Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, October 22, 2010

Series on Lesser Known but Useful Trusts

Wendy S. Goffe In August, I blogged about Part 1 and Part 2 of Wendy S. Goffe’s six-part series in the Wealth Strategies Journal entitled An Introduction to Lesser Known but Useful Trusts. The remaining four parts have been published, and excerpts from the introductions are below:

Part III: An Introduction to Lesser Known but Useful Trusts (Purpose Trusts)

A purpose trust is established for a specific purpose rather than for the benefit of individual beneficiaries. These may include trusts for a non-charitable purpose (most frequently for pets), and trusts for charitable purposes (notably, private foundations organized as trusts and charitable land banks), discussed in a later installment of this article.

A noncharitable purpose trust violates a number of basic tenets of trust law: (i) it violates the rule against perpetuities because it lacks a measuring life; (ii) it has no ascertainable beneficiary whose identity can be established; and (iii) it lacks someone with standing to enforce it. Charitable trusts are permitted in spite of the fact that they have no ascertainable beneficiaries (although individuals may benefit through scholarships or grants), because the attorney general of the applicable jurisdiction has the authority to enforce their terms.

Part IV: An Introduction to Lesser Known but Useful Trusts (Constructive Trusts)

A constructive trust is not a trust, but resembles one; it is an equitable remedy imposed by a court to avoid unjust enrichment when property is in the hands of someone who should not, in fairness, be allowed to retain it. It is not a separate cause of action.

Typically a constructive trust is a temporary arrangement, in which the trustee's sole duty is to transfer the title and/or possession to the beneficiary or proper owner. The fact that the property is in the hands of a third party creates an equitable duty to return the property.

Part V: An Introduction to Lesser Known but Useful Trusts (Trusts that Defy Categorization)

Some trusts defy categorization. They are at once a hybrid of the traditional express trust and the commercial trust but don't qualify as either. They also have overtones of the purpose trust and the constructive trust. These hybrids are discussed below. (The trusts discussed in this article include Blind Trusts, Coogan Trusts, and Totten Trusts)

Part VI: An Introduction to Lesser Known but Useful Trusts (Sham Trusts)

Trusts that purport to carry out a purpose that violates public policy are void per se. Unlike a trust that violates public policy but otherwise meets the definition of a trust, a document that claims to create a trust but in substance does not change the grantor's control or beneficial interest in the underlying assets purportedly transferred to the trustee is a sham, not a trust. Sham trusts take on any number of formats, but frequently involve multiple foreign and domestic trusts and entities, often holding interests in other trusts. The foreign trusts are commonly located in a country that has no tax treaty agreement with the U.S. Government for the exchange of information. Funds may flow from one trust to another by way of management agreements, rental agreements, fees for services, purchase and sale agreements, and distributions. Often they lack named beneficiaries and instead the interests of its beneficiaries are represented by units or certificates of beneficial interests, which entitle the holder to certain distribution rights with respect to the trust income. Frequently they also include a purpose stated in religious or moral terms, based on patriotic principles, or based on the grantor's purported constitutional rights.

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