Requirements for a Valid Trust

A trust is created when a property interest is held by one person (the "trustee") for the benefit of a different person (the "beneficiary"). The person creating the trust is called the "settlor".

The creation, administration, and modification of a trust are all regulated by state law. Some states do allow a trust to be terminated if all the various actors consent to it. Unlike a will, trust documents are not made public.

Types of Trusts

The law differentiates between several different kinds of trust, depending how they were created and the nature of the trust.

Types of trusts based on creation are:

Additionally, trusts can be characterized by their nature:

Since a testamentary trust does not go into effect until after the person's death, the terms "revocable" and "irrevocable" usually refer to living trusts rather than testamentary trusts. Also, testamentary trusts are usually assumed to be irrevocable unless stated otherwise.  

Requirements of a Trust to be Considered Valid

States may vary as to the specific requirements and deadlines for the creation of a valid trust. However, they will usually look for the following in determining whether a trust is considered to be valid:

Modifying or Terminating a Trust

Trusts are much like contracts in that courts are hesitant to alter them if they already contain provisions regarding modification or termination. In other words, the trust will usually state how and when it may be modified or terminated.

Generally, an irrevocable trust may not be modified or terminated unless the trust instrument specifically provides for such procedures. Some states allow a trust to be modified or terminated based upon the consent of the trust actors. Any changes must be made in writing.

A trust can also be terminated based on the occurrence of certain events, such as if the trust property has been distributed or if a named beneficiary dies. If a settlor has expressly included the right to terminate the trust, then they may do so, often without the consent of either the beneficiary or any trustees.

Also, if a new trust is created, sometimes the new trust will cancel the old trust. If a new trust is being created, it helps to provide instructions as to what will happen with any prior or existing trusts of the same type.

Finally, sometimes a trust may fail to include provisions for modification or termination. This might be the case if the trust is poorly written or is unclear about such procedures. If a court must modify or terminate a trust, they will usually look to two things: the settlor's intent, and the named purpose of a trust. They will then attempt to modify the trust to match the intent and purpose of the trust as closely as possible.

For example, if the trust provided for the medical expenses of a child, but there are not enough funds left over after the death of the settlor, then the court may choose to modify the trusts to reflect on the intent of the settlor.

Recap/Points to Consider

If you will be involved in the creation of a trust, whether as the settlor writing the instrument, or as a trustee or beneficiary, it is useful to have basic knowledge of how a trust operates. You should also consult a lawyer, who can help you in the preparation of documents.

Here are some basic points to think about with regards to trusts: