Talk:Trust (law)

I think my decision to move this page deserves some justification.

This article may be - indeed appears to be - good in terms of content: but if it is, it is good only with regard to the USA's legal systems. Much of the content is wrong in the context of trust law more directly based on the "English model", as it applies in England and Wales, the Isle of Man, Channel Islands, Bermuda, Canada, (some of) the Caribbean, (some of) the Pacific Islands, Australia and New Zealand - as well as several civil law nations with statutory trusts laws.

This difficulty asserts itself from the very first sentence, where trusts are conceived as a branch of contract law.

I felt that any attempt to reconcile the two legal systems in one article was doomed to failure, and would only lead to understandable disputes with the existing authors. My solution is to move the existing Trusts (property) to Trust (Law) USA and to create the new page Trust (Law) non-USA (a title which might itself promote some debate, there) to deal with trusts in the English-model jurisdictions.

I will make the obvious amendments on Trust (disambiguation), and in the first sentence of this article. I do not intend to make any further amendment on this page. AndyJones 19:27, 10 September 2005 (UTC)

Complete re-write necessary

This article needs a complete rewrite. Recently, an anon added a lot of information to the introduction of the article which needs to be incorporated into the remaining context of the article itself. The information does not seem to be copyvio, but should be checked nonetheless. I lack the knowledge on this subject to combine these sections effectively, but if someone else who has a bit more of an idea about this could, then that would be much appreciated. --tomf688^{talk} 23:21, 5 October 2005 (UTC)

it could certainly use better section/sub-section organization

I believe I am the anon (didn't know there was another way to do this!) and I couldn't agree more. All this information comes from nearly 30 years in the business. I am not an attorney and my intended audience is the educated layman who wants to learn the basics rather than get a law school board prep.

Revocable testamentary trust

Would someone mind providing a cite or discussion re the possibility of creating a revocable testamentary trust? I am skeptical that this is possible but am willing to be educated.

gbroiles 09:05, 9 January 2006 (UTC)

Here's your answer: the testator/settlor simply writes a clause into testamentary trust allowing one or more persons the right to withdraw all the assets at any time. I've seen this in Indiana documents at least twice. Such trusts are treated as grantor trusts for tax purposes even though they are testamentary. This brings up what should be an obvious point but is frequently missed: It makes not a whit of difference whether a trust was created inter vivos or by testatment. The administrator must still read the document and see what it says. One should be careful to not assume a testamentary trust is ipso facto irrevocable. Unfortunately, this assumption is made by many practitioners without reading the document. Indeed, most software (SEI for example) simiply assumes all trusts under will are irrevocable. [note above comment from user at address 68.58.58.82 on 20 Feb. 2006]

Dear fellow editors: We have a terminology problem here. A clause in a testamentary trust allowing one or more persons the right to withdraw all the assets at any time would not be a "revocable" trust merely on that basis. By definition, "revocation" can be done only by the testator (not "testor"), and only prior to death (by revoking the will, basically, or at least revoking the part of the will dealing with the trust). By definition, a testamentary trust does not arise until the testator dies. After the testator is dead, he or she is in no position to revoke anything. And termination of the trust by having one or more persons withdrawing all the assets (i.e., after the testator has died) is not a "revocation" of the trust. The reason that most practitioners make the assumption that a testamentary trust is ipso facto irrevocable (i.e., irrevocable after the testator dies) is that they are legally correct. Once the testator has died, the trust is "irrevocable" -- by definition. Before the testator dies, the WILL can be revoked, so that the trust never comes into existence.

