Key Takeaways

  • An express trust is a legally binding trust created intentionally by a settlor.
  • Essential elements include a clear intent, a specific property, and identifiable beneficiaries.
  • Trusts can be revocable, irrevocable, living, testamentary, fixed, or discretionary.
  • Creating an express trust involves drafting a trust deed, appointing a trustee, and transferring property into the trust.
  • Express trusts offer tax advantages, probate avoidance, and privacy benefits.
  • Trusts must comply with applicable state laws and serve a lawful purpose.

An express trust, also known as a direct trust, is a type of trust that is created purposefully and intentionally instead of being imposed by a court. A trust is a legal arrangement in which the trustee controls finances or property for another person, who is the beneficiary, generally until the beneficiary comes of age. The person creating the trust is a grantor, trustor, or settlor.

What Is an Express Trust?

Trusts are divided into two categories:

  • Express trusts
  • Non-express trusts

Express trusts are defined by the creator of the trust. They are also governed by three certainties or elements:

  • Subject matter
  • Intention
  • The object

Express trusts are essentially designed with the expressed intention of the settlor in mind. By contrast, non-express trusts are divided into either resulting trusts or constructive trusts, which may be forced upon individuals in court. Constructive trusts are imposed on a wrongdoer who acquires property legally belonging to someone else. The wrongdoer becomes the trustee and has a duty to return the property to its true owner.

In an express trust, the creator of the trust distributes funds or property to an individual (the trustee) who then holds the property in trust for the person meant to receive the property. You can create an express trust through a legal document that fulfills the various requirements for establishing a valid trust.

A valid trust may be created to benefit a charity, a pet, or, more often, a family member. One of the biggest benefits of distributing a trust is to pass on assets while minimizing estate, gift, and income taxes.

Since there is no uniform trust legislation on the federal level, individual states are responsible for governing trust establishment and maintenance. However, the Uniform Probate Code (UPC) has been adopted by more than 30 percent of states and is a code which outlines provisions related to trusts and wills.

Express trusts are used in various contexts, most commonly in charitable gifts and family settlements.

Benefits of an Express Trust

Creating an express trust offers a range of strategic benefits for individuals and families. These trusts are often used in estate planning for the following reasons:

  • Avoiding Probate: Assets held in a trust generally do not go through the probate process, which can be time-consuming and costly. This allows beneficiaries to receive assets more quickly and privately.
  • Tax Efficiency: Express trusts can be structured to reduce estate taxes, capital gains taxes, and income taxes. For example, charitable trusts may offer donors significant deductions.
  • Asset Protection: Properly structured trusts can help shield assets from creditors, lawsuits, or divorce settlements.
  • Flexibility and Control: The settlor can dictate how and when beneficiaries receive distributions, especially useful for young beneficiaries or individuals with special needs.
  • Continuity of Management: In the event of incapacity, a trust ensures seamless management of the settlor’s assets without the need for court intervention.

These benefits make express trusts a popular tool for those seeking to protect their wealth and provide for loved ones according to their wishes.

How to Create an Express Trust

A settlor can create an express trust if they have a valid reason for transferring property to a trustee. The trustee will then distribute the property to the beneficiary when terms of the trust are met.

There are a few definitions to keep in mind when establishing an express trust:

  • Settlor: the person who creates the trust and transfers the property to the trustee
  • Trustee: the individual or legal entity who maintains the trust property and gives the beneficiary distributions according to the trust terms
  • Trust property: any type of real, personal, tangible or intangible property (i.e., money, artwork, a home, or other valuables)
  • Beneficiary: the person, group, pet, or organization who receives the trust property
  • Trust purpose: every trust must have a valid, legal purpose for existing, which could include for supporting education, protecting assets, planning taxes, or contributing to charity

Once you've identified each of these categories, you can create your trust with the help of legal counsel.

