PRIVATE EXPRESS TRUST

Question 1

Private Express Trust Defined

Answer 1

A fiduciary relationship with respect to property whereby one person, the trustee, holds legal title for the benefit of another, the beneficiary, and which arises out of a manifestation of intent to create it for a legal purpose.

Question 2

Property of the Trust

Answer 2

Rule: Any presently existing interest in property that can be transferred can be the corpus of a trust.

Question 3

Illusory interests cannot be the subject matter of a trust.
[1] Examples:

Answer 3

[a] Future profits to a business.

[b] A debt that settlor owes beneficiary is not property and
cannot be the corpus of a trust; a debt is a liability, not
property.

[c] A mere expectancy: what settlor expects to inherit or
receive as a gift because a mere expectancy is not property.

Question 4

The Beneficiary (i.e. Who Can Be the Beneficiary of a Private Express Trust?)

Answer 4

Rule: Any ascertainable person or group of people can be the beneficiary of a private express trust. Person includes a legal person.

Question 5

Rules for Beneficiaries:

1. Corporations
2. Unincorporation Associations
3. Class Gifts
4. A child conceived when the interest was created and later born

Answer 5

[1] Corporations can be the beneficiary of a private express trust.
[2] Unincorporated associations

[a] Common law: unincorporated associations could not be the beneficiary of a private express trust.
[b] Modern law: an unincorporated association can be the beneficiary of a private express trust.

[3] Class gifts are valid, but watch out for a class that is too big. For example, all of the people of the state of California is too big; even if ascertainable it simply cannot be administered. But it might be a charitable trust (see below).

[4] A child conceived when the interest was created and later born is deemed an ascertainable person.
[5] Watch out for a violation of the Rule Against Perpetuities:

Question 6

Trustee

Answer 6

[A] Rule: A trust must have a trustee, but the court will not allow the trust to fail solely because there is no trustee or a trustee refuses to serve.
[B] The court, in such case, will appoint a trustee.
[C] Until a trustee is appointed, the settlor or the settlor’s estate will hold legal title.

Question 7

Manifestation of Trust Intent

Answer 7

[A] There must be present manifestation of trust intent made by the settlor. You cannot manifest an intent for a trust to arise in the future.

[B] No magic words, however, are needed to create a trust. Settlor does not have to use the words “trust,” “trustee,” or “beneficiary.”

[C] Although no magic words are needed to create a trust, precatory words, by themselves are not sufficient to create a trust.

Question 8

Precatory words defined:

Answer 8

Words of wish, hope, or desire

Precatory words are not mandatory words, which is
required for a trust.

Question 9

Trusts of personal property & RAP

Answer 9

Trusts of personal property do not have to be in writing. The Statute of Frauds applies only to real property.

Question 10

Creation: How to Create a Private Express Trust
[A] Two time frames are important:

Answer 10

A trust created to take effect at settlor’s death and during settlor’s lifetime.

Question 11

Trust created to take effect at settlor’s death:

Answer 11

If settlor wants to create a trust to take effect at settlor’s
death, the only way settlor can do that is by complying
with the Statute of Wills, i.e. the local probate code.
Thus, our settlor is really a testator. Thus, a part of
testator’s will has a provision for a testamentary trust, a
trust which will take effect at testator’s death.

Question 12

The other time frame settlor can create a trust is during his lifetime: If settlor wants to create a trust to take effect during his lifetime, there are two ways to accomplish this:

Answer 12

Transfer in Trust and Declaration in Trust.

Question 13

Transfer in Trust:

Answer 13

In a transfer in trust, a third person is the trustee.

[i] For a trust of real property, the settlor must execute and deliver a deed transferring title to the trustee. The writing requirement is due to the Statute of Frauds.

[ii] For a trust of personal property, there must
be delivery to the trustee of the trust property at the time settlor manifests the intent to create the trust. The
delivery can be actual, symbolic or constructive. (See
discussion regarding gift causa mortis in the wills lecture for types of delivery).

Note: If there is no delivery to trustee, there is no trust. Moreover, a promise to deliver the corpus in the future is not a delivery.

Question 14

Declaration in Trust:

Answer 14

Settlor herself is the trustee.

[i] In a declaration of trust for real property, again, there must be some writing satisfying the Statute of Frauds indicating that settlor also is the trustee.

[ii] In a declaration in trust of personal property, because the settlor is the trustee, there is no issue of delivery: One cannot deliver property to oneself. So if settlor is going to be the trustee in a declaration in trust of personal property, the only thing we have to look to is the present manifestation of trust intent

Question 15

Legal Purpose
[A] Rule:

Answer 15

trust may be established for any legal purpose.

Question 16

What if the trust is for an illegal purpose or, if not illegal, violative of public policy?

Answer 16

In such case, distinguish between illegality at creation
from illegality subsequently after creation.

Question 17

Illegality at creation:

Answer 17

try to excise the bad from the good. If you can, the trust will stand. Court will excise illicit condition.

Question 18

Illegality at creation: If it is not possible to excise the illicit
condition and sever the good from the bad, the court has two options: the court will do whatever achieves the best result:

Answer 18

1. Simply invalidate the trust at its inception. Thus, the trust is not recognized. Settlor remains the owner of the property.
   
   • The court will invalidate the trust, so that
     settlor’s creditors can attach the assets.
2. Allow the trustee to keep the property for himself or herself in order to punish

Question 19

Illegality after creation:

Answer 19

If a trust becomes illegal after creation, a resulting trust is decreed. We discuss resulting trusts in depth later. But for now it is sufficient to state that a resulting trust is an implied in fact trust based on the presumed intent of the parties. Once a court decrees a resulting trust, the resulting trustee has only one obligation: to transfer the property back to the settlor if the settlor is alive, and if not, to the settlor’s estate (meaning, the residuary devisees, if any, and if none, to the settlor’s heirs at law). Thus, if a trust is created that was perfectly legal at the time of creation but subsequently becomes
illegal due to a change in law, we have a resulting trust in favor of the settlor if settlor is alive, and if not, to the settlor’s estate.