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Encyclopedia > Trust (property)
The law of wills and trusts
Part of the common law series
Inheritance
Intestacy  · Testator  · Probate
Power of appointment
Simultaneous death  · Slayer rule
Disclaimer of interest
Types of will
Holographic will  · Will contract
Living will
Joint wills and mutual wills
Parts of a will
Codicil  · Attestation clause
Incorporation by reference
Residuary clause
Problems of property disposition
Lapse and anti-lapse
Ademption  · Abatement
Acts of independent significance
Elective share  · Pretermitted heir
Contesting a will
Testamentary capacity  · Undue influence
Types of Trusts
Express trust  · Asset-protection trust
Protective trust  · Spendthrift trust
Charitable trust  · Honorary trust
Resulting trust  · Constructive trust
Special Needs trust
Doctrines governing trusts
Pour-over will  · Cy pres doctrine
Other areas of the common law
Contract law  · Tort law  · Property law
Criminal law  · Evidence
view /edit this template

In common law legal systems, a trust is a contractual relationship in which a person or entity (the trustee) has legal title to certain property (the trust property or trust corpus), but is bound by a fiduciary duty to exercise that legal control for the benefit of one or more individuals or organization (the beneficiary), who retain beneficial title, according to the terms of the trust and local law. This dual title is frequently called "split title." Most trust law in the United States is now statutory at the state level. Fiduciary tax law is both federal (see the Internal Revenue Code) and state. Image File history File links Legal portal image File history Legend: (cur) = this is the current file, (del) = delete this old version, (rev) = revert to this old version. ... Corruption Jurisprudence Philosophy of law Law (principle) List of legal abbreviations Legal code Intent Letter versus Spirit Natural Justice Natural law Religious law Witness intimidation Legal research Critical legal studies External links Wikibooks Wikiversity has more about this subject: School of Law Look up law in Wiktionary, the free dictionary... In the law, a will or testament is a document by which a person (the testator) regulates the rights of others over his property or family after death. ... The law of trusts and estates is generally considered the body of law which governs the management of personal affairs and the disposition of property of an individual in anticipation and the event of such persons incapacity or death, also known as the law of successions in civil law. ... This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ... Intestacy is the condition of the estate of a person who dies owning property greater than the sum of his or her enforceable debts and funeral expenses without having made a valid will or other binding declaration; alternatively where such a will or declaration has been made, but only applies... A testator is a person who has made a legally binding will or testament, which specifies what is to be done with that persons family and/or property after death. ... Probate is the legal process of settling the estate of a deceased person; specifically, distributing the decedents property. ... A power of appointment is a term most frequently used in the law of wills to describe the ability of the testator (the person writing the will) to select a person who will be given the authority to dispose of certain property under the will. ... Simultaneous death is a problem of inheritence which occurs when two people (usually a husband and wife) die at the same time in an accident. ... The slayer rule, in the common law of inheritance, is a doctrine that prohibits inheritence by a person who murders someone from whom they stand to inherit. ... Disclaimer of interest (also called a renunciation), in the law of inheritance, wills and trusts, is a term that describes an attempt by a person to renounce their legal right to benefit from an inheritance (either under a will or through intestacy) or through a trust. ... In the law, a will or testament is a document by which a person (the testator) regulates the rights of others over his property or family after death. ... A holographic will is an unwitnessed will and testament written by the testator personally, rather than being prepared by a lawyer, another person acting on the testators behalf, or from a pre-printed form. ... A will contract is term used in the law of wills describing a contract to exchange a current performance for a future bequest. ... A living will, ˌliving ˈwill [countable] is a document explaining what medical or legal decisions someone should make if you become so ill that you cannot make those decisions yourself. ... Joint wills and mutual wills are closely related terms used in the law of wills to describing two types of testemantary devices that may be executed by a married couple to insure that their property is disposed of identically. ... In the law, a will or testament is a document by which a person (the testator) regulates the rights of others over his property or family after death. ... Codicil can refer to: An addition made to a will Any addition or appendix, such as a corollary to a theorem A poem by Derek Walcott This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ... In the statutory law of wills and trusts, an attestation clause is a clause that is typically appended to a will, often just below the place of the testators signature. ... Incorporation by reference is a doctrine of the common law of wills by which a person may state in his will that certain property is to be disposed of by a seperate document, describing the place where