trusts
(Tentative Draft No. 1, approved 1996). Sufficient funding of this trust occurs
even despite the trustee's subsequent death or resignation, unless the
enforceable promise is personal only to that deceased or resigned
trustee--specifically referring to §14 comment h. §26 comment n. Restatement
(Second) of Trusts (1959) and §10(e) & comment g. Restatement (Third) of
Trusts (Tentative Draft No. 1, approved 1996) for creation of trusts on
promises enforceable by the trustee. While
the commentary advises that a self-declaration of trust is best created by
reregistering each asset into the name of the trust (to confirm title
"with third party transferees") such retitling is not necessary to
create the trust. Thus minimal funding is accomplished by attaching a schedule
listing the assets subject to the trust without executing the actual
instruments of title transfer--specifically referring to §17 comment a.
Restatement (Second) of Trusts (1959); §10 comment e. Restatement (Third) of
Trusts (Tentative Draft No. 1, approved 1996); In re Estate of Heggstad, 20 Cal. Rptr. 2d 433 (Ct. App. 1993). Testamentary
trusts exist upon the testator's death and not upon subsequent funding. UTC
§701 [FS §736.0701 "Accepting or declining trusteeship"] directs that
a testamentary-nominated trustee has no duty to act until express or implied
acceptance of the trust. Where no implied acceptance of trust is intended
pending probate administration, the commentary advises the trustee to notify
the beneficiaries and the personal representative that only a limited
(investigatory) role is being assumed, otherwise the trustee may be liable for
damages caused to beneficiaries for such action. Finally,
the commentary indicates that the code does not "legislate
comprehensively" on the use of powers of appointment to fund a trust,
relying instead on only selected issues. Thus UTC §302 "Representation by holder of
general testamentary power of appointment" [FS §736.0302
"Representation by holder of power of appointment"] designates
circumstances where a power holder may represent and bind permissible
appointees and takers in default. Further, UTC §505(b) [FS §736.0505(2)
"Creditors claim against settlor"] directs when creditors of power
holders can reach trust property subject to a power of appointment; UTC §603(c)
[FS §736.0603(2) "Settlor's powers of withdrawal"] describes when a
holder of a trust power of withdrawal will be treated as a settlor of a
revocable trust over any property subject to that power. For further discussion
relating to powers of appointment, the commentary refers to §§11.1-24.4
Restatement (Second) of Property: Donative Transfers, Sections (1986). Restatement
of Law Third, Trusts (2001) and UTC §401 "Methods of creating a
trust"--The
commentary to UTC §401 deals with the subject of methods of trust creation
(funding) and indicates that this section (1) is fundamentally based on the
trust creation methods set forth in §10, "Methods of Creating a
Trust" (which itself is limited by §69, "Merger"), (2) allows
virtually any property to be transferred to trust as provided in §40, "Any
Property May Be Trust Property", except that described in §41,
"Expectancies: Nonexistent Property Interests", and (3) does not
require a trustee in place to fund a trust as indicated in §14, "Notice
and Acceptance Not Required to Create Trust". §10
Methods of Creating a Trust: "Except as prevented by the doctrine
of merger (§69), a trust may be created by: (a) a transfer by the will of a property owner to another person
as trustee for one or more persons; or (b) a transfer inter vivos by a property owner to another person
as trustee for one or more persons; or (c) a declaration by an owner of property that he or she holds
that property as trustee for one or more persons; or (d) an exercise of a power of appointment by appointing property
to a person as trustee for one or more persons who are objects of the power; or (e) a promise or beneficiary designation that creates
enforceable rights in a person who immediately or later holds those rights as
trustee, or who pursuant to those rights later receives property as trustee,
for one or more persons." Comment
a. ("In general")
reiterates that in all of the stated funding methods the trustee may also be a
sole or multiple beneficiary. [Moreover, §10, states
that, valid trust transfers must not violate the rule stated in §69.] §69 Merger: "If the legal title to the trust
property and the entire beneficial interest become united in one person, the
trust terminates." Thus in a self-declaration of trust, if the
settlor is also the trustee and (both present and future) sole beneficiary, no
trust is created. Comment
b. ("Other trust situations") allows for additional trust additions, by the settlor(s) or
