Creation of a Trust

A good place to begin in the study of Trusts is with the creation of a trust. It's also a straight-forward way to score a lot of points on an essay that tests this issue.

And so here are the elements, all of which should be addressed should this issue show up:

Capacity: First, you'll need a settlor (the person who creates the trust) with the capacity to create it. The capacity required is the same as the capacity required to create a will.  Look out for things like undue influence, fraud, and duress. All of these will prevent a settlor from having the necessary capacity and without the capacity, no trust is created.

Intent:  The settlor with capacity must intend to create a trust. Under most circumstances a writing is not required to prove intent but always keep in mind the Statute of Frauds when real property is involved.  The settlor must intend that the trust take effect immediately and not at some future time.  And, importantly, a settlor's expression of hope (rather than a direct instruction) that the property be used in a certain way is not evidence that a trust was intended. That's known as precatory language and such language cannot be used to create a trust.

Trustee:  There's got to be a trustee. A trust, however, will not fail if the trustee dies, refuses to accept performance, or resigns. The court will appoint a successor unless it is clear the settlor intended the trust to continue only if that particular trustee served.  The trustee must have enforceable obligations and anyone who has the capacity to acquire and hold property for his/her own benefit has the capacity to act as a trustee.

Beneficiaries:  Beneficiaries enforce the trust and so without them there can be no trust (there are exceptions for both honorary and charitable trusts). Any person capable of taking or holding title to property can be a beneficiary of a private trust. Although notice to the beneficiary as to the existence of the trust is not required, acceptance is required and it may be express or implied. A beneficiary cannot be forced to accept an interest in the trust; rather, a beneficiary may disclaim the interest by filing a written instrument stating an intent to disclaim.

Trust Property:  Where there is no trust property there can be no trust since without property there would be no obligations required by the trustee. The property must be existing property that the settlor has the power to convey. A future interest will suffice, but an interest not yet in existence will not.

Trust Purpose:  There must be a valid trust purposes and a purpose will not be valid if it is illegal, contrary to public policy, impossible to achieve, or intended to defraud the settlor's creditors. If a condition attached to the trust violates public policy the trust might still be valid if the settlor has expressed an alternative desire. In such a case, the condition can be ignored.