XII.

Trusts---Express and Remedial

Introduction
1) Introduction
a. The intervivos trust is usually the cornerstone of most clients’ estate plans
b. Note that 3rd parties are persons with no direct connections to the trust, but who
may have rights based upon the interests of the parties to the trust, i.e. creditors as
well as spouses/children as they are special forms of creditors.
2) The Trust Relationship Defined
a. Trust defined
i. A trust is a fiduciary relationship based on property. It is based on
equitable duties, rather than personal duties.
b. Nature and Characters of the Fiduciary Relationship
i. A duty to act on the part of the fiduciary for the benefit of the other party
to that relationship as to all matters within the scope of that relationship.
c. Kinds of Fiduciary Relationships
3) Trust Terminology and Classifications
a. Express Trusts: created by the creator’s express intent
i. Private: typically created to benefit an individual or a limited number of
beneficiaries.
ii. Charitable: created to accomplish one or more charitable purposes. Those
to be benefitted are indefinite in number and uncertain.
iii. Business: typically created to accomplish a business purpose.
iv. Hybrids: typically created to accomplish multiple objectives
b. Implied Trusts-Remedial/ Operation of Law:
i. Resulting: a court decrees the holder of title to be a resulting trustee,
because its implicit in the transaction, as seen in the spicer case. As where
a private express trust fails, a resulting trust will arise to remediate the
failure and return trust property to the person who created the trust.
ii. Constructive: an equitable remedy
c. The basic distinction of express and implied trusts is intent. Express trusts are
created by the intent of the creator, while implied trusts are created by the courts.
4) Course Focus
The Private Express Trust
1) Definition
a. A fiduciary relationship with respect to property subjecting the title holder of the
property to equitable duties to deal with that property for the benefit of another
and it arises out of intent.
2) Characteristics
a. A private express trust is a donative transfer, like a gift.
b. The essential split of title and the doctrine of merger
i. A trust requires the separation of legal and equitable titles, unlike a gift
ii. Merger of title occurs when the sole equitable and sole legal title reside in
the same person. When this occurs, the trust is destroyed because the split
of titles has ended.
c. Common Trust Configurations (3)
 i. Upon the trusts’ creation, legal title is transferred to one person while
equitable title is transferred to another person.
1. The person holding legal title is trustee
2. The person holding equitable title is a beneficiary.
3. The trust’s creator is referred to as the settler.
ii. Person creating the trust retains legal title and only transfers beneficial
title.
1. So, the settler is also trustee. This is called a declaration of trust.
iii. Settler may retain the beneficial interest and only transfer out legal title
1. Settler is also the trust’s beneficiary. He retains equitable title and
only transfers legal title.
3) Subcategories
a. Declarations/Transfers
i. Declaration: inter vivos conveyance legal title to trustee
b. Inter Vivos/ Testamentary
i. Trust can be created during settlers lifetime and begin automatically
(intervivos) or upon his death (testamentary).
ii. An inter vivos trust has independent legal significance, so it can continue
even if settler’s will is invalid.
iii. But, a testamentary trust is contained in the will and is depend upon the
wills’ validity.
c. Revocable/Irrevocable
i. Revocable if settler reserves the right to right
ii. Irrevocable if no power to revoke is granted or reserved.
4) Purpose and Function of Private Express Trust
a. To provide expert management of trust assets in order to relieve others of the
burden.
b. To preserve and conserve assets
c. To create a staged principle distribution arrangement
d. To avoid probate
e. To avoid creditors
i. Taxes: To reduce or eliminate transfer or income taxes across multiple
generations.
ii. Medicaid: to qualify a client for public assistance while preserving the
assets for other family members.
5) Required Elements
a. Capacity
i. The settler must have sufficient mental capacity to perform the legal act of
transfer.
1. Inter vivos Trust: Same degree of capacity that is required to
management assets. Generally, a higher degree of capacity than is
needed to create a will.
