CHAPTER XLI

WHY TRUSTS ARE FORMED

§ 369. The Objects of Trusts

Most of the trusts created are formed for a specific purpose, and when that purpose is accomplished they terminate. Their duration in most of these cases is limited by the fulfilment of their purpose. These general objects may be enumerated as follows:

1. To furnish an income for the life of the creator or for the life of his wife, or for the life of his widow, or for the life of some other relative or dependent. All such trusts would end with the death of the beneficiary.

2. To provide for minor children, till of age. All such trusts would end with the coming of age of the beneficiaries.

3. To provide an income for life, to children, grandchildren, or other relatives. All such trusts would be for the life of the beneficiaries, and could be extended thereafter until the youngest child of any of the beneficiaries came of age. This gives the general rule that no estate, legal or trust, can be held together for longer than the duration of a life or lives in being and twenty-one years after. This time may be extended in case of a child born after the death of the father, to allow for the period of gestation.

4. To conduct a business. The trust associations of Massachusetts are examples of this kind of trust. They are not limited by the foregoing rule to a life or lives in being and twenty-one years after.

5. To provide a foundation for or an income to be applied to some educational, philanthropic, or religious object.

In all cases where these objects are allowable, the limitation to a life or lives in being does not apply.

6. To prevent sale or transfer out of family line. The law does not favor this object and the rule applies.

7. To accumulate rents, profits, or income. The law does not favor this object and the rule applies.

§ 370. Trusts to Hold Property in Family

Men have always desired to keep property in their families, and so insure a continuance of the family line. To this end they have tried to entail legal estates, so that improvident and reckless members of the family could not sell, mortgage, or part with the lands. The courts have always opposed this tendency and devised methods to break the entail, and now it is not possible to leave real property so that it cannot be sold or taken by creditors for more than the limited period of lives in being and twenty-one years after. If an estate is left to a man's children for life and after that to their children when or as they come of age, the limit has been reached and even then the life estate may be sold or mortgaged by the life tenant; or if he cannot pay his debts, his creditors may have it sold. This is the law as to ordinary legal estates, and when the rules as to equitable or trust estates are examined, they are found to follow the law. Hence, it is not possible to hold property together any longer by means of a trust estate than when limitations are imposed to restrict the sale of the legal

estate.

It is possible in some states to make what is called a "spendthrift trust," whereby the income of property in the hands of trustees may be paid to a person, and he be restrained from anticipating it or from assigning it, and his creditors are not allowed to take it to satisfy his debts. Where there are no statutes of this kind, it may be provided that the income shall be paid to the beneficiary during his life, or until he tries to

sell it, or becomes bankrupt. In trusts of this kind it must be provided that on the happening of either contingency the trust income goes to the next beneficiary or to some other person or object during the life of the beneficiary who loses it.

It is possible to provide for married women, for children, and for those incompetent to manage their own affairs, by leaving property in trust for their benefit, without fear of its coming to an end before their death; but a trust income for anyone of sound mind and age may be sold by him or can be taken by his creditors, unless, as has been stated, it is prescribed that the trust income is to go to someone else when the beneficiary alienates his estate or becomes a bankrupt.

While the foregoing is a general statement of the law, some states have repudiated it, and in those states provisions against anticipation or assignment and provisions against any liability to creditors have been sustained. Among these states are California, Massachusetts, Missouri, Pennsylvania, and others. In some states statutes provide that trusts shall be exempt from liability to creditors, unless the debtor himself created the trust.

Another exception is where a trust income is to be used at the discretion of the trustees for the benefit of a person and his family or for the support of the party and the education and maintenance of his children. In such case, the party cannot assign the income, nor, if he becomes insolvent, can his creditors reach it. In any cases of this kind competent counsel should be employed to draft the instrument that creates the trust, and the statutes and decisions of the particular state should be carefully examined.

§ 371. Trusts to Accumulate Income

Not infrequently property has been left to trustees, to accumulate the income for a period, and then to bestow the increased estate on some living descendant. Originally, the only

limit on bequests of this kind was the general rule of a life or lives in being and twenty-one years more. A man named Thelluson in England contrived to combine the limitations so that his estate, amounting to some $3,000,000, would accumulate for from seventy-five to one hundred years, at which time it was to go to some remote descendant, who would have been the richest man in England. The plan did not meet with approval and Parliament cut down the period for which accumulation would be allowed.1

In this country many of the states have cut short the period; where this has not been done, the common law period as given would prevail. In New York and some other states no accumulation for a longer period than the minority of one or more persons "then in being" is allowed. In each state it would be necessary to investigate the local law. An accumulation for a charitable purpose would be subject to any statutes on the subject.

§ 372. The Rule Against Perpetuities

Men who have secured property generally want to hand it down to those of their own blood. From king to peasant farmer, it is human nature to desire that what they have owned shall go on down to their descendants and not into the hands of strangers. By will or by operation of law, their property will go to their descendants. It would continue to descend in this way if their descendants would keep possession. If each generation would instil habits of care, thrift, temperance, and foresightedness into the children, who make the next generation, estates would not be wasted and dissipated. In some

H. G. Wells, in "When the Sleeper Wakes," has made use of the law on this subject. The hero, a young man of large property, falls into a protracted cataleptic sleep. By his skilled physicians he is kept in a glass compartment at an even temperature and is supplied with nourishment and pure air. As the trance continues, a board of able trustees is appointed to manage his wealth. He remains in this dormant condition for a couple of centuries, at the end of which period his estate has absorbed all the existing wealth of the world and his trustees form a plutocracy that rules the earth. Then he wakes and the story begins to get exciting.

families this is successfully done and the members keep their position, stations, and traditions for generation on generation. In most cases, though, fortunes are dissipated and scattered and are rarely if ever accumulated again.

Instead of perpetuating family position by instilling the virtues that make for perpetuity, men have tried in many ways to leave their property so that their heirs cannot sell or transfer it to others. Estates are lost by voluntary alienation—that is, sale by the owner-or by involuntary alienation—that is, sale by the creditors. Wherefore those by whom the estates were established tried in many ways to restrain alienation. If it were possible to do this, the resulting estate would be a perpetuity. A perpetuity has been described as an estate that could not be alienated, even though all mankind joined in the deed.

It has generally been held that it is not good for mankind to hinder the free alienation of property, that it is not good for families to be kept wealthy when they lose the ability to care for their wealth, and that it is not good for the rest of the community to have property tied up and not moving freely from hand to hand. The law has always abhorred a perpetuity. It has been said that "a perpetuity is a thing odious in the law, and destructive to the commonwealth; it would stop commerce and prevent the circulation of property.'

Our rule against perpetuities comes to us as the result of the continued effort of the landed families in England to tie up their property and keep it in the family, and the efforts of the courts to abridge and curtail these attempts. As is the case with other expedients, it is a compromise.

The rule broadly stated is that no estate can be held from alienation for longer than a life or lives in being and twentyone years after, and in case of a posthumous child, who would

2 Duke of Norfolk's Case, 1 Vern. (Eng.) 164.