others, after its initial creation. It also refers to the validity of trusts
created by statute, including (1) trusts containing wrongful death proceeds
which are held not by the personal represent-ative of the decedent's estate but
for the benefit of those "specifically designated in the statute" and
(2) trusts to hold a statutory forced share for the incapacitated surviving
spouse and the deceased spouse's successors, etc. Comment
on §10(a): Comment
c. ("Transfers by will")
allows one to fund a trust by a devise or bequest from the donor's will. The
trust may be one in existence at the donor's death, which may have already been
created by the grantor or another. Further, Restatement Third,
Trusts §17, provides: §17
Creation of Testamentary Trusts: "(1) A testamentary trust is one created by
a valid will. (2)
Except as provided in §19 ["Pour-Over Dispositions by Will"],
a trust is created by will if the intention to create the trust and other
elements essential to the creation of a testamentary trust (ordinarily,
identification of the trust property, the beneficiaries, and the purposes of
the trust) can be ascertained from (a) the will itself; or (b) an existing instrument properly incorporated by reference
into the will; or (c) facts referred to in the will that have significance apart
from their effect upon the disposition of the property bequeathed or devised by
the will." Comment
a. ("Dispositions that are testamentary") describes testamentary dispositions as
those which the transferor (i) does not intend to make inter vivos or (ii)
although intending to create a trust, does not intend to transfer property
thereto during the transferor's life either inter vivos or by
declaration--these trusts can be created only by will. A will (including a
codicil or other testamentary instrument, such as a fiduciary appointment, or a
revocation of a will, the exercise of a testamentary power of appointment, or
direction excluding or limiting the right of a beneficiary's testamentary gift)
is defined as "a validly executed document intended to transfer property
upon a transferor's death." A will is "validly executed" only if
it complies with statutory formalities of each jurisdiction's "Statute of
Wills" or "Wills Acts". A testamentary trust is described as one
created by will and is character-ized by the owner's intent not to transfer the
trust property to a trustee during life and not to himself serve as trustee or
"be bound by a contract to create a trust." Testamentary trust
transactions (needing to conform to the Statute of Wills) are those in which
the instrument provides for property transfers to a trustee who "cannot be
identified until the transferor's death", or does not dispose of the
property until the transferor dies. However, a valid trust is created by
declaration or inter vivos, despite the fact that (future or contingent)
beneficiaries' rights are subject to any settlor-retained power. Also, an inter
vivos trust is not made testamentary merely because it is used as a will
substitute to avoid the formalities of probate, even when during the settlor's
life the beneficiaries interests may be seen as "bare expectancies". Comment
b. ("Wills Act execution requirements") describes various Statutes of Wills as
requiring a writing which is signed by the testator "and by a specified
number of attesting witnesses, and complies with any other formalities".
They may also allow exceptions to execution requirements such as holographic
and oral (nuncupative) wills, as well as those otherwise nonconforming wills
that may be rehabilitated under the doctrine of "harmless error" or
"substantial compliance" (i.e, a will is validated where executed in
substantial compliance with the wills statute and the proponent shows by clear
and convincing evidence that the testator intended it as a will). Comment
c. ("Incorporation by reference") defines the doctrine of "incorporation by
reference" as where "an instrument in existence at the time of the
execution of a will and referred to in the will can be incorporated by
reference into the will and can be admitted to probate or otherwise given
effect as a part of that will." Comment
d. ("Facts of independent significance") describes "facts of independent
significance" as the reference in the will to bene-ficiaries or to gifted
property "in terms of descriptions that require resort to extrinsic
facts." Extrinsic facts, such as references to property owned by the
testator or bene-ficiaries who are alive at the
testator's death, are described as both "safe" and "essential to
the ambulatory character of modern wills"--e.g. the disposition of the
testator's residue, per stirpes, to "my issue who survive me".
