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Irrevocable Trust Might Still be Terminated by Beneficiary

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Irrevocable trust

Might an irrevocable trust become revocable? That was the question faced by a South Dakota probate judge and, more recently, the state’s Supreme Court. It turns out that the trust’s beneficiary may be able to insist on termination of an irrevocable trust.

A South Dakota story

Mary Novotny, a widow living near the Nebraska border, has six children. Because she became incapacitated, three of the children sought court appointment as guardian of her person and conservator of her estate. They began to manage her affairs in 2012.

The children hired a local accountant to help prepare tax returns, court reports and the like. The accountant pointed out that her estate was somewhat in excess of $2 million. He expressed concern that an estate tax could be due upon Ms. Novotny’s death.

Was the accountant’s concern well-founded? Perhaps not. The federal estate tax limit in 2012 was already over $5 million, and South Dakota had no state estate tax. Still, Ms. Novotny’s estate was considerable, and it was unlikely that she would need all of her assets to pay for her care.

Reducing the estate size

How to reduce Ms. Novotny’s estate, to ensure that there would be no estate tax liability? Easy, suggested the accountant. Simply make substantial gifts of her assets to the six children right away. Her will left everything to her children and grandchildren, so the gifts would be consistent with her estate plan. The children agreed that this approach made sense.

Under the guidance of the accountant, Ms. Novotny’s children transferred a total of $1,270,388.30 to themselves. The distribution was in equal shares. A few months later, they approached the probate court for approval of the distributions they had already made.

There was just one problem to be resolved. When they appeared before the probate judge in early 2013, they had to explain that they had lost track of one of Ms. Novotny’s children. No one knew how to get hold of Catherine. They proposed to distribute her share of the gift — $196,564.80 — into an irrevocable trust for Catherine’s benefit.

The irrevocable trust

The children’s lawyer explained to the probate judge that they had even hired a private investigator to try to locate Catherine. He proposed that the irrevocable trust be approved, naming the same three siblings as co-trustees. Just to make sure that Catherine’s interests were protected, the siblings also proposed that the court appoint someone as guardian ad litem to advocate for her. They suggested, and the court agreed, that the estate’s accountant should serve in that role.

A year later, Catherine learned that there was a trust for her benefit. She asked the court to dissolve the trust and direct distribution of its assets to her. She also alleged that her siblings had breached their fiduciary duties to her. The judge dismissed her complaint, and directed payment of her sibling’s attorneys fees and costs from her trust.

The first appeal

Catherine appealed, and the South Dakota Supreme Court reversed the fee award. That left the trust right where it had been before she was located. She filed another petition to terminate the trust, and the trustees once again objected.

This time, Catherine focused on the apparent ambiguity in the trust’s language. Had it been established for the purpose of holding her inheritance just until she could be found, or was it intended to act as a spendthrift trust for her for the foreseeable future? And how could the court interpret the intent of a woman who had been determined to be incapacitated? Was it important to consider the intent of the siblings who actually signed the trust on behalf of their mother?

Perhaps unsurprisingly, the judge again ruled that nothing in the trust document allowed her to insist on its termination. The trustees explained that they weren’t ready to address the question of who should pay for the attorneys, and so that question was put off until another day.

The second appeal

Catherine appealed again. This time, as she had done in the lower court, she argued that the trust was ambiguous. Because of that ambiguity, she reasoned, the court should consider the circumstances around its creation to determine the purpose. The appellate court agreed.

Because Ms. Novotny was not actually involved in the creation of the trust, reasoned the Supreme Court, there was no way to determine what her intentions might have been. The intentions of three of her children were not her intentions. Therefore, there was built-in ambiguity.

Considering the circumstances — and the court testimony at the time of its creation — the appellate judges could identify the trust was purpose. It was established to hold Catherine’s gift just until she could be found. That meant that the trust’s purpose had been fulfilled: Catherine had been found. The Supreme Court directed that the probate judge terminate the trust and direct distribution of its property to Catherine. Guardianship and Conservatorship of Novotny, November 15, 2017.

What is an irrevocable trust?

Assuming that the Novotny result would be the same under Arizona law (and it probably would), does that mean that any irrevocable trust can be revoked? Not exactly.

Normally, no person (or organization) has the power to revoke an irrevocable trust. That’s what the name means. That doesn’t mean no one can end the trust. Catherine didn’t have the power to revoke her trust. She could, though, insist on termination once the court agreed that its purpose had been met.

Now we can anticipate court proceedings on the more interesting question. Does Catherine’s trust have to pay the trustee’s legal fees? If not, must  Ms. Novotny’s conservatorship estate pay them? Or will they have to come from the co-trustees’ own pockets? Stay tuned.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.