Chapter 2—Creation of a Private Trust
The two major categories of trusts are private trusts and charitable trusts. This chapter set forth the elements necessary to create a valid private trust. The creation of charitable trusts will be discussed in Chapter Eight. There are no magic words that the settlor has to use in order to establish a trust. If it looks like a trust and functions like a trust, it is a trust regardless of what the testator calls it. First, the testator must manifest the intent to create a trust by vesting the beneficial ownership of property in a third party or in the settlor for the benefit of another. Second, the trust instrument must name ascertainable beneficiaries. The class of beneficiaries must be so described that some person might reasonably be said to answer the description. Third, the trust must be funded with property. There must be an identifiable trust res or corpus. Any form of property, including stocks, real property, mortgage securities, easements, causes of actions, can be the corpus of a trust as long as the settlor has an interest in the object. In general, a trust does not have to be in writing to be valid. Thus, the settlor can create an oral trust. However, the Wills Act mandates that a testamentary trust be in writing, and the Statutes of Fraud requires an inter vivos trust of land to be in writing. As a result, the only trust that can be oral is a trust that disposes of personal property. Proving the existence of such a trust is difficult because the parole evidence rule limits the extrinsic evidence that can be admitted to prove the terms of the trust.
2.1 Intent to Create a Trust
It is not enough just for the settlor to use the word trust. The test is whether the settlor indicated that she intended to establish a trust relationship. Consider the following illustrations.
(a) “I leave my lake cabin to Tresmal in trust provided that he pays his brother, Alonzo, $50,000.” The testator has not established a trust. He has created an equitable charge. If a testator grants property to a person, subject to the payment of a specific sum of money to a third party, the testator has created an equitable charge. An equitable charge is similar to a trust in that in each case the legal title to the property is vested in one person and the other persons has an equitable interest in the property. However, the equitable imcumbrancer has only a security interest in the property; the beneficiary of a trust is the equitable owner of the property. Further, the holder of the equitable charge does not owe a fiduciary duty to the third party. In the trust situation, the trustee owes such a duty. The relationship between the holder of the equitable charge and the beneficiary is more in the nature of a debtor and secured creditor. In this case, Tresmal is not holding the lake cabin or the $50,000 for the benefit of Alonzo. Alonzo has a security interest of $50,000 in the lake cabin. Thus, if Tresmal fails to pay Alonzo the $50,000, Alonzo can file suit to force Tresmal to sell the lake cabin to get the money to pay him the $50,000. If a trust was created, Alonzo’s remedy would be to sue Tresmal for a breach of his fiduciary duty.
(b) “I leave my house located at 215 Chestnut Street in trust to LaNitra with the hope that she will provide her sister, Kaylan, with a place to live during her lifetime.” The testator has not established a trust. The testator lacked the intent to create a trust because she did not impose legally enforceable duties on LaNitra. She has made an outright gift of the house to LaNitra. Kaylan has no interest in the house. This is not a legally valid trust because the language “with the hope” is precatory language which creates a presumption that the testator intended to imposed only an unenforceable moral obligation on LaNitra. Kaylan can overcome the presumption by presenting clear and convincing evidence that the testator intended for LaNitra to have a legal obligation to let Kaylan live in the house. Courts have held that words like hope, wish and desire are precatory words.
(c) “I leave $400,000 to Emma in trust provided that she repays me in two years.” The testator has not established a trust. Her intent was to create a debtor-creditor relationship between herself and Emma. A trustee is obligated to hold specifically defined property for the benefit of a third party. The trust property must be kept separate from the trustee’s own funds. A debt involves a personal obligation to pay a sum of money to another. The crucial factor in distinguishing between a trust relationship and an ordinary debt is whether the recipient of the assets is entitled to use the property as his own and to comingle the property with his own assets. In this case, Emma has no obligation to use the money for the benefit of a third party. Her only obligation is to repay the money. Thus, instead of owing a fiduciary duty to a third party, Emma’s sole duty is to repay the testator.
(d) “I leave $300,000 in trust to Bernie to pay the income to Jeremy for life and upon Jeremy’s death to divide the principle between Jeremy’s surviving children.” Testator has established a trust. Bernie is not permitted to use the money and repay it. Thus, this is not an equitable charge or a debt. Moreover, Bernie has a mandated duty to abide by the terms of the trust with regards to Jeremy and Jeremy’s children. It is clear that the testator intended Bernie to manage the trust funds for the benefit of those persons.
Marzahl v. Colonia Bank and Trust Company, 364 A.2d 173
BOGDANSKI, Associate Justice.
This appeal arises from an action brought by the plaintiff against the defendant bank as executor of the estate of the plaintiff’s deceased mother. The plaintiff sought damages alleged to have resulted from the mother’s failure to distribute to the plaintiff a portion of the income received by the mother from a testamentary trust established in the will of the plaintiff’s father. On motion by the defendant, and after having considered an affidavit and a counter-affidavit filed by the parties, the court granted summary judgment for the defendant. From that judgment, the plaintiff has appealed, claiming that the court erred in concluding that the fourth article in the will did not require the decedent mother to disburse portions of the trust income received by her for the plaintiff’s maintenance, health and comfort.
The affidavits submitted by the parties to the trial court revealed that no material facts were in issue. See Rathkopf v. Pearson, 148 Conn. 260, 170 A.2d 135. W. Marnahl, the plaintiff’s father, died on July 8, 1967, leaving a will in the fourth article of which he created a trust from which the income and principal were to be disposed of as follows: ‘My Trustees shall pay in income to my wife, Margaret, during her lifetime in quarter annual payments or in more frequent payments in the discretion of my Trustees, together with such sums out or (sic) principal as my Trustees in their sole discretion shall deem proper from time to time for her suitable maintenance, health and comfort and for the suitable maintenance, health and comfort of my daughter, Anne.’
The plaintiff contends that article four of the will established the mother as a trustee of a portion of the income received by her, and subjected her to a fiduciary duty to use that portion for the maintenance, health and comfort of the plaintiff. She argues that the circumstances surrounding the testator when the will was executed evidenced his intent to create such a trust; that that intent would become manifest in the language of the fourth article if a comma were to be inserted after the phrase ‘from time to time’; and that such a comma should have been supplied by the court since punctuation should not be allowed to obscure the true intent of a testator.
