a. a fiduciary relationship with respect to property in which one person, the trustee, holds the legal title to property subject to equitable rights in beneficiaries. It basically is a device whereby on person manages property for the benefit of others.
2. Power of the trustee
a. trustee has the power to sell trust assets and reinvest the proceeds in other assets unless it appears from the trust instrument and the surrounding circumstances that the settlor intended that the particular property be retained in the trust
b. Fiduciary relationship
i. held to a high standard of conduct in managing the trust property
3. Spendthrift Trusts
i. a trust in which the settlor imposes a valid restraint on alienation, providing that the beneficiary cannot transfer his interest voluntarily and that his creditors cannot reach it for satisifaction of their claims
a) Broadway National Bank v. Adams
ii. recognized in most American courts
i. legal title is in the trustee and not the beneficiary and therefore the trust is not made inalienable by a restraint on the equitable interests
c. Policy Issue?
i. Is it wise to permit trust beneficiaries to enjoy a stream of income unreachable by creditors?
ii. Is it against public policy that man should have an estate to live on but not one with which to pay his debts?
i. Does the trust defraud creditors?
a) should the creditor have check more thoroughly?
b) this could greatly increase transaction costs and consequently increase the cost to the provider of capital which is then spread out among all debtor's through higher interest rates / fees -- everyone pays a little bit more to protect the spendthrift child