2. Testamentary Trust:
b. Delivery
 i. Generally there must be a delivery of the actual trust property,
instruments, or titles to the trustee (deed for property; certificates for
securities; check for cash)
ii. Distinction between inter vivos and testamentary trust
1. In inter vivos trust, settler transfers legal title to the trustee directly.
2. In testamentary trust, legal title passes from the decedent through
his estate. Title to personalty passes to personal representative at
such time as the personal representative is appointed (suspended
until that time). So the personal representative will then transfer
that title to the trustee after all obligations are satisfied. Title to real
property passes at instant of death to the devisee, rather than to
personal representative.
iii. Distinction between trusts and transfers in trust
1. See example in notes
2. Declaration makes person a trustee and delivery is not required
3. The preferred practice is to place the assets into an account to put
the world on notice that I these items are in trust.
iv. Distinction between equitable and legal title
1. No formal delivery of equitable title is required.
2. Formal delivery of legal title is required.
c. Intent and Precatory Language
i. An express trust exists only when the settler appropriately manifests an
intent to create the trust by severing titles and imposing effective duties on
the trustee.
ii. Depending on the jurisdiction, a specific set of words may be necessary to
create a trust, although most jurisdictions don’t require such words
1. Restatement: manifestation of intent to create a trust may be made
by words or by conduct. No particular form of words or conduct is
necessary to manifest that intent, unless a statute provides
otherwise.
2. So, its possible to create a trust without using the word trust,
although preferred practice is to use “trust” explicity.
iii. The choice of words or absence of “trust” can create doubt as to intent
1. Precatory language makes an outright gift from a donor to a donee,
but the donor includes language that expresses the hope, wish, or
desire, but no legal obligation – that the property be used for the
benefit of another. No trust will be created by precatory langauged
directed at trustee unless there is testamentary intent to impose
legal obligations.
2. The court must construct the transferors intent by looking at the
language itself in light, and then in light of the surrounding
circumstances (extrinsic evidence) to see if there was sufficient
intent.
a. Remember, you must have the intent to sever titles AND
impose binding legal obligations to create a private express
trust
 iv. Relationship—Resulting/Express Trusts
1. A trustee of a failed private express trust would be converted to
trustee of a resulting trust by decree of equity court. The
beneficiary of the resulting trust is always the settler private
express trust, and, when settler is deceased, its her personal
reprsentatives.
2. The court or personal representative then orders the resulting
trust’s trustee to transfer legal title to the beneficiary/settler,
resulting in the merger of titles and destruction of the trust. Once
settler gets both titles back, the trust is destroyed by merger and the
assets are then distributed to the settler’s beneficiaries via will or
intestate statute.
3. A resulting trust’s trustee has no express duties, because the trust is
implied by the court, but, while the trustee has legal title, he should
protect it.
4. Sometimes, a court will order property not transferred back to L’s
estate, but instead to L’s beneficiary via the intestate statue or her
will. This is a short cut.
5. Case: Spicer v. Wright
d. Active and Passive Duties
i. Settlor’s intent to impose duties must be an intent to impose an active duty
instead of passive duty.
ii. But, many modern courts will execute passive trusts with respect to
property either by analogy to statute or uses or____. Some courts do this
automatically while others require a beneficiary to bring a bill in equity
asking for a court order.
iii. A passive trust trustee has the duty to care, preserve, and protect that
property for the benefit of the beneficiary subject to an order issued from
the court or beneficiary.
iv. When the trust is passive, the beneficiary will get the trust property
outright free of the trust.
v. Case: Bellows v. Page
e. Manifestation of Present Intent
i. Promises to Create
f. Trust Property
i. Trust property is required because a trust is a set of duties with respect to
property. And, you must sever ttile to property in order to create a trust
and support its continued existence.
ii. Forms of Property
1. Virtually anything one considers of as a property interest will
qualify.
2. Note: A terminable interest can be held in trust.
iii. Definiteness
1. A trust can be crated only through objects of ownership that are
ascertained and definite at the time of the trust’s creation.
 a. Note: for a testamentary trust, assets don’t have to be
ascertained until death.
2. Expectant Interests
a. Common law said, and courts have generally held,
expectant interests do not constitute an adequate property
interest for the purposes of funding a trust because they are
not transferable.
i. An interest which has not come into existence can’t
be held in trust.