One of the basic elements necessary for the creation of a trust is a manifestation of intention to create it. Effect must be given to that intent which finds expression in the language used. Fidelity Title & Trust Co. v. Clyde, 143 Conn. 247, 253, 121 A.2d 625; Conway v. Emeny, 139 Conn. 612, 618, 96 A.2d 221. In Peyton v. Wehrahane, 125 Conn. 420, 425, 6 A.2d 313, 315, citing Loomis Institute v. Healy, 98 Conn. 102, 114, 119 A. 31, we stated: ‘(W) hen property is given absolutely and without restriction, a trust is not lightly to be imposed, upon mere words of recommendation or confidence.’ The plain and unambiguous language used by the testator in the fourth article of his will does not give the slightest indication that he intended that his wife be subjected to a fiduciary duty to share the trust income with her daughter. The plaintiff is mentioned only with respect to the provision for payment of principal.
Moreover, even if we assume, arguendo, that the insertion of a comma after the phrase ‘from time to time’ would render the provision susceptible to the interpretation urged by the plaintiff, the circumstances surrounding the testator at the time the will was executed, as disclosed by the plaintiff’s counter-affidavit, afford no basis for making such an insertion. Punctuation may be inserted or deleted where a provision does not lend itself to a clear interpretation of the testator’s intent and when ‘the result would be a clear and sensible statement, not out of accord with other provisions of the instrument and the testator’s intent thereby manifested.’ Simmons v. Simmons, 99 Conn. 562, 568, 121 A. 819, 821. The counter-affidavit points out that when the will was executed, the father knew that the plaintiff was almost destitute, and that he also knew that his wife was well provided for. In his will the testator provided for the plaintiff during the lifetime of her mother by allowing the trustees the discretion to provide portions of the principal of the trust for the maintenance, health and comfort of the plaintiff. It appears, however, that the plaintiff never requested the trustees to pay over any of the principal. Upon her mother’s death, the entire principal was to be given to the plaintiff free from any trust. The will further provided that all property would go to the plaintiff in the event her mother predeceased her father. Article four lends itself to a clear interpretation of the testator’s intent with respect to the method of providing for his wife and daughter after his death. Nothing suggested by the plaintiff’s affidavit is inconsistent with that expressed intention.
If a comma were to be inserted, the result would not be a ‘clear and sensible statement’ and would be ‘out of accord with other provisions of the instrument.’ Simmons v. Simmons, supra. The clarity which pervades this will would be muddled by the question of whether the phrase ‘for the suitable maintenance, health and comfort of my daughter, Anne’ referred to the income as well as to the principal of the trust. Moreover, the sixth article of the will nominates two named trustees ‘as Trustees of the trust herein created.’ To hold that the testator intended to create still another trust and to nominate another trustee would be completely out of accord with that provision.
The trial court’s conclusion that the fourth article of the will could not be construed as establishing the decedent mother as the trustee of a trust for the benefit of the plaintiff cannot be disturbed.
There is no error.
In re Estate of Brooks, 579 P.2d 1351.
This is an appeal from a King County Superior Court ruling that certain language in a will created a trust.
Eloise Brooks, a divorced woman, died September 21, 1974, survived by her two minor children. She left a will dated March 14, 1974 which named her sister, Sharon Morton, as executrix. The will left certain specific property to her two children and appointed Sharon Morton to be guardian and have actual custody of the children. Paragraph VI of the will provided:
I hereby give, devise, and bequeath unto my sister, Sharon Nelson Morton, all the rest, residue and the remainder of my estate, for her to use in her own discretion and in whatever manner she deems appropriate for the benefit of my children.
The will was admitted to probate October 11, 1974 and proceedings ensued normally until August 19, 1976 when the natural father moved, on behalf of the children, for an accounting of a trust allegedly created by paragraph VI. Although Sharon Morton contended that no trust had been created the court found that all property passing under paragraph VI of (the will) is held in trust for the benefit of said minor children and further that there is a conflict of interest for the Executrix to serve also as Trustee … Thereupon the court appointed a new trustee and ordered him to make an accounting.
It is well established that in construing a will a court must attempt to give effect to the intent of the testator. Matter of Griffen’s Estate, 86 Wash.2d 223, 543 P.2d 245 (1975). The will should be construed as a whole. In re Estate of Price, 75 Wash.2d 884, 454 P.2d 411 (1969). Where there is room for construction, that meaning will be adopted which favors those who would inherit under the laws of intestacy, In re Estate of Price, supra; In re Lambell’s Estate, 200 Wash. 200, 226, 93 P.2d 352 (1943), and a sole surviving natural heir who is a minor is favored. Cotton v. Bank of California, 145 Wash. 503, 216 P. 104 (1927).
Before a trust will be found to exist, there must be a clear manifestation of an intent to create a trust and not to do something else. Hoffman v. Tieton Methodist Church, 33 Wash. 2d 716, 207 P.2d 699 (1949). A testamentary trust will not be declared, unless such a trust is clearly intended by the testator. In re King’s Estate, 144 Wash. 281, 257 P.848 (1927). It has generally been held that an imperative command to dispose of the property for the benefit of another is required to create a testamentary trust. In re Morton’s Estate, 188 Wash. 206, 61 P.2d 1306. Precatory words are not enough to create a trust and if the grantee has discretion to use the property for herself the court will not find a trust. Lanigan v. Miles, 102 Wash.82, 172 P. 894 (1918).
The issue is whether Eloise Brooks manifested an intention to impose duties upon Sharon Morton which are enforceable in the courts. See Rest. (Second) Trusts, s 25. If so, there is a trust.
The language of paragraph VI which conveyed the estate to Sharon Morton “for her to use … for the benefit of my children” is strongly suggestive of a trust. Other language in the clause, however, suggests that Sharon Morton was to hold the property free and clear with the option to comply with the wish of the testator only if she desired to do so. When necessary, extrinsic circumstances may be considered as an aid in determining intention. In re Mac Adam’s Estate, 545 Wash.2d 527, 531, 276 P.2d 729 (1954). In re Quick’s Estate, 33 Wash.2d 568, 573, 206 P.2d 489 (1949). Restatement Second, Trusts s25, comment b sets forth circumstances pertinent to this inquiry:
In determining the intention of the settlor the following circumstances among others are considered: (1) the imperative or precatory character of the words used; (2) the definiteness or indefiniteness of the property; (3) the definiteness or indefiniteness of the beneficiaries or of the extent of their interests; (4) the relations between the parties; (5) the financial situation of the parties; (6) the motives which may reasonably be supposed to have influenced the settlor in making the disposition; (7) whether the result reached by construing the transaction as a trust or not a trust would be such as a person in the situation of the settlor would naturally desire to produce. In re Mac Adam’s Estate, supra; In re Quick’s Estate, supra.