the document will be found. ... A residuary estate, in the law of wills, is any portion of the testators estate that is not specifically devised to someone in the will, or any property that is part of such a specific devise that fails. ... Lapse and anti-lapse are complementary concepts under the law of wills, which address the disposition of property that is willed to someone who dies before the testator (the writer of the will). ... Ademption is a term used in the law of wills to determine what happens when property bequested under a will is no longer in the testators estate when the testator dies. ... Abatement (derived through the French abattre, from the Late Latin battere, to beat), a beating down or diminishing or doing away with; a term used especially in various legal phrases. ... The doctrine of acts of independent significance, in the common law of wills, permits the testator to effectively change the disposition of her property without changed her will, if acts or events with relation to the property itself have some significance beyond avoiding the requirements of the will. ... An elective share is a term used in American law relating to inheritance, which describes a proportion of an estate which the surviving spouse of the deceased may claim in place of what they were left in the decedents will. ... A pretermitted heir is a term used in the law of property to describe a person who would likely stand to inherit under a will, except that the testator (the person who wrote the will) did not know or did not know of the party at the time the will... A will contest, in the law of property, is a formal objection raised against the validity of a will, based on the contention that the will does not reflect the actual intent of the testator (the party who made the will). ... In the common law tradition, testamentary capacity is the legal term of art used to describe a persons legal and mental ability to make a valid will. ... Undue influence (as a term in jurisprudence) is an equitable doctrine that involves one person taking advantage of a position of power over another person. ... Where property is passed to a person but no gift is made, it is held for the owner, this is the Resulting trust; where property should for some reason of public policy or fairness or rule of Equity be held for someone other than the legal owner, this is either... An asset-protection trust is a term which covers a wide spectrum of legal structures. ... The Protective Trust is a form of settlement found in England and Wales and several Commonwealth countries. ... A spendthrift trust is a trust that is created for the benefit of a person who is in debt (often because they are unable to control their spending) that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit... A charitable trust is a trust organized to serve private or public charitable purposes. ... An honorary trust, under the law of trusts, is a device by which a person establishes a trust for which there is neither a charitable purpose, nor a private beneficiary to enforce the trust. ... In common law legal systems, a trust is a relationship in which a person or entity (the trustee) has legal control over certain property (the trust property or trust corpus), but is bound by fiduciary duty to exercise that legal control for the benefit of someone else (the beneficiary), according... A constructive trust is a legal device used by courts sitting in equity to resolve claims raised by a plaintiff whose property has been converted to a profitable use by the defendant. ... Special Needs Trusts are created to ensure that beneficiaries who are developmentally disabled or mentally ill can receive inheritances without losing access to essential government benefits. ... A pour-over will is a testamentary device wherein the writer of a will creates a trust, and decrees in the will that the property in his estate at the time of his death shall be placed in the trust. ... The cy pres doctrine (pronounced as see-pray) is doctrine of the Court of equity. ... A contract is any promise or set of promises made by one party to another for the breach of which the law provides a remedy. ... In the common law, a tort is a civil wrong for which the law provides a remedy. ... Property law is the law that governs the various forms of ownership in real property (land as distinct from personal or moveable possessions) and in personal property, within the common law legal system. ... Criminal law (also known as penal law) is the body of law that punishes criminals for committing offences against the state. ... The law of evidence governs the use of testimony (eg. ... This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ... The word trustee is a legal term that refers to a member of a trust, which can be set up for any of a variety of purposes, and is entrusted with the administration of property on behalf of others. ... // Overview A fiduciary is a person who occupies a position of trust in relation to someone else such that he is required to act for the latters benefit within the scope of that relationship. ... A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. ...


Trustees may be competent individuals and/or state or federally chartered corporate, i.e. professional, trustees, typically banks who have integrated their trust company into their investment management or private banking groups. It is not unusual for an individual to serve as trustee alongside a bank trustee: they are typically called "co-trustees." Both individual and corporate trustees may charge fees for their services, although individual trustees may service gratis when part of the settlor's family or the settlor him/herself.


