Recently, an attorney friend of mine involved in a family legal matter concerning trust administration called to ask me what probably seemed like a simple question – is a trust a legal entity? The point of the question related to procedural aspects of trust administration, issues involving duties of the attorney involved, and related considerations. Whether the trust constituted a separate legal entity, apart from any of the parties involved, could determine the outcome of some of the issues.
Although it does not often become relevant, the status of a trust as a legal entity, or not, can affect several issues.[1] As indicated above, those issues can involve a number of considerations. Some, but certainly not all, of the relevant considerations include, without limitation: (1) whether a trust can sue or be sued; (2) whether a trust can hold title to assets; (3) whether a trust can enter into contracts; (3) whether an attorney represents a trust or, rather, the trustee; and (4) what remedies are available to third parties interacting with a trust (i.e. can a trust be someone’s alter ego, can a court “pierce the veil” of a trust, etc.). In this writer’s opinion, these questions are not well enough developed or often enough discussed. Confusion pervades throughout the legal world about this question. Throughout the country, attorneys, courts, ethics boards, and others give conflicting, confusing, and sometimes outright wrong answers. Some jurisdictions have explicit legal authority on the issue, but most do not. The purpose of this writing is not necessarily to definitively answer the question (if it, in fact, can be answered in many jurisdictions given the confusing and conflicting legal analysis), but rather to discuss the current legal context.[2]
Traditional View
Traditionally, trusts have not been viewed as legal entities. As stated in a commonly cited legal treatise:
A trust is not a legal entity. A trust is not an entity distinct from its trustees and capable of legal action on its own behalf but merely a fiduciary relationship with respect to property. A trust is not a legal ‘person’ which can own property or enter into contracts, rather, a trust is a relationship having certain characteristics.[3]
As questioned in the title above, if a trust is not a legal entity, what is it? The answer to that question is:
A trust may be defined as a fiduciary relationship in which one person holds a property interest for the benefit of another.[4]
In that relationship, there are at least three parties: (1) a settlor or grantor; (2) a trustee; and (3) a beneficiary.[5] Multiple persons may occupy each of these positions, i.e. there may be multiple settlors, co-trustees, or beneficiaries. Also, the same person may occupy multiple of these positions such as when the trustee is also a beneficiary. In addition to these parties, for a trust to exist, there must be trust property.[6] Ultimately, a trust, being a fiduciary relationship, is a three-party arrangement where a trustee holds title to property for the benefit of a beneficiary on terms established by a settlor/grantor. As such, title to trust property is in the name of the trustee, any contract executed with respect to trust property is entered into in the name of the trustee in that capacity, an attorney represents the trustee rather than a trust itself (since no such thing exists), and any lawsuits are brought by or against the trustee rather than a trust itself (again, since no such thing exists).
A number of courts and other bodies have followed this analysis. For example, in determining whether a trust could constitute an “enterprise” in a RICO action, the Fifth Circuit Court of Appeals has stated:
A trust is neither a legal entity nor an association-in-fact … A trust is “a fiduciary relationship in which one person is the holder of the title to property subject to an equitable obligation to keep or use the property for the benefit of another.” Like a contract, which cannot be a legal entity enterprise for RICO purposes, it consists essentially of rights and duties between two or more parties. Unlike a corporation, which can be a legal entity enterprise for RICO purposes, it cannot litigate on its own behalf.[7] (citations omitted)
Similarly, in a dissenting opinion issued in a case heard by the Sixth Circuit Court of Appeals, the dissenting opinion stated:
A corporation and a trust are not one of a kind. A corporation is a “distinct legal entity,” with “legal rights, obligations, powers, and privileges” independent of the “natural individuals who created it.” A trust isn’t an entity at all; it is a “fiduciary relationship between multiple people.” A trust lacks many characteristics of corporate personhood. It normally can’t sue or be sued in its own name. Its trustees hold legal title to its assets. And its beneficiaries maintain an equitable interest in these assets, not merely a contractual one.
These distinctions make a difference when it comes to the legal protections afforded to corporations and trusts—and when it comes to the kinds of abuses that dilute those safeguards. If a corporation uses the limited liability that comes with its entity status to accomplish “wrongful purposes,” a court may disregard that status. The court in other words may “pierce the corporate veil” or treat the corporation and its shareholders as “alter egos” of one another.