Considering these circumstances along with the language of the will we believe that a trust was intended. The language “for her to use … for the benefit of my children” is more imperative than precatory. Although Morton was given apparent uncontrolled discretion in using the funds for the benefit of the children, this fact neither defeats the trust nor gives Morton unlimited power. See Rest. Second Trusts, s 187, comment j.; In re Sullivan’s Will, 144 Neb. 36, 12 N.W.2d 148, 150-1 (1943). Other considerations control. The property and beneficiaries are definite. See In re Hochbrunn’s Estate, 138 Wash. 415, 244 P. 698 (1926). Most significant is the readily ascertainable motive of Eloise Brooks. By her will she was providing for the welfare of her children, not for her sister. Sharon Morton was given the property of the estate, not for her own use, but to use in raising the two children. It is inconceivable that the testator intended Sharon Morton’s discretion to include the discretion not to use the property to benefit the children. We therefore adopt the construction most favorable to the children, In re Estate of Price, supra; In re Lambell’s Estate, supra; Cotton v. Bank of California, supra, and concludes there was a trust. Cf. Rest. Trust Second s 25, comment Illustration 6. Duties were imposed on Sharon Morton which are enforceable in the courts.
However, we feel that the trial court erred in removing Sharon Morton as trustee. There is no doubt that Brooks intended Morton, who was to be physically raising the children, to use the money as she saw fit to benefit the family unit of Morton and the two children. Absent a showing of an abuse of discretion or a breach of fiduciary duty we hold it was error to remove Sharon Morton as trustee and we reverse the order of the trial court insofar as it removed Sharon Morton as trustee.
Affirmed in part; reversed in part.
Notes, Questions and Problem
1. In order to ascertain the testator’s intent with regards to the creation of a trust, courts often look to the plain language of the testamentary instrument. Although it is not necessary for the testator to use the word trust, the use of that word usually leads to the conclusion that the testator intended to create a trust. If the language of the testamentary instrument is unhelpful, courts will admit extrinsic evidence to determine the testator’s intent. That evidence frequently includes the testimony of disinterested parties.
2. It has been noted that the use of precatory rather than mandatory language does not create a trust. Nonetheless, that is not the end of the story. The court may permit a trust to be established from precatory language if the words taken in connection with other portions of the will and in light of all the circumstances indicate that the testator intended to place a legal obligation on the potential trustee. What factors should be considered to determine if a precatory trust was intended?
In which of the following circumstances did the testator intend to create a trust.
a). Geoff had two children, Alice and Denise. Denise was permanently disabled. Geoff’s will contained the following provision: “I leave half of my estate to my daughter Alice. I leave the other half in trust for the benefit of my daughter, Denise. Alice can serve as trustee if she promises to take care of her sister.”
b). When he was a young man, Steven inherited a house from his grandfather. Steven wanted to make sure that the house remained in his family. Steven’s will contain the following language: “I leave my grandfather’s house to my son, John in trust for himself and my two other children, Nancy and Peter, provided that John promises to pay $4,000 a year to the city property tax department.”
c). Angela had seven minor children. In her will, Angela stated, “I leave my entire estate to my oldest son, Benjamin in trust in exchange for his promise to take care of his younger siblings.”
d). Greta did not have any children, but she was close to her nieces and nephews. In her will, Greta stated, “I leave my entire estate to my sister, Brenda, in trust provided that she pays each one of my living nieces and nephews $400 per month.”
e). Brian and Cynthia were best friends. Brian was the Godfather to Cynthia’s daughter Briana. In his will, Brian stated, “I leave the residuary of my estate to Cynthia in trust for my Goddaughter, Briana. Before she assumes the role as trustee, Cynthia should repay the $100,000 that she owes me.”
2.2 Requirement of Trust Property
A valid trust cannot be created without trust property which is referred to as res. If the trust is created using a deed of trust, the property must be delivered to the trustee. Any interest in property can serve as the res of a trust. Consider the following examples.
a) On the beneficiary designation on her pension plan Carmen wrote “To Rodney Gates, in trust, for my children, Peter, Paul, and Mary.” This transaction creates a trust because any right to receive benefits under a pension plan can serve as trust property.
b) Stephanie created a trust for the benefit of her minor child, Yasmine. The trust consisted of a house Stephanie will inherit under her father, Clinton’s will and the profits she anticipates earning next month when she sells her antique bedroom set. This transaction creates a valid trust because the profits Stephanie anticipates making can serve as trust property because she actually owns the antique bedroom set. However, the house cannot serve as trust property because she does not yet have an interest in it. She only has an expectancy because Clinton can change his will at any time.
Edwards v. Edwards, 459 P.2d 422
Plaintiff appeals from a dismissal of a declaratory judgment action in which he sought to invalidate the trust provision of the last will and testament of Lonnie Leota Edwards, deceased.
The facts were not disputed. The matter was brought to issue by plaintiff’s motion for summary judgment. Both counsel agreed that only issues of law were involved.
Lonnie Leota Edwards died testate in Tacoma, Washington on February 26, 1963. Her husband, Leon R. Edwards, was appointed executor of her estate. Paragraphs 3 and 4 of her will, which are here under attack, provided:
I give, devise and bequeath to my husband, Leon R. Edwards, a life estate in all the rest, residue and remainder of my estate, subject to the conditions and limitations set forth herein, of every kind, nature and description and wheresoever situated, or which I may die seized, for his own use during his life without bond and without liability for impeachment for waste, provided, however, that in the event he is unwilling or physically unable to manage and administer said estate, then and in that event it is my desire and intent that all of my estate then in his possession shall be placed in trust with the Puget Sound National Bank * * *
In the event my husband, Leon R. Edwards, should perish with me in a common disaster or as the result of a common disaster or should die within six months following my death, or upon the subsequent death of my husband, I give, devise and bequeath all the rest, residue and remainder of my estate not specifically devised herein to the PUGET SOUND NATIONAL BANK, Tacoma, Washington, TRUST DEPARTMENT, to be held in trust for the benefit of my grandchildren, SHARON EDWARDS KNAPP, St. Helens, Oregon, GRETCHEN EDWARDS, JANE EDWARDS, and WENDY SUE EDWARDS, of Bellevue, Washington, and my son, MARION C. EDWARDS, for the following uses and purposes and upon the following terms and conditions.
