The rule of safety is applied to all investments of trust funds. In many states such investments are regulated by statute. In New York trustees are limited to the same investments as savings banks, viz.: securities of the United States, of New York, of any state that has not defaulted for ten years, or any city, county, town, village, or school district of New York, and first mortgages on real estate, not exceeding 60 per cent of a conservative appraisal of the property. Trustees in New York may also invest in bonds of railroads that have paid dividends on their preferred stock for a consecutive number of years.

Where there are no statutes regulating the matter of trustees' investments the rules of the common law as laid down by the courts would prevail, and generally, trustees, to be safe, should limit their investments to government and state securities or bonds and mortgages on unencumbered real estate to an amount not in excess of 60 per cent of its appraised value.

Since such investments as the law prescribes earn but a limited income, it is customary, where the creator of the trust has confidence in the business judgment of the trustee, specifically to authorize investments in other classes of securities at the trustee's discretion. Such a discretion might be given in these words: "And said trustee is authorized and directed at his discretion to invest and reinvest the funds of said trust estate in good, sound dividend-paying securities." In such case the trustees could invest in any good stocks or bonds, without incurring personal liability if any loss resulted. It should be remembered that it is the duty of a trustee to keep the funds invested so that income may accrue, and if he allows funds to remain idle he may be responsible for interest.

A trustee is governed by the provisions of the will or the declaration of trust under which he acts. If this directs that the property or securities of which the estate consists when

the trust begins shall or may be retained, the trustee will not be liable for any consequent loss. If there is no such provision, the trustee should make sure that all securities held are of the classes prescribed for trustees, and if not, should sell them and reinvest in legal securities without delay.

Note:

I. A trustee cannot afford to take any risks. He can make nothing by holding uncertain investments. He may lose a great deal.

§ 55. The Beneficiary's Rights

The beneficiary is entitled to have the trust in his favor carried into effect according to the terms of the declaration of trust or the provisions of the will if the trust was created by will. If this is not done, he may in most cases bring suit in a court of equity for such relief as may be necessary. If the trust was a testamentary trust, that is, one created by will, he may apply to the probate court for his remedy.

For any wrongdoing or incompetency on the part of the trustee, the beneficiary may ask his removal and the appointment of another trustee. Trustees have been removed for misuse of funds, improvidence, insolvency, and improper investments. If there were several trustees who could not agree and whose dissensions imperiled the trust, this might be a reason for the court to interfere. In this phase of the law the courts usually show much good sense in their action.

The practical difficulty in such cases is that such a suit is both costly and difficult. The object of putting property in trust is to provide for someone who is unskilled in business. In such case a suit in equity is generally an impossible remedy. Note:

I. In making a trust be sure that the trustee is per

manently reliable.

§ 56. The Object of Creating a Voluntary Trust

A man may wish to provide a permanent income for his wife and children so that if he dies or becomes bankrupt or otherwise incapacitated they shall not suffer want. In such case, if he can afford to place in the hands of trustees enough property to yield an income that will make them safe whatever happens, he will create a trust that will insure their future. A trust of this kind, made when a man is solvent, will be safe from any changes of fortune that may come to him. Later he might become bankrupt, but his creditors could not touch his trust estate. If a trust were created when a man was in failing circumstances, it would be set aside as in fraud of his creditors.

Another case occurs when a child or other relative is crippled or an invalid, and it is desired to make a provision for an income that shall last for life.

A man retiring from active business may desire to make such an arrangement for his own benefit during his remaining days. In some states, if he got in debt afterward, his creditors could take by judgment only 10 per cent of the annual income from the trust fund. This is also the rule when any beneficiary of a trust fund has a judgment against him, unless the terms of the trust are so worded as to shut out creditors entirely.2

In all of these suppositional cases, the body of the estate remains intact until the purposes of the trust have been accomplished, after which time, according to the declaration or the will, the trustee is directed to assign or convey the said property to the children of the testator or their issue, or to such charitable, educational, or other purpose as shall be specified.

If it is not desired to keep the body of the trust estate intact, the end in view can be attained by the purchase of

2 N. Y. Code Civ. Proc. § 1391.

annuities in favor of the beneficiaries; but that would leave nothing for those who come after.

In some cases property may be left to an individual or a corporation, conditioned that he or it pay annually a certain amount to a beneficiary for the life of the beneficiary. Money could in this way be given to a charity conditioned that during the life of the beneficiary, he should be paid an income, and on his death the charity would take or keep the principal. Under some circumstances this would be an effective substitute for a trust estate. It would be a charge of record on real estate so left. If it were personal property and the individual were responsible or were compelled to give bond, it would be safe.

Note:

1. A trust should be created only where there are positive advantages to be gained from it.

§ 57. The Declaration of Trusts

A trust estate may be created by anyone who owns property of any kind and who is competent to contract. A transfer in trust is a contract, the parties being the grantor, who assigns or conveys the property, and the trustee or trustees, who take the property subject to the trust provisions. The nominal consideration is usually one dollar, but the fulfilment of the trust provisions is the real consideration to support the contract. No other consideration is necessary to create a trust. If the trust concerned personal property it would be a simple declaration of trust; if it included any real property it would have to be a deed of trust conforming to the local law for the conveyance of real estate. To prepare any trust instrument requires the aid of skilled counsel.

A form in simplest shape to show the construction of such an instrument is given in Part VII, Form 7. Usually, a declaration of trust is a much more extended instrument.

§ 58. Transfer of Income on Contingency

The usual object of a trust estate is to provide a safe income for some person or persons. Practically all of the states hold that a trust with a definite beneficiary can be made for a life or lives in being if the beneficiary is an individual or individuals. If the beneficiary is a public trust or charity it may continue for any number of years. It would be necessary, though, to investigate the law in each state. For example, in New York the ownership of personal property cannot be suspended for longer than two lives, but the alienation of real property may be suspended for two lives and a minority.

A deed or declaration creating a trust may provide for the transfer of the income, or a change of beneficiary, upon the happening of some event or in case of a certain contingency. For instance it could be provided that a certain income should "be paid my son, Edwin Gray, until he shall have completed his collegiate and professional training and for five years thereafter." Or if it were desired to discourage hasty and reckless adventures in matrimony, an income could be given to a daughter "until she marry." It is not uncommon in wills to provide an income for a man's wife so long as she shall be his widow. It is sometimes provided that the entire income of an estate shall go to the widow until such time as the youngest child comes of age.

In all the cases given, it may be provided that when the contingency happens the income shall be paid to another beneficiary, provided the time limit against perpetuities is not exceeded.

§ 59. Termination of Trust Estate

The payment of income may be limited by some contingency, as has been set forth in the preceding section. When this contingency occurs, the income may be transferred or the