Creation of a Trust

Today’s class—trust creation
 We’ve already seen that it’s simpler to create a
trust than to execute a will—no need to satisfy the
attestation and witnessing requirements of wills
 We’ve also seen that trusts require settlors,
trustees and beneficiaries (with individuals being
able to serve multiple roles for a single trust)
 Today, we discuss in more detail some of the
requirements for creating a trust
Requirements for creating
a trust
Settlor’s intent to create a trust
Presence of a res (the trust property)
Designation of beneficiaries
A writing or clear and convincing evidence
of an oral trust
 Indiana requires a writing for all trusts, and all
states require a writing for testamentary trusts
Lux v. Lux
Lux v. Lux
288 A.2d 701 (R.I.
1972), p. 557
All the rest…of my estate…I give to my
grandchildren, share and share alike.
Any real estate…shall be maintained for the
benefit of said grandchildren and shall not be
sold until the youngest of said grandchildren
has reached twenty-one years of age.
Should it become necessary to sell any of
said real estate to pay my debts…it is my
express desire that said real estate be sold
to a member of my family.
Did Philomena “intend[] that her real estate be held in
trust for the benefit of her grandchildren”?
Lux and settlor intent
 Did it matter that Ms. Lux did not say she
was creating a trust?
 No
 Did it matter that Ms. Lux did not appoint a
 No—”a trust never fails for lack of a trustee” (the
executor became trustee)
 Note the major contrast with wills
 With wills, form matters a whole lot
 With trusts, courts look to function
Jimenez v. Lee
Jimenez v. Lee
547 P.2d 126 (Ore. 1976), p. 558
Mrs. Diercks makes $500 gifts to all
three children, deposited in an
account in names of children and Lee.
Plaintiff sues, seeking
to recover proceeds
or original gifts.
Mr. Lee
Paternal grandmother
purchases $1000 bond for
plaintiff, registered in names of
plaintiff and plaintiff’s parents.
Lee cashes bond and closes
bank account, purchasing
stock with proceeds as
“custodian” for his children.
What facts suggested that a
trust was created?
 The court found a trust because (p. 559)
 Lee’s own testimony and other evidence demonstrated
that the $1,500 in gifts were given for the educational
needs of his daughter
 In a letter, Lee acknowledged that he held the funds “in
trust” for the children (and Lee was a lawyer)
 Moreover, a trust—and not a custodianship—is the
relationship traditionally created by a gift imposing
fiduciary duties upon an adult for benefit of a
minor. If a custodianship is intended instead, the
donor should specifically say so.
Why did Lee claim he was a
custodian, not a trustee?
 As a custodian he could use the property for the
“benefit” of the minor; as a trustee, he could use it
only for education purposes
 Because he did not kept clear records, he was better off
if he was not restricted in use of the funds
 As a custodian, he would escape liability because
the statute of limitations would have run
 If he was a custodian, the statute of limitations on his
duty to account elapsed two years after Betsy reached
majority, or in 1968. If he was a trustee, the statute of
limitations did not begin to run until he accounted (which
he had never done).
Why did the daughter sue Lee?
 There was not a lot of money at stake—
perhaps something over $2,000 in the end
 How would the lawsuit affect Lee when he
wrote his will?
 Maybe their relationship was irreparably
Demonstrating intent
 I, JOHN DOE, of Indianapolis, Indiana, declare
myself trustee of the "______ DECLARATION OF
TRUST," consisting of the property identified on
the attached Schedule of Property, which property
and all additions, investments, and accretions shall
be administered upon the following terms:
 If your client wants a “precatory trust” (page 562),
then the language also should be clear: “I wish,
but to not legally require, that C permit D to live
on the land.”
Creation of a trust:
Necessity of trust property
 A trust is not valid without a trust property
or res
 It need not be a sizeable amount of property,
it need not be a present interest, and it need
not be an interest that is certain to vest at
some point
 Even though the property requirement is not a
substantial one, it can still result in the failure
of an intended trust, as some of our cases for
today demonstrate
Establishing a res
“Settlor herewith deposits the sum
of One Dollar ($1.00) as the initial
corpus of the trust”
(from an inter vivos trust combined
with a pour-over will)
Unthank v. Rippstein,
Unthank v. Rippstein
386 S.W.2d 134 (Tex. 1964), p. 569
Why didn’t Craft create a valid
Did he designate a beneficiary?
Did he demonstrate intent to create a trust?
Yes. Iva Rippstein
Actually, he demonstrated intent to create a will when he
stated that he was binding his estate to make the monthly
payments—and Texas allows holographic wills
The court should have found a valid holographic will
Did he identify any trust property?