However, unacceptable are references to facts "that are peculiarly within
the knowledge or control of the testator and thus may involve attempts to
complete or alter wills on the basis of excessively casual, unclear, or
unreliable indications of intention, or may even be excessively vulnerable to
misconduct on the part of others." Thus references to beneficiaries or
property are valid if they may be determined by facts having (substantial)
significance "apart from their effect on the dispositions in a will...[namely, an act] naturally done for some reason other
than the effect it would have on the testamentary disposition." Comment
e. ("Essential trust elements") describes the essential trust creating elements as (i)
intention to create the trust, (ii) existence of a trust beneficiary, (iii)
trust property and (iv) the trust purpose can be determined from the will
and/or in combination with the doctrines of incorporation by reference and acts
of independent significance; finally, (v) the trustee's existence may, if
necessary, be supplied by the court. Comment
f. ("Testamentary trust properly expressed") reiterates that a testamentary trust is
properly "expressed" even though the elements necessary for creation
(see comment above) need to rely on "rules of construction or to the
process of interpretation." Comment
g. ("Intended testamentary trust not properly expressed") however, describes a testamentary trust as
"not properly expressed" where the trust purpose and beneficiary
cannot be ascertained from factors described in comment f. above. In that case
the question arises whether the trust is enforceable as a constructive trust
(for the settlor, if alive, or if not, for the settlor's successors) under
Restatement Third, Trusts (2001): §18, "Secret Trusts", or §7,
"Nature and Definition of Resulting Trusts", or §8, "When
Express Trust Fails in Whole or in Part". [See
discussion of constructive trusts generally at UTC §102, "Scope", (FS
§736.0102) above.] Comment
h. ("Dispositions in accordance with directions of a third person") describes circumstances where the
testator's gifted property is to be disposed of by a third person as donee
under a power of appointment. He may then dispose of the property consistent
with the power, including appointment of the property in trust or "by
prescribing beneficiaries and purposes for a trust created by the testator's
will." Where the donee is given only a testamentary power, the donee may
exercise the power under a will executed after the donor's death. He may also
exercise the power in a will executed before the testator's death if he
survived the testator-donor, unless the power was conditioned (i) by the
testator only on exercise in a will created after the donor's death, or (ii)
the donee may have manifested an intention that exercise of the power is
effective only in an instrument created after the power was granted. Also, if
the donee of a testamentary power of attorney dies before the granting donor,
the power cannot be exercised before it is created unless (i) under the
doctrine of incorporation by reference, the power's exercise is in favor of
beneficiaries "to be identified by...[the will of] a person who is already
dead, or, if so intended, by the provisions of a particular existing will of a person who is still living even
though that person happens thereafter to predecease the testator."; (ii)
under the doctrine of incorporation by reference, such as where the testator
gifts property to those identified by the will of a person who is already dead
or, if intended, by referring to language "of a particular existing will of a person who is still living even
though that person happens thereafter to predecease the testator."; or
(iii) under the doctrine of facts of independent significance where a testator
gifts property to bene-ficiaries identified by the will of a third person, the
gift is valid whether the other person predeceases or survives the testator,
since the gift of the "other's own property has significance apart from
its effect on the disposition of the testator's property."; or (iv) the
disposition may nonetheless be upheld as consistent with the Statute of Wills
as where the testator gifts property to such person(s) as a third person
appoints by his will, regardless of whether that person survives the testator,
and the third person predeceases the testator with a will disposing of that
property--the third person's testamentary disposition is valid even though the
testator did not incorporate the disposition by reference into his own will and
"even though the third person's will does not have independent
significance (because it does not give any of the third person's own property
to the person or persons to whom the property of the testator would be
given)." Finally, Comment i. ("Other matters") refers to the effect of an agreement by
a beneficiary with the testator to hold gifted property in a trust "not
stated or insufficiently stated", and refers to Restatement of Trust,
Third §18, "Secret Trusts". Comment on §10(b), "Methods of Creating
a Trust" (Cont.): Comment
d. ("Transfer inter vivos")
permits trust creation "by an owner's inter vivos transfer of property to
another person as trustee for the benefit of the transferor, for one or more
third persons, or both, whether or not the trustee is also a beneficiary; also
