Form 1041. Stephen Brooks

a simple declaration by the settlor that he or she holds property as trustee, or by the exercise of a power of appointment appointing property to a person as trustee.³

      Requirements to form a valid trust

      In general

      Under the Uniform Trust Act, a trust can only be created if all of the following are present:

       The settlor is of the age of majority. The settlor has capacity.

       The settlor has the intention to create a trust. There is a beneficiary.

       The trustee has duties to perform.

       The settlor, trustee, and beneficiary are not the same person.

      These requirements will be discussed in detail in the following material.

      Age of majority

      The settlor must be the age of majority when the trust is created. The age of majority will be determined by state laws that govern the trust. Typically, the age of majority is either 18 or 21.

Capacity

      In order to create a trust, the settlor must have the requisite mental capacity. The level of mental capacity will differ depending upon if the trust is a revocable or irrevocable trust as well as which state the trust is created in.

      Intention to create a trust

There must also be an outward expression by the trust settlor of his or her intention to create a trust. No particular words are required to create the trust and the words may be written or spoken.⁴

      Definite beneficiaries

      A trust must have definite beneficiaries. A beneficiary is definite if the beneficiary can be determined, either now or in the future. If the trustee has the power to select a beneficiary from an indefinite class, that is valid. If the power is not exercised within a reasonable time however, 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. Many dynasty trusts are created with the intent to benefit all future generations for as long as the trust can exist, as governed by the applicable state law.

      Duties to perform

A trust is only created if the trustee has duties to perform.⁵ Trustee duties are usually active, requiring that the trustee do something, but a duty may also be passive, implying only that the trustee has an obligation not to interfere with the beneficiary's enjoyment of the trust property.⁶

      Formalities of execution

The validity of a trust created by will is ordinarily determined by the law of the decedent's domicile. In other words, if the will creating the trust is valid in the jurisdiction where it was executed, the trust is also valid.⁷ In regard to the law regarding the validity of inter vivos trusts, the law is less certain.⁸ The Restatement (Third) of Trusts provides that except where required by the Statute of Frauds, no writing is required to create a valid trust.⁹ However, not all jurisdictions recognize oral trusts. Pennsylvania, for example, does not recognize oral trusts. In cases when writing is required, it is sufficient to satisfy the statute if it is signed by the settlor.

      Trust purpose

A trust may be created only for purposes that are lawful, not contrary to public policy, and not impossible to achieve.¹⁰ A trust may be created for charitable or noncharitable purposes, or for a combination of the two.¹¹ A charitable trust may be created for the relief of poverty; advancement of education or religion; promotion of health, governmental, or municipal purposes; or other purposes for which the achievement is beneficial to the community.¹²

      A trust or a particular trust provision is invalid if

       its purpose is unlawful or its performance calls for the commission of a criminal or tortious act;

       it violates rules relating to perpetuities;¹³ or

       it is contrary to public policy.¹⁴

The fact that the trust purpose cannot be achieved by lawful means will not necessarily invalidate the trust if there is a substantial valid purpose that can be achieved by methods that are not unlawful. This will not be the case if the purpose or method directed is so essential to the settlor's objective(s) that the permissible and impermissible purposes cannot be separated.¹⁵

      Finally, a noncharitable private trust, or a particular provision in the trust, may be invalid because all the purposes for which a trust is created are so indefinite that they cannot be enforced. Also, if the trust purposes are impossible to perform, the trust will be terminated.

      The fiduciary duty

The “trustee” is the person or entity that holds legal title to the trust property and manages that property for the sole benefit of the trust beneficiary or beneficiaries. The interests of the beneficiaries are protected under the law against mismanagement or misappropriation by the trustee.¹⁶ In performing its duties, the trustee is held to a “fiduciary standard” of conduct. Fundamentally, the fiduciary standard requires a duty of loyalty and a duty of prudence. This means that the trustee must act for the sole benefit of the trust beneficiaries and in a prudent manner in administering the trust. The trustee must also exercise the same care and skill as a man of ordinary prudence would exercise in dealing with his own property,¹⁷ and act in a manner which makes the trust property productive.¹⁸

The fiduciary standard also includes a host of subsidiary duties which act to reinforce the duties of loyalty and prudence.¹⁹ Those duties include the duty to keep accurate records with respect to the administration of the trust,²⁰ and to provide complete and accurate information to the trust beneficiaries concerning the nature of the trust property upon reasonable request.²¹

      Nature and extent of trustee's duties

The nature and extent of a trustee's duties is determined first by the trust agreement, and then in areas not addressed by the trust agreement by the law governing the trust.