Only by implication, which the court concluded was not
sufficient. As a result, the court found an unenforceable
Brainard v. Commissioner
Brainard v.
91 F.2d 880 (7th Cir. 1937), p. 572
Brainard orally declares
trust of expected profits
from stock trading in 1928
for benefit of wife, mother,
and minor children.
Dec. 1927
Stock trading is
profitable. Brainard pays
himself $10,000 as
trustee and distributes
profits among trust
declare trust
income on 1928
income tax return
Did trust arise in 1927, with Brainard’s oral
declaration, prior to making the profits?
No, according to the court, since the profits did not come into existence
until they were earned. But why aren’t future profits a res?
Can future profits be a res?
The Brainard court was obviously worried about
making it too easy for someone to evade taxes.
After all, we have an oral declaration, and Brainard
traded under his own name.
Of course, what constitutes a trust for most purposes
may differ from what constitutes a trust for tax purposes.
Recall that the creation of a revocable inter vivos trust
provides a number of advantages, but does not reduce
tax obligations (page 439). See the note on page 576 for
further discussion.
Speelman v. Pascal,
Speelman v.
178 N.E.2d 723 (N.Y. 1961), p. 572
Pascal acquires exclusive
rights to produce musical
and film based on Shaw’s
“Pygmalion.” License to
expire in 1956.
Pascal makes various attempts
to produce show.
Pascal promises, in writing, a
portion of the profits of the
(still unproduced) show to Miss
Kingman (aka Miss Speelman).
Feb. 22, 1954
Pascal dies.
July 1954
“Did the delivery of this paper
constitute a valid, complete, present
gift to [Speelman]…?”
Can future profits be a res?
Technically, the issue in Speelman is whether we
have a valid gift rather than a trust, but the same
question arises—is there a property right being
Yes, we have the assignment by Pascal to Speelman of
an enforceable right of Pascal to future sums. According
to the court, there was “nothing left for Pascal to do in
order to make an irrevocable transfer to plaintiff of part
of Pascal’s right to receive royalties from the productions.
. .” (page 575, end of opinion).
Can future profits be a res?
What in the letter (page 573) suggests that
Pascal had not transferred his right to Speelman?
The second paragraph of the letter which states that
Pascal’s lawyer will confirm the arrangement “in a legal
Note 1, page 575
Brainard involved the oral testimony of interested
witnesses to establish a trust that avoided taxes
An oral declaration of trust is permissible, but the possibility of
fraud leads courts to apply other requirements strictly
What about the fact that Pascal had a contract that
entitled him to future profits while Brainard was promising
profits from the sale of stocks that he might not even
have owned at the time?
This view is supported by the Restatement provision cited in the
note, but note also that the Field case cited on page 575 by the
Speelman court did not involve an existing contract
Note 2, pages 575-76
a) Looks like Brainard. We have a gratuitous promise. No gift
because there was no delivery of a gift or written
instrument. No trust because O did not declare a trust.
b) This counts as a trust. The stocks that O already owns
constitute the res. This is how we make Brainard’s trust
look like it has a res.
If Brainard declared himself trustee of stock which he already
owned and stipulated that the dividends would go to him while
the other beneficiaries would receive the capital gains, the
practical effect is the same as a trust of the future profits in stock
trading, but the stock would provide a corpus (Restatement
(Third) of Trusts, § 41, comment b).
Note 2, pages 575-76
c) Looks like Brainard, but now we have a notarized writing.
On the other hand, still no res. If we follow the logic of
Brainard, no valid trust. If we think Brainard was driven
by the fact of an oral declaration with interested
witnesses, then maybe this case comes out differently.
d) We have an invalid trust, per Brainard.
The requirement of trust
 A trust must have one or more ascertainable
beneficiaries—if we can’t identify the
beneficiaries, the trust will fail—there must be
someone to whom the trust owes fiduciary duties
and who can call the trustee to account
Charitable trusts need not have ascertainable
Trusts for one’s descendants may have currently
unascertainable beneficiaries when the trusts are
Clark v. Campbell
Clark v.
133 A. 166 (N.H. 1926), p. 579
I therefore give and bequeath to my
trustees all my property embraced
within the classification aforesaid in
trust to make disposal by the way of
a memento from myself, of such
articles to such of my friends as they,
my trustees, shall select.
Must “the bequest for the benefit of the
testator’s ‘friends’…fail for the want of
certainty of the beneficiaries”?
Yes. One can designate relatives, or subsets
thereof, but not “friends.”
