In a recent decision, the Indiana Court of Appeals ruled that the grantor of a revocable trust failed to fund the trust with his farm, despite his apparent intention to have the farm be managed and operated by the trustee after the grantor’s death. Homan v. Estate of Homan, 121 N.E.3d 1104 (Ind. Ct. App. 2019).
The trust agreement provided for the successor trustee of the trust after the grantor’s death to continue the farm operation, and hold the farm in trusts to distribute the farm income to several named family member beneficiaries. However, the grantor had not taken the basic steps necessary to place the farm in his trust. First, the grantor never executed a new deed titling his farm land in his trust. Second, while the trust agreement had language indicating that the grantor was transferring to himself as initial trustee the property listed on an attached schedule to the trust agreement, the said schedule was left blank.
Under these facts, the Court found that the farm had not become “trust property” as defined by Indiana statute. To meet that definition, the property had to be placed in trust or purchased or otherwise acquired by the trustee for the trust. The Court indicated that listing the farm on the schedule attached to the trust agreement might have been sufficient to meet this statutory standard. However, the grantor had failed to do so. The Court reasoned that the issue was not whether the owner “intended” to place the property in trust, but whether the property was actually placed in the trust. Here, absent the listing of the farm on the attached schedule to the trust agreement, as well as the absence of a deed of the farm land from the grantor to himself as initial trustee of the trust, the farm never became part of the trust property, notwithstanding the grantor’s express intent for the trustee to operate the farm property in trust for the benefit of the grantor’s family.
The failure to convey assets to your trusts after the trusts are created can be the downfall of your estate plan. It’s a big first step to create the proper trusts. The equally important second step is then to fund the trust as appropriate, given your estate planning wishes. Also, it is important to have a “pour over” will funding your revocable trust with any assets that you still own at your death, to make sure that they pass under your trust’s terms.
