Methods of Trust Creation


Declaration of trust:
The act by which the person who holds legal title to property or an estate acknowledges and declares that he holds the same in trust for the use of another person or for certain specified purposes.

Inter vivos trust:
Trust created during lifetime of settlor and to become effective in his lifetime.

Testamentary trust:
Trust that takes effect at the death of the settlor or testator.

Power of appointment:
A power or authority conferred by one person by deed or will upon another to appoint (i.e., select and nominate), the person or persons who are to receive and enjoy an estate or an income from a fund, after the testator’s death.

The principal methods of creating a trust are by:

  • declaration of trust;
  • transfer in trust;
  • exercise of power of appointment; and
  • contract.

Declaration of trust

A trust may be created by a declaration that the owner of property is holding in trust for another person. See, e.g., Russell v. Russell, 468 N.E.2d 1104 (Mass. 1984).

EXAMPLE: Todd is the owner of 100 shares of General Motors stock. Todd declares himself trustee of the shares for the benefit of his son, Aaron. After the declaration, a trust is created. Todd is trustee for Aaron.

There is no need for a transfer of title since the settlor already has legal title. An oral declaration is usually sufficient to transfer equitable title (and thus create a trust relationship). For land, however, a writing is necessary, because of the Statute of Frauds (covered later in this chapter).

Transfer in trust (inter vivos or by will)

A trust may also be created by a transfer of property by the owner to another as trustee for the settlor and/or a third party. If the transfer is made during the settlor’s lifetime, the trust is an “inter vivos” or “living” trust. A living trust can be either revocable (changeable in whole or in part) or irrevocable. If the trust is created at the testator’s death, it is a testamentary trust.

To create a living trust, there must be an effective, present transfer of the trust res, with adequate delivery of the trust res to the trustee. See, e.g., State ex rel. Teague v. Home Indemnity Co., 442 S.W.2d 276 (Tenn. 1967). A mere promise or expression of intent to hold or transfer property in trust in the future does not normally create a trust.

EXAMPLE: Aidan writes, “I hereby promise to hold my home in Newport Beach, CA in trust for Emily.” Since the promise relates to some time in the future, this language would not ordinarily indicate an immediate, present transfer. As such, no trust would be created.

If the settlor also serves as the trustee, “delivery” is satisfied by the act of segregating the trust assets from his other property. Or, the settlor can put this intent in writing. A written declaration is also sufficient where real property is involved. Recording the deed is not necessary (except by a few statutes). Yet, it may be desirable as a way to protect the beneficiaries from third parties and as further indication of the settlor’s intent.

If an effective transfer has been made, neither notice to, nor acceptance by, the trustee or beneficiary is essential to formation of the trust.

Exercise of a power of appointment

A trust may be created by the exercise of a power of appointment. A power of appointment is the power or authority conferred by one person (the settlor) upon another person to appoint (i.e., select and nominate) the people who are to receive and enjoy a benefit from a fund or trust, after the testator’s death.

EXAMPLE: Eric devised property to Buffy (his sister) for life with a “power to appoint the remainder among the children of Julian (his brother).” Buffy then makes an appointment to her friend, Donovan, in trust for Julian’s children until the youngest reaches age 21, and then to Julian’s children in equal shares. The trust was established when Buffy made the appointment to Donovan, as the trustee.

Contractual agreement

A valid inter vivos trust may also be based on a promise to create a trust, if the contract is enforceable under contracts law. Specifically, consideration is needed to make the promise binding and enforceable.

EXAMPLE: Mavis promises Kim that Mavis will hold certain property in trust for Kim’s children, in exchange for valuable consideration. This contract can be enforceable under contract law, so the trust relationship can be created right away, although the res does not become trust funds until it is transferred to the trust.


Statutes may provide for the creation of trusts in various instances. In the case of wrongful death, the statute often provides that a right of action exists (against the person who caused the death) in the widow or executor of the decedent. Any recovery, however, is to be held in trust for designated beneficiaries.