Source: http://www.jdsupra.com/legalnews/the-confusion-being-engendered-by-the-un-97229/
Timestamp: 2016-05-05 14:53:59
Document Index: 298715605

Matched Legal Cases: ['§ 602', '§ 602', '§ 2', '§ 602', '§ 602', '§ 602', '§ 602', '§ 602', '§8', '§8', '§8', '§103', '§5', '§8', '§5', '§19', '§8', '§19', '§19', '§19', '§19', '§19', '§19', '§19', '§35', '§35', '§330', '§993', '§35', '§34', '§8', '§35', '§37', '§602', '§35', '§63', '§35', '§63', '§4', '§63', '§46', '§9', '§63', '§63', '§35', '§35', '§35', '§9', '§35', '§35', '§8', '§63', '§1001', '§602', '§35', '§63', '§602', '§35', '§35', '§3', '§602', '§63', '§35', '§35', '§63', '§220', '§602', '§35', '§8', '§602', '§63', '§6', '§35', '§35', '§35', '§35', '§35', '§35', '§35', '§602', '§602', '§602', '§602', '§8', '§35', '§35', '§35', '§602', '§63', '§7', '§35', '§330', '§5', '§9', '§15401', '§15', '§602', '§411', '§63', '§35', '§19', '§74', '§1000', '§45', '§35', '§74', '§330', '§602', '§411', '§602', '§602', '§602', '§63', '§19', '§19', '§19', '§9', '§63', '§602', '§35', '§63', '§602', '§602', '§35', '§9', '§63', '§63', '§7', '§5', '§7', '§2', '§8', '§7', '§3', '§8', '§7', '§8', '§7', '§5', '§2', '§4', '§7', '§8', '§7', '§8', '§8', '§7', '§7', '§7', '§5', '§7', '§7', '§33', '§33', '§33', '§5', '§74', '§74', '§74', '§74', '§74', '§74', '§74', '§74', '§33', '§33', '§3', '§33', '§8', '§8', '§33', '§64', '§8', '§3', '§33', '§33', '§8', '§8', '§19', '§19', '§367', '§19', '§367', '§367', '§19', '§19', '§19', '§19', '§25', '§8']

The confusion being engendered by the Uniform Trust Code’s default trust-revocation methodologies (§ 602(c)). | Charles E. Rounds, Jr. - JDSupra
In the pre-Uniform Trust Code UTC), unless the terms of a revocable inter vivos trust provided otherwise, the trust could not have been revoked by the settlor’s will. A will speaks at the time of the testator’s death, an event that happens also to render the trust irrevocable. See, e.g., Brown v. International Trust Co., 130 Colo. 543, 278 P.2d 581, 583 (Colo. 1954) (en banc). Section 602(c) of the UTC has turned this settled doctrine on its head and generally muddied the waters in the process. In its original manifestation, § 602(c) provided as follows: “The settlor may revoke or amend a revocable trust: (1) by substantial compliance with a method provided in the terms of the trust; or (2) if the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by: (A) executing 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 (B) any other method manifesting clear and convincing evidence of the settlor’s intent.” By amendment to the UTC in 2001, the word “executing” was deleted “to avoid an implication that the trust is revoked immediately upon execution of the will or codicil and not at the testator’s death.” Quaere: What if we are in a jurisdiction where a will with a trust-revocation provision may be executed (signed by the witnesses) after the settlor has died, as per § 2-502 of the Uniform Probate Code? Now comes In re Schlicht, 2014 WL 1600914 (N.M.App), a trust-revocation case decided last month (April 17, 2014), that further muddies the waters. New Mexico has enacted the modified version of UTC § 602(c). The trust at issue expressly provided that the settlor may revoke the trust “by a duly executed instrument to that effect, signed by the [settlor] and delivered to the Trustee.” The will had an express partial trust-revocation provision. The Court held that the revocation-by-will was effective, notwithstanding the express language of the trust, which the court deemed to be non-exclusive. Here is the Court’s rationale: “…[T]he will executed during the settlor’s lifetime constituted substantial compliance with a method provided in the terms of the trust.” It should be noted that Massachusetts has declined to enact the substantial compliance and revocation-by-will features of UTC § 602(c). It has, however, adopted the vaguely-worded “any other method of revocation” feature. Acknowledging the uncertainty that is baked into § 602(c), the UTC has thrown a bone to the trustee community. Section 602(g) provides that “[a] trustee who does not know that a trust has been revoked or amended is not liable to the settlor or settlor’s successors in interest for distributions made and other actions taken on the assumption that the trust has not been amended or revoked.” What if the trustee should have known? In any case, what about the other parties to the trust relationship? And what about those of us who are their legal advisors? It is suggested that the settlor of a revocable inter vivos trust would be well-advised to give UTC § 602(c) the widest possible berth by expressly providing in the terms of the trust an unambiguously-exclusive method of revoking it, and by requiring that compliance be literal. UTC’s abolition of the presumption that an inter vivos trust starts out irrevocable is “regrettable.” I suspect that over time more unwary practitioners will run into trouble due to the presumption of revocability than ever ran into trouble due to the presumption of irrevocability. Think creditors, taxes, and welfare. The other problem with the abolition is that equity is now going to have to develop a complementary doctrine of implied or constructive revocation. (In re Schlicht is just the beginning of the process, which will take years before things settle out). An inter vivos trust instrument that contains no revocation clause and no express declaration of irrevocability perforce will contain no express method for exercising the Settlor’s UTC-granted default right of revocation. UTC § 602(c) is a half-hearted attempt to address methodology. By providing that the trust may be revoked “by any … method manifesting clear and convincing evidence of the settlor’s intent,” however, it is essentially saying to equity: “You go figure it out; I cannot be bothered with the details.” In the pre-UTC days, the typical revocable inter vivos trust instrument contained a revocation clause that had two parts to it: The first part expressly reserved to the settlor the right to revoke or amend. The second part prescribed the method for revocation, such as by a writing that was signed by the settlor and delivered to the trustee, or what have you. For a general discussion of the revocability of inter vivos trusts, see §8.2.2.2 of Loring and Rounds: A Trustee’s Handbook (2014), which is reproduced in its entirety below.