Indefinite beneficiaries
A power in a trustee to select a beneficiary from an
indefinite class is valid. If the power is not exercised
within a reasonable time, the power fails and the
property subject to the power passes to the persons
who would have taken the property had the power not
been conferred.
Uniform Trust Code § 402(c), Ind. Code § 30-4-2-1(f)
But outside UTC states, the drafting lesson is not to
create a power in a trustee to appoint among an
indefinite group. Give the power to the selector
individually, rather than as a trustee (note 1, p.581)
The will of Marilyn Monroe,
p. 582
1) Did Monroe intend to create a trust?
The words “it being my desire” are precatory words, so no trust, and
Strasberg takes as a devisee. (But some courts would say the words
demonstrate intent to create a trust.)
2) If Monroe intended a trust, did she designate an ascertainable beneficiary?
No ascertainable beneficiaries, so trust fails, and personal effects go to the
residue of the estate.
The rest of the story
Strasberg never distributed any of Monroe’s
personal effects to the friends or colleagues to
whom Marilyn was devoted
In fact, he requested the return of several of Marilyn’s
possessions that she had given to a colleague
When Strasberg died, he left a will granting
Marilyn’s personal effects to his wife, who, like her
husband, chose not to give any of Marilyn’s
personal effects to friends or colleagues of Marilyn
In re Searight’s Estate,
In re Searight’s
95 N.E.2d 779 (Ohio App. 1950), p. 582
“$1000 to be
used…to pay
Florence…for the
keep and care of
my dog as long
as it shall live.”
“I give and
bequeath my
dog, Trixie…”
Can a dog be a beneficiary
of a trust?
We know from Russell (page 359), that you can’t
leave property in a will to a dog
Would it have been a problem if George had created
a trust for the benefit of dogs in general?
No, he could have created a charitable trust for dogs
(page 583, top)
The problem here is that George designated a
particular dog, so we have a private trust, and we
don’t have a beneficiary who can enforce the terms
of the trust
Can a dog be a beneficiary
of a trust?
The court permitted the bequest, treating it, like
other courts, as an “honorary trust” (page 583)
Such trusts are valid as long as the “trustee” is willing to
carry out the terms of the bequest (hence the term
honorary). (The court also said that it could be called a
gift with a power (page 583).)
Note that while Trixie was not in a position to
enforce the trust, the residuary beneficiaries of the
will have some ability to do so since they can seek
reversion of the trust if the trustee neglects the
responsibilities of the trust.
Trusts for noncharitable
purposes, p. 586
Honorary Trust
Transferee is not obligated
to carry out settlor’s purpose
 If transferee declines, she
holds the property on
resulting trust and property
reverts to settlor or settlor’s
 Used in Searight’s Estate
Statutory Purpose Trust
Statutory trust for pet animal
or other noncharitable purpose
 Authorized by UTC §§408409 and UPC §2-907
 Typically authorize court to
reduce excessive trust property
and provide for enforcement
by settlor or court appointee
Ind. Code § 30-4-2-18
Requirement for a writing
Generally, a writing is not required, except
for testamentary trusts or trusts of land
Clear and convincing evidence required to
validate oral trust
But in Indiana, “a trust in either real or
personal property is enforceable only if there
is written evidence of its terms bearing the
signature of the settlor or the settlor's
authorized agent.”
Ind. Code §30-4-2-1(a)
Estate of Fournier
Estate of
(Slide 1)
902 A.2d 852 (Me. 2006), p. 589
$400,000 in trust
for Fogarty
Estate of Fournier,
Estate of
(Slide 2)
902 A.2d 852 (Me. 2006) (2)
Fournier asks Madores to
hold $400,000 in secret,
to be delivered upon his
death to Fogarty because
she “needed it more”
than his other sister.
Note discovered with instructions
Fournier dies testate. that $400,000 be divided among
Fogarty, Flanigan and King. Court
Residue in equal
holds oral trust was for benefit of
shares to Fogarty,
all three residuary takers.
Flanigan, and King.
1998 or 1999
Fournier tells Flanigan
of arrangement with
Fournier gives
Fogarty a gift
of $100,000.
Madores give $400,000 to
Fogarty. Court finds oral trust
of money for her benefit.
Olliffe v. Wells
Olliffe v. Wells
130 Mass. 221 (1881), p. 593
Semisecret Trust
Desire to create trust
appears on the face of
the will
 Terms are undisclosed
 Extrinsic evidence not
needed to prevent unjust
 Devise is unenforceable
Secret Trust
Devise is absolute on
the face of the will
 Extrinsic evidence
necessary to prevent
unjust enrichment
 Court will impose a
constructive trust on
But Restatement would treat semisecret trusts like secret trusts