Anticipating the future: that’s what estate planning lawyers try to do. We want to get our clients’ wishes down on paper. That means we have to help them imagine all sorts of possible developments.
Will tax rules change before your death? Likely, yes. But in what ways? And when will you die, anyway?
How about your family? Who might join or leave the family? In what order might they die?
This week we read a court decision from Indiana. The result seems correct to us, but the story illustrates how hard it is to get all the possibilities right.
Janice Dray’s 1990 trust
The court case grew out of Janice Dray’s trust provisions, first adopted in 1990. Upon Ms. Dray’s death, her trust was to stay in place for the benefit of her sister-in-law Jacqueline. After Jacqueline’s death the remaining trust would be distributed among Ms. Dray’s family.
Once Jacqueline died, Ms. Dray’s trust was to be divided between Ralph (Ms. Dray’s brother) and Alma (her sister). If either Ralph or Alma had died before Jacqueline, then the trust was to be distributed “to their surviving children, per stirpes.”
We’ve written before about the semi-magical phrase “per stirpes.” It brings a lot of history and case law along with it, and helps simplify estate planning. But it still requires some careful thought.
At the time Ms. Dray signed her trust, both of her siblings were still alive. Brother Ralph had five children, all still alive. Sister Alma had five living children, and one other child who had died before 1990. But this is where anticipating the future became more difficult.
Ms. Dray’s death
In 1997, Ms. Dray died. She had briefly considered modifying her trust arrangement, but had apparently decided not to make any changes. That meant that her sister-in-law Jacqueline started receiving the income from Ms. Dray’s trust.
Jacqueline lived until 2018. By that time, both Ralph and Alma had died. So had two of Ralph’s children, and all of Alma’s children. Ralph had three living grandchildren by the deceased children. Though none of Alma’s children survived, thirteen grandchildren did.
So how was Ms. Dray’s remaining trust estate to be divided? What did “surviving children per stirpes” mean in this fact pattern?
Is survival required by the trust terms?
The trustee wasn’t sure how to respond to that position, and so asked the Indiana courts to give them direction. They took no position but left the decision to the courts.
According to Ralph’s three living children, Ms. Dray’s trust language divided the remaining trust among the three of them. They pointed out that they were the only children of either Ralph or Alma still alive. The trust, remember, said that it was to be divided among “surviving children, per stirpes.”
Alma’s grandchildren, on the other hand, argued that Ms. Dray’s intention was clear. She had meant to divide the remaining trust estate between her two siblings — and their respective families. In this interpretation, half of the trust would go to Ralph’s side and half to Alma’s, and then each share would be divided “per stirpes.”
Ms. Dray’s lawyer might have resolved the confusion by writing the provision differently. A direction that the trust be divided “among their issue, per stirpes” would have been clearer. Then all living children and the offspring of all deceased children would be included. Or the trust language might have been “to their surviving children, per capita.” That would have clearly signaled that only children alive at Jacqueline’s death would share Ms. Dray’s estate.
The lawyer who drafted the trust provision (who is still practicing in the community, incidentally) does not seem to have been foolish. His subsequent career confirms that he is capable and well-respected. It really points to the main difficulty we describe here: anticipating the future is challenging.
How the courts resolved the difficulty
The initial trial judge decided that Ms. Dray intended to benefit both of her siblings’ families equally. The judge got there by noting that “surviving” and “per stirpes” were inconsistent — and that created an ambiguity in Ms. Dray’s trust document.
Because there was an ambiguity, the judge could look at evidence other than the language itself. By reviewing the lawyer’s correspondence — and particularly a draft amendment that Ms. Dray considered but did not sign — it became more apparent that she did not intend to limit her beneficiaries to surviving children.
Ralph’s living children appealed. The Indiana Court of Appeals agreed with the trial judge, and affirmed her ruling. Half of Ms. Dray’s remaining trust assets will go to her late sister’s offspring, and the other half to her brother’s children (and some grandchildren). Murphy v. Trustee of Star Financial Bank, January 13, 2020.
Our job: anticipating the future
Ms. Dray’s trust helps explain one of the things estate planning lawyers try to do. We spend considerable time speculating about sequences of deaths, and alternative possibilities. Our clients often say “I had never thought about that”. When they do, we silently congratulate ourselves on a job well done.
Sometimes the process can seem a little bit ghoulish. We try not to burden clients with too much speculation about the process, but that’s what we’re working out in our heads during any pauses in the conversation.
It’s not just sequences of deaths, either. Did Ms. Dray consider the possibility that her sister-in-law might survive her by two decades? Possibly, but we know from experience that she probably didn’t really try to think out what the family would look like twenty years down the road. In fact, she would have had to anticipate the future twenty-eight years away as of the time she signed her trust.