Trusts are established for estate planning and asset protection. In several recent cases counsel has handled, however, they appear to have been used primarily as vehicles to shelter marital assets from equitable division in divorce.
In a recent trial, a Husband placed $3.3 million of marital assets into purported irrevocable trusts without the knowledge or consent of his Wife, and contended they should not be considered by the Court in equitable distribution. While there is no legal precedence in Georgia specifically addressing this issue, there is statutory and case law addressing the proper transfer of assets to a trust.
The first question is whether the marital assets the spouse contends have been transferred to the trust are legally owned by the trust. The trust instrument should address the transfer issue. “In construing an express trust, we look first and foremost to the language therein and interpret that language to effectuate the intent of the settlors.” Ovrevik v. Ovrevik, 242 Ga.App. 95 (2000). Many times trusts expressly state that trust property has to be accepted and approved by the trustee.
In addition to the express language of the trust instrument, in Georgia, a valid transfer of property to a trust requires the transfer of legal title to the trustee of the trust. See O.C.G.A. §§ 53-12-25(a) and 53-12-2(15). Although, O.C.G.A. § 53-12-25 codified the common law in Georgia in 2010, this basic requirement was applicable in Georgia long before that codification. The 1991 trust code defined “trustee” as “the person holding legal title to the property in trust.” Making an effective transfer of property to the trust is a basic and obvious requirement for placing property in trust. See Restatement Second of Trusts § 32 (1959).
Prior to 2010, Georgia Courts made an exception of the rule requiring a transfer of legal title to the trustee for “self-settled trusts.” This is where the settlor and the trustee are the same person. In those situations, the settlor/trustee was not required to separately and formally transfer the designated property to the trust. The 2010 trust code revision committee wished to eliminate confusion that resulted after the settlor’s death as to which property was held by the settlor individually, and chose to include an express requirement that legal title to trust property actually be transferred to the trustee in all cases, including self-settled trusts. See Radford, Georgia Trusts and Trustees § 2:4 (Dec. 2015).
The Georgia Court of Appeals confirmed this construction in Ford v. Reddick, 319 Ga. App. 482 (2012), by requiring the trustee to be designed as the grantee of legal title on a deed conveying property to the trusts, and stating that the failure to transfer legal title to the trustee would invalidate the subject transaction and return the property to the transferor.
In addition to transferring legal title to the trustee, Georgia law requires “conveyance” to the trustee of property intended to be placed in trust. See Restatement Second of Trusts § 32.
To make an inter vivos gift to a trust valid, three essential elements are necessary: intent to give, delivery, and acceptance. See O.C.G.A. § 44-5-80. The party claiming the gift has the burden of proving all three essential elements by clear and convincing evidence. Delivery of a gift requires an act indicating “renunciation of dominion by the donor and transfer of dominion by the donee.” Clark v. Bridges, 163 Ga. 542 (1927). Georgia Courts have held that depositing money into a joint account or an account subject to the demand of another is not a surrender of dominion and control over the funds to satisfy the delivery requirement. Stewart v. Stewart, 228 Ga. 517 (1972). Even depositing money into an account in the name of another person does not necessarily constitute a surrender of dominion and control. There is no surrender of dominion or control where the trustee does not even know about the existence of an account titled in trustee’s name, has never been given access to the account, has never signed the account application or deposit agreement, and has no authority to sign on the account.
In conclusion, to make a valid transfer of property to a trust, whether life insurance, real estate, bank accounts, or brokerage accounts, there must be an actual transfer to the trustee, knowledge and acceptance of the gift by the trustee, and a relinquishment of dominion and control of the asset by the trustor/grantor. If these elements are not satisfied, then the property is a marital asset.
Special thanks to trust litigator Craig Frankel of Gaslowitz Frankel, LLC for his contribution to this article.