With the growing 50+ population, estate planning tools and needs are on the rise, and that includes trusts. A trust is a complex legal tool that helps someone transfer their property to someone else but maintain some level of control over what happens to it. Here’s a really, really, simple example of how a trust works: Imagine your Grandma wants to give you her special doll, but you’re too young to have it now, so she puts the doll in a box for you and asks your dad to be the box keeper until you turn 18. Your dad has to follow Grandma’s rules for the box, like keeping the dolls safe and clean. The box is effectively the trust, and Dad is the trustee. You are the beneficiary, and Grandma is the settlor. When you’re older, the doll will be all yours! Let’s dive into some general requirements for creating a valid trust and some real-life examples on how trusts work.
What are the general requirements for creating a valid trust
Each state lays out its own laws regarding what is required of a valid trust. However, there are some overlapping requirements that many states agree is required for a valid trust. Here’s what to know:
- There must be a settlor (the creator of the trust), and they must have the capacity to create a trust
- There must be trust intent (the purpose)
- The purpose of the trust must not be against the law or public policy
- There must be a declaration of transfer of property
- There must be ascertainable trust property
- There must be a beneficiary (the person whom the settlor is giving the property to)
- The trustee has duties to perform (trustee is the person who manages the property)
- If there is only one trustee and one beneficiary, they cannot be the same person
Why pick a trust over a will?
Trusts are versatile legal tools that offer greater control and privacy than traditional wills or outright gifts. For example, you can set out specific requirements in a trust that puts conditions upon receiving certain assets. This can be particularly useful for complex family situations, such as blended families or children with special needs, where a will might not provide the necessary level of customization.
Trusts also shine when it comes to avoiding probate, a costly and time-consuming legal process that can delay the distribution of assets to your loved ones. While a will only takes effect after death, a trust can be utilized during your lifetime, allowing you to plan for incapacity and ensure your finances are managed according to your wishes even if you become unable to do so yourself. Bottom line? Trusts offer more control, privacy, and efficient asset distribution, providing peace of mind for both you and your beneficiaries.
Case law demonstrating how trusts work
Case law is a term lawyers use to describe court opinions determining certain issues. The below case law is regarding varying issues around trusts. They help to demonstrate how courts treat trusts and what happens if there is a dispute over one.
What happens when there is vague language–Is a trust validly created?
In a Texas case from the 90s, Richard (the deceased) was a participant in a retirement plan trust that named his ex-wife as the beneficiary. He later changed the beneficiary designation to attempt to create a trust for his two minor sons. Richard’s brother, Lynn, was named as the trustee. The language specifically said: “Designated beneficiary: Richard Lee Tomlinson II, Rileigh William Tomlinson, Trustee Lynn Tomlinson.” Richard’s ex-wife argued that this was not enough to create a trust because it did not specify how the money should be managed, and she should still be considered the beneficiary.
The court ruled that the trust was valid by simply showing his intent to create a trust by using the term “trustee.” Even though the designation did not specify how the money should be managed, Texas law provides default rules that apply to trusts. (See Tex. Prop. Code § 113.051).
Tomlinson v. Tomlinson, 960 S.W.2d 337, 338 (Tex. App. 1997)
What if the beneficiaries aren’t clearly defined–Is a trust validly created?
In a recent Indiana case (2021), Terrel, Sr. passed away and left a will. In the will, he attempted to create a trust and named his brother, Wilson, as the trustee. The trust was supposed to distribute Terrel, Sr.’s estate to “his family and others” as instructed by Terrel, Sr. to Wilson. However, the will did not specify who the “others” were.
Terrel, Jr., one of Terrel, Sr.’s children, argued that the trust was invalid because the beneficiaries were not identified clearly. The court agreed with Terrel, Jr. and ruled that the trust was invalid. The plain meaning of “my family and others” could literally include everyone on Earth, thus, the beneficiaries were not clearly defined according to Indiana statute (Ind. Code § 30-4-2-1). Because the trust was invalid, the residuary of the estate will be distributed according to Indiana’s intestate succession laws, which means it will be distributed to Terrel, Sr.’s heirs (a.k.a., his sons including Terrel, Jr.).
Wilson v. Wilson, 181 N.E.3d 417 (Ind. Ct. App. 2021)
What happens if no property is defined? Is the trust valid?
This older Missouri Supreme Court case dealt with a dispute over a trust where the trust property was not specified. The decedent attempted to place in trust shares of stock that he did not yet own, but anticipated that he might buy in the future. The court declared that this was NOT a valid trust because there must be a specified, ascertainable asset defined. You can’t create a trust for property you don’t own.
Edgar v. Fitzpatrick, 377 S.W.2d 314, 317 (Mo. 1964)
Transferring a piece of real property through trust
In a more recent case (2022) stemming from Nevada, the Supreme Court of NV discussed the issue of whether the deceased (we’ll call him Settlor) properly placed his house into a trust before he died without using a traditional deed. In the trust, the Settlor intentionally disinherited his sons and gave the house in trust to his sister. So this case was brought by the sons arguing the trust was invalid because the house was the main trust property but didn’t include a deed nor did it include a sufficient description of the house (all it said was “house” in the description, no address). So, the sons argued it wasn’t sufficient legal transfer to a trust.
First, the court examined Nevada laws governing trusts and determined that a separate deed wasn’t necessary as long as the trust document clearly showed the Settlor’s intent to transfer the house to the trust. Second, the court also addressed the sons’ argument that the trust document didn’t adequately describe the house. They found that the description, while simple (it just listed “house” as the description and the fair market value), was sufficient because it could be easily linked to the singular property owned by Settlor using public records. This case provides an example of how courts aim to honor a person’s wishes regarding their property, even if their estate planning isn’t perfectly formal.
Matter of Living Tr. of David Francis Davies III, 522 P.3d 427 (2022)
Does a handwritten trust amendment hold up?
In a very recent case (2024), a California court heard a case where siblings were arguing (in part) over the validity of their mother’s handwritten trust amendment. In the mother’s original trust, written by a lawyer in 2018, it said her house would go to her three kids, and they could sell it if they wanted. A year later, the mother tried to amend with the following handwritten notes:
- If one of her kids wanted to sell the house, they had to first offer it to their siblings for $100,000.
- They had to be flexible with payment, even if it took 10 years.
- If a sibling bought it, they could split the payments in half.
- She really wanted the house to stay in the family and for her kids to not fight about it.
The court said this note wasn’t valid for a few reasons. First, the mother didn’t follow the instructions in her original trust for making changes. Second, she clearly stated she was just “adding” to the trust, not creating a whole new one with different rules. Finally, the court said her restrictions on selling the house weren’t allowed because they went against basic property laws (“unreasonable restraint on alienation” which limits what people can do with property). Basically, you can’t give someone something and then control it forever. Because the handwritten changes weren’t done correctly and had illegal restrictions, the court ignored them and went with the original trust from 2018 which said the kids could sell it.
Godoy v. Linzner, 327 Cal. Rptr. 3d 323 (2024)
The bottom line on trusts
As you can see, trusts are good for folks who desire control over their assets, may have complex family dynamics, and/or want to avoid probate. There are several general requirements to creating a valid trust, such as having ascertainable trust property, specific intent for the trust, and specific beneficiaries, to name a few. Remember, trusts are complex legal tools that don’t necessarily require an attorney, but can easily be done wrong without proper legal guidance, such as the mother in the Godoy v. Linzner case above where she drafted her trust amendment incorrectly. To ensure your wishes are carried out accurately, reach out to an attorney in your state!
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: Nicole@Helloprenup.com
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