[WSBAPT] Distribution at Death of Beneficiary of Trust Created Under a Will

[Jacob Menashe]

Please let me jump in to thank you both for your responses and to ask Eric when his law review article coming out. ☺. I’m sure it’ll be very well received by many.

Best,

Jacob

Jacob H. Menashe
Hickman Menashe, PS
4211 Alderwood Mall Blvd., Suite 202
Lynnwood, WA 98036
(425) 744-5658 phone
(425) 744-6078 fax
Satellite Office in Bellevue
www.hickmanmenashe.com

CONFIDENTIALITY: The contents of this message and any attachment(s) may contain confidential or privileged information. Any disclosure, copying, distribution, or unauthorized use of the contents of this message is prohibited and doing so may destroy the confidential nature of the communication.  If you have received this message by mistake, please do not review, disclose, copy, or distribute the e-mail.  Instead, please notify us immediately by replying to this message or telephoning us at (425) 744-5658.

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Marcus Fry
Sent: Wednesday, August 23, 2017 4:42 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Distribution at Death of Beneficiary of Trust Created Under a Will

Eric:
So in your view is there a difference if there was a trust fbo Y but omitted naming any remainder beneficiaries as opposed to trust fbo Y, but named Y’s lineal descendants as remainder beneficiaries but they were deceased/or never existed at time of Y’s passing?

Marcus J. Fry
Lyon, Weigand & Gustafson, P.S.
P.O. Box 1689
Yakima, Washington  98907
Telephone:  (509) 248-7220
Facsimile:  (509) 575-1883

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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Wednesday, August 23, 2017 4:28 PM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] Distribution at Death of Beneficiary of Trust Created Under a Will

Yep, I agree--the trust language still matters in determining testator's intent. But Y has no descendants to benefit from the anti-lapse statute. Testator is presumed to know the law at time of execution, and so must have considered what happens if Y has no heirs to take by right of representation--and yet, testator made no provision for that circumstance. At that point, I think we are again talking about reverter to testator's residue heirs or heirs at law, determined either at decedent's date of death or at Y's date of death.

Another part of that research I did earlier was on the law in the case of an actual reverter where no trust is involved: X to Y on a condition that fails some years after X's death.

A mere expectancy or possibility is not descendible.  23 Am.Jur.2d Descent & Distribution §30 (2002).

Generally, property subject to descent and distribution includes all property owned by the decedent, including expectancies and contingent interests where the person to take is certain. But, there is nothing to pass by descent where, at the time of death, the intestate owns no interest in the subject property.
Cal.—Jacob v. Hibernia Bank, 186 Cal. App. 2d 756, 9 Cal. Rptr. 901 (1st Dist. 1960).
La.—Gabriel v. United Theatres, 221 La. 219, 59 So. 2d 127 (1952).
Mo.—Henry v. Steward, 363 Mo. 213, 250 S.W.2d 527 (1952).
N.H.—Heath v. Seymour, 110 N.H. 425, 270 A.2d 602 (1970).
N.M.—Saiz v. Saiz, 74 N.M. 557, 395 P.2d 907 (1964).
S.C.—Cumbie v. Cumbie, 245 S.C. 107, 139 S.E.2d 477 (1964).
Tex.—Winkler v. Craven, 265 S.W.2d 191 (Tex. Civ. App. Waco 1954), writ refused n.r.e.
Va.—Anderson v. Richardson, 200 Va. 1, 104 S.E.2d 5 (1958).

Analogy to reverter.  As to reverters–that is, transfers by X to Y under a condition such that at some point Y's interest may revert to X–the more common rule is that if X is deceased, the reverter falls to X's heirs determined at the date of X's death.  The theory is that the reverter is an interest retained by the grantor, and remained in the grantor at the time of his death, and so passes by descent to his heirs.