There is a dwindling number of American banks willing to serve as trustee, as litigation pressures are raising the cost of running poorly managed fiduciary services. For most small banks trust services are not profitable.


The various states retain rich differences in fiduciary law, although there have been efforts to reduce disparities through the Uniform Principal and Income Act and other "uniform code" efforts. Nevertheless, unless the terms of the trust document are incompatible with public policy (creating a trust to advance a criminal enterprize, for example), the trust document overrides local law. For example, some states require all trustee fees to be charged equally to principal cash and income cash. If the trust document directs otherwise, document language will prevail. Where a document contains obnoxious, unworkable, impractical, or outdated language, the beneficiaries and trustee(s) have recourse to local probate courts: most commonly for judicial construction or to deal with circumstances not imaginable by the settlor at the time the trust was created.


The entity (one or more individuals, a partnership, or a corporation) that creates the trust is called variously the settor, grantor, donor, or creator. Practitioners typically distinguish personal trusts from instituional trusts: the former being established as a part of one or more individuals' estate and personal financial planning and/or investment needs, and the latter typically by or on behalf of foundations, endowments, and defined benefit and other qualifed pension plans. Most fiduciaries manage these two types of business separately, although it is not uncommon for small institutional accounts to be handled by the personal trust group.


Typically a trust is created using a written instrument (the trust document) signed by both the settlor (who may be the only beneficiary) and the trustee. While there are other ways to create a trust, they are atypical. In general, a trust is not established until the document is signed AND money or something of value is transferred from the settlor to the trustee. Typically a trust document will make reference to one dollar being transferred to the trustee at the time the document is signed. Full-scale transfer of assets from the settlor to the trustee typically occurs thereafter. Most trusts specifically allow for additional asset transfers at the direction of the settlor or others provided the trustee is willing to accept those assets. This can be problemmatical in the case of real estate, where mere entry into the chain of title makes the trustee liable for the acts of all others in the change of title. It is not unusual for professional trustees to refuse delivery of certain real estate assets -- particularly where the real property is compromised by unremediated environmental issues.


The various labels listed above for those who establish trusts are interchangeable -- with "settlor" preferred by the legal community and "grantor" by trust officers and related practitioners. Typically a trust created by a single individual, in which the settlor retains the ability to remove funds at any time, is called a grantor trust. Such trusts are typically created mostly for investment management -- at least during the life of the settlor. The term grantor trust also has a special meaning in fiduciary tax law: a trust in which the tax consequences of the trust's investment activities are entirely the responsibility of the settlor.


There are three types of trust for fiduciary tax purposes: grantor trusts whose tax consequences flow directly to the settlor's 1040 and state return, simple trusts in which all the income created must be distributed to one of more beneficiaries and is therefore taxed to the non-settlor beneficiary (e.g. the widow of a trust created by the late husband), whether or not the income is actually distributed (it happens), and complex trusts, which are all trusts that aren't complex or simple.


All simple and complex trusts are irrevocable and in both cases any capital gains realized in the portfolios are taxed to the trust corpus or principal. Practitioners commonly distinguish between inter vivos and testamentary trusts. These terms refer only to the status (living or dead) of the settlor. Thus a settlor who is living at the time the trust is established creates a contract between living persons, i.e. an inter vivos trust. A trust created in an individuals' will is called a testamentary trust and is thus created following the settlor's death. Practitioners and the public alike frequently erroneously assume all inter vivors trusts are revocable and all testamentary trusts are not. It is not at all infrequent to see irrevocable inter vivos trusts and testamentary trusts that can be revoked.


The trustee is said to hold legal title to the corpus, while the beneficiary holds equitable or beneficial title. If the legal and equitable title merge in the same person, the trust is considered nonexistent. This can happen when the trustee becomes the sole beneficiary.

