Trusts can pop up in the darndest places.
Take wills, for example. In one case, Sam, a lawyer, drafted a will for his long-time friend and client, Nancy, that stated she was leaving all her property to him “to be distributed in accordance with the specific instructions I have provided him.”
The will did not contain the specific instructions.
Nancy died, leaving no husband and no children. Her will was probated and then her executor asked the court how the property should be distributed.
Cue the issue of trusts.
Essentials of a Trust
The court decided that Sam’s position to hold property for the benefit of others was a “trust” position. Because the trust was described in Nancy’s will, it was considered a “testamentary trust” and had to contain certain essential terms to be valid. One of those essential terms was the identity of the ultimate beneficiaries.
But the will did not name the ultimate beneficiaries.
While her will was clear that Nancy had intended to give the property to her lawyer Sam to hold and distribute to other people, it was conspicuously silent on the identity of those people. There was a hearing where testimony was introduced that Nancy had verbally told Sam that he was to distribute one of her houses to himself and make several other distributions to specific people.
Unfortunately, the court found that Nancy’s verbal instructions to Sam were of no help. There is a rule for written trusts that outside evidence cannot be introduced to supply a missing essential term.
Thus, Nancy’s testamentary trust failed for lack of an essential term. History is replete with examples of failed express testamentary trusts. Dispositions that leave the ultimate property distribution to the “honesty and integrity” of the executor or to someone to “be disposed of by him as I have heretofore or may hereafter direct him to do,” are going to fail every time.
When the disposition failed the testamentary trust test, it morphed into a “semi-secret trust”.
Semi-Secret, Secret & Resulting Trusts
When a will contains a semi-secret trust, the ultimate beneficiaries are the testator’s heirs at law. That meant Nancy’s heirs inherited all her property.
Now we come to another type of trust: a resulting trust. This is a remedy that recognized that, while Sam has a right to receive the estate property, he held only legal title to it. He did not have the right to keep and use it. He was holding the property in a resulting trust for the benefit of Nancy’s heirs and was obligated to give them the property.
It was almost as if Nancy had died without a will.
While we are on this topic, let’s talk about another strange phenomenon: the secret trust. This is an actual thing, supported by such unassailable authority as an 1892 Texas Supreme Court opinion. A secret trust occurs when the parties agree that the property is to be held in trust for a specific use, but do not put it in writing. Suppose Ben tells Jill that if she leaves him all her money, he will use it to support various dog charities. She relies on his promise and in her will leaves all her property to Ben. Her will says nothing about a trust. This is a secret trust, and the law imposes a duty on Ben to apply the inherited money to support charities for dogs.
The lesson? Spell out all of the essential terms of a trust in writing.
Virginia Hammerle is president of Hammerle Finley Law Firm. She is an Accredited Estate Planner, has been Board Certified in Civil Trial Law for 25 years, and recognized as a Super Lawyer for the past 10 years. She blogs regularly on senior issues and the law and has a monthly newsletter. Contact at email@example.com.