Jason had a baby daughter
(Betsy). Jason received a $1k savings bond from his mother and a $500
savings bond from a business associate.
They testified that the
gifts were to be used for Betsy's education.
Jason put the money into a
savings account in the name of his three children. Later he used the
money to open a stock account with himself named as the custodian.
Jason testified that some of
the money went to pay for the children's clothes and to take a family
vacation.
When Betsy was 31, she sued
her father for breach of fiduciary duty.
Betsy argued that when Jason
had taken custody of the savings bonds, he had formed a trust with
himself as the trustee.
By not providing for her
educational needs, and not keeping track of the money as is required of
a trustee, he had breached his duty.
Jason argued that no trust
had been formed.
The Trial Court found for
Jason and said that no trust had been formed. Betsy appealed.
While the Trial Court found
that the gifts were made to provide for educational needs, the donors did
not expressly specify that they intended to create a trust.
The Oregon Supreme Court
reversed and held that a trust had been formed.
The Oregon Supreme Court
found that an express statement holding Jason to hold the gift in trust
is not essential to create a trust relationship.
It is enough if the
transfer of property is made with the intent to vest the beneficial
ownership in a third person.
By merging the money with
money for his other children, Jason breached his fiduciary duty to
administer the trust solely in the interest of the beneficiary.
Jason argued that he paid
for way more than $1.5k of Betsy's educational expenses out of his own
pocket and therefore what happened to the specific money from the savings
bonds didn't matter. But the Court found that while Jason could
reimburse himself with money from the trust, he needed to keep careful bookkeeping
records of the trust administration, which he failed to do.
This was not a case of
Betsy not getting money from Jason, it was just his failure to properly
account for what happened to the money.
The Court understood that
Jason had an obligation as a parent to provide for Betsy, but that he
also had an obligation to administer the trust properly. It would be a
question of fact as to whether expenditures made by Jason should be
considered parental expenses of legitimate trust expenses, but since there
were no accounting records to examine the Court must rule against Jason
by default.
Under the common law, the
Court must resolve doubts against a trustee who maintains inadequate
accounting system.
The basic rule is that when
you determine whether or not a trust was intended, you must look at the intent of the settlor. In this case, the grandmother and the
business associate intended
that the money be put in trust for Betsy, therefore a trust was created.
The intent of the settlor. It doesn't matter what the trustee or the
beneficiary thinks, it's only what the settlor thinks.