1. To create an inter vivos trust, the settler
must have an intent to create a trust coupled
simultaneously with the property.
b. Some jurisdictions provide the mere expectation of a death
benefit guaranteed through contract is sufficient trust
property (Portland trust).
c. In some jurisdictions (including MA), statutes override the
rigid common law rule and provide the mere expectation of
receipt of an interest is enough of a property interest o
support a private express trust.
d. Expected receipt of proceeds vs. expectancy interest.
e. Case: Brainard v. Commissioner
3. Trust Funding Vehicles
a. Current Funding—Inter vivos/Testamentary
b. The life insurance trust
i. A life insurance trust is a trust in which the
insurance is paid to a beneficiary who stands in a
fiduciary capacity. The intial property is the
physical policy or at the very least the expectation
of receipt of the death benefit of life insurance
issued on someone’s life, which is usual that of the
settler.
ii. The procedure is the insured creates a trust, then
physically delivers the policies to the trustee
pursuant to a trust agreement. The agreement
provides the trustee agrees to hold the polices or at
least the expectation of receipt of proceeds until the
death of the insured. And then, he promises ot use
best efforts to collect the death benefit and apply the
benefit to accomplish the settler’s objective. To
accomplish this, the settler has to designate the
trustee as the beneficiary on the life insurance
policy so the proceeds will be payable tro trustee by
contract, whether or not the physical policy is
actually delivered.
iii. In some jurisdictions (including MA) the mere
expectation of receipt of that death benefit is
 enough of a property interest to support a private
express trust. But, in other jurisdictions, the settler
muts physically deliver the policy.
iv. In a life insurance trust, we’ve got separate and
independent contractual and trust relationships. The
insurance company and settler have a contract. The
settler and trustee have a trust agreement. The trust
can be revocable or irrevocable. If irrevocable an
additional step must take place. The settler must
assign ownership of the lfie insaunce policy to the
trustee , but he will own it subject to equitable
duties.
v. But assignment doesn’t necessarily make it
irrevocable because settler continues to pay
premiums. We must dinstgiush between the funded
irrevocable and unfunded revocable trust.
vi. See notes
vii. Case: Gordon v. Portland Trust Bank
c. The pour over trust
i. Notes:
ii. Case: Clymer v. Mayo
iii. Case: Second Bank-State st. Trust co. v. Pinion
d. Token Funding
i. Placing the miminum amount deemed sufficient to
fund the private express trust. In MA, $10 is
sufficient.
ii. Most jurisdictions provide for this in some way.
g. The Beneficiary
i. Ascertained/Ascertainable Standard
1. Benneficiaries must be ascertained at the time the trust is created
or ascertainable within the period of the rule against perpetuities.
2. A beneficiary is required for trust creation, because there must be
someone for whom the legal title is being held by the trustee ( and
there must be somebody to hold the beneficial title) and who can
enforce the trust against the trustee to ensure the trustee doesn’t
use the property for his own benefit.
3. If no beneficiary exists, the trust fails and a resulting trust is
created if the settler doesn’t provide what’s to happen.
ii. Class Designations
1. Specifically naming beneficiaries doesn’t create a problem,
although class designatiosn may create an interpretative problem.
2. Class designations provide for flexibility
3. The trust restatement provides members of a definite class can be
beneficiaries of a trust. A class is definite if the identity of all the
individuals comprising its membership are ascertainable. a class is
not indefinite because it consists of a changing or shifting group,
 the number of whose members may increase or decrease, provided
the members’ identity is ascertainable. Shifting classes are o.k.
because you know whose alive and whom you pay at any giving
moment.
4. A class is definite when its subject to a statutory definition. But, a
settler can provide his own class definitions (family, relative,
friends) provided its express and explicit so that its susceptible
only to one interpretation.
5. How do beneficiaries of a trust take the income and principal
a. Methods: per capita, per stirpes
b. Recall, children is single generational term. Issue is
multigenerational term.
iii. Present Interests & Future Interests
iv. Vested Interests & contingent interests
1. “then living” can make an interest contingent.
v. Mandatory & discretionary beneficial interests
1. A settler can give a trustee the discretion to determine beneficiaries
in a variety of ways, and the beneficiaries will still be definite
under this arrangement.
a. First, I could give trustee discretion to vary the proportion
of distributions as among members of that class.[ “ to my
nieces as nephews in such proportions as my trustee in its
discretion shall determine.”]. the benefit of this is
flexibility. It allows the trustee to use the income resources
where they are more needed in any given pay period. This
is one option.
b. I can also kick it up a notch and give the trustee the
discretion to exclude some members of that class. (spray
trust). [“income shall be paid to any one or more of my
nieces and nephews in such amounts and in such
proportions in its discretion shall determine.”] the benefit is
my trustee can exclude some members in any given quarter
and flexibility. Look to Article Fourt of the model trust.
h. Definite and Legal Purpose
i. A trust purpose must exist, and the purpose must be definite.
ii. The trustee’s duties and the purpose must be legal. No trust can be created
to impose illegal duties or accomplish illegal purposes. The important
question to ask when evaluating the validity of trust purposes is whether
the condition’s enforcement is to public detriment.