Some courts have applied these concepts to trusts. They seem to reason that, because assets in trust also receive certain protections and because trustees may abuse those protections, the same logic applies to trusts—allowing the veil-piercing and alter-ego limitations on corporations to migrate to trusts.
I am dubious. How could one “pierce the veil” of a trust? It doesn’t have a veil, much less any form to pierce into. And what could it mean for a trust to be a beneficiary’s “alter ego”? An “alter ego” is simply an entity’s “second self.” As a non-entity, a trust can’t be a “self” of any sort—secondary or otherwise.
The culprit in the end may be careless language, nothing more. When advancing a veil-piercing claim against a trust, perhaps the plaintiff means only to challenge the creation of the trust. And perhaps, when bringing an alter ego claim, the plaintiff means only to allege that the trustee is the beneficiary’s alter ego. Fair enough. But if that’s the case, why rely on corporate law terminology in the first place?
Better, in my view, to call a problematic trust what it is: invalid because its “purpose is unlawful,” because it is “contrary to public policy,” or because it is a self-settled spendthrift trust. Trust law has a vocabulary of its own. Departing from it invites confusion, and risks leading courts to “disregard the form of a trust” even where it isn’t “formed for an illegal purpose,” and even where “there is the requisite separation between beneficiary and trustee.”[8] (citations omitted)
As can be seen from the language above, this distinction can affect title to trust assets, the name in which litigation must be undertaken, and what remedies are available in litigation. This concept also has implications in attorney-client representation. Consistent with the treatment of a trust as a fiduciary relationship rather than an entity, the majority view is that an attorney represents the trustee rather than “the trust” (i.e. as its own entity).[9]
Not only is this the majority view, which is articulated in different manners, some states have specifically adopted rules consistent with this treatment. For example, Florida has amended its comments to the Rules of Professional Conduct to say: “In Florida, the personal representative is the client rather than the estate or the beneficiaries.”[10] The Nebraska Supreme Court has stated: “attorneys represent people. There is no such position known as ‘attorney of an estate’” and “when an attorney is employed to render services in securing the probate of a will or settling an estate, he acts as attorney for the personal representative and not for the estate.”[11] Other states have held the same.[12] This view is supported by a study commission of the American Bar Association’s Real Property, Probate, and Trust Section, at least as the default position when the lawyer has not expressly indicated he or she represents the estate or trust.[13] In my state of Mississippi, this also appears to be the default position.[14]
Alternate View(s)
As can be seen from the discussion above, there are numerous authorities across multiple jurisdictions representing the view that a trust is not a legal entity, but rather a fiduciary relationship. However, more recently, that view has somewhat eroded. While it remains the law, there are limited areas where a trust may be viewed very similarly to other legal entities such as corporations, partnerships, LLC’s, etc.[15]
This distinction is specifically addressed in the most recent version of the Restatement, the comments to which include:
Increasingly, modern common-law and statutory concepts and terminology tacitly recognize the trust as a legal “entity,” consisting of the trust estate and the associated fiduciary relation between the trustee and the beneficiaries. This is increasingly and appropriately reflected both in language (referring, for example, to the duties or liability of a trustee to “the trust”) and in doctrine, especially in distinguishing between the trustee personally or as an individual and the trustee in a fiduciary or representative capacity.[16]
Beyond the language of this comment, the Mississippi Uniform Trust Code (much of which is identical to the uniform law) has incorporated provisions which refer to a trust in ways that seem to look like reference to a legal entity. For example, in addressing how a trustee holds legal title to trust property the Mississippi Uniform Trust Code states:
Any estate in real property may be acquired in the trust name. Title so acquired can be conveyed in the trust name or by the trustees, as trustees of the trust.[17]
This is a stark deviation from traditional common law which required title to trust property to be held in the name of the trustee. There is other language which refers to how the trustee should administer “the trust” rather than “trust property.”[18] However, this is not uniform since other statutes refer specifically to “trust property” rather than “the trust,” or at least recognize the notion that the trustee holds legal title (i.e. not “the trust”).[19]
Likewise, as discussed with respect to the traditional or majority rule that an attorney represents the trustee (or other fiduciary) rather than the trust, the law in many jurisdictions has deviated. While a full discussion of the ethical issues involving fiduciary representation is beyond the scope of this writing, there are at least two alternatives: (1) the attorney represents the trust as a separate legal entity; or (2) the attorney represents the beneficiaries along with the fiduciary.[20] Even when the attorney represents the fiduciary only, some states have adopted rules whereby the attorney owes certain duties to the beneficiaries.[21] Of course, each of these relationships brings about a number of ancillary consequences related to ethical duties relating to conflicts, confidentiality, loyalty, privilege, and more.
