Chapter 8 - § 8.7 • TRUSTS

• Jurisdiction: Colorado

§ 8.7 • TRUSTS

§ 8.7.1—In General

Legal and Equitable Estates

A trust acknowledges that the legal and equitable titles to property can co-exist, with ownership of each being vested in different people at the same time.²⁴⁶ Thus, in the usual trust situation involving real estate, the trustee has legal title and the beneficiaries have an equitable ownership.²⁴⁷ If at any point all of the legal and equitable interests are held by one person or entity, the interests merge and the trust fails. A merger takes place when the settlor as trustee engages in self-dealing and uses trust property to secure his or her own debts. However, if the interests are in some way different, then in the absence of self-dealing, there is no merger.²⁴⁸

Statute of Uses

The Statute of Uses²⁴⁹ was enacted to remedy the evils arising from a separation of the legal and equitable estates in land, which at common law resulted whenever a trust or use was created. The statute's purpose is to unite both estates in the beneficiary and divest the trustee of all title or interest; it operates only in cases of a dry, naked, passive trust.²⁵⁰ (A dry or passive trust is a trust in which the only duty of the trustee is to convey the legal title to the beneficiary.²⁵¹ ) The statute does not operate upon implied, resulting, or constructive trusts, but only upon express trusts created by the parties and disclosed by the terms of the conveyance itself.²⁵² It affects the conveyance directly, and not any unascertained matters outside of it.²⁵³ The Statute of Uses is in force in Colorado.²⁵⁴ If a conveyance does not name a beneficiary, no passive trust arises and the Statute of Uses does not apply.²⁵⁵

§ 8.7.2—Nature of Trusts

A trust is a relationship between two persons in which one of them holds property for the benefit of the other.²⁵⁶ It is the right, enforceable solely in equity, to the beneficial enjoyment of property when another person holds the legal title;²⁵⁷ in other words, the legal owner has an equitable duty to the beneficiary.²⁵⁸

Not every statute or arrangement imposing a duty creates a trust relationship.²⁵⁹ For example, if the legal title to the trust property is vested in a bank as trustee and not in a management committee representing the beneficiaries, then there is no trust relationship between the beneficiaries and the management committee.²⁶⁰

Much of the early Colorado case law regarding trusts arose in the context of deeds of trust naming private trustees. However, a trust in the nature of a mortgage (i.e., the relationship created by a deed of trust) differs from a true trust in that in a mortgage, or a trust in the nature of a mortgage, the property is to be reconveyed to the trustor upon the payment of the debt secured.²⁶¹

§ 8.7.3—Express Trusts

Creation of Express Trusts

Express trusts are created by a contract between the parties, and must be proved as contracts.²⁶² The elements of an express trust are:²⁶³

• The settlor's capacity to create a trust;
• The settlor's intention to create a trust.²⁶⁴ A secret intent to create a trust is not sufficient;²⁶⁵
• A declaration of trust or a present disposition of the res;
• An identifiable trust res.²⁶⁶ A one-dollar bill is a sufficient res to support the creation of an express trust;²⁶⁷
• A trustee; and
• Identifiable beneficiaries.

The language establishing an express trust must be clear, explicit, definite, unequivocal, and unambiguous.²⁶⁸

The creation of an express trust must comply with the Statute of Frauds.²⁶⁹ The existence of an express trust in land cannot be established by parol evidence.²⁷⁰ The trust does not have to be created by a writing, but there should be evidence in writing proving that there is such a trust.²⁷¹ But where there is some written evidence showing the existence of a trust, the door is thereby opened to the admission of parol evidence to demonstrate the truth of the transaction.²⁷² So a deed that is absolute in form can be shown to be a conveyance in trust notwithstanding the Statute of Frauds.²⁷³ If a conveyance is made pursuant to an agreement that the property will be held in trust, then a refusal to reduce the agreement to writing will give a court of equity jurisdiction to examine the transaction and to set aside the conveyance or administer other appropriate relief.²⁷⁴

Disclaimer

If a trustee disclaims an interest in property that otherwise would have become trust property, the interest does not become trust property.²⁷⁵

For disclaimers generally, see § 23.5.2.

