Cyclopedia of Commerce, Accountancy, Business Administration, v. 03 (of 10)

by American School of Correspondence

TRUSTS

318. Defined and Classified. In a popular sense, the term, trust, is often used to designate combinations of capital or combinations among business men for the purpose of destroying competition, or for the purpose of regulating prices. This is not the meaning of the term as used in this chapter. It is here used to mean an estate of some kind held for the benefit of another. A trust has been defined to be "An obligation upon a person, arising out of a confidence reposed in him, to apply property faithfully according to such confidence." A, by will, appoints B trustee of his farm, for the benefit of C. Upon A's death, if B accepts the duty imposed upon him by the will, a trust is thereby created in which B holds the legal title to the farm, for the benefit of C.

Trusts are sometimes classified as general and special. If the property is conveyed by deed or will to another to be held in trust for a third person, without specifying any of the duties of the second person, it is said to be a general or simple trust. If, however, the duties of the second person or trustee are defined, the trust is called a special trust. A trust for the benefit of an individual or individuals is called a private trust, while one for the benefit of a public institution, or for the public, is a public trust. If A gives his property to B to care for the poor of the city of Chicago, the trust is public. As to their method of creation, trusts are usually divided into express, implied, resulting and constructive trusts.

319. Parties to Trusts. The party creating a trust is called the grantor or settlor. The party to whom the title to the property is given to hold for the benefit of another is called the trustee. The party for whose benefit the trust is created is called the cestui que trust. If the beneficiaries are more than one in number, they are termed cestui que trust. If A deeds his land to B for the benefit of C, A is the settlor, B is the trustee, and C is the cestui que trust.

320. Who May be Parties to a Trust. Persons of lawful age, and competent to make contracts, including corporations, may create trusts. Any person competent to make contracts, including corporations, may act as trustee. Even infants (persons under legal age) may act as trustees if the duties require the exercise of no discretion. An infant may hold the legal title as trustee, and if the duties require the exercise of discretion, the court will remove him or appoint a guardian to perform his duties. Anyone capable of holding the legal title to property may be a cestui que trust. This includes corporations, aliens, and, in case of charitable trusts, infants. Any kind of property, whether real or personal, may be given in trust. This includes lands, chattel property, promissory notes, accounts, and kindred property rights, regardless of where the property is located.

321. Express Trusts. An express trust is one created by the express written or oral declaration of the grantor. If A gives a deed of his farm to B, by the terms of which B is to hold the farm in trust for C, A, the grantor, has created an express trust in favor of C, B as trustee holds the legal title to the farm, and C, as cestui que trust or beneficiary, holds the beneficial or equitable interest. A, before giving the deed of trust, was the absolute owner of the farm. That is, A held the legal title and the equitable interest in the farm. By creating the trust, he placed the legal title in one person and the equitable or beneficial interest in another.

Originally, in England, at common law, trusts could be created by oral declaration as well as by written instruments. At that time, land could be transferred without written instruments. The seller took the buyer on to the land to be conveyed, and in the presence of witnesses delivered to him a symbol of the land, such as a piece of turf or a twig. About 1676, the Statute of Frauds was passed by the English Parliament, requiring among other things, that conveyances of lands, including the creation of trusts therein, must be by written instruments. This provision of the Statute of Frauds has been re-enacted by most of the states of this country. At the present time, trusts in real estate must generally be created by written instrument. Trusts may be created by will to take effect at the grantor's death. Trusts may be created in personal property. Except when created by will, trusts in personal property may be created by oral declaration of the grantor. A grantor may create a trust voluntarily. If actually carried out, or if the grantor's intention to create the trust is expressed as final, it requires no consideration to support it. If the declaration of trust amounts to a mere agreement to create a trust, and is not carried out, it requires a consideration to enable the beneficiary to compel its execution. After an express trust is completed, it cannot be revoked by mutual agreement between the grantor and trustee without the consent of the cestui que trust.

THE ASSEMBLING DEPARTMENT IN THE COMPTOMETER FACTORY, CHICAGO FELT & TARRANT MFG. CO.

The most common forms of express trusts are created by deed, by will, or by contract. Any declaration of the grantor, no matter how informal, if expressing his intention to create a trust, is sufficient to create a trust. A trust cannot be created for an immoral or illegal purpose.

