Is a Pure Trust and/or Contract legal? The answer is no; they are not legal, but, not illegal either. That is what is so great about them. The Supreme Court put it this way: “The fact that a ‘Business Trust’ is not regarded as a legal entity distinct from its Trustees, if a true trust…may result in this advantage to the Trust, which a corporation does not possess…”
So the court is saying that the Trust is not legal, and that is a good thing. Let’s explain:
First we have to define “legal.” Most people think they know what that word means but they do not.
The word “legal” is a legal term. If something is legal than there is a law (statute) allowing it. But many things are lawful that are not legal. For instance, is it legal to eat a banana on Wednesdays? No it is not. You see there is no law that says you can eat a banana on Wednesdays, but there is no law that says you cannot; therefore it is lawful to eat a banana on Wednesdays or any other day for that matter. If something is legal it is statutory. Black’s Law Dictionary defines ‘Legal:
- Of or relating to law; falling within the province of law
- Established, required, or permitted by law.
- Not contrary to law.
So the trust, like the banana, is not legal, but it is lawful. The Corporation, L.L.C. are legal, meaning there is a statute that you can incorporate, and you must do it the way the state says and they will control it. That is legal.
The Pure Trust is a contract written in trust form. It cannot be illegal because you have a constitutional right to contract and the courts are bound by the constitution to uphold lawful contracts. (Contracts, by the way, are not legal either.)
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