However, the minority rule holds that the determination is made when the trigger event causing the reversion occurs; the theory being that the reverter is no more than a possibility.  Thus, at the time of grantor's death, there was no interest that could descend; it could only descend at the time the interest was created–when the trigger event occurs.  23 Am.Jur.2d Descent & Distribution §96 (2002); citing Brill v. Lynn, 207 Ky. 757, 270 S.W. 20, 38 A.L.R. 1109 (1925); Purvis v. McElveen, 234 S.C. 94, 106 S.E.2d 913 (1959); Vaughn v. Lanford, 81 S.C. 282, 62 S.E. 316 (1908).

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1417 31st Ave South
Seattle WA  98144-3909
phone 206-625-0092
fax 206-625-9040

Please Note that We Have Moved. We have moved our Seattle office to Mount Baker Ridge (a small commercial community just above the I-90 tunnel). Our new address is 1417 31st Avenue South, Seattle WA 98144. All other contact information remains the same.

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Marcus Fry
Sent: Wednesday, August 23, 2017 4:02 PM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] Distribution at Death of Beneficiary of Trust Created Under a Will

Great thoughts as always by Eric.

Don’t we have to start with the terms of the trust though or are we assuming a discretionary trust?  What if the trust states HEMS/MESH fbo Y until 40 then outright to Y and then Y dies at 35?  What about mandatory distributions to Y for 20 years of income (or a percentage of principal), and then disburse residue on 21st year to Y, but Y dies at year 19?  Assuming these are testamentary trusts, is the testator really contemplating a reversionary interest in these two situations?

Marcus J. Fry
Lyon, Weigand & Gustafson, P.S.
P.O. Box 1689
Yakima, Washington  98907
Telephone:  (509) 248-7220
Facsimile:  (509) 575-1883

NOTICES:
Confidentiality: This e-mail transmission may contain information which is protected by attorney-client, work product and/or other privileges.  If you are not the intended recipient, you are hereby notified that any disclosure, or taking of any action in reliance on the contents, is strictly prohibited.  If you have received this transmission in error, please contact us immediately and return the e-mail to us by choosing Reply (or the corresponding function on your e-mail system) and then deleting the e-mail.

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Wednesday, August 23, 2017 3:46 PM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] Distribution at Death of Beneficiary of Trust Created Under a Will

My thoughts:

I agree it's important that X and Y have no issue. Anti-lapse statute is inapplicable here because even if X and Y are related to the decedent, they have no issue to take by right of representation, so X and Y can be treated as if unrelated to the decedent for your purposes.

I think this should be governed more by case law handling testamentary trusts, and not irrevocable inter vivos trusts. I think the outcome differs. A testamentary trust does not demonstrate an irrevocable alienation of interest from the grantor as an inter vivos trust would. Instead, a testamentary trust is a gift of certain equitable rights to the beneficiary as to certain property given by the decedent to the trustee.

By that perspective, I would say that a testamentary trust that fails to expressly provide for termination at beneficiary's death implies a reversionary interest in the decedent's testamentary residue heirs. The lack of a remainder clause in the trust means that that the trust fails to fully dispose of decedent's property, but the law generally assumes that a Will (that the trust is a part of) is intended to dispose of all the decedent's property. So the residue clause, I would argue, receives the remainder interest of the Trust after death of its only beneficiary.

If the Will has no residue clause, then the reversionary interest goes to the decedent's intestate heirs at law, by the same logic. The Will can't be construed to cover all property, but also can't be interpreted to give the entire property interest to the trust beneficiary. By its nature, the trust does not give full rights in the assets to the beneficiary; the beneficiary's interest is inchoate and equitable only.

Then the next tricky part: At what point is the reversionary interest vested--at death of the decedent, or at termination of the trust? I had to go around and around about this in a case a while back, that resulted in me opening a probate for someone who had been dead for decades but who had just acquired a property interest (wish I could go into details). The vesting question is tricky and in Washington the only good case I could find on the question is Button, which you mention (79 Wn.2d 849 (1971)), and it punts the issue in favor of resolving on the sole basis of holding that the antilapse statute applies to RLTs the same as it does to Wills. I went to secondary authority, and here is what I concluded in the law regarding trusts:

Failure of trust.  The states are split, the question being whether, when a settlor creates a trust, the settlor is considered to have retained a reverter (and therefore heirs are determined at settlor's date of death), or all rights to the property passed to the trustee (and therefore heirs are determined at trigger event causing failure of the trust).  If all rights pass to the trustee, then the decedent's heirs living at the time of failure of the trust take by virtue of a resulting trust, rather than by inheritance/descent.