Contents


In general

The trustee can be either a natural or a legal entity. There can be multiple trustees, in which case the trust should provide a mechanism for the trustees to make decisions. A trust will not fail solely for want of a trustee; if there is no trustee, whoever has title to the trust property will be considered the trustee. If the interests of the trust require it, a court of competent jurisdiction may appoint a trustee to ensure the continuing viability of the trust. In jurisprudence, a natural person is a human being perceptible through the senses and subject to physical laws, as opposed to an artificial person, i. ... A legal entity is a legal construct through which the law allows a group of natural persons to act as if they were an individual for certain purposes. ...


The trust property can be any form of property, be it real or personal, tangible or intangible. The beneficiary can be a single person, multiple persons, or a defined class or group of persons, including people not yet born at the time of the trust's creation. The trustee can be one of the beneficiaries, so long as the trustee is not the only beneficiary. A trust can also be created with some charitable purpose, as opposed to having a particular person or persons as its beneficiary. Real property is a legal term encompassing real estate and ownership interests in real estate. ... Personal property is a type of property. ...


The trust has been called the most innovative contribution of English legal thinking to the law. It plays an important role in all common law legal systems. Trusts developed out of the English law of equity which has no direct equivalent in civil law jurisdictions. However, since the use of the trust is so widespread, some civil law jurisdictions have incorporated trusts into their civil codes. Civil law systems also have analogous concepts like patrimony of affectation and the foundation that have similar independent patrimonies from their donors that trusts can have from their grantor. English law, the law of England and Wales (but not Scotland and Northern Ireland), also known generally as the common law (as opposed to civil law), was exported to Commonwealth countries while the British Empire was established and maintained, and persisted after the British withdrew or were expelled, to form... This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ... This article is about concept of equity in Anglo-American jurisprudence. ... Civil law is a legal system derived from Roman law and commonly used in Europe. ... A civil code is a systematic compilation of laws designed to comprehensively deal with the core areas of private law. ... In the civil law tradition the patrimony of affectation is a patrimony, or legal entitlement, that can be divided for a purpose, as being distinct from the general patrimony of the person. ... Wiktionary has a definition of: Foundation This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ...


Trusts are used for a number of purposes, including to plan one's estate and as a form of investment. They are also frequently used to reduce the amount of tax payable, since they often receive special tax treatment. Pension schemes are often set up as trusts. Estate planning is the process of accumulating and disposing of an estate to maximize the goals of the estate owner. ... Estate is a term used in the common law. ... A pension (also known as superannuation) is a retirement plan intended to provide a person with a secure income for life. ...


Express, implied, and constructive trusts

Trusts can be classified in a number of ways. One of these ways is by how the trust was created. Most commonly, a classification of trusts as express trusts, implied trusts (resulting trust) and constructive trusts is used. Note however that this terminology is not accepted by all authors. In common law legal systems, a trust is a relationship in which a person or entity (the trustee) has legal control over certain property (the trust property or trust corpus), but is bound by fiduciary duty to exercise that legal control for the benefit of someone else (the beneficiary), according... A constructive trust is a legal device used by courts sitting in equity to resolve claims raised by a plaintiff whose property has been converted to a profitable use by the defendant. ...


An express trust is created where one person (the settlor) conveys property to another (the trustee) on the condition that the property will be used for the benefit of a third party or parties (the beneficiaries). The intention of the parties to create the trust must be shown clearly by their language or conduct. For an express trust to exist, there must be certainty to the objects of the trust and the trust property. Statute of Frauds provisions require express trusts to be evidenced in writing if the trust property is above a certain value, or is real estate. Statute of frauds - Wikipedia, the free encyclopedia /**/ @import /skins-1. ...


An implied trust (also called a resulting trust) is created where some of the legal requirements for an express trust are not met, but an intention on behalf of the parties to create a trust can be presumed to exist.


Unlike an express or implied trust, a constructive trust is not created by an agreement between a settlor and the trustee; rather a constructive trust is imposed on the trustee by the law. This generally arises due to some wrongdoing on behalf of the trustee, where the trustee has acquired legal title to some property but cannot in good conscience be allowed to benefit from it. For example, the Privy Council has held that if a fiduciary accepts bribes or makes an improper profit, a constructive trust is thereby created, by which the fiduciary holds the bribes or improper profit as trustee of a constructive trust for the benefit of the principal. The Judicial Committee of the Privy Council is one of the highest courts in the United Kingdom. ...