Download PDF The following text (§8.2.2.2) may be found at pages 899-915 of the 2014 Edition of Loring and Rounds: A Trustee’s Handbook: §8.2.2.2 Trusts Revocable and Amendable by Settlors, Beneficiaries, and Other Nonfiduciaries; Trusts Revocable and Amendable by Trustees and Other Fiduciaries When the terms of the trust authorize the trustee to terminate the trust, the trustee may be guilty of an abuse of discretion in terminating the trust as well as in refusing to do so.
For purposes of this section, a trust is revocable if someone possesses an inter vivos power of appointment over the trust property.
It is now settled law that the reservation in the settlor of a right of revocation will not in and of itself prevent a trust from coming into existence and functioning as a will substitute, notwithstanding the considerable control that is lodged in someone other than the trustee.
This includes even self-settled declarations of trust.
At one time, however, there was concern that such an arrangement might not be a trust but be a constructive agency and/or a failed attempt at a testamentary disposition.
Some relevant power of appointment doctrine. A nonfiduciary power to revoke a trust and assume legal title to the entrusted property would include the power to cause the title to pass directly from the trustee to others, including to other trustees upon different trusts.
Such a power meets the definition of a general inter vivos power of appointment.
The Restatement (Third) of Property proposes that any express limitation on the power to partially revoke, or on the number of partial revocations that may be executed, is unenforceable.
Inherent in the power to revoke is the power to directly grant a power of revocation over the entrusted property to another, such as by the exercise of the power in further trust.
The Restatement incorrectly analogizes such a grant to an agency-type delegation of the power of revocation.
Rather, such a grant is more analogous to an irrevocable assignment of vested property rights in the entrusted 424
See generally Berall, Campfield, & Zaritsky, 468-2d T.M., Revocable Inter Vivos Trusts (describing the creation and use of revocable inter vivos trusts for asset management and estate planning). 425
But see Uniform Trust Code §103(13) (available on the Internet at <http://www.law.upenn.edu/library/archives>) (narrowly defining “revocable,” as applied to a trust, to mean revocable by the settlor without the consent of the trustee or a person holding an adverse interest). 426
1 Scott & Ascher §5.7. 427
1 Scott & Ascher §8.2.6. 428
1 Scott & Ascher §§5.7, 8.2.1 (Will Substitute), 8.2.2 (Agency Substitute). 429
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.13(a). 430
See generally §8.1.1 of this handbook (powers of appointment). 431
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.13, cmt. c; Restatement (Second) of Property (Wills and Other Donative Transfers) §19.1, cmt. d. 432
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.13, cmt. f; Restatement (Second) of Property (Wills and Other Donative Transfers) §19.2. 433
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.13, cmt. g; Restatement (Second) of Property (Wills and Other Donative Transfers) §19.2, cmt. b. property.
Powers of appointment are covered generally in Section 8.1.1 of this handbook. The Restatement (Third) of Property floats by implication the novel proposition that a power of revocation, amendment, or withdrawal should be treated as a distinct species of general inter vivos power of appointment for purposes of avoiding application of the doctrine of capture in the face of an ineffective power exercise.
We challenge the logic of the proposition in Section 8.15.12 of this handbook. The settlor. The traditional default presumption was that a trust was irrevocable.
Still, the settlor of a trust could expressly reserve an inter vivos right to revoke the trust, either in one shot or incrementally through partial revocations.
“…[I]n most states, the fact that the settlor has retained a testamentary power of appointment is not sufficient to allow the settlor to revoke the trust without the consent of all of the beneficiaries.”438 In the absence of an expressly reserved power to revoke a trust or reform its terms, a court may be willing to grant the settlor such a power, provided there is clear and convincing evidence that the absence of such a power was occasioned by scrivener error, or by the settlor’s mistaken understanding of the applicable facts or law at the time the trust was created.
In Section 8.2.2.1 of this handbook, we cover mistake-based trust terminations generally, including reformation actions. Under the Uniform Trust Code, however, a trust, whether private or charitable,
is presumed revocable by the settlor unless the terms of the trust expressly provide that the trust is irrevocable.
The Restatement (Third) of Trusts and the Uniform Trust Code are not entirely in sync in this regard.
The Restatement (Third) of Trusts would admit extrinsic evidence on whether a trust is revocable if its written terms do not adequately address the issue. If a settlor retains no beneficial interest other than by resulting trust, there is a rebuttable presumption that the trust is irrevocable.
On the other hand, if the settlor retains some beneficial interest
in addition to what might be due him or her pursuant to the imposition of a resulting trust,
there is 434
See Marx v. Rice, 3 N.J. Super. 581, 585–586, 67 A.2d 918, 920–921 (1949) (in the case of a general inter vivos power of appointment the analogy is to property, whereas in the case of a nongeneral inter vivos power, the analogy is to agency). 435
See Restatement (Third) of Property (Wills and Other Donative Transfers) §19.21, cmt. f. 436
5 Scott & Ascher §35.1 (Revocation by Settlor). 437
See 5 Scott & Ascher §35.1; 4 Scott on Trusts §330; Bogert, Trusts and Trustees §993. See also 5 Scott & Ascher §35.1.6 (Partial Revocation) (“.…[A] settlor who has the power to revoke ordinarily may exercise it by withdrawing part of the trust property at one time and another part or all of the remaining trust property at one or more subsequent times”). 438
See generally 5 Scott & Ascher §34.4; §8.2.2.1 of this handbook (trust terminations by consent). 439
5 Scott & Ascher §35.3 (Power of Revocation or Modification Omitted by Mistake). 440
5 Scott & Ascher §37.4.2 (Revocation and Modification of Charitable Trusts). 441
Uniform Trust Code §602(a) (available on the Internet at <http://www.law.upenn.edu/library/archives>). See generally 5 Scott & Ascher §35.1. 442
See Restatement (Third) of Trusts §63(1); 5 Scott & Ascher §35.1 (observing that the Restatement (Third) of Trusts “in some sense splits the difference between the traditional view and the merging view” as embodied in the provisions of the Uniform Trust Code). 443
Restatement (Third) of Trusts §63, cmt. c. 444
A reserved power of appointment would qualify as beneficial interest for purposes of the presumption of revocability. 445
See generally §4.1.1.1 of this handbook (The Noncharitable Trust; Resulting Trust Defined) (in part defining the resulting trust). a rebuttable presumption that the trust is revocable and amendable.
Under the Restatement (Third) of Trusts, a so-called adapted trust is revocable until the earlier of the settlor’s death and the exercise by the trustee of his power to select among those of an indefinite class of beneficiaries who shall take the trust property.