specifically referring to Restatement Third, Trusts §25, "Validity and
Effect of Revocable Inter Vivos Trust", which provides: §25 Validity and Effect of Revocable
Inter Vivos Trust: " (1) A trust that is created by the
settlor's declaration of trust, or by inter vivos transfer to another, or by
beneficiary designation or other payment under a life insurance policy,
employee-benefit or retirement arrangement, or other contract is not rendered
testamentary merely because the settlor retains extensive rights such as a
beneficial interest for life, powers to revoke and modify the trust, and the
right to serve as or control the trustee, or because the trust is funded in
whole or in part or comes into existence at or after the death of the settlor,
or because the trust is intended to serve as a substitute for a will. (2)
A Trust that is not testamentary is not subject to the formal requirements of
§17 [formalities of "Creation of Testamentary Trusts"] or to
procedures for the administration of a decedent's estate; nevertheless, a trust
is ordinarily subject to substantive restrictions on testation and to rules of
construction and other rules applicable to testamentary dispositions, and in
other respects the property of such a trust is ordinarily treated as though it
were owned by the settlor." With respect to the §25(2) provision that
"a trust is ordinarily subject to the substantive rules on
testation..", §25, Comment d. ("Applicability
of restrictions on testamentary disposition") provides that will
substitute inter vivos trusts may nonetheless be subject to statutes applicable
to testamentary estates, such as surviving spouse forced share elections, or
limitations on death bed-induced gifts to charity at the expense of the
testator's dependents (such as mortmain
statutes). Comment
on §10(c), "Methods of Creating a Trust" (Cont.): Comment
e. ("Declaration of trust")
provides that a trust transfer by declaration of trust validly occurs even
where no transfer of title to another occurs and even though no consideration
is provided for the declaration. However, a statute of frauds may require a
signed written (transfer) document for the trust to be enforceable. Since the
declaration of trust is considered as its own means of creating an inter vivos
trust, the declaration creates "an exception to or substitute for the
usual requirement that there be a transfer of the trust property to the
trustee." As such, the trust results by either creating
an instrument acknowledging the creation of a declaration or as a transfer of
property to the declarant as trustee. Therefore for such declarations "the
law ordinarily [does not] require acknowledgment or recordation or other formal
change in ownership records or documents of title, for the effective creation
of the trust." Thus in Illustration 3, S declares herself trustee of
property for her own benefit for life, then to husband for life, remainder to
S's then issue--S is trustee thereof for herself and other beneficiaries.
Nonetheless, "[F]or practical reasons, steps to conform
ownership documents or records and to perfect the rights and interests of the
parties with respect to third persons should ordinarily be taken at the time a
trust is created." Comment
on §10(d): Comment
f. ("Transfer by exercise of a power of appointment") allows the holder of a power of
appointment to make an appointment to a trustee. The (addition to or) creation
of a trust is valid if the power is validly exercised. The donee of either a
testamentary or presently exercisable general power of appointment (or
withdrawal power) may appoint to trust in the same way as an "outright
owner" of the property could have. Transfers in trust of limited powers of
appointment are valid but subject to the limitations provided in the power.
Similarly, if the power can be exercised only in favor of designated
appointees, it is "inferred" that the donee power holder can appoint
outright or in trust, including both present or future
interests, just the same as the donor as owner could have. Comment
on §10(e): Comment
g. ("Trust created by enforceable promise or bene-ficiary
designation") directs
that a nonbinding promise by a property owner to create a future trust does not
create the trust; however, "when a property owner makes a contractually
binding promise to establish a trust by inter vivos or testamentary transfer or
by declaration, and later performs by making the promised transfer or
declaration, ordinarily the trust is created at the time of performance,
whether the transfer or declaration is made voluntarily or involuntarily."
Moreover, if a person promises or procures a promise for money to be paid or
property transferred to a trustee (with either express or implied trustee
acceptance thereof), and also expresses intention to create the trust, the
trust arises at the time of contract "with a chose in action, (the rights under the contract) then being held
for the beneficiaries by the trustee." However, a promise to create a
trust in the future does not create the trust until a present declaration to
hold is made or the transfer to the trustee of the rights is satisfied. Thus in
Illustration 8, S gratuitously promises B that when S obtains certain shares of
stock, S will transfer it to Trustee in trust for B's benefit--the trust is
created when S transfers the shares into trust.
