Do you or a loved one have a trust. Do you have numerous people listed as trustees on your trust? On March 31, 2009 the Supreme Court approved self-settled trusts in Oklahoma.
According to 2009 OK 20, 206 P. 3d 599, Betty J. Neighbors (Neighbors) created the Betty J. Neighbors Revocable Trust (Trust), which she was the sole trustee. Upon its creation, some of her property was conveyed into the Trust. The terms of the Trust stated that upon her death, the successor trustees were to be her daughters Jean Ann Morgan and Mary K. Crow and her son-in-law, Gary V. Morgan. After the Trust paid the expenses of the estate, the remaining principal and income were to be distributed to Jean Ann Morgan and Mary K. Crow in equal shares.
Neighbors also executed her Last Will on April 12, 1995. The will recognized that Neighbors had four children: Jean Ann Morgan, Mary K. Crow, Jerry Welch and Martin Welch. Martin Welch was deceased at the time of the will’s execution. Dylan and Hillary Welch (collectively, the grandchildren), the appelants in this cause, are Martin Welch’s children. The will provided that at the time of her death, the entirety of her estate was to be distributed to the Trust. This is called a pour over will. It is not intended to be probated, but serves as a back-up just in case property is left out of the trust.
Neighbors died on May 19, 2000. A probate action, on March 31, 2006, order admitting the will to probate determined that Jean Ann Morgan, Mary K .Crown, Jerry Welch, and the grandchildren were Neighbors’ heirs-at-law and that the grandchildren were pretermitted heirs as defined by 84 O.S. 2001 § 132.
Title 84 O.S. 2001 § 132 provides: “When any testator omits to provide in his will for any of his children, or for the issue of any deceased child unless it appears that such omission was intentional, such child, or the issue of such child, must have the same share in the estate of the testator, as if he had died intestate, and succeeds thereto as provided in the preceding section.
The grandchildren argue that as pretermitted heirs, they are entitled to a statutory share in the Trust under 84 O.S. 2001 §132.14 The trustees respond that §132 applies only to wills, and not to trusts. The recent opinion in In re Estate of Jackson, 2008 OK 83, 194 P.3d 1269, decided the question.
In Jackson the supreme court held that §132 “unambiguously pertains only to wills. It does not encompass a situation where a child is omitted from a trust, and we decline to extend its reach to revocable inter vivos trusts.”
Then the supreme court upheld self-settled trusts, overturning 500 years of Englsh common law. This issue of first impression was whether the Settlor who was also the sole trustee was illusory, or whether an actual trust was formed. Historically the Settlor and the Trustee had to be different persons. The question was whether naming a contingent beneficiary satisfies the requirement that a trust may not have the same person as sole trustee and sole beneficiary.
The right to dispose of property is an inalienable natural right that persists throughout a person’s lifetime, but the right to control disposition of property after death is subject to statutory limitations. Oklahoma law permits an individual to dispose of property at death by trust. The grandchildren argued that even if 84 O.S. 2001 §132 is only applicable to wills, the Trust was illusory and invalid because Neighbors was the Trust’s sole trustee and sole beneficiary. That is during the Settlor’s life.
The trustees counter that because the trust provided for Mary K. Crow and Jean Ann Morgan as contingent beneficiaries, it was valid. When it is applied to the law of trusts, the so-called “merger doctrine” is the equitable concept that a valid trust must have a separation of the legal estate from the beneficial enjoyment, and that no trust can exist where the same person possesses both.
18 Title 60 O.S. 2001 §175.6, without using the term “merger doctrine,” codifies the principle that if a trustor is a beneficiary and the sole trustee, a valid trust also requires a beneficiary other than the trustor.
19 Title 60 O.S. 2001 §175.3(K) defines a trust beneficiary as “any person entitled to receive from a trust any benefit of whatsoever kind or character.” The majority rule is that a trust is not illusory or invalid simply because the interests of its beneficiaries, other than the trustor, are contingent.
The Restatement (Third) of Trusts §25, Comment b provides in pertinent part:(The) validity (of) an inter vivos trust is not affected by the fact that the interests of all beneficiaries other than the settlor do not take effect in possession or enjoyment before the settlor’s death, or that they are contingent or subject to conditions subsequent, including the exercise of a power of revocation, withdrawal, amendment, or appointment reserved to the settlor, whether exercisable during life or by will.
The reporter’s note to Restatement (Third) of Trusts §25, Comment b provides in pertinent part:
(C)ourts regularly and properly find valid trusts where settlors have retained complete control, and where other beneficiaries usually, if drafting is competent, have only future interests that are not only defeasible (by revocation or amendment) but also “contingent” upon surviving the settlor and maybe other events as well. . . .
The Last Will and Testament of Betty J. Neighbors, Article 2(B), Record p. 17, provides: If the BETTY J. NEIGHBORS REVOCABLE TRUST dated April 12, 1995, shall not be in existence as of the date of my death, then I direct that the entirety of my estate, of whatsoever nature and wheresoever situated, whether real or personal, vested or contingent, tangible or intangible, of which I may die seised or possessed or to which I may be entitled at the time of my death, be distributed to my daughters, JEAN ANN MORGAN and MARY K. CROW, in equal shares without restriction, with the descendants of a deceased daughter representing and taking, per stirpes. If either of my daughters shall predecease me and leave no descendants, then the share for such deceased daughter shall be distributed to the surviving daughter or her descendants, per stirpes. I intentionally make no provision for the distribution of any portion of my estate to my son, Jerry Welch.
The supreme court held that the Trust was not illusory simply because Neighbors was the sole trustee and only vested present beneficiary during her life. Because the Trust provided for Mary K. Crow and Jean Ann Morgan as contingent beneficiaries, it was a valid trust.
Wow! What a reach to find the way the supreme court wanted. There are several hundred thousand trusts that are identical to this one. A self-settled trust where the trust Settlor is also the sole trustee and sole beneficiary during his or her life. Can you imagine the upset this would have caused if the court had followed over 500 years of precedent. To uphold a trust on the basis that it has a contingent beneficiary, which is really just saying there is someone designated to take after the Settlor’s death [which is the whole purpose of a trust in the first place] is a real legal stretch. Just think about it. If the trust had not named a death beneficiary [contingent in this opinion], why couldn’t the court have just said, well the contingent beneficiary is the intestate statute and still uphold the trust. That being said I am pleased with the opinion, and I would have ruled the same way.
The legal rules applying to wills, living trusts, and probates are many and complicated. If you end up on the wrong side of one of them, regardless of the equitable fluff espoused by Courts, the rules are applied with harsh results. Ignorance, inexperience and lack of knowhow is going to be a legal disaster. Don’t trust your estate to chance. Don’t put your faith in a hodgepodge of documents.
If you want certainty. If you want an expert result, use an experienced living trust, will and probate attorney, Brent D. Coldiron. His fees are reasonable. He has over 39 years experience. Call Brent at (405) 478-5655 or 737-2244. His website is http://www.coldironlaw.com.