Evidence of the filing of a gift tax return might overcome the presumption of revocability. It has been suggested, however, that the failure to file a gift tax return ought not to overcome the presumption of irrevocability.
This is “because failure to file even a required gift-tax return is too common to be revealing of the settlor’s intention or understanding of the trust.”449 In England and Canada, the default presumption is that a general assignment to a trustee for the benefit of creditors is revocable by the debtor up until the time when the terms of the assignment are accepted by at least one of the creditors.
In the United States, there is a default presumption of irrevocability in the absence of an applicable statute.
Of course, if the debtor’s intention is that the assignee be just an agent of the debtor, then title to the subject property never leaves the debtor,
although there are some exceptions to this general rule, which we cover in Section 9.9.2 of this handbook. “When a debtor delivers money or other property to a third person with instructions to pay a particular creditor, the relationship that arises may be a contract for the benefit of the creditor, an agency for the debtor, or a trust,” depending generally on the collective intention of the parties.
Thus, before assessing whether a “trust” for the benefit of a particular creditor is revocable, one would be well-advised to first make sure that the property that was delivered actually is the subject of a trust.
Inherent in the reserved right to revoke is the right to amend. Inherent in the right to revoke a trust is the lesser right to amend it;
inherent in the right to amend is the right to insert by amendment into the trust instrument a revocation provision.
Thus, the law that is applicable to reserved powers of revocation is generally applicable as well to reserved powers of modification.
A settlor who has expressly or by implication reserved only the power to substitute beneficiaries may still be able to effect a termination of the trust by “indirection,” 446
Restatement (Third) of Trusts §63, cmt. c. 447
Restatement (Third) of Trusts §46, cmt. f. See generally §9.29 of this handbook (The Adapted Trust). 448
Restatement (Third) of Trusts §63 cmt. c(1). 449
Restatement (Third) of Trusts §63 cmt. c(1). 450
5 Scott & Ascher §35.1.8. 451
5 Scott & Ascher §35.1.8. 452
5 Scott & Ascher §35.1.8. See generally §9.9.2 of this handbook (agency arrangements). 453
5 Scott & Ascher §35.1.9. 454
4 Scott & Ascher §35.1.9. See generally §8.25 of this handbook (few American law schools still require Agency, Trusts, and Equity). 455
Restatement (Third) of Trusts §63, cmt. g; see generally Bogert, Trusts and Trustees §1001 (The Exercise of a Power of Revocation or Termination); Uniform Trust Code §602 cmt. (available on the Internet at <http://www.law.upenn.edu/library/archives>) (suggesting that a power of revocation includes the power to amend); 5 Scott & Ascher §35.2.1 (Whether Power to Revoke Include Power to Modify). 456
Restatement (Third) of Trusts §63 cmt. g; Uniform Trust Code §602 cmt. (available on the Internet at <http://www.law.upenn.edu/library/archives>) (suggesting that an unrestricted power to amend may also include the power to revoke a trust); 5 Scott & Ascher §35.2.2 (Whether Power to Modify Includes Power to Revoke). 457
See generally 5 Scott & Ascher §35.2 (Modification by Settlor). namely, by substituting himself or herself in as the sole beneficiary.
Recall that in Section 8.2.2.1 of this handbook, we note that when the settlor is the sole beneficiary and under no legal disability, the settlor may revoke the trust and take back the subject property. Mechanics of exercising a reserved right of revocation or amendment. How does a settlor with the right to revoke or amend exercise that right? When the instrument is silent on the mechanics of revocation or amendment, methods should be employed that manifest clear and convincing evidence of the settlor's present intent.
Often the methods of revoking and amending a trust are prescribed in its governing instrument.
It is generally some variation of the following: “by an instrument, in writing, delivered to the trustee.” When the revocation procedure is specified, it should be followed to the letter,
though the law may be trending in the direction of substantial compliance.
Both the Uniform Trust Code and the Restatement (Third) of Trusts have come down on the side of substantial compliance.
Some courts are even declining to enforce a provision seen in many trust instruments, namely, that for an amendment to be effective, the trustee must consent to it.
Concern has been expressed that such a requirement is tantamount to a “veto power” in the trustee, a power that could be wielded in ways that might 458
See generally §3.5.2.2 of this handbook (whether power to modify includes power to revoke). 459
Uniform Trust Code §602(c)(2)(B) (available on the Internet at <http://www.law.upenn.edu/library/archives>); Restatement (Third) of Trusts §63, cmt. h. See generally 5 Scott & Ascher §35.1.1 (When No Method of Revocation Is Specified). 460
See generally 5 Scott & Ascher §35.1.2 (When Method of Revocation Is Specified). 461
Restatement (Third) of Trusts §63, cmt. i. See, e.g., Salem United Methodist Church v. Bottorff, 138 S.W.3d 788 (2004) (while a physical act such as a tearing might serve to revoke a will if the act were coupled with a present intent to revoke, the deceased settlor’s revocable trust had not been revoked during the settlor’s lifetime by the settlor’s act of tearing out the distributive provisions from the governing instrument, the governing instrument having provided for a specific method of revocation that did not involve the act of tearing); Austin v. City of Alexandria, 574 S.E.2d 289 (Va. 2003) (holding that a settlor having failed to follow revocation procedures set forth in a deed of real estate to the trustee of his revocable trust, the real estate was still in the trust at the time of the settlor's death notwithstanding the settlor's efforts during his lifetime to transfer the real estate to the trustee of another trust); Reid v. McCoy, 46 P.3d 188 (Okla. Ct. App. 2002) (finding support in Restatement (Second) of Trusts §220 cmt. j, the court held that where the terms of a revocable and amendable inter vivos trust called for delivery of instrument of amendment to the trustee, an instrument of amendment delivered to the trustee after the death of the settlor was ineffective, the trust having been rendered irrevocable by the settlor’s death); One Valley Bank, N.A. v. Hunt, 205 W. Va. 112, 516 S.E.2d 516 (1999) (holding that a reserved power to modify or revoke during the settlor’s lifetime cannot be exercised by the settlor’s will); Phelps v. State St. Trust Co., 330 Mass. 511, 512, 115 N.E.2d 382 (1953) (the settlor having reserved the right to amend or revoke by an instrument in writing acknowledged and delivered to the trustee, any instrument that purported to amend the trust that had not been acknowledged by the settlor before a public officer authorized by law to take acknowledgments of other writings held ineffective). But see Uniform Trust Code §602(c)(1) (available on the Internet at <http://www.law.upenn.edu/library/archives>) (allowing for substantial compliance with execution formalities prescribed in the governing instrument). 462
See generally 5 Scott & Ascher §35.1.2; §8.15.53 of this handbook (the harmless-error rule [the trust application]). 463
Uniform Trust Code §602(c)(1); Restatement (Third) of Trusts §63 cmt. i. 464
See, e.g., Godley v. Valley View State Bank, 277 Kan. 736, 89 P.3d 595 (2004); Huscher v. Wells Fargo Bank, 18 Cal. Rptr. 3d 27 (2004). frustrate the legitimate intentions of competent settlors.