1. A condition calculated to induce marriage is generally not against
public policy.
2. But a condition calculated to generally restrain marriage, to
produce a life of celibacy or adultery is against public policy.
a. Trusts of this nature have been attacked by bennies on
grounds that conditions are illegal for encouraging divorce
or separation, which is against public policy. Whether
 courts will sustain this argument depends on trusts primary
purpose. If the primary motive is to disrupt the family, then
the court will likely not uphold it, because of the
motivation it sets up of terminating the marital relationship.
But if the primary motive is to provide support and protect
property against dissolution, then court may sustain it
b. However, the third restatement of trusts perceives that
parents ought not to be able to mess with children’s lives.
So, the 3rd restatement aspires to not enforce these
conditions, and it isn’t followed very much.
3. But, these cases are very factually and jurisdictionally specific.
iii. An invalid condition does not cause a trust to fail when the provision can
be severed without destroying the trust’s ultimate purpose.
iv. The trust ends when the trust’s purpose is accomplished by the trustee.
v. Case: Matter of Liberman
6) Elements Not Required
a. Consideration
b. The Trustee
i. Necessity—Trustee as Manager
1. The trustee is the manager of the trust property, the one who
carries out the trust’s terms to give effect to settlor’s intent, and
therefore is essential to carry out the trust’s terms.
2. professional trustee, or a combination of co trustees.
3. Case: Hiles v. Garrison
ii. Who Can be Trustee
1. Two requirements: capacity and acceptance of the office.
2. Capacity
a. The trustee must have legal capacity. The test is the same
as the capacity to take, hold, and administer property for
your own benefit, which is higher than testamentary
capacity. A minor or an incompetent has the capacity to
take and hold property but not to adminster it. so trustee
must have sufficient legal capacity. A private corporation
can have capacity if the statute authorizes. A private
individual, professional or nonprofessional, or a
iii. The Office
1. Nomination/Acceptance
a. This considers issues of nomination and appointment.
b. Generally, you don’t become a trustee unwillingly or
unknowingly. Service as a trustee is voluntary matter and it
requires affirmative acceptance of the office.
c. Acceptance occurs normally through written or oral words,
or by conduct (brainard: conducting himself as trustee by
crediting profits on the books).
d. Usually, acceptance happens by writing and signed
acceptance. Itnervivos trust: lydia’s model trust is example.
 Look at signatures at the tag end and you settler signing as
settler and trustee signing as trustee. When trustees sign
they accept office affirmatively. Then, there will be transfer
of assets (delivery) and reregistration as necessary. In the
case of declaration of trust, settler retains legal title and
only transferring out equitiable to whomoever. This
likewise usually happens with a writing. What you’ll see is
that I sign in my capacity as settler and in capacity as
trustee. When I sign as trustee I accept those duties and
thereby changing my relationship to that property. as I’ve
explained, that’s one exception to delivery requirement, but
its preferred practice. Testamentary trusts require a court
decree, because, very much like an executor, all the testator
has done is nominate subject to court appointment. So,
there has to be an official court decree. How this happens
varies jurisdictionally. It can be informal proceding or
formal interparty proceeding as it isin mnay (MA). When
court enters decree they official accept office and provide
the bonds an surieties. So in all these sitatuiosn there is
formal acceptance of office. In case of testatmearny trustee
that will take time. So, the office can be rejected. You can’t
be forced to serve. There are exceptiosn to the general rule.
Namely, constructive and resulting trust. Because those are
court decreed trustees. The design is to remediate a wrong,
or a failed private express trust. There the trustee becomes
trustee unwillingly and perhaps unknowingly Other
exceptions:
e. See notes for testamentary
f. Three exceptions to general rule that trustee must accept
the position
i. Constructive trust
ii. Resulting trust
iii. When trustee dies, his executor becomes de facto
trustee of the trust.
2. Death/Resignation/Removal/Replacement
a. The trustee is not necessarily essential to the creation and
continued existence of a priate express trust.
b. No trust will fail for want of a trustee. A trustee can be lost
during the course of trust administration before the trust’s
full performance. If we lose a trustee we can replace him
because we won’t frustrate settler intent for want of a
trustee.