Trusts

Trust Requirements

A. Settlor (or Grantor)—creator of trust (may also be trustee or beneficiary)

B. Intent to create trust

C. Trustee—holds legal interest or title to trust property; court will appoint trustee if settlor fails to designate one or more or if trustee dies; not required to be DE resident

D. Ascertainable beneficiary—holds equitable title to trust property; beneficiary must impliedly or expressly accept interest

E. Trust assets—cash, securities, real estate, or life insurance policies

Private express trust

—clearly states settlor's present intent to transfer property to trustee for benefit of one or more ascertainable beneficiaries and for a valid purpose

Elements of express trusts

1. Intent

2. Trust property

3. Valid trust purpose

4. Ascertainable beneficiaries

Intent

• DE courts look to intrinsic and extrinsic evidence to determine transferor’s intent; manifestation of intent must occur before or simultaneously with transfer of property (use of common trust terms will create presumption of intent)

• Writing requirement—intent to form DE trust must be in writing only if SOF applies or it includes interests contingent on outliving settlor; petitioner bears burden of showing existence of oral express trust by clear and convincing evidence

Trust property

• Trust must be funded with identifiable trust property (res); if trust is invalid for lack of assets and is later funded, trust arises if settlor remanifests intent to create trust

• Trust property must be identifiable and segregated, and it must be described with reasonable certainty

Valid trust purpose

• Trust can be created for any purpose as long as it is (1) not illegal or contrary to public policy, (2) possible to achieve, and (3) is for benefit of its beneficiaries

• If one of several trust terms violates public policy, alternative terms will be honored, or, if none, term will be stricken; but trust will not fail unless removal of term is fatal

Ascertainable beneficiaries

• Beneficiaries must be identifiable by name so that equitable interest can be transferred automatically by operation of law and directly benefit the person; settlor may refer to acts of independent significance to identify beneficiaries

Ascertainable beneficiaries Exception

Exceptions—trusts for benefit of unborn children or to reasonably definite class will be upheld, and charitable trusts (for good of public at large) do not need individual ascertainable beneficiaries

Inter vivos

—transfer in trust during grantor’s lifetime

Oral and written inter vivos trusts - Delivery

Delivery—must accompany declaration of trust if third-party trustee is named, whereby settlor parts with dominion and control over trust property

Oral and written inter vivos trusts - Writing

Writing—required only for real property; court will impose constructive trust when writing is lacking or petitioner fails to demonstrate oral express trust by clear and convincing evidence

Oral and written inter vivos trusts - Parol evidence

Parol evidence—evidence outside of written agreement is always permitted in DE to show settlor’s intent

Pour-over trust

—will provision directs distribution of property to trust upon occurrence of event, even if trust instrument not executed by Statute of Wills; valid if trust is identified in the will and its terms are established in a written instrument

Totten trust

—designation given to bank account in depositor’s name as trustee for named beneficiary (no separation of legal and equitable title); can be revoked by any lifetime act manifesting depositor’s intent to revoke, or by will

Life insurance trust

—proceeds go to trust upon insured’s death; trust is owner of policy, and trust is irrevocable

Living trust

—typically, settlor names himself trustee until death; settlor can change successor trustee and beneficiaries until death; trust property not protected from creditors or federal estate taxation

Silent trust

—typically, trustee is required to inform beneficiary; but in DE, trust instrument may expand, restrict, eliminate, or vary beneficiary's right to be informed

Testamentary

Definition—occurs when trust terms are contained in writing in will or in document incorporated by reference into will

Testamentary - Statute of Wills

—generally requires testamentary trust to be (1) in writing and signed by testator and (2) attested and subscribed in testator’s presence by two or more credible witnesses

Testamentary - “Secret” trust

—looks like testamentary gift but is created in reliance on named beneficiary’s promise to hold and administer property for another (constructive trust is imposed on property for intended beneficiary)

Testamentary - “Semi-secret” trust

—occurs when gift is directed in will to be held in trust but testator fails to name beneficiary or specify terms or purpose of trust (resulting trust is imposed on property to be held for testator’s heirs)

Testamentary - Modern trend

—impose constructive trust for intended beneficiaries (if known) in both secret and semi-secret trusts

Charitable trusts - Purpose

—relief of poverty, advancement of education or religion, good health, governmental purposes, and other purposes benefiting community at large

Charitable trusts - Indefinite beneficiaries

—beneficiaries may be wholly or partially indefinite and uncertain

Charitable trusts - Rule Against Perpetuities

—exempt; may continue indefinitely

• DE has abolished CL Rule Against Perpetuities regarding trusts, permitting creation of perpetual trusts (i.e., “Dynasty Trusts”)

Charitable trusts - Cy pres doctrine

—court may modify charitable trust to seek an alternative charitable purpose if original one becomes illegal, impracticable, or impossible to perform; codified and expanded in DE to apply to noncharitable purpose trusts as well

Charitable trusts - Honorary trusts

—no private beneficiaries (usually for pet or noncharitable purpose)

Charitable trusts - Standing to enforce

—settlor, attorney general of state of trust’s creation, and community members with beneficial interest in trust

Remedial Trusts

equitable remedy not subject to trust requirements.

Resulting trust (Remedial Trusts) - Purpose

Purpose—when trust fails, court creates resulting trust requiring holder of property to return it to settlor or his estate to prevent unjust enrichment

Resulting trust (Remedial Trusts) - When Imposed

When imposed—purchase money resulting trust, failure of express trust, or incomplete disposition of trust assets because of excess corpus

Constructive trust

—imposed when court concludes that person holding title to property would profit by a wrong or be unjustly enriched; wrongful conduct is required