Simple or bare trusts versus special trusts

In a simple trust (also called a bare trust) the trustee has no active duty beyond conveying the property to the beneficiary at some future time determined by the trust. In a special trust, however, the trustee has active duties beyond this.


Private trusts versus public or charitable trusts

A private trust has one or more particular individuals as its beneficiary. By contrast, a public trust (also called a charitable trust) has some charitable end as its beneficiary. In order to qualify as a charitable trust, the trust must have as its object certain purposes such as alleviating poverty, providing education, carrying out some religious purpose, etc. The permissible objects are generally set out in legislation, but objects not explicitly set out may also be an object of a charitable trust, by analogy. Charitable trusts are entitled to special treatment under the law of trusts and also the law of taxation. A charitable trust is a trust organized to serve private or public charitable purposes. ...


Fixed, discretionary and hybrid trusts

In a fixed trust, the amount of money or other goods or services to be paid to the beneficiaries is fixed by the settlor. An express fixed trust requires a certain degree of certainty regarding who are the beneficiaries and the amounts to be paid to them, so that the trustee has little or no discretion. If this degree of certainty is not met, an implied trust exists instead. In a discretionary trust, the amount of money or other goods or services to be paid to the beneficiaries is up to the trustee, so long as the decision is made based on the beneficiaries best interests. A hybrid trust combines elements of both fixed and discretionary trusts. In a hybrid trust, the trustee must pay a certain amount of the trust property to each beneficiary fixed by the settlor. But the trustee has discretion as to how any remaining trust property, once these fixed amounts have been paid out, is to be paid to the beneficiaries.


Specific types of trust: unit trusts, protective trusts

A unit trust is a trust where the beneficiaries (called unitholders) each possess a certain share (called a unitholding) and can direct the trustee to pay money to them out of the trust property according to the number of unitholdings they possess. Unit trusts are primarily used for investment purposes.


A protective trust is a type of trust that was devised for use in estate planning. Often a person, A, wishes to leave property to another person B. A however fears that the property might be claimed by creditors before A dies, and that therefore B would receive none of it. A could establish a trust with B as the beneficiary, but then A would not be entitled to use of the property before they died. Protective trusts were developed as a solution to this situation. A would establish a trust with both A and B as beneficiaries, with the trustee instructed to allow A use of the property until they died, and thereafter to allow its use to B. The property is then safe from being claimed by A's creditors, at least so long as the debt was entered into after the trust's establishment. This use of trusts is similar to life estates and remainders, and are frequently used as alternatives to them. A life estate, at common law is an estate in real property that ends at death. ...


See also

The law of trusts and estates is generally considered the body of law which governs the management of personal affairs and the disposition of property of an individual in anticipation and the event of such persons incapacity or death, also known as the law of successions in civil law. ... A charitable trust is a trust organized to serve private or public charitable purposes. ... A Foundation is a type of philanthropic organization, set up by either individuals or institutions as a legal entity (usually either a corporation or a trust) with the purpose of distributing grants to support causes in line with the goals of the foundation. ... The term trust has several meanings: In general, trust refers to an aspect of a relationship between two parties, by which a given situation is mutually understood, and commitments are made toward actions in favor of a desired outcome. ...

External links

  • Basic info from the legal perspective of New Zealand

  Results from FactBites:
 
trust: Definition, Synonyms and Much More from Answers.com (8239 words)
A trust is created by a declaration of trust when the owner of property announces that she holds it as a trustee for the benefit of another.
A spendthrift trust is one in which, because of either a direction of the settlor or statute, the beneficiary is unable to transfer his right to future payments of income or capital, and creditors are unable to obtain the beneficiary's interest in future distributions from the trust for the payment of debts.
The terms of a trust instrument, when a writing is required, or the statements of a settlor, when she creates a trust, set specific powers or duties that the trustee has in administering the trust property.
  More results at FactBites »

 
 

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