The oft-overlooked oral trust.
A fellow called me recently — we’ll call him Charlie — and he was livid.
“My grandma set that money aside for me! She told me so! And what’s more — my cousin knows it!”
The story he told me was all too familiar: an elderly relative put a substantial amount of money in an account for her grandson to inherit at her death. The problem? She’d put Charlie’s cousin as the “payable-on-death” (POD) beneficiary on the account, with no legal paperwork establishing Charlie’s ownership of the funds.
Legally speaking, it looked like Charlie was SOL.
But as Charlie told me his story, I realized he was describing what Alabama law recognizes — and most lawyers don’t — as an oral trust.
Section 19-3B-407 of the Alabama Code provides that “a trust need not be evidenced by a trust instrument, but the creation of an oral trust and its terms may be established only by clear and convincing evidence.”
To many Alabama practitioners, this is startling. Testamentary dispositions — like through a last will and testament — are usually only enforceable when strict requirements are met: a writing, signed by the testator, witnessed by two people, with certain language sufficient to pass legal muster, among other things. How, then, could a trust — usually thought of as significantly more sophisticated than a run-of-the-mill will — be created orally?
But that’s what Alabama law says. “A trust is created when a settlor transfers property to another person as trustee during the settlor’s lifetime or by will or other disposition taking effect upon the settlor’s death.” Ledbetter v. Ledbetter, 323 So. 3d 1210, 1214 (Ala. 2020). And “creation of a trusts is established by showing (1) that a settlor had the capacity to create a trust; (2) that the settlor intended to create a trust; (3) a definite beneficiary or the applicability of an enumerated exception; (4) a trustee with duties to perform; and (5) that the same person is not the sole trustee and sole beneficiary.” Chiepalich v. Chiepalich, 392 So. 3d 467 (Ala. 2023).
Now, don’t get me wrong: a clear-and-convincing-evidence standard is a high bar. Vague impressions that an account was “meant for” this or that person won’t get you there. In fact, the Alabama Supreme Court found that no oral trust was created in the Chiepalich case.
But in Charlie’s case, we had a smoking gun: Grandma had scribbled instructions on an account statement that, although garbled, sounded an awful lot like she meant for Charlie’s cousin to hold and use the money for Charlie’s benefit. Coupled with recorded phone conversations that indicated Charlie’s cousin had knowledge of Grandma’s intent, the account statement gave us the ammo we needed for Charlie to prevail.
The moral of the story: don’t assume all is lost. We at Singing River Law pride ourselves in digging deep and finding creative solutions to the most vexing problems surrounding estates and inheritance. We don’t promise miracles, but we do pledge to look in every nook and cranny to make sure Granny’s true wishes are honored — and you get what she meant for you.
