During his lifetime, Farkas purchased shares in several investment trusts and caused the certificates/accounts to be issued in his name explicitly "as trustee for" Williams. In connection with these accounts, Farkas executed written declarations of trust filed with the issuers stating that he held the securities in trust for Williams. The declarations reserved to Farkas sweeping powers: he could revoke or modify the trust at any time; he could sell, exchange, or otherwise dispose of the shares; he could receive and use all dividends and income; and he could change beneficiaries or withdraw principal without limitation. The instruments provided that upon Farkas's death, any property remaining would pass to Williams. Farkas maintained possession and control of the accounts during his life and did not deliver the certificates to Williams. After Farkas died, the representative/heirs of his estate challenged the instruments, arguing they were testamentary in character and void for failure to comply with the Statute of Wills. The trial court upheld the trusts, and the dispute reached the Illinois Supreme Court.
Whether written declarations by a settlor naming himself trustee of investment securities for a beneficiary—while reserving the powers to revoke, control, and dispose of the property and to receive all income—create a valid inter vivos trust or constitute an invalid testamentary disposition for lack of will formalities.
A trust of personal property may be validly created by a settlor's present declaration that he holds property in trust for a named beneficiary, even if the settlor reserves extensive powers—including the power to revoke or modify the trust, to receive income, to sell or exchange the property, and to change beneficiaries—so long as the declaration manifests a present intent to create a trust and vests in the beneficiary a present equitable interest (albeit defeasible). Because legal title is bifurcated from equitable ownership upon creation of such a trust, it is not testamentary and need not comply with the Statute of Wills. Delivery of the property is unnecessary where the settlor is the trustee. The dispositive inquiry is whether any present interest passed during the settlor's lifetime; if so, the arrangement is an inter vivos trust, not a will.
The declarations created valid inter vivos trusts of the securities; they were not testamentary. Williams acquired a present, albeit defeasible, equitable interest during Farkas's life. Judgment for Williams affirmed.
The court emphasized that the decisive question is whether the settlor intended and effected a present transfer of some interest, not whether enjoyment was postponed until death. Here, Farkas's written declarations explicitly named himself as trustee and Williams as beneficiary, identified specific property (the investment trust shares), and set forth fiduciary obligations. Even though Farkas retained substantial powers—revocation, amendment, control and management, receipt of income and dividends, and the ability to sell or withdraw principal—the beneficiary nonetheless acquired a present equitable interest in whatever remained, subject to defeasance by Farkas's reserved powers. That present vesting distinguishes a trust from a testamentary disposition, which transfers nothing until death. The court rejected the argument that the arrangement was illusory or merely a will substitute disguised as a trust. Under established Illinois law and the Restatement, such retained powers do not negate the existence of a trust, because the separation of legal and equitable title occurs when the trust is declared. The fact that enjoyment by the beneficiary may be delayed or subject to revocation does not convert the instrument into a will. Nor is delivery required when the settlor is himself the trustee; the trust is complete upon execution of the declaration identifying the property and beneficiary and manifesting present intent. Because the declarations passed a present equitable interest to Williams, they were inter vivos and not subject to the Statute of Wills.
Farkas v. Williams is a cornerstone case for understanding the validity of revocable living trusts as will substitutes. It establishes that a trust can be valid even when the settlor retains extensive powers, so long as a present equitable interest is created in the beneficiary. The case is frequently taught to illustrate the testamentary-versus-inter vivos distinction, the role of present intent and vesting, and the permissibility of retaining control without defeating the trust. It underpins contemporary estate planning practice, in which clients routinely use revocable trusts to manage assets during life and pass property at death outside probate.
Farkas v. Williams solidifies the modern, practical approach to inter vivos trusts: if the settlor clearly manifests present intent and vests some equitable interest in a beneficiary, the trust is valid notwithstanding extensive retained powers. The decision distinguishes a true trust from a will by focusing on present vesting and separation of title, not on whether enjoyment is delayed or the settlor maintains robust control.