New Case on Ownership of Property in Trust
I wrote recently of a Utah Supreme Court case that reminded us of the need to update beneficiaries on life insurance policies. Now the Utah Court of Appeals has provided another reminder. The importance of being clear in your intentions about how property is owned. In Smith v. Smith, the court of appeals heard an appeal in case involving the dissolution of the marriage of Keith and Sharon Smith. The Smiths created the Smith Family Trust with two sub-trusts – the Keith L. Smith Trust and the Sharon L. Smith Trust. Schedule A to the Family Trust identified which sub trust held any particular asset. An account with a local credit union was identified as being owned by both sub-trusts. An interest in a limited partnership was identified as being owned by Sharon’s sub-trust.After Sharon’s mom passed away, she received a large distribution from the limited partnership. She deposited the check into two money markets that she had opened. Under traditional principles of Utah law an inheritance is treated as the separate property of the individual who received. Keith, however, argued that depositing the money into the money market accounts changed it into joint property. His argument was based upon the theory that Schedule A provided that “all new accounts . . . in any and all other financial institutions in which new accounts are opened in the future” would be allocated equally between the sub-trusts.The trial court and the court of appeals ultimately sided with Sharon and held that she got to keep the inheritance. Most trusts have catch all provisions similar to the one found in the Smith’s trust, but this case goes to show that it is important to regularly review your trust and make sure that it is clear how ownership of assets is being addressed.