A trust instrument is a writing declaration or agreement to allocate a settlor’s property to their beneficiaries. It consists of the trust and regulates how the trust is executed. Trust instruments can be amended or revoked by the settlor at any time (but there are some exceptions, like irrevocable trusts). There are many types of trust instruments. For a trust to come into force, it should contain a certain form with necessary elements and get legal recognition (i.e., be recognized by an eligible official authority).
- Beneficiary: A beneficiary is definitive, and is reasonably ascertained. Natural persons, corporations, or other organizations like charities all can be beneficiaries. But the same person cannot be the sole trustee and the sole beneficiary.
- Settlor: A settlor should have capability and competency, and the intent to create a trust with a valid trust purpose.
- Trustee: A trustee is authorized by a settlor to execute and manage the trust property. A trustee should perform their duties from trust instruments. If the trustee dies, resigns, refuses to act, or gets removed, the trust still exists. While the court will appoint a new trustee.
- Property: A valid trust instrument must include property legally owned by the settlor, and it is not created unless the property is received. Property can be transferred contemporaneously when the trust instrument is signed, or later, even after the death of the settlor.
- Formality: To take effect, the trust instrument should comply with State law requirements of formalities. For instance, in writing, signed by the settlor with witnesses in present or have other notaries attest to it.
According to the term of a trust instrument, it can be defined into different types. For example:
- Inter Vivo trust is created when the settlor is alive.
- Testamentary trust is usually created through the terms of a settlor’s will and goes into effect after the death of the settlor.
- Revocable trust can be amended or revoked by the settlor at any time. Once the settlor is dead or incapacitated, it becomes irrevocable.
- Irrevocable trust cannot be amended or revoked by the settlor once implemented. If the trust instrument doesn’t state whether the trust is revocable or not, the Uniform Trust Code (UTC, adopted by the majority, of more than 35 jurisdictions) regulates that the trust is revocable by default. However, if the state law says different, the state law governs.
See also: declaration of trust
[Last updated in May of 2022 by the Wex Definitions Team]