As indicated above, Mississippi follows the traditional rule as a default.[22] However, Mississippi also recognizes that attorneys may represent “the trust” (or “the estate”). This has been recognized in at least a couple of places. The Mississippi Supreme Court has held an attorney has duties to beneficiaries as attorney for “the estate” when the attorney held himself out as serving in that capacity, thereby leading the beneficiaries to agree that he represented their interests.[23] In that case, the attorney signed pleadings as “attorney for the Estate” and appeared to have given legal advice to beneficiaries.[24] However, while recognizing an attorney can be held to that responsibility when holding himself out as such, the court also stated that “we do not address today the duties of attorneys who represent executors and administrators of estates.”[25] Additionally, Mississippi has adopted an ethics opinion which addresses the distinction between acting as attorney for a fiduciary and attorney for an “the estate” in applying ethics rules indicating that an attorney may be capable of acting in either capacity depending on the circumstances.[26] This is consistent with the American Bar Association’s comments to the Model Rules of Professional Conduct which indicate attorneys may serve in either capacity.[27]
Conclusion
Trust and estate administration is wrought with difficulties and trust litigation is constantly on the rise. In several areas involving trusts, even where the law is clear, attorneys, courts, bar associations, and others are often confused about the rules particular to fiduciary administration. Many view trusts consistent with the traditional view as being a fiduciary relationship rather than a legal entity. Others view trusts like other legal entities such as corporations or partnerships. Yet others view trusts as some hybrid. Even within a single state, there may be conflicting authorities between courts, the relevant bar association, and others rendering guidance. The national inconsistency and lack of clear authority in many states on the question raised in this writing only further serve to create problems for fiduciaries, beneficiaries, attorneys, and courts.
It is my view that, in the absence of clear, binding guidance otherwise, the traditional view is the better (and default) approach. As indicated elsewhere in this writing, that is the majority position. Likewise, it avoids several issues relevant to legal representation involving conflicts, confidentiality, and otherwise. While I understand the need to codify provisions that appear contrary to this, such as the ability of the trustee to take title to property in the name of the trust rather than in the trustee’s name, I would view the need for such exceptions as there to avoid “gotcha” situations or to simplify administration. For example, if a deed from the settlor conveys property directly to the trust rather than the trustee, then the settlor may still hold title after intending to place in the hands of the trustee. The same holds true for contracting in the name of the trust, litigating in the name of the trust, etc. Further, on a change in trustee, does trust property need to be deeded to the new trustee, do contracts need to be assigned, etc. These items can have any number of unintended consequences. As such, while these “exceptions” are helpful to avoid unintended “gotcha” circumstances or to otherwise simplify administration, they should not necessarily be seen, in and of themselves, as adopting a rule other than the traditional rule.
Beyond these consequences, attorneys need to know the identity of their clients and to whom they owe duties. Given the multiple alternative forms of fiduciary representation, and even the extra duties placed on attorneys for fiduciaries in some jurisdictions, the law is nationally inconsistent and, in many states, unclear. Again, the traditional rule should be the default result where there is not contrary, binding authority. Otherwise, attorneys are left unable to know how to handle any number of ethical questions.
In the end, I needed to answer my attorney friend’s question. My answer was that, at least in Mississippi and under common law, a trust is not a legal entity. There may be areas where the line is blurred or where a trust may be treated like a legal entity such as the ability of an attorney to represent a trust or estate or the ability to take title to property in the name of the trust directly. However, many years of common law support the notion that a trust is not a legal entity and, without strong authority to the contrary, to view a trust differently would leave interested parties in a quagmire of issues without clear answers.
