Teaching: Who Really Controls the Property?

Under common-law trust doctrine, if the interest-holders (beneficiaries, certificate-holders) directly control the trust property and management, courts treat the arrangement as a partnership or “business association,” not as an express trust.

• In a valid express trust, trustees hold legal title and control: they make decisions, sign contracts, and manage assets.
• Beneficiaries hold equitable interests and receive benefits, but they do not manage day-to-day operations.
• If shareholders or “unit holders” vote on specific business decisions, courts may reclassify the trust as a taxable association or partnership.

The control test is simple: if the trustees control the property under the instrument, you are in trust territory; if the beneficial owners control, you are drifting into partnership or corporate territory.

Execution Check

1. Do any beneficiaries or certificate-holders vote on daily management?
2. Where does your trust instrument locate “management and control”?
3. What change could you make (if needed) to restore clear trustee control?

Teaching: Three Different Creatures

• Corporation — Created by statute. Its powers and existence depend on legislative permission. Officers answer to the charter and the relevant corporation statute.
• Partnership — A group of persons carrying on business in common with a view to profit. Partners are usually personally liable for acts done in the course of partnership business.
• Express Trust — Created under common law and equity by private contract. The trust is not “born” from statute; it stands on the law of contracts, property, and obligations.

The handbook notes that a trust framework allows the trustees to do whatever any individual may lawfully do, while a corporation is limited to what the statute permits. This is why careful drafters prefer the express trust for private holding and administration.

Reflection

1. Why is a trust not simply a “corporation with a different name”?
2. What risks do partners face that trustees can avoid when they stay in office?
3. How does your trust instrument emphasize that it is contractual, not statutory?

Teaching: Two Types of Interest

• Beneficial interest — The right to receive income, enjoyment, or use of the trust property during the life of the trust or at its termination.
• Capital interest — The right to a share of the remaining assets when the trust terminates, typically held by those who originally exchanged property into the trust.

The trust instrument should clearly describe:

• Who holds beneficial interests and in what proportions.
• Who holds capital interests and how profits or losses adjust them.
• How and when interests may be assigned, transferred, or terminated.

Execution Exercise

1. Identify one beneficiary and one capital interest-holder in your structure.
2. Where in your trust instrument are their rights described?
3. If you had to explain the difference to a bank officer, how would you say it in one sentence?

Teaching: What a Certificate Really Is

A certificate is proof that the holder has a certain interest in the trust. It is not a share of corporate stock, and it does not turn the trust into a statutory entity.

• Certificates should reference the trust by its full name.
• They should specify the type of interest (beneficial or capital) and fraction.
• They should make clear that management remains with the trustees.

Properly drafted certificates help with accounting and succession without surrendering the trust’s express, non-statutory nature.

Execution Assignment

1. Do you currently issue any certificate of interest for your trust?
2. If yes, does it clearly state that the holder has no management control?
3. If no, what simple certificate language could you draft to evidence interests?

Teaching: Who Can Be a Trustee?

• Any natural person with capacity may usually serve, unless disqualified by the instrument or by law (e.g., minors, those under legal disability).
• A trustee should be able to manage property prudently and keep clear records.
• The handbook notes that even a wrongdoer, in some cases, is treated as a “constructive trustee” — but in an express trust, we choose our trustees deliberately for integrity and competence.

The appointment is normally made by the settlor in the declaration. Replacement trustees may be appointed according to procedures written into the instrument.

Execution Questions

1. What specific qualities do you require for trustees in your system?
2. Where in your document is the appointment power described?
3. Do you have a written process for appointing future or successor trustees?

Teaching: Acceptance in Writing

Even though courts may imply acceptance if a person “intermeddles” with trust property, best practice is a written acceptance:

• A signed “Acceptance of Trusteeship” tied to the specific trust.
• Recorded in the trust minute book or attached to the declaration.
• Used to prove authority to banks, agencies, and counterparties.

Resignation and removal should also follow the instrument: written notice, delivery of records, and formal release where appropriate. Courts will generally respect the private mechanism the settlor created, unless there is a serious breach of trust.

Execution

1. Do you have signed acceptances for each current trustee?
2. What is your written process if a trustee wants to resign?
3. Who has the authority to remove a trustee for cause under your instrument?

Teaching: Scope of Powers

• Hold, manage, and dispose of trust property.
• Enter contracts, open accounts, invest funds, and defend or prosecute claims.
• Delegate certain tasks while retaining ultimate responsibility.

