17.6 Trustee and Life Beneficiary Being the Same Person

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). In Gray v. Harriet Lane Home for Invalid Children, the court found that a trust was not created, in part, because of the lack of a beneficiary separate from the trustee. That case involved a bequest to a charity before the adoption of the doctrine of “cy pres” in Maryland. 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 and that a substantial amount of the bed space should be available to poor children. The particular contagious diseases that were the target of the testatrix’s charitable intent (scarlet fever and diphtheria) were removed as a menace because of immunization and available drug therapy. Additionally, open wards were, at the time of the testatrix’s death, considered unacceptable for the care of patients with contagious diseases. The legal heirs of the testatrix claimed that the bequest was for specific purposes, and that because those purposes could not be accomplished, the remaindermen, presumably, would receive the property. The court held that no trust could exist because the gift was to the Harriet Lane Home and it would, in effect, be trustee for itself. The court also held that the bequest was either absolute (creating an endowment fund for the home) or not an absolute gift but an estate on a condition subsequent. The court held that conditions subsequent are not favored by the law because the breach of such a condition causes a forfeiture and the law is adverse to forfeitures. Indeed, it held that the “conditions” were merely expressing the grantor’s confidence that the grantee would use the property as closely as practicable for the effect specified. Today, of course, the cy pres statute would remedy this situation. Additionally, the institutional charitable funds statute would alter the “income only” character of the endowment.