Trusts are a central component of my practice; I use them for asset protection, estate planning and to hold portfolios I manage as an investment adviser. If you have any questions about my services, please call me at 832.330.4101.
“A trust is created only if the settlor properly manifests an intention to create a trust relationship.”
The Restatement of Trusts’ definition contains three key words: properly, manifest and intention. The Merriam-Webster online dictionary defines each in the following way:
To paraphrase the Section 4 of the Restatement of Trusts utilizing these definitions: the grantor must utilize an accepted form of documentation or communication to publicly demonstrate his desire to form a trust.
The most accepted means of proving intent is to have an attorney draft a trust document. But this is not the only method. Last week, I wrote that in Texas as few as 14 words placed on certain document’s beneficiary form can create a trust. The key in those cases was the specific naming of a trusted individual such as a sister or wife and describing them as a “trustee.” And section 407 of the Uniform Trust Code provides rules for proving an orally created trust – which is certainly not the advised method of showing intent.
There are two policy reasons why a grantor must intend to create a trust. First, the creation of a trust fundamentally changes the nature of the grantor’s relationship with the trust property. For example, after creating the trust, the grantor can no longer do as he pleases with the contributed property, but must instead act in the best interest of the beneficiary. Second, there may be gift and/or estate tax implications, depending on the nature of the trust, the amount of property contributed and the beneficiary.
This issue is seldom litigated.
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The Law Office of Hale Stewart
734A E. 29th Street
Houston, Texas 77009