Trust law and legal frameworks

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Trusts

Trust is a legal device or instrument by and through which both personal and real property is held by one individual for another individual's benefit. A trust may be created by (1) transferring property to an individual designated as trustee during the lifetime of the settlor or by will or other disposition to take effect upon the settlor's death (2) Declaration by the owner of the property that the owner holds identifiable property as trustee; or (3) exercise of a power of appointment in favor of another person as trustee. Property to be subject to a declaration of trust may be identified by the terms of the trust. It is important to note as well that "a transfer of property to a trustee may be accomplished by the terms of the trust, which may function as a deed of conveyance. (Uniform Trust Act: National Conference of Commissioners on Uniform State Laws: Article 2: Section 2-101; 1998)

Requirements for the creation of a trust are not uniform throughout all of the states however; the following elements can be understood to be 'typical' in terms of requirements for the creation of a trust: (a) Consideration: not required although in the absence of consideration there is a question relating to possible transfer of fraud of creditors; (b) Legality: the trust must be created for a lawful purpose; - Capacity: The settlor must have the mental capacity to create the trust however; the beneficiary's capacity is immaterial and many times is the primary reason for the creation of the trust; created because the beneficiary is lacking either in the legal or actual capacity needed to manage the property that is assigned to the trust. (d) Formality: There is an intention to impose a duty upon the trustee in relation to specific property. (e) Intention: The trustee may be named by either the settler or appointed by the court. (f) Active Duty: There must be an 'active duty' imposed upon the trustee in order for a trust to exist. (g) Identity of Beneficiary: The trust must identify specific beneficiary/beneficiaries and lastly just as the performance of the trust places duties upon the trustee; and (h) Acceptance of Trust: The trustee must accept those duties for the trust to be valid. In relation to the modification of a trust the common law rule and the rules applied in states other than California, Texas, and Montana, is that a "trust is irrevocable absent contrary intent." In other words, a trust is not of the nature that can be changed or modified if there was no intent for that change or modification by the individual making the trust.

In relation to Trustees and Conflicting Interests: The trustee should be someone familiar with the administration of business affairs and should not be an individual who has competing or conflicting interests with the trust or its' beneficiaries.

Trustee and Delegation of Duties: The duties of the trustee are set out as follows:

The trust shall act in accord with the express terms of the trust instrument; act impartially, administering the trust for the benefit of all trust beneficiaries; administer the truth property with reasonable care and skill, considering both its safety and the amount of income it produces; maintain complete accounts and records; and perform taxpayer duties, such as filing tax returns for the trust and paying required taxes. The trustee must administer the property of the trust only for the benefit of the designated beneficiaries and must not use principal of the trust for his/her own benefit. Spendthrift Trusts are the type of trust that is established for someone who is incompetent in the management of their resources. This type of trust disallows the beneficiary from consenting to creditors attaching debts to the trust. Exculpatory Clauses and Trustees relates to the fact that Trustees must exercise reasonable care of the estate. Unpaid trustees must such due diligence and care in the management of the trust assets as businessmen of ordinary prudence and vigilance would use in the management of their own affairs Formation of Revocable Trusts - The individual making the trust when showing a clear intention to transfer their property to a trust of which they will themselves act as trustee, "the property is transferred as a gift and held on the trust although the property has not been vested in the trustees, as a body by the completion of the formalities required to effect the transfer of the legal ownership." If there is no clear intent that the trust was formed to be irrevocable, the 'gift' is therefore irrevocable and is not considered a constituted trust.

Summary and Conclusion