My parents have a Trust, but they forgot to place some assets in it before they passed – what do I do?
A frequent occurrence in the world of trusts and estates is the scenario where an individual or couple undertake the time and expense of creating a trust to avoid probate but then never actually fund that trust with the assets intended for the trust. To “fund” a trust means that, after the trust agreement or declaration of trust is created, the persons who created the trust (trustor or settlor) transfer ownership of their assets into the name of the trustee, to be held in trust. Example: Harry and Wendy Banks establish the Banks Revocable Family Trust, and they transfer their family home into the trust by executing a deed whereby they hold title to the home as, “Harry Banks and Wendy Banks, Trustees of the Banks Revocable Family Trust.” Harry and Wendy have funded their trust with their home. It is important to note that simply listing assets in your trust or on a schedule attached to your trust agreement does not fund the trust.
Even if the trustors properly fund the trust with assets at the time of its creation, circumstances may arise where the trustors later acquire additional property or assets and forget to place those assets in the trust before they pass away. If Harry and Wendy Banks in the example above later purchase a vacation property in Lake Tahoe but take title as joint tenants rather than as trustees of the Banks Revocable Family Trust, the Lake Tahoe vacation home has not been placed in the trust and even if they ask their attorney to list the property on a schedule attached to their trust.
If such a situation arises, there is a remedy. Nevada law allows an interested person to petition the court for a ruling that “property not formally titled in the name of a trust or its trustee constitutes trust property.” See NRS 164.015. This statute is based on a California case called Heggstad, which concerned the situation where a trustor forgot to place a property in trust for his beneficiaries. The key to this provision is providing proof of intent that the trustor intended to include the forgotten property or asset in his or her trust before passing. If successful, then the trustee can bypass the probate process and place the forgotten property into the trust to be administered consistent with the trustor’s intended wishes. In the above example, after Harry and Wendy have both passed, the trustee of the Banks Revocable Family Trust could petition the court and show that the Banks meant to include the Lake Tahoe vacation home in their trust because they called their attorney and asked their attorney to list the vacation home as part of their trust assets even though they never properly titled the home in the name of the trust.
In 2021, Nevada also recently amended NRS 163.002 regarding trust creation to allow a trustor to include a declaration stating that he or she holds all property in trust, and this statement is sufficient for the trustee to use extrinsic evidence to identify trust assets that may have been forgotten at the time of the trustor’s death and include those assets in trust.
If you have questions regarding estate planning, trusts, or wills, contact an attorney at Lemons, Grundy & Eisenberg to see if we can assist.