A trust is a legal device that allows the owner of property to transfer that property. It also allows them to have the property, or trust assets, managed on behalf of someone who is called the trustee.
Trust laws vary from state to state. Generally speaking, trusts are an efficient means for people to transfer their assets in such a way that they can control and manage. An example of this would be how they may place certain conditions on the trust property that must be fulfilled before the property is transferred.
An express trust is an intentionally and deliberately created trust. The trust creator distributes property or funds to a trustee, who then holds the property “in trust;” meaning, holds legal title to the trust. The property is held in trust subject to the rights of individuals, known as beneficiaries, who are the parties entitled to the trust property.
The law recognizes a lifetime or inter vivos trust, as well as a testamentary trust. A lifetime trust is set up during the lifetime of the person who created the trust, who is known as the settlor.
Generally speaking, the same requirements that must be satisfied whether it is inter vivos or testamentary, in order for the trust to be valid and therefore legally enforceable:
- There must be a settlor (creator);
- The settlor must deliver legal title to property;
- The property, also referred to as res corpus or trust principal, must be delivered to a trustee;
- The trustee must hold legal title to the property;
- The legal title must be held for the benefit of one or more trust beneficiaries;
- There must be intent to create a trust;
- The intent to create a trust must be for a lawful purpose; and
- The document that embodies the trust must be validly executed.
What Is A Charitable Trust?
A charitable trust is created for charitable purposes. In order to be a legal and valid trust, the general purpose of the charitable trust must be to benefit the public good, such as:
- Providing for the poor, such as a homeless shelter or food bank;
- Advancing knowledge and education, such a scholarship fund;
- Religious or church purposes;
- Promoting public health, such as a community health clinic; and
- The advancement of public government interests such as parks and museums.
The beneficiary or beneficiaries of the charitable trust must be indefinite, and cannot be an individual. Meaning, the trust beneficiary cannot be a person, but must be an organization or group. The charity then acts as the trustee of the trust and oversees the distributions to the recipients.
There are several different types of charitable trusts, including:
The first step is to contact an experienced attorney for help in order to ensure that the trust will be legal and valid. The person creating the trust must ensure that the charity they wish to provide a donation to is recognized by the IRS and has tax-exempt status. The trust creator, or grantor, will need to place any assets or property that they wish to donate to that charity into that trust.
The chosen charity will then act as the trustee by determining how to best invest the property and assets that are held in the trust. The charity will provide the grantor or a named beneficiary with a portion of the income made by the investment of the property, as well as assets for a specified time period.
The specified time period will be included in the trust document, and could be as long as the grantor is alive, or any other time period that the grantor chooses. At the end of the specified time period, the property remaining in the trust will be transferred to the charity.
What Is The Cy Pres Doctrine?
Cy pres is a legal doctrine that is used by the courts to alter the terms of a charitable trust. When a person creates a charitable trust, the express charitable purpose of the trust may become impossible to fulfill. Rather than terminating the trust in response, the courts may alter the purpose of the trust in order to allow it to continue, while keeping it as closely to the original intention of the settlor as possible.
In the United States, cy pres only applies to charitable trusts when the original purpose of the trust has become illegal, impossible, or unfeasible. Additionally, the trust itself must not specify what is to be done under such circumstances. The court will then attempt to alter the terms in an effort to further the overall purpose of the trust; when this cannot be done, it will effectively cancel the trust.
An example of this would be if a wealthy investment banker dies, and in their will, creates a trust to provide $1,000,000 per year to a specific bird sanctuary that is located nearby. The payments are made for several years, until the building burns down and the owners decide to relocate to a new location that is several miles away.
Because the trust specifically noted the location of the sanctuary to be paid, the relocated bird sanctuary would not have access to the funds because of its new location. However, the courts could determine the banker’s intent in setting up the charitable trust, and decide that the location was irrelevant to their decision to create the trust. They would then use the cy pres doctrine to alter the terms of the trust by removing the location requirement, so that its true purpose of helping the birds could continue.
However, the use of the cy pres doctrine is not always so clear. An example of this would be if in the same situation as above, instead of helping the birds, the only reason that the deceased left money to the sanctuary was because their relative was the manager. The deceased had no love of birds; and, when the sanctuary burned down, it also killed the relative.
If the court was called in, they would consider the evidence at hand and could conclude that the only purpose of the trust was to care for the now dead relative. After assessing all of the evidence, they decide that the money is better spent on the relative’s family, instead of spent on the new bird sanctuary.
The charitable intent of the donor may become impossible due to changes in the law. In Evans v. Abney, a trust created by a late senator which created a public park that was segregated by race. Once segregation became illegal, the court was forced to determine whether it could employ the cy pres doctrine in order to strike the illegal elements from the trust, and keep the park open for everyone. The court held that it could not use cy pres to alter the trust for the park because the segregationist portion of the trust was an intrinsic part of the late senator’s intent. As such, the park was shut down to everyone.
Although not usually referred to as the cy pres doctrine when applied to non-charitable trusts, the law does allow courts to modify the terms of any trust. This would be if, as in the above situation, there is an unforeseen problem and modifying the terms will further the purposes of the trust.
Do I Need A Lawyer For Help With A Trust?
If you wish to create a trust, you should consult with a trust attorney before doing so. A lawyer near you will know how to draft the right trust for your specific needs, and can help fulfill your trust’s purposes as needed under the cy pres doctrine.