On a somewhat tangential note, if a testator allows a particular putative beneficiary to take a bequest, etc., prior to the testator's death (for example, in lieu of part of the property that would otherwise indirectly go to the recipient by or through the testamentary trust after death), then the item transferred wasn't really transferred by trust at all. Again, by law a testamentary trust cannot come into existence until the testator dies, and the trust itself technically cannot be "revoked" until it comes into existence. Yours, Famspear 00:06, 21 February 2006 (UTC)

Dear fellow editors: The following language:

Practitioners should be careful: It is possible to title a trust with, for example, the word IRREVOCABLE, and not change the title at such time as it becomes revocable due to age attainment of a beneficiary or due to some other contingency.

was deleted. Again, the "practitioners" are generally correct, and the editor (at IP address 68.58.58.82) who inserted this language is, as a general proposition, incorrect. We need to use legal terminology correctly. A trust does not become "revocable" because a beneficiary attains a certain age, for example. A trust might "terminate" for that reason, but it would not be "revoked" for that reason.

The only way I can think of off hand that a trust could be "revoked" in this situation would be where the testator set up a trust for himself (for example, with someone else as trustee), say at age 21, with a provision that says that he himself could not revoke the trust until he reached, say, age 30. That's a highly unlikely scenario, and I don't think that's what my fellow editor intended. "Revocation" is one way to "terminate" a trust -- but "revocation" can be done only by the creator of the trust. Termination of a trust according to its terms, such as the age attainment of a beneficiary or some other contingency, is generally not considered a "revocation." Yours, Famspear 00:17, 21 February 2006 (UTC)

Dear fellow editors: From a fiduciary tax perspective the ability to remove any or all funds at will makes the trust a grantor trust for tax purposes and all grantor trusts (as defined in fiduciary tax law) are revocable. Arguing that a testamentary trust can never be revoked, because the settlor has died, misses the practical point. It seems entirely defensible to call a testamentary trust that can be terminated at the will of a beneficiary a revocable trust. Indeed, practitioners (lawyers and trust officers) typically refer to such testamentary trusts as revocable. Isn't a revocable trust one that can be terminated at the will of a beneficiary?

Moving on: I find the following statement

            "By definition, "revocation" can be done only by the testator...."

remarkable. This gets to the heart of the matter: Revocation is not a right exclusive to the settlor. It is a right retained in most but not all cases by the settlor, and granted in some cases to one or more other beneficiaries during or after the lifetime of the settlor. While a settlor is usually his own beneficiary (in the case of a full-service inter vivos trust created for money management and typical fiduciary services during lifetime), he is no different than any other beneficiary having the right to terminate a trust. If someone can terminate a trust, then the trust is revocable -- whether or not the settlor is alive and has retained that right. Fellow editor's "by definition" language simply doesn't fly in my 30 years experience. Try saying out loud with a straight face in the offices of any serious corporate fiduciary organization or law firm that a testamentary trust which happens to be a grantor trust for tax purposes is not thereby revocable and you will see what I'm talking about.

And, finally, I agree with fellow editor that a trust that is about to close due to required age attainment payouts need not change its name to "revocable". However, if a beneficiary due to age attainment or other reasons (such as satisfaction of a condition such as having a child) now has a right to pull out the assets and thus terminate the trust but nevertheless does not do so, a wise trust officer will do well to put the word "revocable" into the title. The reason: the trust has now become a grantor trust (a beneficiary has the right to take all the assets at any time) and all grantor trusts (for tax purposes) are ipso facto revocable. Again, revocability is not a function of the state of being of the settlor but rather of the rights of the beneficiaries.

Note: the right of a beneficiary to fire the trustee and substitute another does NOT make the trust revocable. —The preceding unsigned comment was added by 68.58.58.82 (talk • contribs) .

Dear anonymous editor at IP 68.58.58.82:

The statement: “Arguing that a testamentary trust can never be revoked, because the settlor has died, misses the practical point” itself misses the point that there is no “practical point” here. The term “revocable” as used here is a legal term, and we need to use legal terms correctly when writing about “legal stuff.” All this is hair-splitting, I grant you.

Regarding the statement: “It seems entirely defensible to call a testamentary trust that can be terminated at the will of a beneficiary a revocable trust.”

