I regularly use trusts as part of my legal practice. These are the exact same methods stated in §10 of the Restatement of Trusts. And save for number 5, they are consistent with the methods outlined in § 401 of the Uniform Trust Code.

Under Texas law, there are 5 methods of creating a trust:

(1) A property owner’s declaration that the owner holds the property as trustee for another person;
(2) A property owner’s inter vivos transfer of the property to another person as trustee for the transferor or a third person;
(3) A property owner’s testamentary transfer to another person as trustee for a third person;
(4) An appointment under a power of appointment to another person as trustee for the donee of the power or for a third person; or
(5) A promise to another person whose rights under the promise are to be held in trust for a third person.

A brief explanation of each follows:

The property owner declares an intent to create a trust – a method potentially fraught with problems. How do you prove such a trust exists? At minimum, there would have to be a second person to attest to the statement. The necessity of beneficiaries, who must exist in all trust relationships and who also have enforceable rights in the trust property, further complicate the picture. They would have to know they are a beneficiary in order to enforce their rights. When are they told about their new found legal status?

The admittedly over-lawyering comments aside, the most obvious fact pattern for this method is one parent saying to the other, “we need to save out child’s education.” Here, the second parent can act as witness if needed. They can also act as guardian for the obviously minor child.

Methods 2 and 3 are the most common: either an individual creates a trust while alive or includes a trust in an estate plan. A written document is always preferable; a trust is simply too complicated to be left to verbal evidence. There are numerous trusts that can be created through an estate plan – too many to mention here. Due to the nature of even moderately complex estate planning, these are also written.

The estate tax code defines a “power of appointment” as “a power which is exercisable in favor of the decedent, his estate, or his creditors of this estate.” It gives the holder the ability to direct property or a property’s income toward a certain goal. The most obvious case occurs where a power holder will create a trust with estate property.

Like the simple declaration that “I’m creating a trust,” the “promise to create a trust” is also a complex matter: it not only involves a trust but probably a contract – an “enforceable promise.”[1] At minimum, the person enforcing the trust must prove that the grantor made the promise, which creates a potential evidentiary headache.

I hope you have found this helpful or useful.

[1] The Restatement of Contracts defines a contract as, “a promise or set of promises for the breach of which the law provides a remedy.”