Do You Really Need A Deed?

The Illinois Appellate Court, Second District, in In re Estate of Mendelson[1] examined an issue of first impression for Illinois courts regarding the need to re-title real property when a grantor of a revocable trust intends it to become a part of a trust’s corpus.

Here’s a summary of the pertinent facts of Mendelson:

· Ms. Mendelson, a mother of four sons, owned her primary residence.

· Shortly after Michael, one of her sons, moved in with her, she executed a deed transferring title to her home in joint tenancy with Michael and her (“Joint Tenancy Deed”). The Joint Tenancy Deed was never recorded.

· After executing the Joint Tenancy Deed, Ms. Mendelson created a revocable trust that provided for an equal distribution of her assets among her four sons upon her death (“First Trust”). Additionally, she executed a Deed in Trust transferring title of her home into the First Trust (“Deed In Trust”). The Deed In Trust was recorded.

· Several years later, Ms. Mendelson revoked the First Trust and created a new trust (“Second Trust”). The Second Trust identified her home as part of the trust property and specifically provided that it was to be distributed to Michael upon her death.

· Shortly after creating the Second Trust, Ms. Mendelson died.

· Immediately thereafter, Michael recorded the Joint Tenancy Deed.

· Ms. Mendelson’s estate filed a petition to determine the proper distribution of the home.

· The trial court found that the home should be divided evenly among Ms. Mendelson’s four sons, claiming that the Joint Tenancy Deed did not validly transfer the property due to a lack of facts that supported Ms. Mendelson’s delivery of title to Michael, as joint tenant.

· Because the First Trust was revoked and the home was not re-registered by deed into the Second Trust, the trial court found that the home was a part of the decedent’s probate estate, yielding an equal distribution among the decedent’s four sons.

· Michael appealed this decision.

The Second District ruled on three issues regarding the distribution of Ms. Mendelson’s former residence. First, the Second District upheld the trial court’s finding that the purported interest being transferred in the Joint Tenancy Deed was not delivered to Michael, as a joint tenant, due to facts that indicated as such. Furthermore, the Second District affirmed that the Second Trust properly revoked the First Trust. These two conclusions left one issue to be resolved: whether the law required Ms. Mendelson’s home to be transferred by deed into the Second Trust or whether the references to the home in the instrument creating the Second Trust were sufficient to acknowledge that the home was a part of the Second Trust’s corpus. The Second District found the latter to be true.

Relying on a Kentucky court of appeals case and the Restatement (Third) of Trusts (“Restatement”), the Second District found that the home was validly transferred into the Second Trust, thus allowing the home to be distributed to Michael.

Citing to Ladd v. Ladd, the court stated:

“[N]o authority appears to require that a settlor, who also names himself as trustee of a revocable living trust, must convey his property to the trust by separate instrument. To the contrary, all of the authorities support the conclusion that a declaration by the settlor that he hold the property in trust for another, alone, is sufficient.”[2]

Furthermore, the Mendelson court relies on a comment in the Restatement by stating:

“[T]he law [does not] ordinarily require acknowledgment or recordation, or other formal change in ownership records or documents of title, for the effective creation of the trust. Even additional statutory formalities, such as those applicable to transfers of land requiring that a document be sealed, attested, acknowledged, or recorded, ordinarily are not essential to effect a valid transfer as between transferor and transferee.”[3]

As a result, the Second District firmly held that a settlor who also names himself a trustee of a revocable living trust does not have to convey his property to the trust by separate instrument.

Does this mean that practitioners should not be concerned about re-titling real property into trusts by using deeds as part of the estate planning process? No. In fact, practitioners should ensure that all records, specifically deeds, records of title, and schedules of assets attached to trusts, clearly indicate the intention of the parties when transferring title to property. Confliction causes confusion. Confusion often leads to litigation, which is something that clients hope to avoid when they create an estate plan.

[1] 2015 IL App (2d) 150084.

[2] 323 S.W.3d 772, 778 (Ky.Ct.App.2010).

[3] Restatement (Third) of Trusts § 10 cmt. c (2003).