PROBATE CORNER
PROBATE CORNER
Is A Trust A Contract ?
DAVID M . GARTEN
What is a trust ? The legislative history for the Florida Trust Code (“ FTC ”) recites the general definition of a trust as " a fiduciary relationship with respect to property , subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person , which arises as a result of a manifestation of an intention to create it " See Fla . S . Comm . on Banking & Ins ., CS for SB 1170 ( 2006 ) Staff Analysis 3 ( Mar . 21 , 2006 ) ( quoting 55A FLA . JUR . 2D Trusts § 1 ( 2007 )). For additional definitions of the trust , refer to Restatement ( Third ) of the Law of Trusts § 2 , Treas . Reg . § 301.7701-4 ( a ), and Black ’ s Law Dictionary ( 11th ed . 2019 ).
The FTC does not have a clear definition of a trust . A “ trust instrument ” means “ an instrument executed by a settlor that contains terms of the trust , including any amendments to the trust .” And “ Terms of a trust ” means : “( a ) Except as otherwise provided in paragraph ( b ), the manifestation of the settlor ’ s intent regarding a trust ’ s provisions as : 1 . Expressed in the trust instrument ; or 2 . Established by other evidence that would be admissible in a judicial proceeding ; or ( b ) The trust ’ s provisions as established , determined , or amended by : 1 . A trustee or trust director in accordance with applicable law ; 2 . Court order ; or 3 . A nonjudicial settlement agreement under s . 736.0111 , relating to nonjudicial settlement agreements .” Refer to § 736.0103 ( 24 ) and ( 26 ), F . S .
Is a trust a contract ? No . The creation of a trust is essentially a conveyance , rather than a contract , and trust principles rather than contract principles normally apply . See Sanders v . Citizens Nat ' l Bank , 585 So . 2d 1064 ( Fla . 5th DCA 1991 ) citing Restatement ( Second ) of Trusts § 197 ( 1959 ).
The Restatement ( Second ) of Trusts distinguishes between a contract and a trust . Pursuant to the Restatement , not only does the nature of the relationship between the parties differ between contract and trust , but the nature of the parties ' interests also differ . This difference affects who may enforce an agreement to convey property , the applicable statute of limitations , and the manifestation of intent required of the person conveying the property . § 14 cmt . c , d , and f . For example , the beneficiary of a trust gains a beneficial interest in the trust property while the beneficiary of a contract gains a personal claim against the promissor . § 14 cmt . a . A fiduciary relationship exists between a trustee and a beneficiary , while no such relation exists between parties to a contract (§ 14 cmt . b ) and the remedies of a beneficiary against a trustee " are ordinarily exclusively equitable ." § 74 cmt . a . The trustee ' s fiduciary duties " result from the trust relation , and are not based upon an agreement or contract , and are enforceable even though the trustee received no consideration ." § 169 cmt . b and c ( the trustee ' s duties " are not contractual in nature "). This distinction is clarified in the Restatement ’ s discussion of the beneficiary ' s remedies . A trustee who fails to perform his duties is not liable to the beneficiary for breach of contract . The creation of a trust is conceived of as a conveyance of the beneficial interest in the trust property rather than as a contract . § 197 cmt . b . Further , " the trustee by accepting the trust and agreeing to perform his duties … does not make a contract to perform the trust enforceable in an action at law . § 197 cmt . b .
This distinction is also reflected in case law . A contract to convey property is not a trust " because the relationship between the buyer and seller is not a fiduciary one ."
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