An express trust comes into being because a person having the power to create a trust expresses an intent to have a trust and takes steps to create a trust.
“To constitute an express trust, various combinations of elements have been said to be essential, the most common one being: Sufficient words to create it; a definite subject, and a certain and ascertained object. It would seem, however, that the elements of an express trust, as distinguished from the acts or words necessary to create it, are the same as those of all trusts, and consist of a trust res or subject matter, and the holding of the legal title of that property by one person for the benefit of another, while the matters requisite to create such a trust are a sufficient declaration of trust, evidencing an intention to create a trust and setting out the trust property, terms, and parties with reasonable certainty, and a transfer of the legal title by the owner of the property to a trustee to be held for the benefit of another, or a retention of title by the owner under circumstances which clearly and unequivocally disclose an intent to hold for the use of another.”
Sieling v. Sieling, 151 Md. 536, 549-550, 135 A. 376 (1926) (quotations omitted).
Whether an express trust has been created is a factual determination. In In Re Shank, 240 B.R. 216 (Bankr. D. Md. 1999), Debtors under a Chapter 11 plan sought to characterize a reorganization plan which formed an asset pool for the benefit of certain secured creditors. This asset pool was deemed to be a trust so that the tax liability generated from the sale of those assets would be netted against the assets in the pool rather than pass through to the Debtors. Under a bankruptcy reorganization, Debtors retained legal title to the assets from the asset pool subject to various claims running in favor of Creditors. Debtors made two alternative arguments: (i) that the creation of the asset pool coupled with the extensive powers over that pool granted to a creditor representative created a trust with the creditor representative as trustee; or (ii) that the debtor in possession retained ownership of the property but that the property was being held for the benefit of the creditors. In regards to the first contention, Judge Stephen Derby found that extensive powers held by someone over property does not make that person a trustee without the legal title:
“Debtors argue that the Creditors’ Representative’s wide ranging power over the Asset Pool assets requires the court to find that a trust was created with the Creditors’ Representative as its trustee. This is a fallacious argument, akin to arguing that because all dogs have four legs, all four-legged entities must be dogs. The fact that the Creditors’ Representative had extensive obligations under the Plan is also consistent with the proposition that the Creditors’ Representative was the collection agent of the unsecured claim holders, charged with the task of collecting the debt that the Plan created. As stated above, the existence of a trustee is derivative from the finding that there has been a proper declaration of trust. [Citations omitted]. While the Creditors’ Representative may have had some of the characteristics of a trustee, he certainly lacked the most prominent: that of holding legal title to the property.”
Id. at 223. Judge Derby also dismissed the Debtors’ alternative argument that the debtor was a trustee for the creditor. “The [Debtors’] duties under the Plan were perfunctory and colorless–akin to the contractual obligations incident to a contract to convey residential rental property. [Citations omitted]. A contract to convey property is not a trust. See Restatement (Second) of Trusts § 13.” Id.
Underlying In Re Shank is the issue that a separation of the equitable from the legal estate must exist in order for a trust to exist. Although the creator of the trust constitute need not be a third person who is transferred the legal title, in order for a trust to be created a trustee must be holding the property for the benefit of another. Sieling, 151 Md. at 550. Indeed, it has been held that “a person cannot be both the trustee and the cestui que trust. In order to create a trust the legal estate must be separated from the beneficial enjoyment. A trust cannot exist where the same person possesses both.” Gray v. Harriet Lane Home for Invalid Children, 192 Md. 251, 264 (1949). However, a trust can exist if the trustee is a beneficiary, as long as the property is being held for other beneficiaries as well. U.S. v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978).
In Gray v. Harriet Lane Home for Invalid Children, the Court of Appeals found that a trust was not created. This decision was in part because of the lack of a beneficiary separate from the trustee. That case involved a bequest to a charity before Maryland’s adoption of the cy pres doctrine. The will left substantial property to the Harriet Lane Home, the income of which was to be used to operate contagious disease wards. The testatrix was definite as to the type of contagious disease units to be run (those treating scarlet fever and diphtheria) and in her intention that a substantial amount of the bed space should be available to poor children. Eventually, scarlet fever and diphtheria were no longer a threat in Maryland due to advances in immunizations and available drugs. Additionally, by the time of the testatrix’s death open wards were considered unacceptable in the treatment of contagious diseases. The testatrix’s legal heirs claimed that the bequest was specific and that its purposes could not be accomplished (hence, the remaindermen would presumably receive the property). The court held that no trust could exist because the gift was to the Harriet Lane Home and it would effectively be trustee for itself. The court held further that the bequest was either: 1) an absolute gift which created an endowment fund for the home; or 2) an estate on a condition subsequent. Finding that conditions subsequent are not favored by the law because the breach of such a condition causes a forfeiture to which the law is adverse, the court concluded that the conditions actually expressed the grantor’s confidence that the grantee would use the property as closely as practicable for the specified effect.