Also, if the method of revocation specified in the terms of the trust was intended to be a method—but not the only method—of effecting a revocation, then “the settlor may revoke by any method that sufficiently manifests the intent to do so.”466 On the other hand, when it comes not to the procedure for revoking but the circumstances under which revocation by the settlor is permissible, e.g., only as necessary for the settlor’s support
or only with the consent of the other beneficiaries,
then there must be literal compliance.
If the settlor may revoke the trust only with the consent of the trustee, then the consent power would likely be a fiduciary one.
It would then depend on the terms of the trust whether the trustee's fiduciary duty incident to holding the power to grant or withhold consent runs to the settlor or to the beneficiaries, or to both, and whether the power is discretionary or ministerial.
“…[I]f the terms of the trust neither expressly nor by implication limit the power of the trustee to consent to revocation, it would seem that the giving or withholding of consent ordinarily should be effective, as long as the trustee does not act dishonestly or form an improper motive.”472 The Uniform Trust Code, in derogation of the common law,
provides that a revocable trust even may be revoked 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.
It is “understandable” that this provision of the Code “has proven controversial, and a number of 465
It should be kept in mind that the purpose of the consent requirement is first and foremost to protect the trustee. Presumably there is always the option of resignation if the terms of the trust have metamorphosed in ways that the trustee finds objectionable. The problem is that even in the face of express resignation authority, a trustee is not relieved of his fiduciary responsibilities until such time as a qualified successor is in place. See §6.1.4 of this handbook (duty to give personal attention (not to delegate)). 466
5 Scott & Ascher §35.1.2. 467
See generally 5 Scott & Ascher 35.1.3 n.24 and accompanying text. 468
See generally 5 Scott & Ascher §35.1.3 (When Power to Revoke Is Subject to Consent of Beneficiaries) (noting that a beneficiary generally may withhold consent for no reason at all, that is a beneficiary’s consent power is generally not a fiduciary power). 469
5 Scott & Ascher §35.1.2. 470
5 Scott & Ascher §35.1.4. 471
5 Scott & Ascher §35.1.4. 472
5 Scott & Ascher §35.1.4. 473
See generally 5 Scott & Ascher §35.1.2 (noting that “the vast majority of the cases have held that a settlor who has reserved the right to revoke a trust during his or her lifetime has not also reserved the power to revoke the trust by will”). See, e.g., Last Will and Testament of Tamplin, 48 P.3d 471 (Alaska 2002) (holding that settlor’s will ineffective to revoke her trust). 474
Uniform Trust Code §602(c)(2)(A) (available on the Internet at <http://www.law.upenn.edu/library/archives>). “A revocation in a will ordinarily becomes effective only upon probate of the will following the testator’s death.” Uniform Trust Code §602 cmt. (available on the Internet at <http://www.law.upenn.edu/library/archives>). Under the Uniform Trust Code, a residuary clause in a will disposing of the settlor’s estate in a way that conflicts with the trust’s dispositive provisions alone would be insufficient to revoke the trust. For a testamentary revocation to be effective, there would need to be some reference to the trust. Uniform Trust Code §602 cmt. See also Uniform Trust Code §602(c) (each providing for the revocation of a revocable trust by a later will). See generally §8.26 of this handbook (why trustees need to know about will residue clauses). states have rejected it.”475 The effective time of revocation. Absent special facts or a specific trust provision to the contrary, a trust is deemed revoked as of the time the trustee receives the notice of revocation, not at the time the trustee relinquishes physical control of the subject property.
The revocation may even be effective as of the time notice is dropped in the mail, a consequence that would have a bearing on the rights, duties, and obligations of the parties should the settlor die before the notice is physically received by the trustee.
When it comes to trust revocations, there is much to be said for delivery by fax or email, followed by the mailing of a hard-copy back-up, particularly for the settlor who is in ill health.
A fax or email precisely sets the time of revocation, creates an evidentiary record, and eliminates any hiatus between the signing of the instrument of revocation by the settlor and its receipt by the trustee.
Litigation thrives on ambiguous situations and language. As to language, “I hereby revoke” is obviously preferable to “I hereby intend to revoke,” which could be construed as words of futurity. The Code provides that a trustee who does not know that a trust has been revoked is not liable to the settlor or the settlor’s successors in interest for distributions made and other actions taken on the assumption that the trust had not been revoked.
The Restatement (Third) of Trusts is generally in accord,
as is the Restatement (Third) of Property.
Whether an agent of the settlor may exercise a reserved right of revocation. A legally incapacitated settlor cannot exercise a reserved right of revocation.
May, however, the settlor’s agent, acting under a durable power of attorney,
exercise it? In theory, yes, provided three conditions are met: (1) the applicable durable power of attorney statute authorizes such an agency, (2) the durable power of attorney under which the agent purports to act is either sufficiently broad or sufficiently precise to cover the purported act of revocation,
and (3) the governing trust instrument itself contains a provision that authorizes revocation by proxy.
