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Substance over Form: What is necessary for a valid transfer of property into a trust?

Written by on Apr 16, 2009| Posted in: Trust Litigation

Court holds trust instrument was effective in transferring both real and personal property to the trust.Prior to Florida’s adoption of the new Trust Code, which became effective on July 1, 2007, the common law held that in order for a trust to be created, the settlor was required to make a present and unequivocal disposition of property so that he or she is no longer vested with its full legal and equitable ownership. For example, it has been held in Florida that the failure of a settlor to execute a deed which conveyed real estate to the trustees of a trust precluded the creation of a “living trust” for the realty. Flinn v. Van Devere, 502 so.2d 454 (Fla. 3d DCA 1986). Although the new Trust Code is now effective, it provides that the common law of trusts and principles of equity supplement the Code, except to the extent modified by the Code or another law of Florida. Fla. Stat. ยง736.0106. This leaves a lot of “gray” area in the law of trusts, and whether certain attempts to transfer property into a trust are valid.

I’m always interested in how our sister jurisdictions handle problems in connection with attempts to transfer real and personal property into a trust that might fall short of the formalities required by the Uniform Trust Code. One such case recently surfaced in our Midwestern sister state of Nebraska in Chebatoris v. Moyer 757 N.W. 2d 212 (Neb. 2008).
Moyer, the decedent, created a revocable living trust, with Ron Moyer (Ron) as cotrustee. Moyer died intestate. Moyer purported to fund the trust with both real and personal property that she had described in “Appendix ‘A” attached to the trust document. This is the same method I have seen many clients use in their attempts to create and fund trusts.

The trust document in Moyer stated that “SETTLOR desires to create a trust and is concurrently herewith transferring certain properties to this trust which are set forth on Appendix ‘A attached hereto.” It also stated that “TRUSTEE agrees to hold the property described on Appendix ‘A together with all investments, reinvestments and additions thereto in trust in accordance with the provisions of this Agreement.” Appendix “A” describes three parcels of land, two in Otoe County, Nebraska, and one in Iowa, and lists a variety of personal effects, including bank accounts. The trust instrument also gave detailed instructions as to the distribution of the trust property upon the death of the settlor, Moyer.

Litigation arose in the administration of the probate estate as to whether or not the real and personal property described in the trust document had been properly conveyed by the settlor to the trustee. If it had not been properly transferred, then the trust was wholly unfunded upon Moyer’s death and all property mentioned in the trust document would be a part of the intestate estate.

The Nebraska court looked to the intent of the settlor as the governing principal in its decision and also observed that the instrument created by the settlor met the minimum requirements for a deed: “Although the transfer of real property would have been best memorialized by a separate document, we nevertheless conclude that Moyer’s trust agreement operates as a deed transferring real property…Moyer’s trust document satisfies each of the statutory requirements for a deed of real property. Moyer signed the trust agreement as the settlor of the trust, thus satisfying the requirement of signature by the grantor of the property. Moyer and Ron also signed the agreement as cotrustees, indicating their acceptance of the trusteeship. The agreement was acknowledged by a notary public and was filed with the register of deeds, albeit after Moyer’s death.”

The court also applied the principles of equity (even though trusts are governed by a trust code): “We find further support for our conclusion in equity. The duty of this court is to carry out the true intent of the parties. The particular words of a conveyance are unimportant if the intention of the parties can be determined. In construing instruments conveying property, equity concerns itself with the substance and not the form of the transaction, and the particular form or words of a conveyance are unimportant if the intention of the parties can be ascertained.”

Therefore, because the instrument contained the bare minimums for a real property transfer, coupled with the clear language of the trust instrument from which the settlor’s intent was undisputed, the Court reached the right conclusion in holding that the trust was properly funded. It is refreshing to observe a court continue to use equitable principles in an area of law consumed by legislation.

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