In a recent case, the Tennessee Court of Appeals found that a settlor failed in her do-it-yourself approach to estate planning.
Decedent died in 2015. She left behind two daughters, a son, and two grandchildren. Presumably the grandchildren were the descendants of a predeceased fourth child.
Prior to her death, Decedent executed a Last Will and Testament and a Revocable Living Trust. Both documents bore a 2001 date.
Decedent, as is typically the case, named herself as initial trustee of the Revocable Living Trust. She named Gish as successor trustee.
Under the original terms of the Revocable Trust, Decedent named one of her daughters, Shirley, as sole residuary beneficiary, to take upon Decedent’s death. In doing so, she noted that she was intentionally omitting her other two living children, Elizabeth and Robert.
At some indeterminate point after the execution of the Will and Revocable Trust, the Decedent had a change of heart. She decided that she did not want to disinherit her other children and grandchildren after all. So she engaged in some self-help, attempting to alter the Revocable Trust by making hand-written notations (“interlineations”) to the document itself. Among other things, the Decedent crossed out Shirley’s name in the residuary clause of the Revocable Trust and inserted “4 ways equally.” Evidently, she was trying to divide the estate equally among her four children, with the share of the predeceased child passing equally to the two grandchildren.
The successor trustee, Gish, did not learn of the altered document until Shirley delivered it to her several months after Decedent’s death. The successor trustee then filed an action for declaratory judgment. She asked the trial court to determine whether the interlineations were valid modifications of the Revocable Trust. There was no question whether the interlineations were in Decedent’s handwriting. In addition, Decedent’s competency at the time of the hand-written alterations was not at issue. Instead, The sole issue was whether Decedent’s method of modifying the Revocable Trust was effective.
The trial court said no. It ordered that the Revocable Trust be distributed according to the original text; i.e., to Shirley. Elizabeth appealed.
The Tennessee Court of Appeals agreed with the trial court. It pointed out that there are three ways to amend a revocable trust under the Tennessee Trust Code:
- By substantial compliance with the method of amendment stated in the trust;
- By a later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust; or
- By any other method manifesting clear and convincing evidence of the settlor’s intent.
See T.C.A. § 35-15-602(c). In this case, the Revocable Trust allowed for amendment by (1) an instrument in writing (2) signed by the settlor and (3) delivered to the Trustee during the settlor’s life.
Interestingly, the appeals court conceded that elements (1) and (2) were arguably satisfied. The amendment language of the Revocable Trust was broad enough that Decedent’s handwritten notes could constitute an instrument in writing. Moreover, the fact that Decedent signed the original trust agreement could suffice for the “signed by the settlor” requirement.
According to the Tennessee Court of Appeals, it was the delivery requirement that was lacking. For the amendment to be effective, the trustee had receive it during Decedent’s life. It was undisputed that Gish did not receive a copy of the modified Revocable Trust until after Decedent’s death. The question, then, was whether she or Decedent was trustee at the time the modifications were made. Gish claimed that she assumed the role of successor trustee prior to Decedent’s death. Elizabeth, on the other hand, asserted that Decedent remained trustee until her death. Moreover, the Decedent’s notations to the Revocable Trust were not dated, making it impossible to ascertain who was serving as trustee at that time, Decedent or Gish. Therefore, the court could not find clear and convincing evidence that the modification was delivered to the appropriate Trustee during Decedent’s life.
The Tennessee Court of Appeals also discussed modification by “any other method manifesting clear and convincing evidence of the settlor’s intent.” Again, the court found that the appellant failed to carry its burden. It stated:
Settlor did not make her changes in a separate instrument. She did not sign or initial her handwritten changes, and she did not communicate her changes to anyone or deliver a copy of the annotated Trust document to another person. Furthermore, there is no evidence that Settlor performed any other action to evince an intent to change the terms of the original Trust. From the totality of the circumstances, we conclude that the trial court correctly determined that Settlor’s holographic notations were not sufficient to manifest a clear intent to modify her Trust. As such, the trial court correctly ordered the Trust res to be distributed in accordance with the original unannotated document.
As this case illustrates, amending wills and trusts by marking them up often leads to litigation. Questions arise whether the changes are valid, and if so, what the changes mean. Modifying a will through a subsequent codicil or a trust via an amendment is preferable.
Better yet, replace an obsolete will with a whole new will and amend and restate old revocable trusts. There are numerous advantages to this approach, including:
- The relevant terms of the estate plan are contained in one document, rather than spread across multiple documents;
- A single document is easier to understand;
- You can avoid inadvertent inconsistencies among multiple documents; and
- It is not as obvious when you remove a beneficiary or reduce their share.
Source: In re Elizabeth Beck Hoisington Living Trust, 2017 WL 4750644 (Tenn. Ct. App.)
Posted by Joel D. Roettger, JD, LLM, EPLS