The rule that a trust cannot exist without a separation of the legal and equitable title raises issue with the efficacy of revocable trusts used as will substitutes. In the basic revocable trust the settlor is the sole trustee during his or her competency. In addition, the settlor retains the right to amend or revoke the trust. There is no Maryland case law directly upholding this standard arrangement. There are cases, however, where the court discusses revocable trusts without raising the issue as to such arrangements being illusory. In Upman v. Clarke, 359 Md. 32, 38, 753 A.2d 4 (2000) (discussed previously), the court noted that the property was placed in trust initially with the settlor as sole trustee. However there was no discussion by the court following this observation. Other jurisdictions have held that the revocable trust is valid as a trust because it has another beneficiary at the death of the settlor. Due to the revocable nature of the trust, however, such beneficiary has a tenuous hold on the trust. See Restatement (Second) of Trusts § 56 cmt. f; Farkas v. Williams, 5 Ill.2d 417, 125 N.E.2d 600 (1955) (describing the interest of a beneficiary under a trust who must survive the settlor as “a contingent equitable interest in remainder”) Maryland addressed an analogous situation in an irrevocable in trust in United States v. Baldwin, 283 Md. 586, 391 A.2d 844 (1978). In that case the settlor retained a life estate in the assets, the right to name himself as trustee, and a limited testamentary power of appointment so that he could name any person as the remaindermen. The court held that the remaindermen had “vested remainder in the trust corpus, subject to divestment by Baldwin’s exercise of his testamentary power.” Id. at 595. This created a beneficiary separate and apart from the settlor. See also Pope v. Safe Deposit. & Trust Co., 163 Md. 239, 161 A. 404 (1932). Presumably, the Court of Appeals would uphold the basic revocable trust arrangement. However, there is a fundamental tension between the basic principles underlying a law of trust and the recognition of a revocable trust as a trust. A trust is characterized by the bundle of fiduciary obligations owed by the trustee to the beneficiary. If the trustee and the beneficiary are the same person, there is obviously no one to enforce the fiduciary obligations. The Court of Special Appeals recognized this essential aspect of a trust in Jacob v. Davis, 128 Md. App. 433, 738 A.2d 904 (1999). The court quotes George Bogert, The Law of Trusts and Trustees, (Rev. 2d ed. 1983) § 961, to stress the crucial role of obligation:
“A [testator] who attempts to create a trust without any accountability in the trustee is contradicting himself. A trust necessarily grants rights to a beneficiary that are enforceable in equity. If the trustee cannot be called to account, the beneficiary cannot force the trustee to any particular line of conduct with regard to the trust property or sue for breach of trust. The trustee may do as he likes with the property, and the beneficiary is without remedy. If the court finds that the settlor really intended a trust, it would seem that accountability in chancery or other court must inevitably follow as an incident. Without an account the beneficiary must be in the dark as to whether there has been a breach of trust and so is prevented as a practical manner from holding the trustee liable for a breach.”
Id. at 450. If a revocable trust is not a bona fide trust it and of itself, it may demand a formal execution like a will. However, “[Maryland law] is clear that one person can hold as trustee for the use and benefit of himself and others, and it is only when the full beneficial and equitable titles become vested in the same person that a merger takes place.” Sieling, 151 Md. at 547-48.
“It is true that, if the settlor reserves the right to use the property, and does use it in accordance with the terms of the trust, as evidenced from the intention of the parties, there may be nothing remaining at the death of the settlor; but the question of whether or not a trust has been created cannot be made to depend upon whether there may or may not be property existing at the time the beneficiaries are entitled to the enjoyment thereof. In the case Milholland v. Whalen, supra., this Court held that there was a valid subsisting trust created from the time Miss. O’Neill made the deposit in the bank in the form in which it was made, and that without regard to the fact that she retained possession of the passbook by which she might have withdrawn all the funds, which were subject of the trust, before her death. It will be seen in that case that the settlor retained at least as complete control and dominion over the subject of the trust as is contained in the instrument of writing in this case made by Johann Sieling and Anna Sieling; the effect in that case being that if there was any money remaining in the bank which was the subject of trust at the death of the settlor, it should go, by virtue of the declaration of trust, to her sister.”
Id. at 548-49.