The plaintiff, Marion C. Edwards, is the son of he deceased, Lonnie Leota Edwards, and brought this action individually and as guardian ad litem for his children, all of whom are beneficiaries of the aforementioned trust. The named defendants were Leon R. Edwards, individually and as executor, and the Puget Sound National Bank, named trustee in the will.
Plaintiff claims that no valid trust was created by the provisions of this will because the trust would not come into existence until the life tenant died or became ‘unwilling or physically unable to manage and administer (the) estate.’
Plaintiff asserts that a trust is not and cannot be created without the actual transfer of legal title to the trustee as of the date of death of the trustor. He seeks to have the trust provisions invalidated, so that the remainder after the life estate passes by intestacy.
The trial court denied this relief, upheld the trust, dismissed the action, and allowed both defendants’ costs and attorney’s fees.
To simplify the first legal problem presented by the appeal, we state the issue: Where A devises her estate to B for life, with power to consume and at his death the remainder to C in trust for D, is a valid trust of that remainder established?
Plaintiff contends that it is invalid because (1) title to the remainder does not reach the trustee at the time of testator’s death but is postponed until the intermediate estate terminates, and (2) the power to consume in the life tenant and the words, ‘all of my estate then in his possession’ makes the trust res so uncertain and indefinite as to render the trust invalid.
To understand the first contention is to reject it. We are told, in effect, that if testator had used these words: To C in trust for D, subject to a life estate in B, the trust would stand, but because she used these words: To B for life and at his death to C in trust for D, the trust is invalid.
We are told that the reason for this distinction is that in the former case legal title reposes immediately in the trustee while in the latter it awaits the termination of the intermediate estate. Thus, testator has not made a present and unequivocal disposition of both legal and equitable ownership at her death, which is one of the requirements of an express trust.
The rule relied upon by plaintiff is stated in 54 Am.Jur. Trusts s 34 (1966) at 45:
It is essential to the creation of an express trust that the settlor presently and unequivocally make a disposition of property by which he divests himself of the full legal and equitable ownership thereof. He may make himself the trustee or one of the trustees, thus retaining the legal title in whole or part, or by making himself the beneficiary or one of the beneficiaries of the trust, he may retain the equitable ownership in whole or part, but he cannot retain the full legal and equitable ownership. The legal title must be definitely reposed in the trustee, whether he is the trustor or another. Such present and unequivocal disposition of the property in trust must constitute an actual carrying out and execution of the settlor’s intention to create a trust by some proper transaction or mode, and it does not suffice to create a trust that he merely intends or manifests an intention to create a trust in the future or conditionally directs or gratuitously promises a disposition of property in trust in the future.
This rule and the cases cited as authority for it involve inter vivos trusts. The issue in many of them was whether or not the trust should fail as an attempted testamentary disposition, without compliance with the statute of wills. Others were cases where the settlor had declared a trust but had conveyed no property to the trustee on which a trust could operate. A testamentary trust is distinguishable. Such a trust looks to the future and does not, as of the time of its execution, divest the trustor of his property or any interest therein or vest a present property interest in the beneficiaries. Johnson v. Weldy, 79 N.D. 80, 54 N.W.2d 829 (1952).
We believe that plaintiff’s attempted application of that rule to a testamentary trust and to the trust in question is erroneous.
Assuming arguendo that a valid testamentary trust must At death divest the trustor of full ‘legal and equitable ownership,’ it is our view that testatrix intended to and did accomplish that end in this case. To ascertain the type of interests which came into being at her death, we look to the law of future interests.
In the case of In re Estate of Gochnour, 192 Wash. 92, 93, 72 P.2d 1027 (1937) the will under consideration provided:
‘I give, devise and bequeath all my property, owned by me at the time of my death, both real and personal * * * to my husband, Jacob B. Gochnour, * * * with full power to alienate the same for his use and benefit during his natural life, and I direct that at the death of my said husband, Jacob B. Gochnour, all of my said property, real and personal, or the proceeds thereof, then remaining, go and be distributed to my nieces and sister * * *.’
At 93, 72 P.2d 1027 the court stated:
By the terms of the will, under the great weight of authority, Jacob B. Gochnour takes a life estate, with vested remainder to the decedent’s sister and nieces, notwithstanding his absolute power of disposal during his lifetime.
Admittedly the remainder given in that case was not placed in trust. However, the interest created in the remaindermen is identical with the interest placed in trust in the case at bar. Accordingly, we hold that testatrix created a life estate and a future interest denominated a vested remainder, both interests of which came into being at the time of her death.
In Shufeldt v. Shufeldt, 130 Wash. 253, 227 P. 6 (1924), at 262 P. at 9 the court stated:
If the postponement of the payment of the legacy or the enjoyment of the devise is for the purpose of letting in intermediate estates only, then the remainder shall be deemed vested at the death of the testator and the legatees and devisees are to be determined as of that date, for under those circumstances no futurity is annexed to the substance of the conveyance, but only to the time of its enjoyment.
This interpretation is consistent with Restatement (Second), Trusts s 77 (1959), where Illustration 4 at 198 provides:
4. A, the owner of Blackacre, transfers Blackacre to B for life, remainder to C and his heirs and directs that C hold his interest in trust for D. C holds a vested remainder in trust for D.
Plaintiff next contends that the trust should fail because the trust res is too indefinite and uncertain.
The creation of a valid testamentary trust requires (1) the intention by the testator by will to create a trust, (2) designation of the trust property, and (3) the designation of beneficiaries, and the terms on which the trust is to operate.
Plaintiff contends that the second element of a valid trust is not satisfied because the term ‘all of my estate then in his (Leon R. Edwards’) possession’ is too uncertain a designation of the trust res. Furthermore, where there is no ‘liability for impeachment for waste’ it is uncertain that there will ever be a trust estate. Therefore, the trust should be held invalid. We reject this argument.
