Posted on

Missing Trust

Puzzle showing a missing piece, to symbolize missing trust

Occasionally, a loved one dies and assets are titled in the name of a trust. Or perhaps there’s a life insurance policy life that names a trust as a beneficiary.  But … no one can find the trust agreement.  What do you do in the case of a missing trust?

Life insurance policy payable to missing trust

In the case of a life insurance policy payable to a missing trust, here’s what you do. First, check to see what the insurance carrier will require. Perhaps there’s language in the policy itself that covers this situation. Policies usually have provisions dealing with the proceeds when a person named as a beneficiary predeceases the insured and there is no contingent beneficiary named. The insurance company will normally only pay out to the trustee.  The one thing the carrier won’t normally do is simply pay the funds into the deceased person’s estate.

The case is the same for a house owned by the trust.

If there is a house owned by the trust, you still need to determine the trustee and beneficiaries. In that case, you probably need a court order. Keep reading …

The solution in most cases.

The solution for most situations (including the life insurance example) is to go to court. You petition the court to determine the trustees and beneficiaries. In the process, you need to show :

  1. What steps were taken to look for the trust (searching the house, checking the recorder’s website, contacting the decedent’s attorney if known, and so on).
  2. Whether a will exists that names devisees (person’s to receive the remainder of the estate). After all, a trust would typically benefit the same people as the insurance policy.
  3. Who the intestate heirs would be if there’s no will, etc.

The goal of petitioning the court is to appoint a trustee of the Trust and approve a proposed distribution of the Trust. Once appointed, the Trustee will then make the claim on insurance and collect the insurance proceeds.

Here are some details about the court process.

Since there is no Trust instrument, your attorney will submit the proposed distribution with the prior consent of all likely beneficiaries.  Likely beneficiaries are usually the surviving family members, spouse, kids, etc. Notice of the hearing to the unknown beneficiaries would be given by publication. If no one shows up at the hearing to object, the court would likely approve of the proposed distribution among the likely beneficiaries. If you cannot obtain the family’s consent to a proposed distribution, then the process would be the same. But you likely would be facing objections. In the end, if the policy does not control the outcome, then the court is going to step in and do so.

We can help.

My name is Paul Deloughery, and I’m an attorney at Magellan Law, PLC. My practice focuses on estate planning and probate litigation. I can be reached at 602-443-4888 or paul@magellanlawfirm.com.

The author is not engaged in rendering legal, accounting, or other professional service. Although prepared by professionals, you should not use these materials as a substitute for professional service in specific situations. If you need legal advice or other expert assistance, seek the service of a professional.

Posted on

Trump cannot avoid conflict with “Blind Trust”

There is been a lot of discussion in the news lately about Donald Trump needing to transfer his investments to a blind trust. For example, the Wall Street Journal suggested in a November 17, 2016 editorial that Donald Trump transfer his real estate holdings so he does not have a conflict of interest in serving as President of the U.S. The conflict of interest concern is that Mr. Trump could push for legislation that will benefit his businesses, thus making his family money, whether or not it is good for the U.S.

So, what is a blind trust anyway? A “blind trust” is a common name for a variety of irrevocable trust in which a person names an independent person to manage the person’s assets. Let me start from the basics and explain so you understand.

A trust is a type of legal vehicle roughly similar to a corporation. You can’t feel or touch a trust. But it exists from a legal standpoint. A trust can own buildings and property. It can sue people in court. It can buy and sell things. It can hire and fire people.

You may have heard of a “living trust.” That’s a colloquial name for a trust that is commonly created by people who own a house and investments and want to avoid probate when they die. It is “revocable” because if you create one, you want to be able to make changes. Maybe you want to add a beneficiary. Or maybe you no longer like the trustee you named to take over when you die, so you insert a new person.

A blind trust is a type of irrevocable trust, meaning that (officially) it cannot be changed by the person who created it. I put the word “officially” in parentheses because there are indirect loopholes. With a blind trust, you create the irrevocable trust, but you remain the beneficiary. Here’s how a blind trust basically works:

  • You go to a lawyer (don’t try doing this on your own) to write the trust document.
  • You are the “grantor” or “trustor” or “creator”, which are all words that mean the same thing. They mean that you are creating the trust.
  • You choose a trustee who is a person other than yourself. The best bet is usually to name a trust company.
  • For a blind trust, you would name yourself as the beneficiary. An asset protection trust is a type of blind trust. Otherwise, you could name your children or other people as the beneficiaries; but then it wouldn’t be a blind trust.

All the news media is going crazy over talk about a “blind trust” as a way of eliminating the potential conflict of interest for Donald Trump. I agree that Mr. Trump can’t transfer his assets to a trust naming his children as beneficiaries. That would trigger a gift tax of roughly 50%.

But if Mr. Trump transfers his holdings to a “blind trust”, he is a smart person and will have checks and balances. He’s not going to risk having some independent company in control and making bad decisions. He will name a Trust Protector, which is an (officially) independent person with the power to make changes to the trust, add/remove beneficiaries, add/remove trustees, and so on. This independent Trust Protector will be someone loyal to Mr. Trump. And Mr. Trump will have the ability to replace the Trust Protector. So even if Mr. Trump is (officially) not managing his properties and businesses, he will have indirect control over them. And he will still be the beneficiary.

Again, the only other way for Mr. Trump to completely divest himself of his businesses is to pay a 50% gift tax and transfer everything to a trust for his kids. But a real estate investor has most of his wealth tied up in real estate. He can’t write a check for 50% of his wealth. So Mr. Trump is stuck. He MUST remain at least someone in control of all of his wealth.

He can do the best he can to transfer his investments to a blind trust. But he will still have some sort of control.

Mr. Trump will probably transfer his investments to a blind trust, and everyone will breathe a sigh of relief. He will have (officially) set things aside so he is no longer in control. But he will still have indirect control, such as being able to ask the Trust Protector to ask the trustee to do things he wants. There is no other way.

That being said, keep in mind that what is good for Mr. Trump as a real estate investor is going to be good for other real estate investors as well. Maybe the lesson out of all of this is to start investing in real estate.