322. Implied Trusts. When a person by deed or will does not use language expressly creating a trust, but uses language showing his intention to create a trust, one will be implied. Such a trust is known in law as an implied trust, as distinguished from an express trust. If A devises all his property to his son, B, the will containing the following language: "I request my son, B, to pay his cousin, C, $10.00 per month during his life," this language is held to create a trust in favor of C, wherein B is trustee.

323. Resulting Trusts. One party may so conduct himself, or so deal with another, that a court will declare the transaction to be a trust, even in the absence of any express declaration, or of an intention on the part of the parties to create a trust. Such a trust is known in law as a resulting trust. J, to avoid paying his creditors, purchases property in the name of his wife, K. K is a trustee for her husband, J, and creditors can by suit in equity subject J's interest in the property.

If A purchases property, and takes the deed in the name of B, B is trustee for A. B is the legal owner, and A is the beneficial or equitable owner. If a third person purchases the property from B, without notice of A's rights, and for value, the third person takes good title to the property free from A's claim.

In this country, the states generally require by statute, that deeds and mortgages of real estate must be recorded. If an equitable owner does not have a properly recorded written instrument showing his interest in the real estate in question, thereby giving future purchasers notice of his interest, he cannot complain unless the third person has actual notice of his rights or purchases without giving a valuable consideration. A resulting trust is not created by agreement or contract to that effect, but is created by the trustee using money or funds of the cestui que trust in the purchase of property in his own name.

324. Constructive Trusts. If one person is in a confidential relation to another, and misappropriates the money of the other, this act is said to create a constructive trust, in which the defrauding party is trustee, and the defrauded party is beneficiary, or cestui que trust. A constructive trust differs from a resulting trust in that the former involves fraud on the part of the trustee, exercised on the cestui que trust, while a resulting trust never involves fraud between the trustee and cestui que trust, although created for the purpose of defrauding third persons.

If A, an attorney, is employed by B to collect a note of $500.00, and fraudulently reports a collection of $300.00, keeping $200.00, a constructive trust results, in which A is trustee for B, for $200.00. If A, for the purpose of defrauding his creditors, deposits his money in bank in B's name, a resulting trust arises in which B is trustee for A, and A's creditors can subject the property.

Anyone defrauding another by duress, by taking advantage of old age or of mental weakness, or by fraud, becomes the trustee for the wronged party in the amount the latter has lost.

325. Rights and Liabilities of Trustee. A trustee of an express trust need not accept the trust against his will. If A by deed, will, or written declaration, names B as trustee of certain property for C, B need not accept unless he so desires. If B refuses to act as trustee, the trust does not fail by reason thereof. A court may appoint another trustee or may itself administer the trust. After accepting a trust, a trustee cannot resign without the consent of the cestui. He may be removed by the court for misconduct, or he may transfer his duties, if so stipulated in the instrument creating the trust.

In England during the reign of Henry VIII, a statute was passed called the Statute of Uses, declaring that real property given to one person and his heirs in trust for another and his heirs, should vest the legal title in the trustee. Thus, if A gives real estate to B and his heirs in trust for C and his heirs, C takes the legal title. The Statute of Uses is in force in most of the states of this country. It does not apply to personal property, and if the trustee is given some duties, such as to collect rents, or to do anything except to hold the legal title as trustee, the case is not within the Statute of Uses, and the trust will be carried out.

A trustee holds the legal title to the trust estate. Suits against the estate must be brought against him as trustee, and suits for the protection of the estate must be brought by him as trustee. A trustee has the right to possession of all personal property covered by the trust, and to possession of the real property, if necessary to execute the terms of his trust. A trustee must protect the estate and perform his duties with care, or be liable to the beneficiary for any damages resulting. He is not permitted to make any profit out of his office. Any profit made by him through his connection with the trust estate belongs to the beneficiary.

326. Rights and Liabilities of Beneficiary. A cestui que trust has the right to receive the benefits of the trust estate as outlined in the instrument creating the trust. If the trustee fails properly to perform his duties, the cestui que trust may bring legal action to have him removed. A trustee has legal title to the trust property, and may convey good title to one who purchases for value, and without notice of the trust. The cestui que trust can follow and regain trust funds or property, if the latter are conveyed to persons not bona fide purchasers.