Steps to Create an Express Trust

Understanding how to create an express trust involves more than naming a trustee and beneficiary. A legally valid express trust requires careful planning and adherence to state laws. Here are the typical steps:

  1. Define the Purpose of the Trust: The purpose must be lawful and clearly articulated. Examples include charitable giving, asset protection, or providing for a family member.
  2. Draft the Trust Instrument (Trust Deed): This legal document must outline the intent to create a trust, identify the trust property, name the trustee(s) and beneficiary(ies), and detail the distribution terms.
  3. Select the Trustee: Choose someone you trust to manage the assets in accordance with your wishes. This can be an individual or an institution.
  4. Transfer Property to the Trust: For the trust to be effective, ownership of the assets must be formally transferred to the trustee. This could include bank accounts, real estate, or investment portfolios.
  5. Ensure Compliance with State Laws: Trust formation requirements may differ by state. Some states may require notarization or registration.
  6. Review and Update as Needed: Especially with revocable trusts, you may update the terms or assets as life circumstances change.

Consulting with an estate planning attorney ensures your express trust meets legal requirements and aligns with your financial goals.

Types of Express Trusts

An express trust can take various forms. The most common categories include:

  • Living trusts
  • Revocable trusts
  • Irrevocable trusts
  • Fixed trusts
  • Discretionary trusts

A living trust, also referred to as an inter-vivos trust, is established for a beneficiary during the settlor's lifetime.

Revocable trusts allow the settlor, or creator of the trust, to retain control. The settlor doesn't receive tax benefits, but may withdraw funds from the trust, or cancel or alter it at will.

Irrevocable trusts give complete control over the trust to the trustee, who is the person responsible for maintaining the trust. Irrevocable trusts do not end until the trust purpose is fulfilled, and the trust can only be changed with the consent of all beneficiaries and the trustee.

Discretionary trusts give power to the trustee, who can decide when and if to distribute the property to the beneficiaries. This type of trust can provide tax benefits to the beneficiaries because the beneficiaries have no interest in the trust assets until the trustee decides to distribute them.

Fixed trusts allow beneficiaries to receive funds or trust property on a set schedule as decided by the settlor. The trustee doesn't have any say in how or when to distribute the property.

Testamentary vs. Living Trusts

Express trusts can be created during a person’s lifetime or through their will, which affects how and when they take effect.

  • Living Trust (Inter Vivos): Created and effective during the settlor's lifetime. The settlor can serve as trustee and manage the assets until death or incapacity. These trusts help avoid probate.
  • Testamentary Trust: Created within a will and becomes effective only after the settlor’s death. These trusts must go through probate and are useful when specific instructions for asset distribution are needed after death.

Choosing between these options depends on whether you want the trust active during your life or after your death.

Common Uses of Express Trusts

Express trusts are versatile tools used in a variety of personal and financial situations:

  • Estate Planning: To pass wealth efficiently to heirs while avoiding probate.
  • Charitable Giving: Charitable remainder trusts and other vehicles allow donors to support causes while receiving tax benefits.
  • Special Needs Planning: To provide long-term financial support to a disabled beneficiary without affecting eligibility for public benefits.
  • Business Succession: Trusts can hold business interests and ensure smooth transition and management after the owner’s death.
  • Education Funding: Trusts can be set up to fund tuition and other education-related expenses for children or grandchildren.

Understanding how to create an express trust that fits these purposes allows individuals to tailor their estate plans to their exact needs.

Frequently Asked Questions

1. What is required to create a valid express trust? A valid express trust requires intent, trust property, a trustee, one or more beneficiaries, and a lawful purpose.

2. Can I be the trustee of my own express trust? Yes, in many cases, the settlor can also serve as the initial trustee, especially with revocable living trusts.

3. Do express trusts avoid probate? Yes, express trusts such as living trusts typically avoid probate, allowing for quicker and more private asset distribution.

4. What assets can I place in an express trust? Most types of property can be included, including real estate, bank accounts, stocks, personal property, and business interests.

5. Do I need a lawyer to create an express trust? While not always legally required, working with an attorney is highly recommended to ensure your trust complies with state laws and meets your objectives. You can find qualified trust attorneys on UpCounsel.

If you need help establishing or maintaining an express trust, post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.