In Illustration 9, O tells B that before year's
end O will transfer her stock in trust for B--no trust is created until the
transfer in trust occurs. In illustration 10, in consideration of valuable
services B renders to O, O promises to transfer stock in trust for B at the
first of next month--no trust is created until O makes the transfer, but O is
liable to B for breach of contract if the promised transfer is not made. In
Illustration 11, in consideration of B's parents providing A with funds, A
promises to devise real property in trust to Trustee for B's benefit by the
first of next month; A then delivers a writing to Trustee informing Trustee of
A's intention to convey the property in trust for B's benefit--Trustee thereby
holds in trust for B the right to specifically enforce the promised conveyance
or to obtain damages for breach thereof. Irrevocable and revocable life
insurance benefits are created on assignment of the contract to the trust and
thus occur as described in §10(b). Editor
comment on §10(e)--Although
UTC §401 does not specifically adopt Restatement Trusts, Third §10(e), which
recognizes transfers into trust of "a promise or beneficiary designation
that creates enforceable rights in a person who thereafter holds those rights
as trustee", the commissioner's commentary indicates that transferred
property does not need to be "substantial" and further indicates that
a revocable designation of a trustee as beneficiary of a life insurance policy
is sufficient. Thus the creation method stated in Restatement Third, Trusts
§10(e) is essentially recognized. Restatement
of Law Third, Trusts (2001) and UTC §401 "Methods of creating a
trust" (Cont.)--The
commentary to UTC §401 also indicates that proper trust funding does not
require the existence of a trustee as further provided in Restatement Third,
Trusts, §2 "Definition of Trust", Comment g. ("Necessity of a
trustee") which provides that an express trust can be created or continue
even during periods when there is no trustee. Thus a devise in trust is valid
even when the governing instrument does not name a trustee, or the trustee
refuses to accept the duty, resigns, or is dead. Similarly, a trust cannot fail
for lack of a trustee. Correspondingly, the commentary refers to Restatement
Third, Trusts, §35, "Acceptance or Renunciation of Trusteeship" and
§36, "Resignation of Trustee" for the proposition that transfers into
trust are valid even during periods when the trustee either does not know of
the trust's creation (or vacancy therein) and had not accepted the trust. [See
UTC §701 (FS §736.0701), "Accepting or rejecting trusteeship" and
§704, (FS §736.0704), "Vacancy in trusteeship; appointment of
successor", for counterparts to §§35 & 36]. These Restatement sections
provide as follows. §35 Acceptance or Renunciation of
Trusteeship:
"(1) a designated trustee may accept the trusteeship either by
words or by conduct. (2)
A designated trustee who has not accepted the trusteeship may decline it." §36
Resignation of Trustee: "A trustee who has accepted the trust can
properly resign: (a) in accordance with the terms of the trust; (b) with the consent of all beneficiaries; or (c) upon terms approved by a proper court." Editor
comment on Restatement of Law Trusts, Third (2001) §14--Under §14, "Notice and Acceptance
Not Required to Create Trust", a trust is validly created even where the
office of trustee is vacant because no trustee acceptance has occurred. §14
Notice and Acceptance Not Required to Create Trust: "A trust can be created without notice to
or acceptance by any beneficiary or trustee." Comment
a. ("In general")
indicates that testamentary trust terms are often not communicated to the
trustee or any beneficiary. In that case the necessary transfer in trust occurs
on the settlor's death and the prior execution of a valid will. Moreover,
trusts created by declaration or inter vivos transfer result without
communication to anyone "when a written declaration (§10(c)) is neither
lawyer-assisted nor initially disclosed." While the transfer of property
to the trustee is nonetheless required, trust creation "does not require
disclosure of the trust intention or other contents of a
writing at the time of its delivery." Comment
b. ("Trusts created by will") reiterates that a testamentary trust is created upon
execution of a valid will despite the fact (i) the testator subsequently
becomes incapacitated, or (ii) no trustee is named, or (iii) a named trustee(s)
dies or resigns, etc., since courts are able to fill the void. Comment
c. ("Trusts created by declaration") indicates that a declaration of trust does
not require beneficiary acceptance and after the declaration the trust exists
despite the settlor's death, incapacity or bankruptcy before anyone is informed
of the trust's existence. Comment
c(1). ("Beneficiary's disclaimer") provides that where the beneficiary learns
of the trust's creation and "without expressly or impliedly accepting its
benefits" disclaims it, the interest is retroactively eliminated. The
trust then continues for other beneficiaries and the disclaimed interest may be
absorbed thereby, "such as by acceleration of future interests, or
otherwise through construction or interpretation...[and
if not fully absorbed] a reversion will be left in the settlor or the settlor's
successors in interests [upon resulting trust]." Comment
d. ("Trusts created by inter vivos transfer"), however, states that for trusts created
by inter vivos transfer, there must be a delivery of property (title) to the
trustee before the trust exists--legal title is retained by the settlor. Where
the settlor delivers trust property to a third person, a trust is created if
the recipient is the trustee's (not the settlor's) agent even if the trustee is
not aware of the transaction. Again, once the trust is created it is not
affected by the settlor's death, incapacity or bankruptcy. The comment refers
further to Restatement Third §16, "Ineffective Inter Vivos
Transfers", which essentially provides that a property owner who seeks to
transfer property to a trustee, but fails to do so during the owner's life,
does not create an "express" trust, however, in certain
circumstances, (such as where the property owner dies or becomes incapacitated)
a constructive trust may occur to prevent unjust enrichment of the property
owner's successors in interest. Where the trust is to be created on delivery by
the property owner to a trustee (either directly or to the trustee's agent) but
after delivery the trustee declines to act as trustee, title vests in the named
successor trustee or if none, then in the settlor "but not the beneficial
interests". In that case the settlor becomes the constructive trustee. The
settlor then must make a declaration of trust or transfer the property to a new
trustee. Also, where personal delivery of property is made to a third person
who refuses to accept it as trustee, title to trust property does not pass.
