Basic Trust Types and Formation
Express Trusts
An express trust can be either private or charitable. The main difference is that the beneficiaries in a private trust are identifiable persons while a charitable trust cannot be for the benefit of identifiable persons. A charitable trust must be for religious, charitable, educational, or benevolent purposes, and cannot name only a few individuals to receive the benefit. If a charitable trust fails to name a specific charity, a court will redirect the trust property to a recipient that most closely appears capable of carrying out the charitable purpose.
A second difference is that a charitable trust can be perpetual while a private trust is subject to certain time limitations in which the benefits must vest; i.e., become absolute.
Implied Trusts
A resulting trust is imposed by a court when an express trust fails. A constructive trust is a remedy that a court uses to prevent unjust enrichment in cases involving fraud or wrongful conduct. A trustee has no duties to perform in either a resulting or a constructive trust because the title to the property is held by the beneficiaries.
Formation
A person can create an express trust either during life or at death. A trust created during life is known as an inter vivos, living, or lifetime trust. A trust created by a provision in a valid will is known as a testamentary trust. The required elements for a valid trust are a trustor, a trustee, trust property, and beneficiaries.
(1) Trustor -- also called a "settlor," "creator," or where a trust is testamentary, "testator." The trustor must have capacity to transfer title to the trust property.
(2) Trustee -- holds title to the trust property for the benefit of the beneficiaries. A trustor can also be a trustee of a trust. If the trustor does not name a trustee or if the named trustee resigns, dies, or is removed and no alternate trustee is designated in the trust document, a court will appoint someone to serve as trustee. In some jurisdictions, minors and incompetents cannot serve as testamentary trustees.
(3) Trust property -- also called "res," "corpus," or "principal." The trust property must be identifiable from the facts known at the time the trust is created. Property that a trustor expects to own at a later time but has no current right to transfer cannot be the subject of a trust. In some jurisdictions, an unfunded trust is valid if its only purpose is to hold proceeds from certain non-probate property such as retirement plans or life insurance policies.
(4) Beneficiaries -- may sue the trustee for breach of duty or to enforce the terms of the trust. If at the time the trust becomes effective, the beneficiaries are impossible to ascertain, the trust fails and reverts to the trustor. Beneficiaries must be ascertainable or the trust is invalid. If a testamentary trust is invalid for lack of specific beneficiaries, then the property is held in a resulting trust. A trustor can also be a beneficiary of a trust. Beneficiaries do not have to be notified of or accept a trust in order for it to be valid. Beneficiaries must be human although there are exceptions for trusts to benefit pets and to take care of graves.
All express trusts must be in writing. In some jurisdictions, there are specific signing requirements necessary to create an inter vivos trust such as witnesses or acknowledgement before a notary public. A trustor must intend to create a legally enforceable obligation and although no specific language is required, words simply expressing the wish or desire to benefit another should not be used. Delivery of the trust property's title to the trustee is also required.
A trust may be formed for any purpose that is lawful and not against public policy. Unlawful conditions include those that encourage divorce or separation, conditions that discourage having children, conditions that are a complete restraint on marriage, and provisions that demand the destruction of property. When a condition is illegal, the beneficiary obtains the trust property free of such condition. Copyright 2006 LexisNexis, a division of Reed Elsevier Inc.
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