For many, many years – from the stone age through 2011, to be exact – attorneys in Texas regularly recommended trusts to their clients as a way to minimize or avoid estate taxes. A lot of clients heeded the siren song, and hundreds, nay, thousands, of trusts were formed. The trust documents were sent home with the clients, who, naturally, put them away in very safe and secret places.
So secret, in fact, that when the clients started dying off, no one could find the trusts. Without the trust documents, there was no way of knowing the beneficiaries, the successor trustees, or the terms of distribution.
Fiction? Unfortunately, no. Lost trust instruments are fairly common, especially with older trust documents. Grantors (who set up the original trusts) often served as the original trustees, and were the only ones to have possession of the trust document. Documents are often lost when the grantors move or close out a safety deposit box. Sometimes the documents are accidentally or intentionally destroyed. Or sometimes, as in the first example, the grantors simply forget where the document is stored.
A lost trust document is no big deal if the trust was never funded with assets. It is a very big deal, however, if there are bank accounts, real estate or investments that were actually funded into the trust.
So courts have had to fashion remedies. That is exactly what happened in the Gause case, decided in 2016. At issue was a 105-acre tract of land, titled in the name of a trust that was established in 1945 by Leonard Lucian Gause, Jr.
The trust disappeared when one of Leonard’s children, who had not been named as a beneficiary, took the document to her home after his death. His surviving wife, Rita, serving as trustee, engaged in some transactions regarding the land that eventually led to two lawsuits and a lot of family finger-pointing.
It was left up to the court to determine the terms of the missing trust. Unfortunately for Rita, in the first of the two family lawsuits she had signed a document describing the terms of the trust. When she contradicted that statement in the second lawsuit (where she claimed that she did not remember the trust and, indeed, had never read it), the court dismissed her argument quite succinctly.
The court held that a document is not made ineffective merely because it has been destroyed or lost. If the original can’t be found after diligent search, then the contents of the document can be shown by other evidence such as testimony. Rita’s statement was sufficient evidence to show the terms of the trust.
Not every missing trust document case is as easily resolved. Often there is not a living person who will admit to knowing the terms of the missing document. Or there is some evidence that the grantor intended to revoke the trust by destroying it. Sometimes all the beneficiaries have is an amendment, without the original document.
If you are a grantor or a trustee, consider filing a memorandum of the trust in the deed records, sharing the actual document with the beneficiaries or a trusted advisor, or putting it in a safe deposit box and telling the beneficiaries.
Hammerle Finley Law Firm. Give us a call. We can help.
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The information contained in this article is general information only and does not constitute legal advice.