A few weeks ago, I came across a case from the Indiana Court of Appeals that demonstrated exactly why, when creating a trust, it is also necessary to: (1) review the provisions of the trust periodically, and (2) ensure that all the property you wish to place in the trust is, in fact, in the trust.
In the Indiana case, the settlor (the person who created the trust) created the trust in 1991 and stated that all real estate went to his brother. The remainder of the trust assets were to be divided among nineteen individuals. Then, in 1993, the settlor purchased a farm. In 1998, the settlor also executed a last will and testament stating that any property not in the trust would “pour-over” into the trust for distribution according to the terms of the trust. (By this point in the story, you can probably guess the ending.) The trust was amended in 1998, stating the brother could purchase the farm if the brother survived the settlor and his wife. The amendment also stated after distribution to the brother, the remainder of the trust would pass to the nineteen individuals via cash distributions.
Long story short, because the farm was never in the trust, that meant the farm “poured over” into the trust and was distributed to the nineteen individuals and not the brother (more accurately, the brother’s two children as the brother was deceased).
The lesson: make sure your estate planning documents do what you want them to do and that, should you have a trust, the property you want to be in the trust is deeded to the trust. I speak with many farmers and ranchers, and a significant number have a revocable trust. Many of the trusts were written five, ten, even twenty years ago and do not reflect changes in the operation and changes in wishes.
What should farmers and ranchers be doing to ensure that what they want in their estate happens? First, take a look at your estate planning documents once a year. A good time to do this would be when you are drafting your balance sheets or doing other annual paperwork. Make sure that the estate planning documents reflect your wishes. Double-check that all property you wish to be in the trust is deeded to the trust. Second, whenever you purchase property, make sure it is properly deeded to the correct person, trust, or business entity to effectuate your estate plan. The same is true when you sell property; ensure that property sold and the use of the sale proceeds do not hinder your estate plan. Third, and unfortunately, life happens while we make other plans. When unexpected changes occur, such as to your operation or a divorce, review your estate plan and make sure it reflects the life change.
Are you a farmer or rancher who wants to discuss their estate plan and ensure it does what you want? You are welcome to contact us!