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In Holtemann, the court commented on the husband's contradictory position that the transmutation was only for estate planning and tax reasons by quoting the trial judge's findings:
Husband argues that the transmutation was limited to estate purposes only. In other words, Frank wishes to have his cake and eat it too. He argues that, in the event of either his or Barbara's death, the survivor would be able to use the Transmutation Agreement to claim the property as community property, thus obtaining a full step up in basis to the fair market value of the property at date of death, while at the same time denying the validity of the Transmutation Agreement as an instrument which created community property. Thus, when it would benefit either Frank or his estate, Frank wishes to characterize the property as community. However, when it would be detrimental to Frank, he wishes to ignore the transmutation and call the property separate.24
The trial court was likely moved by the fact that the husband, who once wished, grounded on marital bliss, for both spouses to benefit from the transmutation had changed his position and wanted to dismiss that prior intention in light of the pending divorce. Husband attempted to change his position even though he was previously counseled of the potential consequences prior to executing the trust. If a spouse transferring separate property into a trust in order to benefit from its treatment as community property is informed regarding the effect of same, it is equitable for said spouse to be bound by the after-effects of their bargain. This supposition would have support in Nevada under NRS 47.250(a), which establishes a disputable presumption that "A person intends the ordinary consequences of that person's voluntary act."
Finally, there is an argument related to estoppel that may establish transmutation in revocable family trusts. The Nevada Supreme Court, in Anderson v. Anderson, held that where spouses divided up their bank accounts prior to divorce and one spouse led the other to believe the division was permanent, the doctrine of estoppel governed and the funds in the account were transmuted into each party's separate property.26 Similarly, the position can be taken that a spouse controlling, utilizing or spending an asset for years that was converted via their family trust relied on the representation in the trust to their detriment upon a divorce being filed. The objecting spouse could as a result be barred from taking a contradictory position.
The fact of the matter is that family trusts and divorces do not always mix well. While careful estate planning may be able to avoid the unintentional transmutation of separate property into community in revocable family trusts, divorce attorneys cannot risk assuming such is the case when they come across these trusts. A careful examination and analysis is required in order to determine whether a revocable trust could be deemed to have transmuted property. While Nevada does not address the issue, the arguments for and against the recognition of transmutation through trusts all have merit.
Due to the lack of legal precedent in Nevada on the matter, which argument would prevail upon presentation to a court could depend on the legal arguments as much as the specific fact pattern.
- See also NRS 163.565.
- IRC §1014.
- While not the topic of this article, community property may be also transmuted into separate property through a trust. This is usually done for purposes of protecting property from one spouse's potential creditors. However, transmuting community property into separate property may deprive spouses of significant tax savings.
- It should be noted that transmutation language in small revocable family trusts is sometimes included unintentionally.
- Sprenger v. Sprenger, 110 Nev. 855, 858, 878 P.2d 284 (1994). It is of note that in Ricks v. Dabney (In re Jane Tiffany Living Trust 2001), 124 Nev. 74, 79, 177 P.3d 1060 (2008), the Nevada Supreme Court stated that clear and convincing evidence must "eliminate any serious or substantial doubt about the correctness of the conclusions to be drawn from the evidence."
- Cord v. Cord, 98 Nev. 210, 213, 64 P.2d 1026 (1982).
- Said additional evidence could be in the form of a letter from the preparing attorney memorializing the parties' intentions related to estate planning or tax savings to a noticeable absence in the case of any other documents transmuting separate property into community prior to the trust being formed.
- In re Marriage of Starkman, 129 Cal. App.4th 659, 28 Cal. Rptr.3d 639 (Cal. App. 2005).
- d. at 664.
- In re Marriage of Koester, 73 Cal. App.4th 1032, 1037, 87 Cal. Rptr.2d 76 (Cal. App. 1999).
- Barker v. Barker, 139 Cal. App. 2d, 293 P.2d 85 (Cal. App. 1956).
- Burns v. Burns, 1997 Tenn. App. LEXIS 772 (1997).
- Dahlgren v. First Nat'l Bank, 94 Nev. 387, 580 P.2d 478 (1978).
- In re Marriage of Matthews, 133 Cal. App.4th 624, 35 Cal. Rptr.3d 1 (Cal. App. 2005).
- Verheyden v. Verheyden, 104 Nev. 342, 757 P.2d 1238 (1988). It's of note though that NRS 123.220 only addresses the transmutation of community property into separate property, although Mullikin v. Jones, 71 Nev. 14, 27, 278 P.2d 876 (1955) holds that separate property can be transmuted into community property. Most courts take the position that writing is required for transmutation either way.
- See also In re Marriage of Holtemann, 166 Cal. App. 4th 1166, 1172, 83 Cal. Rptr. 3d 385 (Cal. App. 2008).
- In re Marriage of Lund, 174 Cal. App. 4th 40, 44, 94 Cal. Rptr. 3d 84 (Cal. App. 2009).
- Restatement (Third) of Trusts § 2.
- In re Marriage of Holtemann, 166 Cal. App. 4th 1166, 1172, 83 Cal. Rptr. 3d 385 (Cal. App. 2008).
- n re Marriage of Lund at 52.
- Id. at 54.
- Suchan v. Suchan, 106 Idaho 654, 682 P.2d 607 (1984).
- In re Marriage of Holtemann at 1173.
- In re Marriage of Holtemann at 1174.
- Anderson v. Anderson, 107 Nev. 570, 816 P.2d 463 (1991).