Elements of trust creation in California:
There are four elements required for creation of a valid express trust:
1. Intention to Create a Trust
The settlor’s intention to hold trust property for the benefit of another must be manifested unequivocally, either by words or conduct. The settlor must intend to create a legally enforceable duty. If words used are not mandatory but merely “precatory” (suggestive), such a duty may be lacking.
2. Trust Property
For a trust to exist, there must be trust property. The property need not be specifically described, but the property must be readily identifiable. Broadly inclusive descriptions may also be sufficient.
The property must be transferable. For example, an interest, even a future interest, in a property that exists now is transferable, but an interest in property that does not exist yet is not transferable. Transfer may also be barred based on public policy, for example a firearm that is contraband. Other examples of non-transferable property: a tort claim; an executory contract for personal services; an interest of a beneficiary under a spendthrift trust; and an interest of a joint tenant (the joint tenancy must be severed before or at the same time as the transfer).
Contract rights may generally be assigned to a trust only if the assignment does not materially affect the duties of the other party.
3. Valid Trust Purpose
The trust purpose must be reasonably certain, although this may be inferred in some situations. Any purpose will do as long as it is not illegal or against public policy.
While a charitable beneficiary can be more vaguely described, the beneficiary (or class of beneficiaries) of a private express trust must be ascertainable with reasonable certainty. Either the beneficiary must be sufficiently described so that some person meets the description, or alternatively, the trustee or some other person may be given the power to select a beneficiary (as a matter of discretion, or under a standard).
The common law doctrine of merger generally operates to merge title where legal title and equitable title are held by the same person. For the common living trust, where the settlor is at the same time a trustee with legal title, and a beneficiary with equitable title, this would be a problem were it not for Probate Code § 15209 which overrides the merger doctrine if the trust provides for one or more successor beneficiaries. This section operates in either of the following cases: (1) where there is one settlor who is sole trustee and sole beneficiary during settlor’s lifetime; or (2) where there are two or more settlors, one or more of whom are trustees, and the beneficial interest in the trust is in one or more of the settlors during lifetime of the settlors. Therefore, in such a trust it is very important to name at least one successor beneficiary. (Failure to do so in a gun trust, for example, could lead to a felony conviction, a large fine, and a decade or more in federal prison.)
A testamentary trust created by will requires testamentary capacity, basically 18 years of age and sound mind.
Capacity to create an inter vivos trust has been likened to capacity to transfer property, which in turn has been likened to capacity to enter into a contract. Minimum age is 18, and there are various mental and physical tests, with gradations of requisite capacity depending on the nature and complexity of the instrument.
Consideration Not Required
Probate Code §15208 clarifies that consideration is not required to create a trust.
Statute of Frauds
Probate Code §15206, the Statute of Frauds, requires that an express trust “in relation to real property” must be evidenced by a written instrument signed by the trustee, or by a written conveyance (deed) of the trust property, signed by the settlor.
While oral trusts are a possibility for personal property, there are practical impediments to the creation of an oral trust. The Trust Law provides that an oral trust may only be established upon clear and convincing evidence, and may not be proven upon a mere oral declaration of the settlor—corroboration is required.
A trust may be established by will, declaration of trust, or by agreement between settlor and trustee.
Recordation of the trust instrument is not required for trust validity. Doing so would sacrifice privacy, one of the main benefits of a trust.
Recordation of a transfer document such as a deed or lease, while not required for validity between the parties, is recommended to protect the conveyance against subsequent purchasers, mortgagees, or judgments affecting title.