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Revocable Family Trusts Qualify as Marital Agreements

A revocable family trust could be considered an enforceable agreement that transmutes property. In Verheyden v. Verheyden, the Nevada Supreme Court held that under NRS 123.220, a writing is required in order to transmute the character of property by clear and convincing evidence.15 A trust is clearly a writing and depending on its content, may evidence a transmutation. Further, it could be argued that revocable family trusts are in fact marital contracts under NRS 123. The statute states that spouses can enter into marriage contracts during the marriage, which can alter their legal rights. Specifically, NRS 123.070 reads as follows:

Either husband or wife may enter into any contract, engagement or transaction with the other, or with any other person respecting property, which either might enter into if unmarried, subject in any contract, engagement or transaction between themselves, to the general rules which control the actions of persons occupying relations of confidence and trust toward each other.16

There is no requirement that contracts under NRS 123.070 take any specific "form," just that they abide by principles of equity and fair dealing as set forth in case law governing marital agreements. A trust is not a person but rather an agreement - a contract - entered into between spouses formed under a fiduciary relationship with respect to property.17 More specifically, "A trust is a fiduciary relationship with respect to property, arising as a result of a manifestation of intention to create that relationship and subjecting the person who holds title to the property to duties to deal with it for the benefit of charity or for one or more persons, at least one of whom is not the sole trustee."18 NRS 163.005 states that a trust is enforceable if it meets the requirements for enforcement as a contract. Hence, a trust would apparently fall under the definition of a marital contract since it satisfies the broad definition of NRS 123.070.

Language Sufficient to Evidence a Characterization

There is an argument that as long as a trust expresses a present intent to convert the character of property, a transmutation occurs upon execution. In the case of In re Marriage of Holtemann, the California Court of Appeals dealt with a revocable family trust in which the trust stated that the character of property in the attached schedule of assets "is hereby transmuted from his [husband's] separate property to the community property of both sides."19 The court found such a declaration tantamount to an express statement evidencing the parties' intentions and that the declaration was made and consented to by the spouse whose interest was adversely affected.

While California law does not require the clear and convincing evidence standard that Nevada does in regards to transmutation, it is axiomatic that an express statement of transmutation adopted by the objecting party meets the clear and convincing standard. The court further held that a trust does not have to specifically reference the word "transmutation" in order to create one. Rather, the court only required language sufficient to evidence an intent by the parties to change the character of property. In the similar case of In re Marriage of Lund which also involved a revocable family trust, a transmutation of separate property into community property was found to have occurred via the language "Separate property ... is hereby converted to community property ..." 20 There was additional language evidencing a transmutation in Lund, such as the declaration that upon the property being converted, each party would have "... equal, existing and present interests therein."21 This is ironically the same language in NRS 123.225 regarding spouses' rights in community property.

A Present Transmutation Negates Subsequent Conditions

In Holtemann, the court also took the position that it made no difference on the effect of transmutation if the family trust referenced that the creation of the trust was solely for estate planning purposes. The same conclusion was made in Lund and by the Supreme Court of Idaho in Suchan v. Suchan.22 The Holtemann court reasoned that if there is a present transmutation of property from separate to community, it is final and property cannot be "re-transmuted" without another sufficient declaration re-characterizing the property.23 This would mean that a transmutation also cannot be made contingent upon death. Hence, once property is conveyed via an agreement, it would become an incontrovertible property right since the property must be transmuted in order for the subsequent benefit to take effect.

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