Nonprobate Succession
Nonprobate transfers have become increasingly common to avoid probate. Probably the most common nonprobate transfer is the revocable trust. That is, the trustor retains the right to revoke the trust during the trustor’s life.
Wills Act and Present Transfer
The question comes down to, what is the requirements to establish a revocable trust? Does it need to comply with the Will’s Act? Ultimately, the answer is no. However, the next issue then is that a revocable trust often looks like a testamentory will or trust. Essentially, the big difference between a revocable trust and a testamentary document is when the transfer occured. A revocable trust is created during the life of the testator while a testamentary document is created upon death.
Abandoning Present Transfer Doctrine
Fulp v. Gilliland
998 N.E.2d 204 (Ind. 2013).
Facts
Ruth and Harold Sr were married, had three kids and farmed land. When Harold Sr died, Harold Jr. took over and continued to farm. Ruth put the farm in a trust, naming herself as the trustee and primary beneficiary and her three kids as the remainder beneficiaries.
Later, Ruth was put in a nursing home and decided to sell the farm to pay for her expenses. Harold Jr. purchased the farm (without any undue influence) at a significantly discounted rate. That ultimately means the trust remainder was significantly reduced. Nancy, another child of Ruth and Harold Sr., protested.
This leads the court to question, who does the trustee of a revocable trust owe a fiduciary duty to: only the trustor, the remainder beneficiaries, or both?
Analysis
The trustee has a fiduciary duty only to the trustor during the trustor’s life. At that point, the trustee then has a duty to the remainder beneficiaries. In the case where the trustor and trustee are the same person, then the trustee does not owe a duty to the remainder beneficiaries during that person’s life.
The reason for the rule is because sometimes the interests of the beneficiaries and the trustor would conflict. In those situations, the trustor’s intention would trump. For example, if a trustor decided to revoke the trust, that would be against the interest of the beneficiaries; however, the trustor retains the power to do so.
Here, Ruth was trustor, trustee, and primary beneficiary. It was her intent to create a revocable trust and name herself as the trustee and primary beneficiary. The farm was to be used for whatever purpose she desired. So, she was free to sell the farm and keep the sale in the family at a discounted rate. There is no duty to the residuary beneficiaries because that would go against her interest in creating a revocable trust. Even though the trust creates another duty to the residuary beneficiaries, that duty does not arise until after the death of the testator (administration can handle the transfer well).
Additional Notes
The key takeaway from this case is that a revocable trust is a completely different instrument. This is not a will, and it is not a trust (that is, there is no bifurcation of ownership). Instead, this instrument becomes a trust upon the death of the testator. Once the testator passes, then the revocable trust becomes an irrevocable trust.
Revoking or Amending the Trust
Patterson v. Patterson
266 P.3d 828 (Utah 2011).
Facts
A few months before her death, Mrs. Patterson removed her son Ron as a beneficiary of her trust because she had provided enough for his care throughout his life. After her death, Ron challenged the amendment, saying it was void because the amendment had not followed the amendment process listed in the will (a removal of a beneficiary would revoke the trust).
Analysis
Additional Notes