You may feel that it “seems” entirely defensible to call such a testamentary trust a “revocable” trust, but your feeling is misplaced. If you have been working in the “trust industry”, you should be using trust law terms correctly. Revocation is one method of termination, but it’s only one method. By definition, “revocation” of a legal document can be done only by the maker of the document (i.e., in the case of trust law, the terms used for “maker” are generally creator, settlor, grantor, and trustor, and I’ll use those terms interchangeably here). Revocation is done by a settlor as settlor, etc., not by a trustee as trustee, not by a beneficiary as beneficiary. The termination of a trust is not necessarily a “revocation.”

I know of no legal authority using the term “revocation” in the way you are using it in trust law. Under the Texas statutes, for example, the only “revocation” power listed with respect to a trust is the power held by the settlor. See generally Texas Property Code section 112.051.

Black’s Law Dictionary states:

Revocable trust. A trust in which the settlor reserves to himself the right to revoke.

Black’s Law Dictionary, page 1187 (5th ed. 1979).

Barron’s Law Dictionary states:

Revocable – able to be terminated at the maker’s discretion.

Barron’s Law Dictionary, page 415 (2d ed. 1984) (emphasis in original).

A leading law school case book on trusts, Richard V. Wellman, Lawrence W. Waggoner & Olin L. Browder, Jr., Palmer’s Cases and Materials on Trusts and Succession, pages 661-662 (4th ed. 1983), makes no reference to a "revocation" by anyone other than the settlor, etc.

Regarding the verbiage: “Indeed, practitioners (lawyers and trust officers) typically refer to such testamentary trusts as revocable. Isn't a revocable trust one that can be terminated at the will of a beneficiary?”

Hmmm. I guess I don’t know the lawyers and trust officers you know, who are making these “typical” references. And no, a revocable trust is not one that can be terminated “at the will of a beneficiary.” A revocable trust is one that can be terminated at the will of the settlor, etc. As a lawyer and a certified public accountant I have never heard a trust officer use the term “revocable” in the way you are using it. I certainly have never heard a lawyer or CPA use the term “revocable” in that way.

Regarding the statement: “Revocation is not a right exclusive to the settlor.” This statement is incorrect. Again, by definition revocation of a trust can be done only by the settlor, etc. I ask you to show me a statute or court decision that uses the term "revocable" in the way you are using it.

Regarding the statement: “It [revocation] is a right [ . . . ] granted in some cases to one or more other beneficiaries during or after the lifetime of the settlor.” Again, false. There is no such thing as a right of “revocation” being granted by a settlor to a beneficiary. Any statement in a trust document or will to the contrary would be an example of sloppy drafting. There is a provision in the tax statutes that allows a trust that is terminable by the beneficiary to be treated as a grantor trust with respect to that beneficiary -- but that is not the same thing as saying that the beneficiary has the power to "revoke" the trust.

Regarding the statement: “If someone can terminate a trust, then the trust is revocable -- whether or not the settlor is alive and has retained that right.” Good grief. That statement is, again, totally incorrect. I contend you are incorrectly equating the term “revocation” with the broader term “termination.”

Regarding the statement: “Fellow editor's "by definition" language simply doesn't fly in my 30 years experience. [ . . . ] Try saying out loud with a straight face in the offices of any serious corporate fiduciary organization or law firm that a testamentary trust which happens to be a grantor trust for tax purposes is not thereby revocable and you will see what I'm talking about.”

First of all, there is no such thing as a “testamentary trust which happens to be a grantor trust for tax purposes” (with an exception noted below). By law a testamentary trust cannot even come into existence until the testator dies. While the testator is alive, he can revoke the will at any time. While he is alive, he cannot revoke the trust, as there is as yet no trust to revoke. Again, a testamentary trust (a trust created only by a will) cannot come into existence until the will comes into effect – at the time of death of the testator. This is VERY, VERY basic law. By law, there is no such thing as a “grantor trust” created by a person who died before the trust was created (i.e., created by a person whose death essentially brought the trust into being) that is a grantor trust with respect to that person. You can, however, have such a trust be treated as a grantor trust for a beneficiary where the beneficiary essentially has the right to terminate (and the word is "terminate", not "revoke") the trust (see 26 U.S.C. § 678). (The statute does not even use the word "terminate"; it says "vest corpus or income in himself", or something like that.)

