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Trusts and the Statute of Wills—Creation of Testamentary Trusts


See Also:

Video-Course: Introduction to Trusts and Trust Provisions - Module 1 of 6
Video-Course: State Debtor-Creditor Laws - Module 2 of 5
Foundations of Law: Types of Trusts

Terms:

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

Statute of Wills:
States’ modern day statutes governing wills are derived from the English Statute of Wills (1540).

Secret trust:
Where property is devised to a person without any indication on the instrument of transfer that the property is to be held in trust for another person.

Semi-secret trust:
Where the will indicates that property is to be held in trust; however, no beneficiary is designated.

Constructive trust:
A remedial device, created by operation of law, when property is improperly acquired by someone who is not entitled to the property; imposed to cure wrongdoing or prevent unjust enrichment.

Resulting trust:
A resulting trust involves a reversionary interest when the equitable interest in property is not completely or effectively dispose of.

Requirements

A testamentary trust is one that becomes effective at the settlor’s death. To effectively create a testamentary trust, it must be created in a duly executed will. To comply with the Statute of Wills, all the elements of the testamentary trust must be ascertainable from the face of the will and any applicable documents incorporated by reference or facts of independent significance. These elements are:

  • Intention to create a trust;
  • Permissible purpose for the trust;
  • Identification of beneficiaries; and
  • Existence of trust res.

EXAMPLE (1): Rita bequeaths to Todd “in trust for the person who, in Todd’s opinion, has given me the best care in my declining years.” To identify this person, other evidence of acts or events that had significance apart from their effect on the will (i.e. who took care of Rita during her life) can be evaluated. The trust is valid because the beneficiaries are identified and the other elements are met, even though the trustee has some discretion in determining the beneficiaries. See, e.g., Moss v. Axford, 224 N.W. 425 (Mich. 1929).

EXAMPLE (2): In 1997, Rita executes a will bequeathing “to Todd in trust for the persons and purposes set out in the writing dated December 31, 1995, and kept in my safe.” If the writing conforms to the requirements for incorporation by reference (e.g., the writing existed at the time of the will’s execution), the trust terms may be supplied by this writing. See, e.g., Koeninger v. Toledo Trust Co., 197 N.E. 419 (Ohio 1934).

Secret trust (semi-secret trusts)

A “secret trust” is where property is devised to a person without any indication on the instrument of transfer that the property is to be held in trust for another person. Rather, on its face, the gift appears to be absolute.

Given this undeclared intention, courts usually allow extrinsic evidence to prove an oral promise by the recipient of a gift to hold the property in trust for the beneficiaries intended by the donor. If this evidence is persuasive, the court will impose a constructive trust (covered in the next section) to prevent unjust enrichment of the devisee. See, e.g., Olsen v. First National Bank, 83 N.W.2d 842 (S.D. 1957).

EXAMPLE: In Erica’s will, she leaves her penthouse apartment to Bryce, her attorney. Ricardo, Erica’s son, offers evidence in court that before Erica wrote her will, she said to Bryce, “If I leave the penthouse apartment to you, will you promise to hold it in trust for the use of my son Ricardo?” Bryce agreed to this arrangement. The court will evaluate this extrinsic evidence and if it is believable, the court will impose a constructive trust, by which Bryce will be ordered to hold the property for Ricardo’s benefit.

A “semi-secret” trust is where property is to be held in trust; however, no beneficiary has been designated. In most jurisdictions, this type of arrangement is not recognized. As such, the assets go into a resulting trust (covered in the next section) for the benefit of the testator’s heirs. Yet, a few jurisdictions enforce semi-secret trusts. See, e.g., Linney v. Cleveland Trust Co., 30 Ohio App. 345 (1928); In re Hartman’s Estate (No. 2), 182 A. 232 (Pa. 1936).

EXAMPLE: Venus devises the residue of her estate to Nikki, to distribute in her discretion so as “to carry out wishes I have expressed to her or may express to her.” Nikki states that Venus said the money was to be used for poor, aged, infirm and needy people at a mission she operates. Venus’s heirs contend that the trust is too indefinite to be carried out. The court held that the trust was not valid because the trust does not name the beneficiaries or even indicate who the beneficiaries are—a fatal flaw. Also, the court refused to consider extrinsic evidence to clear up this ambiguity. Instead, the assets passed to Venus’s heirs, pursuant to the intestate succession laws. See, e.g., Olliffe v. Wells, 130 Mass. 221 (1881).