Trustee

A settlor has a great deal of discretion in designating a trustee. A trustee may be an interested party, such as a beneficiary or a remainderman.²⁷⁶ A trust is valid even if the settlor is also a trustee and retains extensive control of the trust property.²⁷⁷ An officer of a corporation that is the beneficiary of a trust deed can act as the trustee.²⁷⁸

At the death of a sole trustee or the surviving trustee of an express trust created by a written instrument affecting title to real property, an unexecuted trust vests in the public trustee and his or her successors in office of the county where the real property is located, with all of the original trustee's powers. The district court may appoint a new trustee unless the law or the instrument provides for a successor in trust. In such cases, the trust vests in the successor.²⁷⁹ A written appointment of a successor trustee does not have to state any reason for the substitution.²⁸⁰

Upon the dissolution of a business or nonprofit corporation, the corporation retains the title to its property that was not previously distributed or disposed of. The majority of the surviving members of the last board of directors named in the files of the secretary of state has the full power and authority to act on behalf of (and in the name of) the corporation to convey and dispose of such corporate property.²⁸¹ When the last survivor of such directors dies, the public trustee of the county where the corporation's property is situated has the full power and authority to convey and dispose of such property in the name of the corporation, on the corporation's behalf.²⁸²

Duties of Trustee

A trustee has a general duty to administer a trust expeditiously for the benefit of the beneficiaries.²⁸³ A trustee may not commit acts inconsistent with his or her trust, or which interfere with his or her duty in discharging it.²⁸⁴ Except as otherwise provided in the trust, a trustee must observe the standards in dealing with the trust assets that would be observed by a prudent man dealing with the property of another, and if the trustee has special skills or is named as trustee on the basis of representations of special skills or expertise, he or she is under a duty to use those skills.²⁸⁵

A trustee must keep the beneficiaries of the trust reasonably informed of the trust and its administration.²⁸⁶ Upon reasonable request, a trustee must provide a beneficiary with a copy of the terms of the trust which describe or affect his or her interest and with relevant information about the assets of the trust and the particulars relating to administration,²⁸⁷ and upon reasonable request, a beneficiary is entitled to a statement of the accounts of the trust annually and on termination of the trust or change of trustee.²⁸⁸

A trustee need not provide bond to secure performance of his or her duties unless required by the terms of the trust, reasonably requested by a beneficiary, or found by the court to be necessary to protect the interests of the beneficiaries who are not able to protect themselves and whose interests otherwise are not adequately represented.²⁸⁹

A trustee is under a continuing duty to administer the trust at a place appropriate to the purposes of the trust and to its sound, efficient management.²⁹⁰

Powers of Trustee

Formerly, the powers of a trustee depended entirely upon the terms of the instrument appointing the trustee, or providing for his or her appointment,²⁹¹ and no power was conferred unless expressed in the writing.²⁹² If the manner of appointment was specified, it must have been followed and no power was conferred upon him to act unless it was.²⁹³ A trustee by written instrument was clothed with no powers save those which were expressed in the writing, and if his or her authority to act was dependent upon matters in pais the parties dealing with the trustee were bound in the one case to see that the authority is expressly given by the instrument and, in the other, that those facts exist which authorize the trustee to act.²⁹⁴

Enacted in 1967, the Colorado Fiduciary Powers Act²⁹⁵ gives trustees and other fiduciaries broad powers to administer estates and trusts, including the powers to sell, lease, and encumber real property.²⁹⁶

Liabilities of Trustee

Unless otherwise provided in the contract, a trustee is not personally liable on contracts properly entered into in his or her fiduciary capacity in the course of administration of the trust estate unless the trustee fails to reveal his or her representative capacity and identify the trust estate in the contract.²⁹⁷ A trustee is personally liable for obligations arising from ownership or control of property of the trust estate or for torts committed in the course of administration of the trust estate only if he or she is personally at fault.²⁹⁸

Death of Trustee

Upon the death of a sole trustee or the surviving trustee of an express trust created by a written instrument affecting title to real property, the trust does not descend to the heirs of the trustee nor pass to his or her personal representative, but the trust if then unexecuted vests in the public trustee and his or her successors in office of the county wherein the real estate is situate, with all powers of the original trustee.²⁹⁹

Appointment of New Trustee

The district court may, upon the application of any party in interest, appoint a new trustee except in such cases where by law or by the instrument a successor in trust is provided...