Thursday, May 20, 2010
A recent case from Alameda County, California, highlights why it is so important to be clear and unambiguous when drafting testamentary instruments, especially where there are inconsistent dispositive provisions between the documents.
In September, 2002, Bud Krusi, a widower, executed a revocable trust and pour-over will. Bud was the father of four adult children: Paul, Peter, Karl and Joan. Bud nominated his son, Paul, to serve as successor trustee of the trust. Attached to the back of the trust instrument was an Exhibit 'A' which referenced the following assets owned by the trust: (1) Bud's 100% interest in the closely-held corporation operating the Krusi family business; (2) a parcel of commercial real estate on which the family business was located; (3) a parcel of residential real estate; and (4) various investment accounts at financial institutions. The assets listed on Exhibit 'A' were properly transferred to the trust at the time of its creation. The trust instrument provided that after Bud's death the residential real property and its furnishings were to be distributed to his son, Paul, and one, Sarah Gersper, and that the remaining trust assets were to be distributed in equal shares to Paul, Peter and Joan (or to their surviving issue by right of representation). Bud's son, Karl, and all of his lineal descendants were expressly disinherited. As settlor Bud retained the right to revoke the trust, in whole or in part, or to amend any of its provisions, in either case by means of a signed written instrument delivered to the trustee during Bud's lifetime.
Under the contemporaneous pour-over will, Bud devised to the trust the remainder of his estate, including tangible personal property, such as household goods, automobiles or personal effects, to be added to the trust corpus and thereafter held, administered and distributed in accordance with the terms of the trust.
In September, 2007, just seven months prior to his death, Bud executed a new will, the preamble of which contained boilerplate language stating that all of Bud's previous wills and codicils were thereby revoked. Under the 2007 will, Bud's business partner, Barbara Simi ("Bobbie"), was named as executor and given a 51% interest in both the family business and the parcel of commercial real estate on which the business was located, making her the largest single beneficiary under the 2007 will. The 2007 will explained that it was Bud's intention to give Bobbie a controlling interest in the family business in the event that any disagreements might later arise with respect to the conduct of the business. In a separate provision of the 2007 will, Bud stated his intention to give the remainder of his estate to his surviving issue by right of representation. The 2007 will made no reference to the 2002 trust.
Bud died on March 7, 2008. Four days later, on March 11, 2008, Bobbie filed a petition with the probate court seeking a declaratory judgment that Bud, by making the 2007 will, intended to dispose of all his assets as part of a new estate plan and effectively revoked the 2002 trust in its entirety (not merely carving out the 51% interests in the business assets), and that, as a consequence, the record titles of the various assets held in the trust should be ordered changed to show title in Bobbie's name as executor of the 2007 will. Decedent's son, Paul, in his capacity as trustee of the trust, filed an objection to Bobbie's petition, contending that the 2007 will did not revoke the 2002 trust in its entirety. Paul argued that, notwithstanding that the 2007 will was inconsistent with the 2002 trust in certain particulars (i.e., the disposition of a 51% interest in the family business and associated real estate), that fact did not, by itself, constitute clear and convincing evidence that Bud intended to revoke the trust as to those assets.
TRIAL COURT DECISION
The trial court held that Bud's 2007 will amended, modified or revoked the 2002 trust, but only with regard to a 51% interest in the family business and a 51% interest in the associated real estate, finding that the 2007 will did not contain a clear and unambiguous manifestation of Bud's intent to revoke the trust in its entirety. In other words, the court held that the effect of the 2007 will on the 2002 trust was limited to the amendment, modification or revocation required with respect to the specific trust assets mentioned in the 2007 will; the other assets in the 2002 trust, including the remaining 49% interest in the family business and associated real estate, were unaffected by the 2007 will and thus were to pass equally to Paul, Peter and Joan (except for the residential real estate, which was devised to Paul and Sarah). Bobbie appealed the trial court's ruling.
APPELLATE COURT DECISION
The appellate court affirmed the trial court's decision, stating that the pivotal question in this case is the extent to which the distribution provided for under the 2002 trust should be deemed to have been changed by the provisions of the 2007 will. Like the lower court, the appellate court could not find any clear and unambiguous manifestation of Bud Krusi's intent to revoke the 2002 trust in its entirety. The words of the boilerplate preamble in the 2007 will, regarding revocation of all prior wills and codicils, do not, by themselves, reflect an intention to revoke any other kind of testamentary instrument, such as a trust.
Had the terms of the 2002 trust stated that the instrument could only be amended, modified or revoked by a signed written instrument other than a will or a codicil, Bobbie would have been entitled to take nothing and decedent's children would have been entitled to the entire estate. This, in my opinion, is how the 2002 trust should have been drafted. Just a few words inserted at the right place in the document by a careful draftsman can mean the difference between your heirs receiving millions of dollars or receiving best wishes.
For additional information please contact the writer, Keith Codron, toll-free, at (800) 497-0864, or via email at firstname.lastname@example.org. Mr. Codron, whose main office is located in Orange County, California, welcomes your comments and questions.
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