September 6th, 2017 •
Comments Off on Estate Planning Newsletter – May 2017
CAN YOU CREATE AN ORAL TRUST?
In the case of Meadows vs. Smith, the Tennessee Court of Appeals dealt with the question of whether an express oral trust can be created in Tennessee. Although the Court of Appeals did not rule specifically whether an oral trust was created in the Meadows case, the Court of Appeals reversed a summary judgment ruling by the Trial Court that no oral trust was created and remanded the case to the Trial Court for a hearing.
Most of the facts in the Meadows case were undisputed. The mother of twelve children, Dora Smith, conveyed a 500 acre farm to her four sons, retaining a life estate. After the mother died, the eight daughters filed suit against the four sons alleging that their mother had promised, and that the children had agreed among themselves, that once the mother died, the land would be divided equally among all twelve children. The daughters who filed suit relied on the legal theory that the brothers created an oral trust. One of the stipulated facts in the case was that the mother was competent at the time she conveyed the property. The daughters alleged that some of the sons told some of the daughters that following the mother’s death, the four sons would share the property equally with the eight daughters. The alleged promise was not made before the mother conveyed the property to the four sons. There was no writing that memorialized the alleged promises, and no consideration was given by the daughters to the sons in return for the sons’ alleged promise that the twelve children would share the property equally after the mother’s death.
The Court of Appeals wrote that the issue in the case was whether there was sufficient material facts to establish the existence of an express oral trust. The Court wrote that the proof required to find an express oral trust is by clear and convincing evidence. The Court pointed out the elements required for the creation of all trusts are: (1) a trustee who holds trust property and is subject to duties to deal with it for the benefit of another; (2) a beneficiary to whom the trustee owes the equitable duty; and (3) identifiable trust property. The Court further wrote that in order for a trust to rest upon a verbal agreement, the declaration of trust must have been made prior to or contemporaneous with the transfer either by deed of will.
In the Meadows case, because there was conflicting testimony from the parties submitted to the Court in a summary judgment motion as to whether the elements of an express trust had been created, the Court of Appeals remanded the case for further determination by the Trial Court.
The interesting take away from the Meadows case is that Tennessee Courts have established that an express oral trust can be created as long as certain conditions are met and it can be established by clear and convincing evidence.
MY RECOMMENDATION: Although Tennessee recognizes the existence of an express oral trust, perhaps a better approach for the daughters in the Meadows case would have been to make a claim for a resulting trust. Basically a resulting trust is a doctrine created by courts of equity to satisfy demands of justice.
Yours very truly,
RAINEY, KIZER, REVIERE & BELL, P.L.C.
William C. Bell, Jr., Attorney at Law