With all due respect, I would be curious to know what your 30 years of experience consists of. Are you actually drafting trust documents yourself? It sounds like you have only been working in a trust department, and have developed some curious ways of using legal terms.

Since you are bringing up your experience, let me tell you about mine. I am an attorney and a certified public accountant. I have 23 years of experience. I have published many articles nationally on the subject of taxation. As a certified public accountant (prior to law school), I was trained in bank auditing (including trust department audits) by three CPAs who had previously worked as bank auditors for what was then Peat Marwick. I became the lead auditor in the examination of the trust department of a bank with over 600 million dollars in assets and hundreds of employees (not counting the trust department itself). I personally wrote the auditor's reports on the trust department. After law school I first practiced law in the tax-estates-trusts section of a large law firm in its main office in the fourth largest city in the United States. I worked on fiduciary tax matters for people including the family of one of the most well-known political figures in the United States. My law school course on trusts, by the way, was taught by one of America’s leading experts on trust law (he also happened to be one of the leading experts on constitutional law, but that’s another story). The people with whom I work are graduates of the most prestigious law schools in the country. I have known hundreds of trust lawyers and CPAs and I have never heard anyone use the term “revocation” in the way you are using it. Maybe your state has a particular statute that defines “revocation” differently.

Regarding the statements: “However, if a beneficiary due to age attainment or other reasons (such as satisfaction of a condition such as having a child) now has a right to pull out the assets and thus terminate the trust but nevertheless does not do so, a wise trust officer will do well to put the word "revocable" into the title. The reason: the trust has now become a grantor trust [ . . . ]”

Wow! Look, the fact that a beneficiary other than the grantor has the right to pull out all the assets and terminate the trust does not make the trust a “grantor trust” with respect to the creator, under any law of which I am aware! The trust may, however, be treated as a grantor trust for a beneficiary who has the power to essentially terminate (again "terminate" not "revoke") it (see generally 26 U.S.C. § 678). The Federal income tax rules for a grantor trust are found at 26 U.S.C. § 671 through 26 U.S.C. § 679 and the related Treasury regulations. Yes, 26 U.S.C. § 676 is entitled "Power to revoke". But the actual text in the body of the statute does not refer to the non-adverse party's power as being a power of "revocation." Check 'em out. I invite you to look for any authority for your position in the Federal statutes, the regulations, the case law, or in any IRS ruling. Again, are you instead talking about the trust law of the state wherein you practice? Please cite the statute or court decision that is your authority. Please let us know specifically what state is using the term “revocation” in its trust laws in the way you are using the term.

Regarding the statement: “Again, revocability is not a function of the state of being of the settlor but rather of the rights of the beneficiaries.” Again, as a matter of any Federal or state trust law of which I am aware, this statement is incorrect. Revocation has nothing to do with the “rights of the beneficiaries.” Revocation is a legal term that, in trust law, refers only to a power of the settlor (the creator, grantor, or trustor).

All this is hair-splitting. But if you’re going edit an encyclopedia, you need to split hairs on terminology – especially technical terms in technical areas such as are used in science, engineering, information technology -- and law. Yours, Famspear 07:23, 5 March 2006 (UTC)

Dear editor at IP 68.58.58.52: As a post-script, I should add that I realize your experience as a trust officer has to be a lot more current that mine. I am a tax practitioner, but the legal and auditing experience I described in my rant above was over 15 years ago. I don't want to leave the impression that I am claiming superior expertise on the specific subject of trusts, or that I could ever have done so. Yours, Famspear 21:33, 6 March 2006 (UTC)

Dear critic: I have read your material with interest and do not doubt or dispute your reading of the law. I have indeed worked as a trust officer at one of America's largest banks for nearly 30 years and speak in terms that trust officers and their clients understand. I operate in a major market and have one of the largest books of business in the industry. I have no issue with your distinction between revocation and termination of a trust. What I can't find is that this makes any practical difference. If a testamentary trust gives a beneficiary the right to take all the money and bring the trust to an end, it is irrelevant to me as a practical matter whether you call it a termination or a revocation. While the action may be termination, the commonly accepted adjective for this condition is "revocable". You are correct that this is hair-splitting. Please keep in mind that my audience has never been the nation's trust and estate attorneys. I believe I have made this clear elsewhere.