5 Scott & Ascher §35.1.2 n.19 and accompanying text. 476
5 Scott & Ascher §35.1.2. 477
5 Scott & Ascher §35.1.2. 478
See, e.g., Estate of Noell v. Norwest Bank, 960 P.2d 499 (Wyo. 1998) (delivery of letter of revocation by fax). 479
See, e.g., Estate of Noell v. Norwest Bank, 960 P.2d 499 (Wyo. 1998) (delivery of letter of revocation by fax). 480
Uniform Trust Code §602(g) (available on the Internet at <http://www.law.upenn.edu/library/archives>). 481
Restatement (Third) of Trusts §63 cmt. h. 482
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. e. 483
See generally 5 Scott & Ascher §35.1; 4 Scott on Trusts §330 n.7 and accompanying text. But see Florida Nat’l Bank of Palm Beach v. Geneva, 460 So. 2d 895 (Fla. 1985). 484
Uniform Probate Code §5-501. See also §9.9.2 of this handbook (agency arrangements) (discussing the differences between a trust and an agency). 485
Cf. Perosi v. LiGreci, 918 N.Y.S.2d 294 (Sup. Ct. 2011) (though the settlor of an “irrevocable” trust possessed the statutory right to revoke or amend the trust with the consent of all of the beneficiaries, his agent could not have exercised that right on the settlor’s behalf as there was no provision in the governing power of attorney instrument expressly granting the agent the authority to exercise that statutory right). 486
See, e.g., Matter of Goetz, 793 N.Y.S.2d 318 (Surr. Ct. 2005); Muller v. Bank of Am., 12 P.3d 899 (Kan. Ct. App. 2000); In re Guardianship of Lee, 1999 Okla. Civ. App. 50, 982 P.2d 539 (1999) (each holding that the holder of general durable power of attorney of settlor could not amend or revoke settlor’s revocable trust as the right to amend or revoke was reserved to the Under the Restatement (Third) of Trusts, only conditions (1) and (2) or (1) and (3) need be satisfied.
The trustee honors at his peril a revocation by agents, unless all three conditions have been met. So also in the case of an amendment by proxy.
This is, of course, subject to there being a case or statute on point suggesting otherwise.
There are now statutes on the books in some jurisdictions subjecting to liability one who, without reasonable cause, fails to honor the instructions of an agent acting under a durable power of attorney. The trustee’s lot is not an easy one. But it gets worse: The Restatement (Third) of Property (Wills and Other Donative Transfers) would arm the agent-fiduciary with a default “assumption” of authority to exercise a nonfiduciary general inter vivos power of appointment, such as a reserved right of revocation, but then impose on the trustee a duty to make a preliminary investigation of certain facts before honoring such an exercise. The trustee would have such a duty even if the trustee were to lack actual or constructive notice of any wrongdoing on the part of the third-party agent-fiduciary. Here is the actual wording: Unless the donor has manifested a contrary intent, it is assumed that the donor intends that the…agent under the authority of a durable power of attorney of the incapacitated donee of a presently exercisable general power is to be permitted to exercise the power for the benefit of the donee to the same extent the…agent could make an effective transfer of similar owned property for the benefit of the donee.
To paraphrase, the trustee, before honoring such an exercise, would not only need to assure himself of the agent-fiduciary’s general authority, but also that the purported proxy power-
exercise is sufficiently for the benefit of the donee of the power and that the agent-fiduciary would have the specific authority to make an effective transfer of “similar owned property” for the benefit of the donee. The concept of “similar owned property” presumably refers to property owned outright by the principal, although the Reporter’s Notes are silent on the subject, as they settlor personally, neither the trust nor the power of attorney having expressly authorized amendment or revocation by agents of the settlor). See also Kline v. Utah Dep’t of Health, 776 P.2d 57 (Utah 1989); Cal. Prob. Code §15401(c) (Deering 1999) (providing that authority to revoke a trust by proxy must be in both instruments: the trust and the power of attorney). In Colorado, by statute, an agent of the settlor may revoke a trust under which the settlor has reserved a right of revocation, provided specific reference is made to the trust in the agency agreement. Colo. Rev. Stat. §15-14-608(2) (1998). Is not a written power of attorney making express reference to an amendable trust for all intents and purposes also a trust amendment? Cf. Uniform Trust Code §602(e) (available on the Internet at <http://www.law.upenn.edu/library/archives>) (providing that a settlor’s powers with respect to revocation, amendment, or distribution of trust property may be exercised by an agent under a power of attorney only to the extent expressly authorized by the terms of the trust or the power); Uniform Trust Code §411(a) (available on the Internet at <http://www.law.upenn.edu/library/archives>) (providing that a settlor’s power to consent to the termination of a noncharitable irrevocable trust may be exercised by an agent under a power of attorney only to the extent expressly authorized by the power of attorney or the terms of the trust). 487
Restatement (Third) of Trusts §63 cmt. l. 488
See, e.g., Gurfinkel v. Josi, 972 So.2d 927 (Fla. App. 3 Dist., 2007). 489
See, e.g., 5 Scott & Ascher §35.1 n.20 (catalog of citations to cases and statutes that pertaining to the revoking of trusts by proxy). 490
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.8, cmt. d. are on the subject of how directly the donee needs to be benefited for the proxy exercise to be effective. This is all default law. Presumably the scrivener of a power-of-appointment grant is free to specify in the terms of the grant that the trustee may reasonably rely on the affidavit of the agent of the donee as to the agent’s authority to exercise the power on behalf of the donee, and that the trustee shall be held harmless if he does so to the detriment of the donee. Whether the settlor’s guardian or conservator may exercise, or have a duty to exercise, a reserved right of revocation. Close attention to matters of authority is warranted as well if the trustee is in receipt of an instrument of revocation submitted by the settlor’s conservator or guardian,
a right of revocation generally being considered a personal right.
A guardian or conservator of the settlor of a revocable trust may not exercise the settlor’s right of revocation unless granted such authority in a statute and in the governing instrument.
Not all jurisdictions are in accord.
In Ohio, the guardian may exercise the ward’s right of revocation with court approval.
In Connecticut, the conservator’s inventory shall include the value of the ward’s interest in all property in which the ward has an “equitable present interest.”496 “Increasingly, there is authority relating to whether the guardian of a settlor who is under an incapacity…may exercise the settlor’s power to revoke a trust.”497 As between the trustee and those expressly authorized to exercise the settlor’s power to revoke or amend, e.g., the settlor’s conservator, guardian, or agent acting under a durable power of attorney, the Restatement (Third) of Trusts offers some general guidance as to who should be responsible for what: “In short, conservatorship action (or action by an agent who is expressly authorized to exercise the settlor’s power to revoke or amend) may be appropriate to substitute for the judgment an incapacitated settlor can no longer exercise when need appears—for example, to compensate for short-comings in the planning of the trust or to make necessary or desirable gifts from the trust; but conservatorship or agency action exercising a settlor’s power would normally not be appropriate to substitute for (i.e., to interfere with) the judgments the trustee was expected and adequately empowered to make.”498 Suppose the governing trust instrument contains a revocation provision that excludes revocation by proxy. Would such a qualified revocation provision effectively foreclose revocation by the settlor’s conservator or guardian? Why not?499 Presumably, it is the intention of the settlor that during periods of incapacity the trust be irrevocable and that the revocation provision be suspended so that there is no basis of authority on which the conservator or guardian can act.