1 G. Bogert, Trusts and Trustees s 112 (2d ed. 1965), at 571 describes the following as proper subject matter of trust estates:
The trust property may consist of an interest which is absolutely vested, or one which is vested but subject to being divested, as in the case of gifts on condition subsequent or determinable interests. It may be a contingent interest which is not to vest until the happening of a condition precedent or is uncertain as to the person to take.
The res may be a present estate or interest, or one entitling the trustee to possession and enjoyment at a future date, as in the case of reversions and remainders.
On this point, we find in 1 A. Scott on Trusts s 74.1 (3d ed. 1967) at 679:
Whatever may be the subject of an executed gift may be given in trust; and a person can declare himself trustee of whatever he can give to another in trust. Whatever interest he can devise or bequeath, he can devise or bequeath in trust. See also United States Trust Co. of N.Y. v. Commissioner of Int. Rev., 296 U.S. 481, 56 S.Ct. 329, 80 L.Ed. 340 (1936).
Again, in Scott on Trusts, Supra, s 76 at 685:
A trust can be created although the parties do not know precisely what the subject of the trust is, if it can be ascertained from circumstances existing at the time of the creation of the trust. Thus a trust created by will of the residue of the testator’s estate is of course valid although the amount of the residue cannot be ascertained until the amount of his assets and of his liabilities has been determined.
Speaking of the uncertainty created by the power to consume by a life beneficiary, Scott states:
A trust does not fail for uncertainty of the subject matter even though the life beneficiary is entitled to receive so much of the principal as he may demand and it is therefore uncertain how much will be left for the remainderman. Scott on Trust, Supra, s 76 at 686.
Restatement (Second) Trusts, s. 77 (1959) at 197 provides:
An interest in a thing may be held in trust although the interest is not the complete property in the thing.
c. Future Interests. The interest may be a future interest either vested or contingent. * * * The interest may be contingent as to its extent.
Plaintiff relies on Wilce v. Van Anden, 249 Ill. 358, 360, 94 N.E. 42, 43 (1911). In that case the ‘entire part or portion of my estate remaining after the death or remarriage of my said wife * * *’ was placed in trust. The court apparently held that the power to consume by the wife (life tenant) rendered the bequest void for uncertainty as to subject matter.
However, we note that two later Illinois cases, if not expressly overruling that decision, did so by implication. In Burke v. Burke, 259 Ill. 262, 267, 102 N.E. 293 (1913) the wife was given a life estate with the power to sell any of the estate in order to supply her comforts and necessities. The remainder over was placed in trust. In upholding the validity of that trust, the court distinguished the Wilce case by commenting that it was not the uncertainty created by the power to consume which rendered the trust void, but another provision of the trust which placed discretion in the trustees ‘to give to the brothers and sisters of the testator such portion of the trust fund as they might think best and devote the rest to charity.’
The same distinction is made in Dean v. Northern Trust Co., 266 Ill. 205, 107 N.E. 186 (1914) where the court upheld the validity of a trust of a remainder following a life estate with power to consume in the life tenant.
The case of Burke, supra, gives the rationale which we believe should control the case before us, 259 Ill. at 268, 102 N.E. at 295:
Every kind of vested right which the law recognizes as valuable may be transferred in trust. Perry on Trusts, ss 67, 68. The law is well settled that an estate may be given to a person for life, with power to sell and convey the fee, and that a remainder may in such case be limited in fee after the termination of the life estate. * * * A remainder so limited is vested, though subject to be defeated by the exercise of the power by the life tenant. The uncertainty as to the amount of the reduction because of the disposition of the estate, or a part of it, for the comfort or necessities of the life tenant, and the consequent uncertainty as to the amount of the estate which may be undisposed of, does not render the remainder contingent. * * *
We consider this rule applicable to the case at bar.
This precise issue has not been decided by the Supreme Court of this state. We believe, however, that our determination of the validity of the trust is consistent with previously enunciated principles of future interest in property. In re Estate of Gochnour, Supra.
In the case of In re Estate of Ivy, 4 Wash. 2d 1, 3, 101 P.2d 1074, 1075 (1940) the court was also faced with a community estate placed in trust for the surviving spouse with the power to consume as much of the corpus as ‘the trustors saw fit to withdraw’ together with the right to amend or revoke the trust agreement. Upon the death of the survivor, the estate was to be distributed to the remaindermen. Subsequent to the husband’s death, the surviving trustor amended the trust by eliminating the remaindermen and making herself the sole beneficiary of the trust.
In determining that the power to consume and revoke did not change the character of the remainder so as to save the remaindermen from the inheritance tax laws, the court stated at 8, 101 P.2d at 1077.
While there is confusion among the authorities in drawing a distinction between a vested remainder and a contingent remainder, the rule is settled in this state that a life estate, with the right to invade the principal, and remainder over, creates a vested remainder and not a contingent remainder.
While it is not essential to characterize the type of estates created by testator’s will, it seems clear that she created a life estate in her husband of all of her estate with the power to consume and the remainder to the Puget Sound National Bank in trust for her son and grandchildren.
Under the rationale of the foregoing decisions, she granted to the trustee a vested remainder, notwithstanding the power to consume. Shufeldt v. Shufeldt, Supra; In re Estate of Ivy, Supra.
We believe that such a future interest is and should be the proper subject matter of a testamentary trust.
In considering instruments creating trusts, the sole object of the courts is to ascertain the purpose of the settlor and to effectuate the purpose insofar as it is consistent with rules of law. Old Nat’l Bank & Union Trust Co. etc. v. Hughes, 16 Wash. 2d 584, 134 P.2d 63 (1943); Seattle First Nat’l Bank v. Crosby, 42 Wash.2d 234, 254 P. 2d. 732 (1953).
In the case at bar, the intentions of the testator are clear. To declare an intestacy under these circumstances solely because the extent of the trust res is uncertain is in our judgment unsound. It may be that no assets will be available to make the trust operative. We do not deem this obstacle of sufficient importance that we should frustrate the testator’s intention as to the remainder, if any, by declaring an intestacy. The presumption against intestacy is particularly strong where the subject of the gift is the residuary estate. In re Estate of Quick, 33 Wash.2d 568, 206 P.2d 489 (1949).