The handbook notes that a properly constructed express trust may do whatever any individual may lawfully do with his own property, so long as the trustee acts within the four corners of the instrument and in good faith.

Execution Review

1. List three specific powers granted to trustees in your document.
2. Are there any important actions you take regularly that are not clearly authorized?
3. Do you need a supplemental resolution to clarify the use of certain powers?

Teaching: Core Trustee Duties

• Loyalty — Act for the benefit of the trust and beneficiaries, not for personal gain or conflicting interests.
• Prudence — Manage assets with the care a reasonable person would use in handling their own serious affairs.
• Segregation — Keep trust property distinctly separate from personal assets; no commingling of funds.

Breach of these duties is what gives courts the ground to interfere. Staying inside them is what keeps you in honor and in control.

Self-Audit

1. Is there any area where personal and trust money ever meet?
2. Have you documented how you make investment or spending decisions?
3. Where could you tighten up loyalty, prudence, or segregation in practice?

Teaching: Keeping Liability in the Right Place

• Always sign as “Trustee” for the named trust, not in a bare personal capacity.
• Use resolutions to show that actions were authorized and considered.
• Keep contracts and correspondence in the trust files as evidence of proper conduct.

Courts generally will not remove a trustee or pierce their protection unless there is a clear breach of trust or serious mismanagement. The more careful your records and signatures, the safer your position.

Execution Prompts

1. Review one recent contract: is your trustee capacity clearly shown on the signature line?
2. Do you have any “grey area” actions that should be ratified by resolution?
3. What additional internal policy would help protect future trustees?

Teaching: The Trust’s Legal Location

• Situs is usually where the trust is administered: where trustees meet, keep records, and manage property.
• You may choose governing law in the instrument, but courts also look at where property and trustees are actually located.
• A clear situs helps avoid confusion when dealing with banks, agencies, and courts of equity.

Execution Questions

1. Where is the official situs of your trust named in your instrument?
2. Where are your records physically kept?
3. Does your day-to-day administration match the situs you claim?

Teaching: The “Paper Constitution”

• Declaration / Trust Instrument — foundational law of the trust.
• Bylaws / Policy Manual — internal rules for day-to-day operations.
• Resolutions & Minutes — records of decisions and meetings.

When disputes arise, courts look less at what people remember and more at what can be shown from minutes, resolutions, and signed instruments. This is your shield and your proof.

Execution Task

1. Do you keep a numbered minute book for trustee meetings or decisions?
2. When was the last time you recorded a formal resolution?
3. What category of decision in your trust should always be done by resolution?

Teaching: How the Trust Shows Up at the Bank

• The account title should show the full trust name, not just the trustee’s name.
• Signature cards should clearly identify signers as “Trustee” for that trust.
• Checks, drafts, or other instruments should be issued and endorsed in the trustee capacity.

This makes it clear that obligations belong to the trust estate, not the individual. When your signatures and records are clean, third parties can see who they are really dealing with.

Execution Prompts

1. Look at one bank statement: does it display the trust’s full name?
2. Is your signature block consistent across banks and contracts?
3. Do you have a written policy for endorsing instruments on behalf of the trust?

Teaching: The Flow of Funds

• Maintain a ledger of receipts and disbursements, tied to resolutions where needed.
• Record distributions to beneficiaries with dates, amounts, and purpose.
• Be prepared to give periodic reports according to the instrument or agreements.

Courts view honest, organized trustees very differently from careless ones. When your books are in order, most disputes can be resolved on the strength of the records.

Execution Questions

1. How often do you prepare an internal report of assets and liabilities?
2. Do beneficiaries know how to request a report, if appropriate?
3. What accounting improvement could you implement in the next 30 days?

Teaching: Presenting the Trust

• Respond as “Trustee” for the named trust, not as a private debtor.
• Use your acceptance, resolutions, and instruments as proof of authority.
• Keep copies of all notices received and all responses sent, with dates.

When third parties see that you are organized, documented, and acting in a defined office, they tend to treat the trust accordingly. Your conduct either confirms or undermines the structure you built on paper.

Execution Practice

1. How would you sign a letter responding to a notice directed at the trust?
2. Do you have a central file or database where all incoming and outgoing correspondence is stored?
3. What template letters or responses could you prepare in advance?