See, e.g., In re Bo, 365 N.W.2d 847 (N.D. 1985). 492Restatement (Third) of Trusts §74, Reporter’s Notes (Comments a(2) and e). 493
Bogert, Trusts and Trustees §1000. 494
See, e.g., In re Rudwick, 2002 WL 31730757 (Va. Cir. Ct.) (the settlor’s court-appointed conservator allowed to exercise the settlor’s reserved right of revocation though the governing instrument made no provision for revocation by proxy). 495
See Friedrich v. BancOhio Nat’l Bank, 14 Ohio App. 3d 247, 470 N.E.2d 467 (1984). 496
Conn. Stat. §45a-655(a). 497
See 5 Scott & Ascher §35.1 n.20 (Catalog of Statutes and Cases). 498
Restatement (Third) of Trusts §74 cmt. a(2). 499
See, e.g., Smith v. Department of Health, 895 So. 2d 735, 39, 368 (La. Ct. App. 2005) (suggesting that the rule at common law is that a guardian of an incompetent person does not have a power to revoke a trust created by the ward while he or she was competent under which the ward had reserved a right of revocation, even when there is no express prohibition against revocation by the guardian, the right to revoke being nontransferable and personal to the settlor). 500“Where the settlor reserves a power to revoke the trust under certain circumstances, he can revoke it only under those circumstances.” 4 Scott on Trusts §330.8. See, e.g., In re Guardianship To the extent the conservator or guardian is foreclosed from terminating an irrevocable trust created before incapacity, so too should it be foreclosed from terminating a trust where the power of revocation is suspended. If a settlor’s guardian or conservator has either a general or default fiduciary duty to attempt to obtain a court order transferring the ward’s entrusted property into the guardianship or conservatorship estate, a duty that is incident to the duty to take control of all the ward’s property, including the equitable interests, then things can get expensive. Under the Uniform Trust Code, the settlor’s conservator or guardian could exercise a settlor’s power of revocation upon approval of the court supervising the conservatorship.
However, “[b]ecause a settlor often creates a revocable trust for the very purpose of avoiding conservatorship, this power should be exercised by the court reluctantly.”502 Thus, the court should only override an express restriction if it concludes that the action furthers the interests of justice.
The Restatement (Third) of Trusts provides that “unless the trust terms provide otherwise, the settlor’s power to revoke or amend a revocable trust may be exercised by a conservator, guardian, or other legal representative if and to the extent authorized by the appropriate court.”504 The Restatement (Third) of Property (Wills and Other Donative Transfers) would arm the legal representative of a donee of a nonfiduciary general inter vivos power of appointment, such as a reserved right of revocation, with a default “assumption” of authority to exercise the power by proxy, but then impose on the trustee a duty to make a preliminary investigation of certain facts before honoring such an exercise. The trustee would have such a duty even if the trustee were to lack actual or constructive notice of any wrongdoing on the part of the legal representative. Here is the actual wording: Unless the donor has manifested a contrary intent, it is assumed that the donor intends that the legal representative…of the incapacitated donee of of Lee, 1999 Okla. Civ. App. 50, 982 P.2d 539 (1999) (denying settlor’s guardian access to assets of revocable trust, the settlor having expressly reserved only to herself the right to revoke and having made no mention of revocation by proxy). But see Johnson v. Kotyck, 76 Cal. App. 4th 83, 90 Cal. Rptr. 2d 99 (1999) (trust instrument being silent on the issue of conservator access to trust assets, the conservator of settlor of revocable trust allowed to revoke trust instead of settlor); Uniform Trust Code §602(f) (available on the Internet at <http://www.law.upenn.edu/library/archives>) (apparently providing that conservator or guardian of incapacitated settlor of revocable trust may with court approval revoke trust in stead of settlor). Cf. Uniform Trust Code §411(a) (available on the Internet at <http://www.law.upenn.edu/library/archives>) (providing that a settlor’s power to consent to the termination of a noncharitable irrevocable trust may be exercised by the settlor’s conservator with the approval of the court supervising the conservatorship if an agent is not so authorized, or by the settlor’s guardian with the approval of the court supervising the guardianship if an agent is not so authorized and a conservator has not been appointed). 501
Uniform Trust Code §602(f) (available on the Internet at <http://www.law.upenn.edu/library/archives>). 502
Uniform Trust Code §602 cmt. (available on the Internet at <http://www.law.upenn.edu/library/archives>). 503
Uniform Trust Code §602 cmt. (available on the Internet at <http://www.law.upenn.edu/library/archives>). 504
Restatement (Third) of Trusts §63 cmt. l. a presently exercisable general power is to be permitted to exercise the power for the benefit of the donee to the same extent the legal representative…could make an effective transfer of similar owned property for the benefit of the donee.
To paraphrase, the trustee before honoring such an exercise would not only need to assure himself of the legal representative’s general authority, but also that the purported proxy power-exercise is sufficiently for the benefit of the donee of the power and that the legal representative would have the specific authority to make an effective transfer of “similar owned property” for the benefit of the donee. So also if the trustee is in receipt of an instrument of proxy exercise submitted by the legal representative of a minor donee.
The concept of “similar owned property” presumably refers to property owned outright by the donee, although the Reporter’s Notes are silent on the subject, as they are on the subject of how directly the donee needs to be benefited for the proxy exercise to be effective. The judicial complaint for instructions or declaratory judgment is tailor-made for protecting the trustee in the face of such factual and legal uncertainties, a topic we take up in Section 8.42 of this handbook.
Revocation occasioned by undue influence. In Florida, a competent settlor of a revocable trust, though subject to undue influence, apparently may effectively revoke the trust: The courts have no place in trying to save persons such as Mrs. Genova, the otherwise competent settlor of a revocable trust, from what may or may not be her own imprudence with her assets. When she created this trust, she provided a means to save herself from her own incompetence, and the courts can and should zealously protect her from her own mental in-capacity. However, when she created this trust, she also reserved the absolute right to revoke if she were not incompetent. In order for this to remain a desirable feature of the trust instrument, the right to revoke should be absolute.