Instead, no trust is created and the title remains with the deliverer who may
retain it as his own or create the trust by self-declaration, or by transfer to
one who will accept the trustee's duties. Editor
comment on Restatement of Law Trusts, Third (2001) §40 & §41--The commentary to UTC §401 further refers
to Restatement Third, Trusts §40, "Any Property May Be Trust
Property", for the principle that virtually any property may be the
subject of trust ownership, subject, however to ephemeral interests as
described in §41, "Expectancies; Nonexistent Property Interests". §40
Any Property May Be Trust Property: "Subject to the rule of §29
["Purposes and Provisions That Are Unlawful or Against Public
Policy"], a trustee may hold in trust any interest in any type of
property." Comment
a. ("Scope note")
provides that this section addresses (1) "the fundamental question of
whether trust law in any way limits the forms of property than can be held in
trust."; and (2) the problems under other law or private arrangements that
restrict a settlor from placing property in trust. Comment
b. ("The basic rule: any property may be trust property") directs that trust law does not restrict
the types of property that can be held in trust and defines
"property" as "interests in things, not necessarily the things
themselves"--a concept which itself is legally evolving. It includes
tangible and intangible property, and "diverse rights" such as
"undivided interests, terms of years, contingent future interests, and choses in action, even choses with respect to things that are
not specifically ascertainable...at the time the trust is created, or with
respect to things that are not owned by the settlor or in existence...at that
time." Comment
c. ("Transferable property")
states that a testamentary transfer in trust may include anything an owner may
dispose of by will and "[A]ny property interest of which an owner may make
a present transfer by way of outright gift can be the subject of a declaration
of trust or an inter vivos transfer to another to be held in trust." Comment
d. ("Nontransferable property") indicates that non-transferable property which the settlor
wishes to make part of a trust creates problems not so much because of
"any prohibition or policy of trust law but from other bodies of statutory
or common law, from articles or bylaws of business entities, or from the terms
of private agreements, deeds, or other governing instruments." Thus the
problem stems from the inability of the property to be transferred for use by
the trust beneficiaries. Comment
e. ("Indefinite subject matter") further states that indefinite subject matter property cannot
qualify as trust property. Accordingly, "[T]here is no trust property if
the identity of the intended subject matter remains wholly in the control of
the settlor or if its description is so indefinite that it cannot be
ascertained." Thus, for instance, if Settlor declares that he is
transferring in trust "the bulk of my securities" or "some
substantial portion" of a certain stock, the subject matter is too
indefinite and no transfer in trust results. §41
Expectancies; Nonexistent Property Interests: "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." Comment
a. ("Expectation of receiving property by testate or intestate
succession") provides
that both "traditional and current property concepts" do not treat
expectancies as property interests. Therefore expectancies cannot be
transferred into trust. Thus, for example, "the hope of an expectant
heir...is not property." However, a testamentary beneficiary who is
entitled to receive distribution at the end of estate administration, or the
occurrence of a future event has a transferable trust interest. However, that
same beneficiary for a testator who has not died, has only a bare expectancy
even if the testator is incapacitated and likely unable to change the will. Comment
b. ("Nonexistent interests")
states that a nonexistent interest is not property either because it is
"not itself in existence or, although the thing exists, no one has an
interest in it." Thus if settlor gratuitously declares a trust over such
pictures as she shall in future paint or stocks that she may later acquire, no
trust is created. Comment
c. ("Contractual liability")
provides that a declaration of trust or assignment in trust for consideration
of a "bare expectancy or nonexistent property" results in a contract
to create a trust despite its wording as a present transfer. Comment
d. ("Intended trust property subsequently acquired") indicates that if the nonexistent trust
property is later acquired, the previous declaration or assignment does not
then create trust property until the existence of "some express or implied
manifest-ation at the later time of an intent to give
effect to the trust." Comment
e. ("Other matters")
also labels as indefinite "property the person hopes to acquire by gift
inter vivos." |
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