A trust is a legal device that allows the owner of property to make transfers of that property. It also allows them to have the property (referred to as trust assets) managed on behalf of someone (called the trustee).
Trust laws may vary from state to state. Generally speaking, trusts are an efficient way for people to transfer their assets in a way that they can control and manage. For instance, they may place certain conditions on the trust property that must be fulfilled before the property is transferred.
What Kinds of Trusts Exist?
An express trust is an intentionally, deliberately created trust. In an express trust, the trust creator distributes property or funds to a trustee, who then holds the property “in trust” (i.e., holds legal title to the trust). The trustee holds the property in trust subject to the rights of individuals, known as beneficiaries, who are the individuals entitled to the trust property.
The law recognizes two types of express trusts. The first is known as a lifetime (or inter vivos) trust, and the second is known as a testamentary trust. A lifetime trust is set up during the lifetime of the person who created the trust. This person is known as the settlor.
What are the Requirements for Valid Creation of a Trust?
Generally, the requirements that must be satisfied for a trust (whether it is inter vivos or testamentary) to be valid are:
- There must be a settlor (creator);
- The settlor must deliver legal title to property;
- The property, also referred to as res, corpus, or trust principal, must be delivered to a trustee;
- The trustee must hold legal title to the property;
- The legal title must be held for the benefit of one or more trust beneficiaries;
- There must be intent to create a trust;
- The intent to create a trust must be for a lawful purpose; and
- The document embodying the trust must be validly executed.
What are Some Additional Details to Consider when Creating a Trust?
Trust requirements can involve various details. The following are some details to consider about the requirements when creating a trust:
Trust Requirement Number One: Settlor
The settlor can generally be any individual. States may impose an age requirement. That is, a state may require that a settlor be 18 or older. A state may also require that a settlor have the mental capacity to form a contract.
Trust Requirement Number Two: Delivery
The trust property (trust assets) must be formally transferred to the trustee for delivery to be valid. This means the trustee must take legal title to the assets.
Requirement Number Three: Property
The trust property can be either real property or personal property. The only restriction as to the type of property that can be in the trust, is that the settlor must actually own the property at the time of trust creation, and that the property be identified at the time of creation. Furthermore, the settlor must have the right to transfer the property into the trust.
Trust Requirement Number Four: Trustee
For a trust to be valid, the trust must have a named trustee.
Generally, for an inter vivos trust, almost anyone can serve as trustee. However, with respect to a testamentary trust that is created under court supervision, states may impose requirements upon who can be a trustee, by prohibiting certain individuals (such as certain convicted felons, or such as minors) from serving as trustee.
Generally, while a testamentary trust must always have a trustee, the failure to name one in the trust document itself is not fatal; the court may appoint one, if necessary.
Trust Requirement Number Five: Beneficiaries
A trust must have one or more beneficiaries. The beneficiary or beneficiaries must be definite and identifiable. That is, the names of the beneficiaries cannot be open to speculation. For example, a trust that instructs a trustee to pay trust income for life to “all my good friends,” will fail. The trust has not named definite, ascertainable individuals.
Requirement Number Six: Intent
The settlor must intend to create an enforceable obligation. There must be present intent to create a trust by use of definite words or specific conduct. The intent must be present at the time the settlor actually owns the property to be put into the trust. When intent is uncertain, courts will examine and consider all surrounding facts and circumstances to determine if intent was present.
Requirement Number Seven: Lawful Purpose
A trust must be created for a valid or lawful purpose. The trust cannot require, for example, commission of a crime as a precondition to a beneficiary receiving funds. Likewise, a trust cannot be created as a way of hiding and shielding funds from creditors. Finally, a trust may not be against public policy.
Generally, conditions that violate public policy are those that restrict marriage or promote divorce. For example, a testamentary trust clause may direct a trustee that a certain beneficiary is not to receive trust assets unless and until that beneficiary divorces someone. Such a clause is invalid.
Requirement Number Eight: Valid Execution
A trust document must be validly executed. This means, for trusts that transfer real property, that the trust must be in writing, and signed by the settlor. Some states require that trusts transferring only personal property be in writing, while other states do not impose this requirement.
Should I Seek Legal Counsel Regarding Trust Creation or Issues?
An experienced estate planning attorney can help you with the drafting of a trust. The attorney can also any questions you may have as to how a trust is created, maintained, or dissolved. The lawyer can also explain what rights and obligations you may have under the trust. Finally, the lawyer can represent you in court if litigation arises with respect to the trust.