Cases stating that heirs are determined at time of failure of the trust include Butler v. Citizens & Southern Nat. Bank, 211 Ga. 414, 86 S.E.2d 520 (1955); Fiduciary Trust Co. v. State St. Bank & Trust Co., 360 Mass. 652, 277 N.E.2d 120 (1971); Dennis v. Omaha Nat. Bank, 153 Neb. 865, 46 N.W.2d 606, 27 A.L.R.2d 674 (1951).  See also Polsky v. Continental Nat. Bank, 110 F.2d 50 (CA8 Neb); Shirk v. Lee, 3 F.2d 256 (CA4 Md); Blount v. Walker, 31 S.C. 13, 9 S.E. 804.

I didn't keep the references to cases going the other way (determining heirs at date of decedent's death) as it wasn't applicable to my case. But for what it's worth, the main source I used was 23 Am.Jur.2d Descent & Distribution (2002), so you might check there for more information. See especially section 96.

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1417 31st Ave South
Seattle WA  98144-3909
phone 206-625-0092
fax 206-625-9040

Please Note that We Have Moved. We have moved our Seattle office to Mount Baker Ridge (a small commercial community just above the I-90 tunnel). Our new address is 1417 31st Avenue South, Seattle WA 98144. All other contact information remains the same.

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Jacob Menashe
Sent: Wednesday, August 23, 2017 2:18 PM
To: WSBA Probate & Trust Listserv
Subject: [WSBAPT] Distribution at Death of Beneficiary of Trust Created Under a Will

My associate and I have been going round and round about what happens if a beneficiary of an irrevocable trust, created in a decedent’s last will, passes away and there is no one left as a remainder beneficiary. In the situation we are imagining, X beneficiary’s trust at X’s death goes to Y’s trust (also created under the same will) and vice-versa. So let’s say X passes away first and everything is in Y’s trust. Then Y passes away. And neither X nor Y have any descendants (which I think is an important fact). Plus, there were no other beneficiaries in the decedent’s will; only the trusts for X and Y.)

So, where will the trust go? To the initial decedent’s heirs (not descendants, though, as X and Y were her only children) or will it go at Y’s death to Y’s heirs?

We have been round and round about this, and have looked at RCW 11.12.120 and RCW 11.12.110, and a couple interesting cases, Button v. Old National Bank and Kvande v. Olsen. We think if we had a revocable living trust, where the beneficiary passed away before the grantor, then there would be a good argument we are looking at the decedent’s heirs, not Y’s. But here we have the intervening chunk of time, where the beneficiary of the trust created in the decedent’s will passed away after the decedent.

In summary, then, my query is: Absent anywhere else to go, will the trust pass at Y’s death to the decedent’s heirs or to the beneficiary Y’s heirs?

Thanks for any thoughts on this. We are fairly stuck and I hope someone can get us unstuck.

Sincerely,

Jacob

Jacob H. Menashe
Hickman Menashe, PS
4211 Alderwood Mall Blvd., Suite 202
Lynnwood, WA 98036
(425) 744-5658 phone
(425) 744-6078 fax
Satellite Office in Bellevue
www.hickmanmenashe.com

CONFIDENTIALITY: The contents of this message and any attachment(s) may contain confidential or privileged information. Any disclosure, copying, distribution, or unauthorized use of the contents of this message is prohibited and doing so may destroy the confidential nature of the communication.  If you have received this message by mistake, please do not review, disclose, copy, or distribute the e-mail.  Instead, please notify us immediately by replying to this message or telephoning us at (425) 744-5658.
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