SEPTEMBER 6, 2016 VOLUME 23 NUMBER 33
Why involve an attorney in your estate planning? Partly because they know the rules -- and not just the rules about how to prepare a valid and comprehensive document, but also the rules about taxes, trust limitations, and all of the related concerns you might not focus on without professional assistance. But lawyers are also good at imagining unlikely scenarios, and covering all the possibilities.
At least they usually are. Sometimes even lawyers suffer failures of imagination. Our training and inclination leads us to consciously consider unlikely scenarios, but sometimes even lawyers get caught up in the language or the particular desires of the client. And sometimes it takes years -- or even decades -- to find the flaw in the language.
Consider Darthea Harrison's trust, signed in March of 1947 in Kansas. For context: living trusts were quite rare before the middle of the twentieth century. Most lawyers of the day might only have prepared a handful, and few state laws dealt specifically with trust interpretation. By contrast, wills were commonplace, and benefited from centuries of developed law addressing questions of interpretation. That might be why Ms. Harrison's lawyers made the mistake they did.
The trust Ms. Harrison signed provided that she would receive all the income from trust assets for the rest of her life. After her death, her son (and only child) William would be entitled to the income for the rest of his life. After that, the trust principal was to be distributed to Ms. Harrison's two brothers or, if they were no longer living, to their children.
That seems straightforward enough, but the failure was one of imagination. What actually happened: Ms. Harrison died in 1962 and her son William died in 2013 (without ever having had children). When William died, both of Ms. Harrison's brothers had already died -- and so had all of their children (they would have been Ms. Harrison's nieces and nephews). But the nieces and nephews did leave a total of eight children of their own.
What should happen to the remaining trust principal? Should it be given to the grandchildren of Ms. Harrison's two brothers? Should it go to Ms. Harrison's estate (which was probated in 1964, and would have to be reopened to determine who would receive her "new" estate)? Should it "escheat" to the State of Kansas (where Ms. Harrison died) or to the State of Missouri (where the trust was administered)? What about the fact that Ms. Harrison's husband -- who survived her -- was not the father of her son, and in fact married her after the trust was executed?
This uncertainty could easily have been resolved if, back in 1947, the attorneys drafting Ms. Harrison's trust had simply provided that upon the death of her brothers their share of her trust would devolve not to their children, but to their descendants. Alternatively, she could have considered the possibility and decided that she would then want to benefit a charity, or more distant relatives, or someone else close to her.
If Ms. Harrison had signed a will with the same language as used in her trust, both Kansas and Missouri law would have filled in the blanks for her. Arizona law, incidentally, would have handled it the same way. In that case, five centuries of will interpretations have determined that leaving something to your relatives presumably includes their descendants if the relative dies before you -- or before the future date when distribution is determined.
The Missouri probate court decided that the trust had failed, and that its remaining assets should be distributed to Ms. Harrison's estate, which would thus need to be reopened. The Missouri Court of Appeals disagreed, and reversed the probate court holding. Instead, according to the appellate court, the interests of Ms. Harrison's brother's children had "vested" before they died -- and the probate court should have determined where each of those beneficiaries' shares should go now.
In some cases, that should mean that the nieces' and nephews' children should receive their shares. In others, it might mean that a will, or a surviving spouse, might change the outcome. In any case, the Missouri probate judge will need to conduct hearings to determine the final recipients of Ms. Harrison's trust. Alexander v. UMB Bank, August 23, 2016.
Today, more careful drafting is commonplace. When your lawyer insists that you consider the possibility that your beneficiaries die in unlikely sequences, or that unanticipated children come into a family (by birth or adoption), or that odd combinations of simultaneous deaths occur, she is thinking about Ms. Harrison -- even if she has never heard the story.