Thus the distinction between revocation and termination strikes me as a distinction without a difference. If the statutes define revocation as something done only by settlors, then so be it. But the laws might just as well define termination as something done only by settlors. The terminology is largely arbitrary and irrelevant in my view, as the result is the same. In the meantime I will continue to refer to an irrevocable trust that can be terminated by action of a non-settlor as being revocable. Everyone in the industry -- including the attorneys among us -- and all beneficiaries will understand me and find my choice of language quite ordinary however vexing to a purist. The patois of the trust community is that such trusts are revocable, even if the statutes and my knowledgeable critic find this infelicitous. I suppose in some sense I am arguing that the term may continue to be misused, because everyone does it. Isn't the important thing that I am understood? The violence I do to the term "revocable" is scarcely harmful and never lethal. It is not for example obnoxious in the way "schizophrenic" is consisently misused in common speech. There misuse can be harmful.

I find it interesting that you don't know anyone who uses the term revocable in the way I have. I don't know anyone in the industry who would not understand the term in this context, who would object, or who might be misled as to my meaning. In nearly 30 years no one -- including the law school lecturer who taught me the business -- has ever objected to this use of the term. My contention is that this is how such trusts are referred to by the trust officers and attorneys I know -- however infrequently this may come up.

Sidebar: I have noticed considerable differences in how trust officers and lawyers talk about trusts from one company and region to another. No one I know ever refers to a credit shelter trust as a by-pass trust, yet I see the term used in other markets. I think we can both cite other examples. My "CRUT" may be your "CRT".

Ultimately, I have no dispute with anything you have stated. My ultimate concern -- to use your approach -- is that trust officers and clients never assume -- without reading the document -- that a testamentary trust may not be terminated by action of a non-settlor. I appreciate your input....

Trust law and "contractual"

I have edited out the word "contractual" at the beginning of the article. I would argue that trust law is more fundamentally a species of property law, not contract law. That is, the beneficiary's relationship to the trustee is one of privity of estate, not privity of contract. There is arguably a contractual relationship between the trustor and the trustee, of course, so maybe I'm all wet -- and it's been a long time since I read the leading cases on trust law. I realize I'm splitting hairs here. Anybody have any thoughts? Famspear 22:14, 23 January 2006 (UTC)

I am not burdened with having a law degree, but I did learn the business from a law professor and he always spoke of the contractural relationship between the grantor and the trustee. So did the law texts I used when I cut my teeth as a trust officer. Yes, you may be splitting hairs as a final ruling by the Law Gods would have no affect on how I handle about 135 trusts. I do appreciate however that trust law is an odd bird generating such questions. [Note: This comment apparently inserted by anonymous user at IP 68.58.58.52 on 4 March 2006]

Modifications to article on 23 January 2006

Dear fellow editors: I made lots of organizational (and a few substantive) changes to the main article on 23 January 2006. However, the article still needs work. Hhheelllppppp! Just kidding -- actually I would argue that those who have already contributed the substance of this article have done a very good job! Maybe it mostly needs some more fine tuning? Famspear 00:14, 24 January 2006 (UTC)

For one, it needs a new name that's actually consistent with other Wikipedia articles as well as the Manual of Style. I would use Trust (American law) or Trust (United States). But trust law is a low priority for me (I don't practice it and I didn't find it very interesting when I studied it in law school) so I'll leave it to you to fix the title if you wish. --Coolcaesar 08:07, 17 February 2006 (UTC)