We leave to the reader to contemplate the public policy implications of the Genova holding, which is probably an aberration. The dissent suggested that the settlor’s act was “not the exercise of her right to revoke, but rather was the will of another foisted on her.”509 A revocable trust with multiple settlors. What if a revocable trust is created or funded by 505
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.8, cmt. d. 506Restatement (Third) of Property (Wills and Other Donative Transfers) §19.8, cmt. e. “A purported inter vivos exercise of a presently exercisable power by a minor is subject to ratification or disaffirmance by the minor when the minor becomes of age, as with a purported transfer by the minor of owned property.” Id. An effective proxy exercise would negate these rights of ratification and disaffirmance. 507
See Restatement (Third) of Property (Wills and Other Donative Transfers) §19.8, cmt. f (“A court may have jurisdiction apart from the donative document to authorize a legal representative to exercise the incapacitated donee’s power.”). 508Florida Nat’l Bank of Palm Beach County v. Genova, 460 So. 2d 895, 898 (Fla. Sup. Ct. 1984). 509Florida Nat’l Bank of Palm Beach County v. Genova, 460 So. 2d 895, 898 (1984). more than one settlor?
To the extent the trust consists of community property, the trust may be revoked by either spouse acting alone but may be amended only by joint action of both spouses.
To the extent the trust consists of property other than community property, each settlor may revoke or amend the trust with regard to the portion of the trust property attributable to that settlor’s contribution.512 Upon the revocation or amendment of the trust by less than all of the settlors, the trustee must notify the other settlors of the revocation or amendment.
In the case of a revocable trust created by a husband and wife in a common law jurisdiction, there is some default law to the effect that upon the death of the first spouse to die, the survivor's power of revocation over even the survivor’s allocable portion of the trust estate dies as well.514 When revocation is subject to third-party consent. If a settlor may revoke the trust only with the consent of a third party, the third party may not act in bad faith or from an improper motive in granting or withholding consent.
If the trustee holds the power of consent, it is likely that he holds it in a fiduciary capacity.
When the holder of a reserved right to revoke a trust dies: quasi-probating the will substitute. A trust under which the settlor has reserved a right of revocation is a type of will substitute. Thus, it is not surprising that the trend of the default law is in the direction of treating, at least for certain purposes, the settlor as if he or she were a testator/testatrix and the subject property as if it were probate property once the settlor dies, this even though title to the trust property does not transfer to the deceased settlor’s executor/executrix, administrator/administratrix, or personal representative, as the case may be. These purposes include the following:  Satisfaction of claims against the probate estate, to include certain statutory allowances;
 Application of the 120-hour requirement;
 Application of the harmless-error rule;
See, e.g., §9.25 of this handbook (the joint trust). 511
Restatement (Third) of Trusts §63, cmt. k; Uniform Trust Code §602(b)(1) (available on the Internet at <http://www.law.upenn.edu/library/archives>). 512
5 Scott & Ascher §35.1.10 (Trust with Multiple Settlors); Restatement (Third) of Trusts §63 cmt. k.; Uniform Trust Code §602(b)(2) (available on the Internet at <http://www.law.upenn.edu/library/archives>). The Code, however, does not address how a trustee calculates a settlor’s pro rata contribution of interests held jointly or as tenancies by the entirety. 513
Uniform Trust Code §602(b)(3) (available on the Internet at <http://www.law.upenn.edu/library/archives>). 514
5 Scott & Ascher §35.1.10 (Trust with Multiple Settlors). See also §9.25 of this handbook (the joint trust). 515
Restatement (Third) of Trusts §63 cmt. j. 516
Restatement (Third) of Trusts §63 cmt. j. 517
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. b. See generally §§5.3.3.1(b) of this handbook (the postmortem creditor), 5.3.4.1 of this handbook (spousal rights in common law states) and 8.9.1 of this handbook (the federal estate tax). 518
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. c: “The original Uniform Probate Code [§2-601] introduced a rule of construction that devisees must survive the decedent by 120 hours or more, but the terms of the statute applied only to transfers by will…The Revised Uniform Simultaneous Death Act and the Revised Uniform Probate Code expanded the 120-hour requirement of survival to all donative documents (wills and inter vivos donative documents, including will substitutes) that require the donee to survive the donor.” See generally §8.15.56 of this handbook (120-hour survival requirement [the trust application]).  Revocation or amendment by a subsequent will;
 Revocation by marriage;
 Ademption by extinction;
 Antilapse;
 Invalidity due to incapacity or wrongdoing;
 Application of construction, reformation, and modification doctrines generally;
 Application of rules of construction governing class gifts specifically;
and  Application of social restrictions on freedom of disposition.
For a thorough discussion of the applicability of certain rules governing testamentary dispositions to self-settled revocable trusts, the reader is referred to Section 7.2 of the Restatement (Third) of Property (Wills and Donative Transfers), particularly the accompanying commentary and Reporter’s Notes. “These rules…[also]…inform the federal common law of will substitutes under the Employee Retirement Income Security Act (ERISA).…”528 Termination or modification by beneficiary; nonsettlor holder (donee) of a presently exercisable inter vivos power of appointment. The terms of a trust may bestow on its beneficiaries a power to terminate it or modify its terms.
The presumption is that the power is held in a nonfiduciary capacity.
There is an opposite presumption when the power is in the 519
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2, cmt. d. The harmless-error rule applicable to wills is as follows: “A harmless error in executing a will may be excused if the proponent establishes by clear and convincing evidence that the decedent adopted the document as his or her will.” Restatement (Third) of Property (Wills and Other Donative Transfers) §3.3. See generally §8.15.53 of this handbook (harmless-error rule [the trust application]). 520
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2, cmt. e. See also the text of §8.2.2.2 of this handbook (the revocable trust). 521
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. f. See generally §5.3.4.1 of this handbook (spousal rights in common law states) (rights of spouses of trust beneficiaries [divorce and separation]); Uniform Probate Code §2-804 (revocation of non probate transfers by divorce); see also Restatement (Third) of Property (Wills and Other Donative Transfers) §4.1 cmt., cmt. p. 522
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. f. See generally §8.15.54 of this handbook (ademption by extinction [the trust application]). 523
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2, cmt. f. See also §8.11 of this handbook (what are the duties of the trustee of a revocable inter vivos trust?) (in part discussing the concept of antilapse in the trust context). See generally §8.15.55 of this handbook (antilapse [the trust application]). 524
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. g. 525
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. h. 526
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. i. See generally §5.2 of this handbook (class designation: “children,” “issue,” “heirs,” and “relatives” (some rules of construction)). 527
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. j. 528
Restatement (Third) of Property (Wills and Other Donative Transfers) §7.2 cmt. k. 529
5 Scott & Ascher §33.1.2 (Termination or Modification by Beneficiary). 530
5 Scott & Ascher §33.1.2 (Termination or Modification by Beneficiary). trustee.
With the possible exception of creditor access to the subject property,
the default law treats the nonsettlor holder of a general inter vivos power of appointment (or its equivalent, e.g., a right to demand principal) pretty much as it does a trust under which the settlor has reserved a right of revocation.
