Families often agree to modify the effect of a decedent’s will or trust. Does such a modification always bind future beneficiaries? A recent California case provides an example. It also gives us a chance to explore differences from state to state.
The California facts
McKie Roth, Sr., died in 1988. His second wife, Yvonne, survived him. He also left three children from his first marriage, and Yvonne’s son.
Mr. Roth’s will left a trust for the benefit of his wife Yvonne. On her later death, the trust residue was to be divided in four equal shares — one each for his three children, and one for Yvonne’s son. So far, a pretty ordinary sort of estate plan.
After Mr. Roth’s death, though, his three children made claims against their stepmother. After a period of litigation, the parties all entered into an agreement. One element of that agreement: Mr. Roth’s three children would disclaim any interest in the trust he left for his Yvonne.
In 1991 a California court effected that agreement. The court allowed the McKie Roth trust to be modified to give Yvonne a power to name the ultimate beneficiaries of the trust. If she did not make any changes, the entire trust would go to her son.
Importantly, though, none of Mr. Roth’s grandchildren were involved in the court proceeding. They did not get notice of the proposed trust modification. While their parents (Mr. Roth’s three children) signed off on the change, the grandchildren were unaware of the litigation.
Fast forward to 2016
Twenty-five years after the trust was modified, Yvonne Roth died. By that time, at least one of McKie Roth’s children (McKie Roth, Jr.) had also died; he was survived by his son, Mark Roth.
Mark Roth then filed a court proceeding, arguing that he was still a beneficiary of his grandfather’s trust. He had not gotten notice of the 1991 proceeding, and no one had power to eliminate his interest He insisted that the earlier court order was invalid. Essentially, he insisted that the remainder beneficiaries (Mr. Roth’s three children) could not bind future beneficiaries.
The trial court disagreed. It ruled against Mark Roth and decided that Yvonne’s son was the sole beneficiary of the trust. Mark appealed.
Court of appeals: the modification did not bind future beneficiaries
The California Court of Appeals reversed the trial judge’s determination. Mark Roth’s identity and address were known at the time of the family agreement, ruled the appellate judges. He should have been given formal notice and an opportunity to be heard.
That means the 1991 court order was void. The appellate court remanded the case to the probate court, directing that the probate judge set aside that trust modification. Roth v. Jelley, February 24, 2020.
The court didn’t say it, but it’s also worth noting that the language of the agreement was apparently to have McKie Roth, Sr.’s children “disclaim” their interests. If that’s the term the agreement really used, then their shares would have flowed directly to their children, and not back to Yvonne Roth or her son. When one disclaims an inheritance, it passes as if the disclaimant had died before the interest arose. In other words, Mr. Roth’s grandchildren would have immediately become the remainder beneficiaries of his trust.
Would the same thing happen today, in Arizona?
Arizona law has changed a lot since 1991 (as, indeed, has California law). Importantly, Arizona adopted a version of the Uniform Trust Code in 2009. That statutory change included a provision to deal with exactly this kind of issue.
Prior to Arizona’s law change, the court’s power to modify trusts was much more limited. Any modification would need to include notice to all affected beneficiaries — current and future. That often meant even appointing an attorney to represent the interests of minor beneficiaries, or beneficiaries who could not be identified or located.
Arizona law now permits one person to stand in for the interests of another — so long as the “representative” has a substantially identical interest. That would probably mean that a parent could waive not only their own right to be a future beneficiary, but also their children’s (or other descendants’) rights. So if a trustee asked the probate court to approve a change like the 1991 family agreement in Arizona today, careful language in the order might help avoid a future disagreement like the Roth case.
It’s also generally easier to modify trusts in Arizona after the Uniform Trust Code adoption. The probate court’s authority to consider the proposal to modify the trust would be much clearer under current Arizona law than under the 1991 law in California.
One thing that hasn’t changed: “disclaimer” would still be a non-starter in a similar case in Arizona. If Mr. Roth’s three children disclaimed their interests under Arizona law, that would have just made their children the beneficiaries after Mrs. Roth’s death.
Do we know what would happen today in California, or elsewhere?
Would the same rules apply to a trust modification today in California? We just don’t know (though the Roth court doesn’t indicate that they think there would be any difference). But we just don’t practice California law — or any other state law outside Arizona. We have occasionally reported on court cases from other states (like this one from Pennsylvania), but we don’t claim to know local law in other jurisdictions. So ask your local lawyer if you’re considering these issues in another state.