[1] While this writing is specific to trusts, many of the same considerations and analysis is the same, or very similar, for estates. As such, while there can be differences, the discussion in this writing generally will apply to estates in the same manner as trusts.
[2] In this regard, given the authority that exists throughout the country from courts, ethics boards, journal articles, etc., this writing cannot provide a complete discussion. However, it is my hope that this writing will put some context to the issue so that the reader can generally understand the current status of the issues.
[3] 76 Am. Jur. 2d Trusts § 2.
[4] Bogert’s The Law of Trusts and Trustees § 1.
[5] Id.
[6] Id.
[7] Bonner v. Henderson, 147 F.3d 457, 459-460 (5th Cir. 1998).
[8] Church Joint Venture, L.P. v. Blasimgame, 947 F.3d 925, 935-936 (6th Cir. 2020).
[9] Lee, Kennedy, “Representing the Fiduciary: To Whom Does the Attorney Owe Duties,” 37 ACTEC L.J. 469 (Winter 2011); Virginia L. Blackwell, “Conflicts of Interest When an Attorney Represents an Estate,” 27 J. Legal Prof. 141 (2002-2003); and Jeffrey N. Pennell, “Representations Involving Fiduciary Entities: Who is the Client?,” 52 Fordham L. Rev. 1319 (March 1994).
[10] Rule 4-1.7, Rules Regarding the Florida Bar (comment).
[11] Estate of Wagner v. Lamme, 386 N.W.2d 448, 450 (Neb. 1986).
[12] See, e.g., Spinner v. Nutt, 631 N.E.2d 542 (Mass. 1994) and Goldberg v. Frye, 266 Cal. Rptr. 483 (Cal. Ct. App. 1990).
[13] Pennell, Jeffrey N., “Representations Involving Fiduciary Entities: Who is the Client?,” 52 Fordham L. Rev. 1319 (March 1994)
[14] See Mississippi Uniform Chancery Court Rules (“UCCR”) 6.01 which states “every fiduciary must…retain an attorney.” Also see, Robert A. Weems, “Wills and Administration of Estates in Miss.,” § 2:47 (3d ed.) which states “the administrator alone selects the attorney; the administrator is not required to obtain anyone’s approval. The attorney selected is the administrator’s attorney, and not the estate’s attorney;” (emphasis added) and Ronald C. Morton, “Liability of Attorneys Representing Executors and Administrators,” 4A MS Prac. Encyclopedia MS Law § 32:56 (3d ed.), citing to UCCR Rule 6.01 requirements above, “the attorney represents the executor or administrator as opposed to representing the estate or its beneficiaries” (emphasis added). However, when the attorney is specifically engaged as attorney for a trust or estate or holds themselves out as representing a trust or estate, the attorney will be held to obligations in accordance with that position. Gibson v. Williams, Williams & Montgomery, P.A., 186 So.3d 836.
[15] For a summary of the differences in trusts and such entities, see Bogert’s The Law of Trusts and Trustees, Chapter 2; and Restatement (Third) of Trusts § 5.
[16] Restatement (Third) of Trusts § 2.
[17] Miss. Code Ann. § 91-8-407. See also Utah Code Ann. § 75-7-402(5) and Colorado Rev. Stat. Ann. § 38-30-166.
[18] See, e.g., Miss. Code Ann. §§ 91-8-801, -802, and -804.
[19] See, e.g., Miss. Code Ann. §§ 91-8-506, -701, -707, -809, -810, and -812.
[20] See supra Note 9.
[21] Id.
[22] See supra Note 14.
[23] Gibson v. Williams, Williams & Montgomery, P.A., 186 So.3d 836
[24] Id.
[25] Id. at 852.
[26] See Miss. Ethics Op. No 46, Nov. 30, 1978, amended April 6, 2013.
[27] Model Rules of Professional Conduct, Rule 1.7 Conflict of Interest: Current Clients – Comment, stating “Under one view, the client is the fiduciary; under another view the client is the estate or trust, including its beneficiaries. In order to comply with conflict of interest rules, the lawyer should make clear the lawyer’s relationship to the parties involved.”
