Mrs. Smith owns two trusts. Both are called by the exact same name, “The Smith Family Trust.” Both have the same trustees, but each one has a different distribution scheme. Both trusts are irrevocable, meaning that the terms of the trust are permanent. It is not clear if anything is in the trust except for the real estate.
Most of the real estate Mrs. Smith owns is in the trust. Or in the trusts, plural. Or in one or the other trust. . .it is not clear.
Mrs. Smith told me that one of the pieces of real estate was sold last year. It only took a brief search for me to see that the real estate which was sold was owned by the trust.
“So, did you put the proceeds from the sale of that real estate in the trust?” I asked.
“Why would I do that? It’s my money” was her response. She went on to tell me that she put the proceeds from the sale of the house into her own account.
It seems that no one advised Mrs. Smith that anything in an irrevocable trust is no longer yours, once you put it into that trust. (Thus, the term irrevocable). When I explained this to Mrs. Smith, concern crossed her face.
This real estate transaction also raised numerous other concerns for me. Was the real estate proceeds check made out to The Smith Family Trust? It should have been. Were there taxes paid on capital gains by the Trust, if appropriate? Was there a tax return at all with the Smith Family Trust (it has been going for several years now)?
A phone call to the Smith’s accountant was next. It turns out that he was unaware that there was more than one trust, or that the trusts were irrevocable. He was also unaware that the drafting attorney had written himself into the estate planning scheme as a trustee. The accountant shares my concerns. “We have some work to do” was his response.
We will continue to unravel this mystery. . .