Categories of Private Trusts

• Author: Browne C. Lewis
• Pages: 71-121

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Chapter 3 - Categories of Private

Trusts

Trusts fall in to two broad categories—private and charitable. The creation of

charitable trusts will be discussed in Chapter Eight. The focus of this chapter is upon the

different types of private trusts. This chapter is divided into two parts. Part I introduces

expressed trusts. These are trusts that are expressly created by the settlor in a written

instrument. In this part, two types of private expressed trusts will be compared—inter vivos

trusts and testamentary trusts. Inter vivos trusts are established during the settlor’s lifetime,

and are a part of the nonprobate system. To the contrary, a testamentary trust is created by

will. The testamentary trust does not come into existence until the will is probated. Part II

consists of a discussion of trusts that are created by operation of law. These are really

implied trusts that are established by courts. Therefore, those trusts do not have to conform

to the requirements needed to create valid trusts. The implied trusts that will be discussed

are the constructive trust, resulting trust, and the honorary trust.

3.1. Private Expressed Trusts

3.1.1. Inter vivos Trusts vs. Testamentary Trusts

The focus of this book is on testamentary trusts. Thus, the manner in which

testamentary trusts are created was discussed in Chapter Two. A basic knowledge of the law

governing inter vivos trusts is helpful because those types of trusts are one of the most

commonly used will substitutes. The property in both the inter vivos and the testamentary

trusts is not distributed to the third party beneficiary until after the settlor’s death. Inter

vivos trusts are created during the settlor’s lifetime. They can be revocable or irrevocable. If

the inter vivos trust does not involve an interest in real property, it may be created orally.

The testamentary trust can only be created by a written instrument that satisfies the Wills

Act. The moment the inter vivos trust is created the beneficiaries become equitable owners

of the trust corpus. The beneficiaries of the testamentary trust do not receive any interest in

the trust property until after the death of the settlor. An inter vivos trust may be created by a

declaration of trust or a deed of trust. In order to create the inter vivos trust by a declaration

of trust, the settlor must declare that he holds certain property in trust and manifest an intent

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to hold the property as such. When creating a trust by declaration, the settlor declares that

she is the trustee of the property for the benefit of herself during her lifetime and that the

remainder of the trust property will be distributed to a third party when she dies. The third

party will be receiving property from the trust and not the will. While she is alive, the settlor

has the power to revoke the trust and the right to the trust income. Since the settlor is also

the trustee, she has the right to manage the trust property. The beneficiary receives a vested

interest in the trust property until it is revoked. In some cases, the settlor gives up her

control and makes the inter vivos trust irrevocable. An irrevocable inter vivos trusts looks a

lot like a testamentary trust. The testamentary trust is revocable until the testator dies. The

settlor may also establish an inter vivos trust by a deed of trust. A deed of trust transaction

involves three parties—the settlor, the trustee, and the beneficiary. The settlor transfers the

property to be held in trust to a third party who is to act as the trustee. When the settlor dies,

the trustee distributes the property to the beneficiaries or hold it in further trust. While the

settlor is alive, she is the only person that is reaping the benefits of the trust. One of the

most litigated issues is the nature of the interest that the beneficiary has in a revocable inter

vivos trust.

Cate –Schweyen v. Cate

, 15 P.3d 467

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 This is an appeal from an Order and Rationale entered by the Eleventh District

Court, Flathead County, on December 14, 1998, denying Personal Representative JoAnn

Cate's (JoAnn) motion for summary judgment and granting a motion for summary judgment

in favor of Shannon Cate Schweyen, individually, and as Conservator of Sara Cate, a minor

(collectively referred to herein as Shannon). The Order provided that JoAnn would convey

various assets to Shannon and take other actions with respect thereto, and also awarded

Shannon her costs.

¶ 2 We reverse and remand for further proceedings consistent with this opinion.

¶ 3 On appeal, JoAnn raises the following issues:

1. Whether the District Court erred in finding that the 1988 document represents a

testamentary trust as opposed to an inter vivos trust which failed for lack of delivery of the

document or the trust property to the trustee.

2. Whether the District Court erred in finding that a testamentary trust is not subject to the

homestead allowance, exempt property, family allowance, rights of creditors, elective share

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of the surviving spouse, and to expenses of administration.

We conclude that the first issue is dispositive, and therefore decline to address the

second issue.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 4 The focus of this controversy is a handwritten document drafted by Jerome J.

Cate (Jerry), a practicing attorney in Montana for nearly 30 years and now deceased, entitled

“Irrevocable Trust Reserving Income For Life.” The document was signed by Jerry and

dated January 2, 1988. Jerry died intestate on April 4, 1995.

¶ 5 The trust document purported to “sell, assign and convey” various mineral

interests, which Jerry had inherited from his mother and her brother, to a trust for the

benefit of his daughters from his first marriage, Shannon, Kristin, and Sara, with Shannon

serving as trustee. Jerry reserved a life interest for himself, and then, upon his death, the

three daughters would receive a term of years interest for 20 years, and then the corpus

would be distributed outright to the daughters or their heirs pursuant to a “per stirpes”

declaration. The trust document apparently was drafted by Jerry in anticipation of his

remarriage to the Appellant, JoAnn, in February of 1988. The document reflects this,

providing that “bearing in mind specifically that I intend to marry again on the 14th of

February, 1988, [I] do hereby sell, assign and convey ...” The undisputed facts show that

Jerry never transferred or conveyed the named mineral interests to the trust or otherwise

delivered the trust property to Shannon, the named trustee.

¶ 6 At the time of his death, JoAnn, in her capacity as personal representative of

Jerry's estate, refused to convey the alleged trust property upon the request of the daughters.

Consequently, Shannon, acting individually and as conservator for her youngest sister, Sara,

filed a petition in September of 1997, requesting that the District Court declare that either an

express or resulting trust in the mineral interests existed. (The eldest daughter, Kristin, is not

a party to this action.) At that time, the handwritten document had not been located; rather,

a 1993 bill of sale document executed by Jerry indicated the existence of the trust.

¶ 7 The 1993 bill of sale was executed to convey Jerry's assets to a “joint revocable

inter vivos trust” which he drafted in 1990. The bill of sale provided: “This Bill of Sale and

Assignment does not include any mineral interests owned by Jerome J. Cate, a/ k/a Jerry

Joseph Cate, which have heretofore been placed in trust for the benefit of Shannon and Sara

Cate.” Kristin's name was apparently omitted from this reference due to a rift between her