Plaintiff also seeks to have the trust invalidated by urging that several of its provisions relating to the administration and distribution are vague and ambiguous. We have reviewed the will in its entirety and agree with the defendant executor that the terms of the trust are workable. In any event, if the trustee finds it necessary, it may at any time apply to the court for assistance. Old Nat’l Bank & Union Trust Co. etc. v. Hughes, Supra.
Plaintiff also complains of the award of $150 as attorney’s fees to the defendant, Puget Sound National Bank, but does not complain of the award in favor of the executor. We believe the award to the defendant bank was within the discretion of the trial court. This case was in the nature of a will contest.
RCW 11.24.050 provides that reasonable attorney’s fees may be assessed against the contestant where the will is upheld, unless the contestant acted with probable cause and in good faith.
The trial court undoubtedly reasoned that since the defendant, Puget Sound National Bank, had not accepted its trust duties, and would not be required to do so until the intermediate estate terminated, it was not a necessary party to the litigation. Consequently, the plaintiff did not act with probable cause and in good faith in its action against the bank. We are unable to say that the trial court abused its discretion in awarding attorney’s fees under these circumstances.
Accordingly, the judgment of the trial court is affirmed, with costs on appeal awarded to respondent
Notes, Questions, and Problems
1. The property used to fund a trust must be in existence or ascertainable at the time that the trust is created. More specifically, the testator’s interest in the property must be in existence or ascertainable when he attempts to create the trust.
2. A will does not speak until death. Thus, at the time the will is executed that testator does not have to own the property he or she seeks to devise in the will unless he or she intends that property to be the corpus of a testamentary trust. For example, at the time she executes her will, Betty anticipates inheriting a house from her mother. Betty can devise that house in her will to Veronica. If Betty has not inherited her mother’s house when she dies or if she inherits the house and sells it before she dies, the house does not become a part of her estate. Thus, under the doctrine of ademption by extinction, Veronica would not inherit the house. However, the devise would not invalidate Betty’s will. Since a testamentary trust is not intended to take effect until the testator’s death, why should the law mandate that such a trust contain property in order to be valid? Should the trust be valid when created and fail for lack of property at the time that it comes into existence?
3. A testator does not have a property interest in a life insurance policy because the proceeds are not payable until the testator’s death. Thus, life insurance proceeds cannot be the res of a testamentary trust. Nonetheless, those proceeds can be the property of an inter vivos trust. All the testator has to do is to create a revocable inter vivos trust and name that trust as the beneficiary on the life insurance policy. A life insurance policy can be the res of an inter vivos trust even though the insured person reserves the right to change the beneficiary on the policy.
In which of the following cases is there a valid trust res?
a). George was diagnosed with cancer. The doctor told him that the treatment would make him sterile. Since he wanted children, George stored some of his sperm in the Fertility Sperm Bank. While he was under going treatment, George executed a will that stated, “I leave my sperm to the Fertility Sperm Bank in trust for my girlfriend, Kayla.”
b). While he was riding his bicycle, Peter was hit by a car driven by Jenny. As result, Peter suffered severe injuries. Peter filed a lawsuit against Jenny. While the suit was pending, Peter executed a will that contained the following language: “I leave any monetary judgment I receive from my lawsuit against Jenny Armstrong to my brother, Marshall, in trust for my son, Jacob.”
c). Jack, a compulsive gambler, is convinced that he is going to some day win the lottery. When the mega million lottery reached four hundred million dollars, Jack purchased $10,000 worth of lottery tickets. The day before the lottery drawing Jack executed a will containing the following provision: “I leave my lottery tickets purchased on June 7, 2011 to my Aunt Jean in trust for my cousin, Timothy.”
d). Patrick accepted a job at a large retail store. As a part of his benefit package, Patrick will receive stock options after he has worked at the store for ninety days. A month after he started working at the store, Patrick executed a will stating “I leave my stock options to Stephanie in trust for Trenton.”
2.3 Necessity of Trust Beneficiaries
There must be ascertainable beneficiaries who have the authority to enforce the terms of the trust by suing the trustee if he violates any of the fiduciary duties. The beneficiaries do not have to be specifically enumerated in the trust instrument, but they must be readily identifiable. In some cases, the beneficiaries may be persons who are not yet born. There must be a beneficiary or a class of beneficiaries indicated in the trust that is able to come into court and claim the benefit of the bequest. Consider the following examples.
a) “I leave $150,000 in trust to Carlos for the benefit of any of my friends who Carlos thinks is worthy to have the money.” The testator has not created a valid trust because Carlos is given too much discretion to choose the beneficiaries of the trust. Even if the trust had obligated Carlo to hold the money for the benefit of the testator’s friends, the trust would still fail because the term “friends” is too broad. Carlos is not given enough guidance to identify testator’s friends. Thus, the trust does not have ascertainable beneficiaries.
b) “I leave $35,000 in trust to Ronnie for the benefit of my snake, Jake.” The testator has not created a valid trust. The trust has an ascertainable beneficiary, Jake. Nonetheless, Jake does not have the ability to hold the trustee accountable. The main reason the law requires a trust is to have beneficiaries is to ensure that there is someone to whom the trustee owes fiduciary duties. In this case, if Ronnie misappropriates the money, he has no consequence. Since this is a testamentary trust, the settlor will be dead when the trust takes effect. Thus, the only one who could hold Ronnie accountable is Jake, and he is unable to file a lawsuit. In Chapter Three, we will discuss the options available to the testator if she wants to make sure that Jake is protected.
c) “I leave $375,000 in trust to Paul for the benefit of the members of my church choir.” The testator has not created a valid trust. Whenever there is a transfer in trust for members of an indefinite class of persons, no enforceable trust is created. In this case, the class, “members of my church choir” is too indefinite because membership in the choir changes. This is different from leaving money in trust for a class that consists of “sisters” because that title refers to a finite class of people.
d) “I leave $50,000 in trust to Anne for the benefit of my nieces and nephews. The testator has created a valid trust because the class of nieces and nephews is readily identifiable. Regardless of the number of persons that may answer to the description, the trustee has a way of determining if the person has the correct blood relationship to the testator.”
In the Matter Estate of Boyer, 868 P.2d 1299
Appellants, George A. Morrison, Roger Brastrup, and Lyle Speer, appeal from a judgment determining certain provisions of the Last Will and Testament of A. James Boyer, deceased, were without legal effect, and ordering that Morrison be removed as personal representative of the decedent’s estate. We discuss whether the trial court erred in determining that the provisions of the decedent’s will were insufficient to create a testamentary trust.
