Klenk Law

Can a Client Name Someone Else’s Trust as Beneficiary of the Client’s Will?

Posted on Sun Oct 18, 2009, on Estate Planning

Inheritances are often left directly to a person, which is called an “outright” distribution. At other times clients choose to have an inheritance held in Trust. Trusts at their most basic are arrangements where one person, the Grantor, transfers an asset to a second person, the Trustee, to hold for a third person, the Beneficiary. In some Trusts one person wears more than one of these hats, for example when a parent forms a Trust for a child (Beneficiary) and names that child as the Trustee. Trusts can be Irrevocable or Revocable (sometimes called “Living Trusts”), complex or simple and serve a multitude of purposes, but typically if a client wants to give money in trust for a Beneficiary the client will create the Trust in the client’s Will.

What if a client wishes to make a gift in his or her Will into a trust formed by someone else?

This question was addressed in an August 2006 Decree from the Orphans’ Court Division of the Court of Common Please of Chester County in the Estate of Elizabeth Harris, deceased. Thinking this case may have interest to you, I have written the following short article.

The relevant facts are as follows. Mrs. Elizabeth Harris died on December 17, 2003. Her Will gave her entire residuary estate to the Trustee of a trust created by her husband in 1980. After forming this trust, Mr. Harris died in 1983 and the trust sat empty ever since. Mr. Harris’ trust stated that all contributions to the trust were to be divided three ways, one share for each daughter from his marriage with Mrs. Harris and one share for his daughter from his first marriage. One of the daughters from the second marriage challenged the validity of the transfer from Mrs. Harris into the trust created by Mr. Harris arguing that because Mr. Harris did not fund the trust at his death it could not be later funded by his wife. She argued that only the children from the second marriage should inherit.

The executor of Mrs. Harris’ Will filed a Petition for Declaratory Judgment asking the court to interpret the terms of relevant documents and give guidance as to how the estate should be distributed.

The court turned to Title 20 Section 2515 of the Pennsylvania Consolidated Statutes, which states, “A devise or bequest in a Will may be made to the trustee of a trust, including any unfunded trust, established in writing by the testator or any other person before, concurrently with or after execution of the Will. Such devise or bequest shall not be invalid because the trust is amendable or revocable, or both, or because the trust was amended after execution of the will. Unless the will provides otherwise, the property so devised or bequeathed shall not be deemed held under a testamentary trust of the testator but shall become and be a part of the principal of the trust to which it is given to be administered and disposed of in accordance with the provisions of the instrument establishing that trust and any amendment thereof. An entire revocation of the trust prior to the testator’s death shall invalidate the devise or bequest unless the will directs otherwise.” 20 PaC.S. Section 2515 (emphasis added).

The court ruled that Mrs. Harris could leave her residuary estate to a trust created by her husband many years prior even though it had sat empty for nearly two decades after his death. The fact that the trust was not funded was deemed irrelevant.

If you have any further questions please feel free to contact me!

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