Non-Statutory Trust vs. Statutory Trust

Attribute	Non-Statutory Trust	Statutory Trust
Formation	Created based on common law principles and trust agreements	Created based on specific statutory provisions
Regulation	Less regulated	Regulated by specific statutes
Flexibility	More flexibility in terms of trust terms and administration	Less flexibility due to statutory requirements
Termination	May be terminated based on trust agreement	May have specific statutory requirements for termination

Definition

A non-statutory trust, also known as a common law trust, is a trust that is created based on the principles of common law rather than specific statutory provisions. This type of trust relies on judicial decisions and legal precedents to determine its rules and regulations. On the other hand, a statutory trust is a trust that is created and governed by specific statutory provisions outlined in state laws or regulations. These provisions dictate the rules and requirements that must be followed when establishing and managing the trust.

Formation

Non-statutory trusts are typically formed through a trust agreement or declaration of trust between the settlor (the person creating the trust) and the trustee (the person or entity managing the trust assets). The terms of the trust are outlined in this agreement, and the trust is established based on the intentions of the settlor. In contrast, statutory trusts are formed by following the specific requirements and procedures outlined in state laws. These requirements may include filing certain documents with the state, appointing a trustee, and meeting other statutory obligations.

Flexibility

Non-statutory trusts offer more flexibility in terms of their structure and operation. Since these trusts are not bound by specific statutory provisions, the settlor has more freedom to customize the trust to meet their specific needs and objectives. This flexibility allows for greater creativity and innovation in trust planning. On the other hand, statutory trusts are subject to the rules and regulations set forth in state laws, which may limit the flexibility of the trust. These trusts must adhere to the statutory requirements, which can restrict the options available to the settlor.

Regulation

Non-statutory trusts are not subject to the same level of regulation as statutory trusts. Since these trusts are based on common law principles, they are governed by judicial decisions and legal precedents rather than specific statutory provisions. This lack of regulation can provide more privacy and autonomy for the parties involved in the trust. In contrast, statutory trusts are subject to the regulations outlined in state laws, which may require certain disclosures, reporting, and compliance with statutory requirements. This regulation can add complexity and administrative burden to the management of the trust.

Termination

Non-statutory trusts may have more flexibility when it comes to termination. Since these trusts are not governed by specific statutory provisions, the terms of the trust agreement will dictate the process for terminating the trust. The settlor and trustee have more control over how and when the trust will be terminated. On the other hand, statutory trusts may have specific provisions outlining the process for termination, which must be followed in accordance with state laws. These provisions may include requirements for notice, distribution of assets, and other steps that must be taken to properly terminate the trust.

Cost

Non-statutory trusts may be more cost-effective to establish and maintain compared to statutory trusts. Since these trusts are not subject to the same level of regulation and compliance requirements, there may be fewer administrative costs associated with managing the trust. Additionally, the flexibility of non-statutory trusts may allow for more efficient trust planning, which can help reduce costs. On the other hand, statutory trusts may incur higher costs due to the need to comply with state laws and regulations. These trusts may require additional legal and administrative expenses to ensure compliance with statutory requirements.

Conclusion

In conclusion, non-statutory trusts and statutory trusts have distinct attributes that set them apart in terms of formation, flexibility, regulation, termination, and cost. Non-statutory trusts offer more flexibility and autonomy in trust planning, while statutory trusts are subject to specific statutory provisions that govern their operation. The choice between a non-statutory trust and a statutory trust will depend on the specific needs and objectives of the parties involved in the trust. Understanding the differences between these two types of trusts can help individuals and entities make informed decisions when establishing and managing their trust arrangements.