101 South Hanley, Suite 1280 Clayton, MO 63105

Funding Trusts

A trust is like a fancy gift. More technically, it is a situation in which one person or entity — the trustee(s) — holds the legal title to identifiable property at the request of another — the settlor — for the benefit of a third party — the beneficiary. To give an example, say I (the settlor) give $50,000 to a bank (the trustee) to invest the money and distribute allocations to my cousin (the beneficiary). This is a pretty basic trust arrangement.

Now that we have the basic operation down, let’s talk about funding. One of the essential requirements of a trust is that there be “res” (Latin for “thing,” but think of it simply as most types of identifiable property). The size of the res is not important, but there must be SOME type of res to properly effectuate a trust.

The exact point at which the res must be transferred to the trust is just as important. A trust can only be created at the time of the transaction or execution of the trust instrument, and cannot be set to commence in the future. As such, there must be a present transfer of assets to the Trustee in Trust to be effective. Courts give weight to language in the trust agreement conveying that there has been a transfer of assets. But, this alone is not conclusive.

What is conclusive, however, is whether there is language that evinces a present intent to pass any title presently into trust. This is done regularly by some sort of transfer of property through something like a bill of sale, but that really depends on the type of property being placed in trust.

So, it is paramount to insure that an asset — indeed, any sort of asset, — is transferred to the Trustee at the time the trust agreement is executed, and that the asset is controlled by the Trustee. Failure to do so could result in a court finding such a trust “void ab initio” — that is, invalid from the onset.

Because seemingly minor requirements can sink a trust, be sure to hire competent counsel who you can trust to help you surmount all the legal hurdles.

Leave a comment