1.1.2 Whether an express trust has been created is a factual determination

Whether an express trust has been created is a factual determination. In In Re Shank, 240 B.R. 216 (Bkrtcy. D. Md. 1999) (Judge Derby), debtors under a Chapter 11 plan sought to characterize a reorganization plan which formed an asset pool for the benefit of certain secured creditors as 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, the debtors retained legal title to the asset pool assets subject, however, to various claims running in favor of creditors. The 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. As to the first contention, Judge Derby found that extensive powers held by someone over property without the holding of legal title does not make that person a trustee: “Debtors argue that the creditors’ Representative’s wide ranging power over the Asset Pool assets requires that 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 Creditor’s 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. See Sieling, 135 A. at 380. 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.” (Shank at 223.) Judge Derby also dismissed the debtors’ alternative argument: that the debtor was a trustee for the creditor by holding that the debtors’ “duties under the plan were perfunctory and colorless – akin to the contractual obligations incident to a contract to convey residential rental property … A contract to convey property is not a trust. See Restatement (Second) of Trust § 13.” (Shank at 223.) Implicit in 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.

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