Signing a Trust Is Not Always the Same as Funding It

A family signs an irrevocable trust agreement. Everyone leaves the meeting believing the asset has been protected and transferred.

Years later, someone asks a more difficult question: was the asset ever actually transferred?

In Inwood National Bank v. Fagin, a Dallas-area trust agreement contemplated transferring shares of bank stock into a trust - but only “[u]pon approval by” the bank. Before that approval occurred, the proposed transfer was abandoned.

The Texas Supreme Court held that the trust beneficiary did not acquire a contractual right to the shares because the required condition had never occurred.

The hidden legal mechanism

Estate planning documents often contain two separate ideas:

1. The document creates the legal structure.
2. The property is actually transferred into that structure.

Those steps are related, but they are not always identical.

In Inwood, the trust agreement stated that the stock would be transferred after bank approval. The Court treated that approval as a condition precedent. Because the approval never occurred, the shares never became trust property.

The Court also rejected the argument that the document created a completed gift. Texas law generally requires an immediate and unconditional intent to transfer ownership. Language expressing an intention to transfer property later does not necessarily create a present gift.

The Court noted that an inter vivos trust may be created by transferring property to a trustee, and that the trustee holds legal title while the beneficiary holds beneficial title. Texas Property Code § 112.001. When a trust is created by transfer to another trustee, the required transfer must be effective; Texas law also recognizes creation by a property owner’s declaration of trust.

What families should check

After signing an estate plan, families should confirm not only that the documents were executed, but also that the plan was funded correctly.

That may require checking:

• Deeds for real estate.
• Bank and brokerage account registrations.
• Business and closely held stock records.
• Assignment documents.
• Beneficiary designations.
• Trustee acceptance documents.
• Third-party approval requirements.
• Schedules describing trust property.

A trust can be beautifully drafted and still fail to control an important asset if the asset was never transferred into it.

The practical lesson from Inwood is to verify the applicable title records and any required transfer or declaration, rather than assume that a signed agreement moved every asset.

WG Law helps North Texas families design estate plans and coordinate the funding steps that make those plans work in practice.

This article provides general legal information, not legal advice, and does not create an attorney-client relationship. Texas law and individual circumstances can affect the result.