The decedent died on September 23, 1991, at the age of ninety-one years. On September 7, 1991, sixteen days before his death, he executed a last will and testament (the will). An order approving Morrison’s petition for admission of the will to informal, unsupervised probate was entered on October 3, 1991, and Morrison, an attorney and personal friend of the decedent, was appointed as personal representative of the decedent’s estate pursuant to the provisions of the will. The 1991 will of the decedent expressly revoked all prior wills made by him, including a will executed in 1977.
On November 20, 1991, the decedent’s intestate heirs, Edward G. Boyer, John R. Boyer, and Mildred B. Harbaugh (Appellees), filed a petition to set aside the will, alleging that it was the product of undue influence and fraud; that the will and purported testamentary trust provisions were invalid; and that Morrison’s act of preparing the will and designating himself as both a trustee and beneficiary violated rules governing the practice of law. Appellees’ petition requested that the trial court declare the decedent’s will to be void, that they be declared the decedent’s intestate heirs, and that they be awarded attorney fees.
Appellees subsequently moved for summary judgment, asserting that the distributory provisions of the will were legally insufficient, and that the Second and Third Articles of the will were invalid. These Articles stated:
SECOND: I give, devise and bequeath all of my estate and property, real, personal and mixed, wheresoever situated, of which I may be possessed, or to which I may be entitled at the time of my death, to my Trustee, George A. Morrison, in Trust.
THIRD: I direct my Trustee to distribute all of my estate according to my instructions which I may give to him from time to time in my own handwriting or otherwise, but nonetheless signed or initialed by me. In the event, by whatever circumstance, I fail to leave such instructions to my Trustee, then I direct my Trustee to distribute my estate according to his discretion, bearing in mind the many conversations we have had together in which I have named those who are the objects of my generosity.
The motion for summary judgment was accompanied by Appellants’ response to Appellees’request for admissions. The response admitted that the decedent was a client of Morrison’s and that Morrison had drafted the decedent’s will; that apart from the will itself, “no written trust agreement executed by [the decedent] … nam[es] … Morrison as trustee”; and that there are no written instructions from the decedent to Morrison “of the kind referred to in the [Third] Article of the last Will,” except for the will itself. Morrison’s response to the request for admissions also stated that “I do have notes and notes of Donald Hardesty regarding [the decedent’s] wishes as to who is to receive his estate.”
Appellants’ response to the motion for summary judgment contended that the trust created by the will and the will itself were valid because the beneficiaries were ascertainable; that the will was sufficient to give Morrison a power of appointment, thus permitting him to select the persons who should be the beneficiaries of the decedent’s estate; that the persons to be eligible beneficiaries of the testamentary trust were capable of being ascertained; that the testamentary trust did not violate the rule against perpetuities; and that Morrison’s preparation of the will and his agreement to serve as trustee of the testamentary trust did not violate any rules governing the practice of law. Appellants also denied that Morrison was a devisee under the will.
Shortly after the filing of Appellees’ motion for summary judgment, Morrison filed a proposed schedule of distribution pursuant to his claim that the Third Article of the decedent’s will created a valid power of appointment. The schedule named the individuals that he had selected as beneficiaries of the decedent’s testamentary trust.
A hearing on the motion for summary judgment was held on February 28, 1992. At the hearing on their motion for summary judgment, Appellees abandoned that portion of their motion which sought to have the trial court declare the decedent’s will void in its entirety. Instead, Appellees argued that the trial court should invalidate only those portions of the will that attempted to create a testamentary trust, or that purportedly gave Morrison a power of appointment.
On March 19, 1992, the trial court entered a judgment disposing of Appellees’ motion for summary judgment, and ordered that the provisions of the decedent’s “Will so far as they attempt to set up a trust or to create a power of appointment are insufficient as a matter of law”; that “the Second and Third Articles of [the decedent’s will] … are … insufficient as a matter of law to create a trust, to establish a power of appointment or otherwise to provide for the distribution of the Estate of the decedent[,] and … the Estate should be distributed as subsequently determined by this Court[.]” The judgment also provided that Morrison should be removed as the personal representative of the decedent’s estate.
Appellants’ motion for reconsideration was denied on April 10, 1992.
VALIDITY OF TESTAMENTARY TRUST
The judgment entered below found, among other things, “that the provisions of [the decedent’s 1991] Will so far as they attempt to set up a trust or to create a power of appointment are insufficient as a matter of law[.]”
Appellants argue that the trial court erred in determining that the provisions of the Second and Third Articles of the decedent’s will were insufficient to create a testamentary trust. Appellants contend that a testamentary trust can be valid even though the beneficiaries were not named in the will itself, and that the provisions of our Probate Code do not limit testamentary trusts “to those which name the beneficiary [or beneficiaries] on the face of the will[.]”
It is undisputed that, apart from the language of the will itself, the decedent left no written or initialed instructions describing his intended beneficiaries. Moreover, the provisions of the will are devoid of any language that would permit the trial court to ascertain with any degree of reasonable certainty the prospective beneficiaries of the attempted testamentary trust. Under these circumstances we conclude that the trial court correctly determined that a valid testamentary trust did not exist.
The elements of a valid trust include a competent settlor and trustee, intent by the settlor to create a trust, ascertainable trust res, a sufficiently ascertainable beneficiary or beneficiaries, a legal purpose, and a legal term. (citations omitted) Because the identity of the persons intended to be “the objects of [the decedent’s] generosity” are not capable of reasonably being ascertained, we agree with the trial court that the provisions of the decedent’s will attempting to create a testamentary trust were not effective to establish an express trust. See In re Estate of Liginger, 14 Wis.2d 577, 111 N.W.2d 407, 409 (1961) (will leaving money to executor and directing executor to pay sums in his sole discretion to persons whom the decedent had previously indicated created a trust; however, trust failed because oral declarations of the decedent could not be admitted); see also Restatement (Second) of Trusts §§ 112, 122 (1959) [hereinafter Restatement of Trusts]; 2 Austin W. Scott & William F. Fratcher, The Law of Trusts § 122 (4th ed. 1987); see also In re Will of Coe, 113 N.M. at 360, 826 P.2d at 581 (elements of a valid trust include sufficiently ascertainable beneficiary or beneficiaries); In re Estate of Kradwell, 44 Wis.2d 40, 170 N.W.2d 773, 774 (1969) ( trust held not to have been created where uncertainty existed as to identity of beneficiaries and no one was in position to enforce trust). See generally George E. Palmer, The Effect of Indefiniteness on the Validity of Trusts and Powers of Appointment, 10 UCLA L.Rev. 241, 280-81 (1963); B.P. de R. O’Byrne, Annotation, Disposition of Property of Inter Vivos Trust Falling in After Death of Settlor, Who Left Will Making No Express Disposition of the Trust Property, 30 A.L.R.3d 1318 (1970).
