Trusts July 2002 Flashcards
(5 cards)
Summary
The disposition of Testator’s estate is governed by the will and the terms of the revocable trust as amended. Absent a governing statute or case law to the contrary, divorce does not revoke the provisions of a revocable trust in favor of a former spouse. Furthermore, if that interest is alienable and devisable (as is here the term interest in income), upon Wanda’s death it would pass to Hope, the legatee under Wanda’s will. As for Adam’s interest in the remainder, which is limited to “surviving children,” if governing law requires him to be alive when Wanda’s two-year term ends, his interest fails since he died before the term ended. The remainder, thus, passes wholly to Testator’s surviving children, Ben and Carrie.
Under the Uniform Testamentary Additions to Trust Act, a will may pour over the probate estate assets to the trustee of an unfunded inter vivos trust even if the trust instrument was not executed in accordance with the Statute of Wills.
At common law, the terms of the revocable trust could control the disposition of the testator’s probate estate under the doctrine of incorporation by reference. Under this doctrine, if the will referred to an unattested document that was in existence at the time the will was signed, the terms of that document could be given effect in the same manner as if it had been properly executed.See generally State Street Bank &Trust Co. v. Reiser, 389 N.E.2d 768 (Mass. 1979).
This doctrine is no longer necessary to validate the so-called “pour over” will because of the almost universal enactment of the Uniform Testamentary Additions to Trust Act (1983) (UTATA). Unif. Prob. Code § 2-511. Under UTATA, a trust, even an unfunded trust, as here, can be the beneficiary ofthe testator’s probate estate so long as the trust is identified in the testator’s will and its terms are set forth in a written instrument. The validity of the pour over arrangement is unaffected by the fact that the trust was amended after the execution of the will.
Under the Uniform Testamentary Additions to Trust Act, the disposition of the probate estate assets are governed by the terms of the revocable trust, including all amendments to the trust.
Under the incorporation by reference doctrine, the terms of the amended revocable trustwould not apply to the disposition of the probate estate assets as that amendment was not in existence when the will was executed. Under the Uniform Testamentary Additions to Trust Act, however, the amendment applies. Unif. Prob. Code § 2-511(b). Thus, as of Testator’s death, the probate estate assets are to be held by Bank in trust to pay the income to Wanda for two years, and then to distribute the trust principal to Testator’s surviving children.
Thus, the will and amended trust govern the disposition of Testator’s estate.
Under the laws of most states today, Wanda’s two-year term interest is not revoked by the divorce. Therefore, the trustee should hold the trust property and pay her the income for the next two years in accordance with the amended trust terms.
Many probate codes provide that if, subsequent to the execution of a will, the testator and the spouse are divorced, provisions in a will in favor of the former spouse are automatically revoked by operation of law. In such case, the property that would have passed to the spouse is disposed of as if the spouse had predeceased the decedent. If Testator had created a testamentary trust, then under such a statute, Wanda’s two-year income interest would have been revoked by operation of law.
Here, however, Wanda’s interest is created under the terms of the revocable trust. Typically, state statutes affecting a divorced spouse’s interest under a will are inapplicable to interests created under a revocable trust and, therefore, Wanda’s interest is not revoked.
However, the law in this regard is slowly changing. For example, § 2-804 of the Uniform Probate Code would cause Wanda’s two-year interest in the revocable trust to be revoked upon her divorce from Testator. Some states have judicially reached that result by viewing the will and revocable trust as integrated estate planning documents and treating the probate statute’s revocation of the spouse interest upon divorce as reaching the trust as well. See Clymer v. Mayo, 473 N.E.2d 1084, 1093 (Mass. 1985). See also Unif. Trust Code § 112. Of course, if her interest is revoked, then nothing passes to Wanda under the trust after Testator’s death.
Assuming Wanda had an interest in the trust, it would pass under her will to Hope since an interest for a two-year term does not terminate at death. Whether University has an interest in the trust depends on whether the phrase “surviving children” means surviving Testator or surviving the two-year period set aside to pay the income to Wanda.
Trust interests are alienable, devisable, and descendible unless the terms of a trust expressly or impliedly provide otherwise.
Here, Wanda has a two-year term, which is devisable in the event she were to die within that period. Since Wanda has died prior to the expiration of the two-year term, her interest passes to Hope, the sole beneficiary of her estate. See Point Two.
University has an interest only if Adam had an interest. Whether Adam had an interest depends on whether theword “surviving” in the gift to Testator’s “surviving children” means “surviving Testator” or “surviving the two-year period.”
The preferred rule is to construe the word to mean surviving to the time of distribution. Under this rule, only those children of Testator alive two years after his death are entitled to the trust principal. See generally Simes & Smith,THELAWOF FUTURE INTERESTS § 577 (3d ed. 1956). This would, of course, exclude Adam; if Adam has no interest to devise, then University, the beneficiary under Adam’s will, would have no interest in the trust either.
On the other hand, in some states, surviving refers to surviving Testator. Under this interpretation, each of Testator’s three children—Adam, Ben, and Carrie—had vested interests in the trust principal as of Testator’s death. Vested interests are not forfeited even if the beneficiary dies within two years of Testator. Given that trust interests are devisable, the vested interest of Adam would pass under his will solely to University, at least under the common law. Construing “surviving” to mean surviving Testator results in the trust remainder vesting at the earliest time.
Under the Uniform Probate Code, the analysis would be somewhat different. Section 2-707(b)(3) provides that the word “surviving” does not evidence any intent that § 2-707 not apply, as that word often does under anti-lapse statutes on which § 2-707 is modeled. Under § 2-707(b), if a class gift is limited in favor of a class of children, only those children alive at the time of distribution are entitled to possession of the property (Ben and Carrie). However, if a deceased child left surviving issue, such issue would take the deceased child’s share. Here, because Adam had no such descendants, the general rule applies and only those children of Testator alive at the time of distribution (Ben and Carrie) are entitled to possession. Under the Code, therefore, University would have no interest.