In evaluating the arguments of Appellees that the attempted testamentary trust failed to identify the decedent’s intended beneficiaries, we also find the reasoning of Restatement of Trusts, supra. Section 122 comment a, persuasive. Comment a notes:
When class is indefinite. A class of persons is indefinite within the meaning of the rule stated in this Section if the identity of all the individuals comprising its membership is not ascertainable. The class may be such that it is possible to determine that certain persons fall within it and that other persons do not fall within it…. Thus, the “friends” of the settlor or of another person constitute an indefinite class. So also, the class is indefinite where it includes any natural person other than the transferee himself or his estate.
The provisions of the Second and Third Articles of the decedent’s will specified that the beneficiaries of his estate were to be selected by Morrison. However, the identity of the individuals eligible to be selected as beneficiaries were not capable of being drawn from any specifically identifiable class or category specified by the decedent. Under this posture the attempted trust was unenforceable.
Appellants, relying in part upon Granado v. Granado, 107 N.M. 456, 760 P.2d 148 (1988), and In re Estate of Shadden, 93 N.M. 274, 599 P.2d 1071 (Ct. App.), certs. denied, 93 N.M. 172, 598 P.2d 215 (1979), also argue that the trial court erred in not permitting them to introduce extrinsic evidence to clarify the decedent’s intended trust beneficiaries. The record, however, fails to reflect that Appellants pursued this contention at the hearing on Appellees’ motion for summary judgment. Nor do we find either Granado or In re Estate of Shadden dispositive here.
Granado dealt with an order finding that the circumstances of that case were sufficient to give rise to the creation of an equitable trust, not an express trust. 107 N.M. at 459, 760 P.2d at 151. Although the court in In re Estate of Shadden held that extrinsic evidence may be admissible under certain circumstances to clarify an ambiguity in a will, that decision does not aid Appellants here. 93 N.M. at 278-79, 599 P.2d at 1075-76. Since it is undisputed that the decedent failed to leave written, signed instructions identifying his intended beneficiaries, extrinsic, oral testimony was not admissible to rectify defects in the will itself or to overcome the decedent’s failure to leave proper written instructions concerning his beneficiaries. Cf. Portales Nat’l Bank v. Bellin, 98 N.M. 113, 117, 645 P.2d 986, 990 (Ct. App. 1982) (unless will itself is ambiguous, extrinsic evidence is not admissible to supplement language of will); NMSA 1978, § 45-2-510 (Repl.Pamp.1989) (“Any writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit its identification.”); NMSA 1978, § 45-2-513 (Repl.Pamp.1989) (permitting testator to dispose of tangible personal property, other than money, by reference in will to written statement or list, if statement or list is signed by testator and describes items and devisees with reasonable certainty).
Appellants’ brief-in-chief appears to also argue that in the event the provisions of the decedent’s will are insufficient to establish a valid testamentary trust, this Court should determine whether a resulting or constructive trust should be imposed. We need not consider this argument because the questions of how the decedent’s estate should be distributed or the determination of the decedent’s heirs at law, have not yet been addressed by the trial court.
The order of the trial court granting Appellees’ motion for summary judgment and holding that the Second and Third Articles of the decedent’s 1991 will are insufficient to create a trust or establish a power of appointment is affirmed.
IT IS SO ORDERED.
Notes, Questions and Problems
1. It makes sense that a trust cannot be valid without beneficiaries. From a practicable perspective, the purpose of a private trust is to benefit a particular person or class of persons. Without beneficiaries, the trustee has no role to play. Thus, the creation of a trust is unnecessary. As the next part of the book will indicate, the trustee has to fulfill numerous duties. At the time the trustee accepts his role, the testator is deceased. Thus, the only person that can hold the trustee accountable is the beneficiary. Thus, the trust instrument must name someone who has the authority to ensure that the trustee is abiding by the terms of the trust. Problems arise in two situations. First, the testator names beneficiaries whose identities cannot be determined. This is especially true when the beneficiaries are a part of a class without a defined membership. Second, the testator identifies the beneficiaries, but they are not capable of enforcing the trust.
2. If it is clear that the testator meant to create a trust and a class is named in the trust, should extrinsic evidence be presented to prove the members of the class? Instead of taking a “one size fits all” approach, should the courts evaluate the existence of the beneficiaries on a case by case basis? For instance, if the testator leaves money in trust for her best friends. Might it be easy to ascertain the names of the persons who fit that description?
In which of the following situations might the trust fail for lack of beneficiaries?
a). Roger executed a will stating, “I leave my house to Alexander in trust for my favorite nephew.”
b). Alicia executed a will stating, “I leave the residuary of my state to Shannon in trust for the man I have been dating for the last ten years.”
c). Mesha executed a will stating, “I leave my apartment complex to Keisha in trust for the benefit of the nonprofit corporation she plans to establish.”
d). Melanie executed a will stating, “I leave my entire estate in trust to Feed The Children for the benefit of the two little girls I started sponsoring on March 7, 2011.”
Class Discussion Tool
Gloria was a third grade teacher. Gloria was childless and had never married. Nonetheless, she constantly referred to the students in her class as her foster kids. At the beginning and end of every school year, Gloria gave gifts to all of the children in her third grade class. Gloria made a good salary, so she annually placed 10% of her salary into a 401k account. As with most retirement accounts, some of the money Gloria placed in her 401k account was invested in the stock market. In 1998, Gloria executed a will containing the following provision: “I leave the profits I will make on my 401k in 1999 to my sister, Delores in trust for my foster children that are enrolled in my class during the 2000-2000 academic year. After I die, it is my hope that Delores will do the right thing and take care of the kids.” Has Gloria created a valid testamentary trust? If not, create a valid trust that achieves Gloria’s objectives.