Like the settlor, the holder has the equivalent of an ownership interest in the portion
or all of the property that is the subject of the power. Like the settlor, the holder has the power to extinguish the rights of the other beneficiaries.
While the holder is of full age and has mental capacity, the exercise of such a power also will trump any co-existing discretionary authority in the trustee to make distributions to the holder, or anyone else for that matter.
There are some differences, however. The trustee, for example, has a duty to apprise the other beneficiaries of the existence and nature of the power in the nonsettlor and to furnish them with accountings and reports until such time as the holder instructs otherwise.
The holder, of course, needs to be legally competent to issue such an instruction. In the event of the donee’s incapacity, the other beneficiaries’ right to trust accountings and reports revives.538 If the general inter vivos power, on the other hand, is only exercisable with the consent of the trustee, another beneficiary, or a third party not beneficially interested, then the interests of the other beneficiaries are less easily subverted by the holder.
This is because the holder’s power then would not be the equivalent of ownership. A single-holder general inter vivos power of appointment subject to another's consent is not to be confused with a jointly held general inter vivos power of appointment (or power of withdrawal), which can only be exercised by all holders acting in concert. The joint power is a property equivalent that belongs to the holders collectively. It would enable them, acting in concert, to issue binding instructions to the trustee, to include instructions that if carried out could have the effect of subverting the interests of the other beneficiaries.
Whether a third person holds in a fiduciary rather than personal capacity an express power to terminate or modify the trust will ultimately depend on the terms of the trust.
If, in the event of its exercise, the subject property passes or must pass to someone other than the third person, then the status of the third person may well be that of a fiduciary,
and quite possibly that of a trust 531
5 Scott & Ascher §33.1.1 (Termination or Modification by Trustee). 532
See §5.3.3 of this handbook (rights of beneficiary’s creditors and others to trust property) (discussing in part powers of appointment and creditor accessibility). 533
Restatement (Third) of Trusts §74 cmt. g. 534
Restatement (Third) of Trusts §74 cmt. h. 535
Restatement (Third) of Trusts §74 cmt. g. 536
See, e.g., Fleck-Rubin v. Fleck, So. 2d (Fla. Ct. App. 2006) (2006 Westlaw 1300609). 537Restatement (Third) of Trusts §74 cmt. g. “This is because the donee, unlike the settlor of a revocable trust, is not the source of the beneficiaries’ rights, and the beneficiaries are entitled to know of the donee’s actions and to know of and verify the donee’s authority over the trust.” Restatement (Third) of Trusts §74 cmt. g. 538
Restatement (Third) of Trusts §74 cmt. g. 539
Restatement (Third) of Trusts §74 cmt. g(1). 540
Restatement (Third) of Trusts §74 cmt. g. 541
See generally 5 Scott & Ascher §33.1.3 (Termination or Modification by Third Person). 542
See generally 5 Scott & Ascher §33.1.3 (Termination or Modification by Third Person). protector.
If, on the other hand, the third person may exercise the power in his or her own favor, then chances are we have a nonfiduciary general inter vivos power of appointment.
The holder of a personal nonfiduciary limited/special inter vivos power of appointment over the entire corpus of a trust generally may revoke the trust by exercising the power, and do so without regard to fiduciary considerations.
There is an important caveat: The terminating exercise cannot be a fraud on the power.
Termination by trustee or protector. The terms of a trust may bestow on the trustee a discretionary power to invade principal to or for the benefit of the beneficiary or beneficiaries. A trust with such a provision is known as a discretionary trust, a topic we cover in Section 3.5.3.2(a) of this handbook. Unless the terms provide otherwise, the power is held in a fiduciary capacity and must be exercised accordingly.
So also with an express discretionary power in the trustee to terminate the trust and revest the underlying property in the settlor.
Whether the trustee may “invade the principal down to zero” and in so doing effect its termination will depend upon the terms of the trust.
Thus, if the trustee has been given a personal nonfiduciary inter vivos power of appointment,
then the trustee may effect the trust’s termination through the exercise of the power unencumbered by fiduciary constraints, provided the exercise would not constitute some kind of a fraud on the power.
Whether a trust protector with a direct or indirect discretionary power to terminate a trust is subject to trustee-like fiduciary constraints is discussed in Section 3.2.6 of this handbook. The Restatement (Third) of Property would inject some quasi-capture doctrine into the law applicable to expired general powers of appointment. If the holder of a general inter vivos power of appointment dies without having effectively exercised the power, the power expires.
Likewise, if the holder of a general testamentary power of appointment fails to effectively exercise the power by will, the power expires at the holder’s death. In either case, the gift-in-
default clause in the granting instrument, if there is such a clause, controls the disposition of the unappointed property.
(So also if a power expires by inter vivos disclaimer or release.
) The time when a power expires “is almost invariably the death of the donee,”555 although one could certainly fashion a grant of a general power that would be capable of expiring before its donee had, such as upon the exhaustion of an intervening equitable estate pur autre vie. The concept of 543
See generally §3.2.6 of this handbook (in part discussing the rights, duties, and obligations of a trust protector). See also 5 Scott & Ascher §33.1.3, n.1. 544
See generally §8.1.1 of this hand book (powers of appointment). 545
See generally §8.1.1 of this handbook (powers of appointment); but see 5 Scott & Ascher §33.1.2 (suggesting that even if a beneficiary holds a nonfiduciary power, there may be situations in which there is a duty not to exercise it in a manner that is “unnecessarily harmful or unfair to other beneficiaries” and finding support for the proposition in Restatement (Third) of Trusts §64 cmt. c). 546
See generally §8.15.26 of this handbook (fraud on a power doctrine). 547
See generally 5 Scott & Ascher 33.1.1 (Termination or Modification by Trustee); §3.5.3.2(a) of this handbook (the discretionary trust). 548
5 Scott & Ascher §33.1.1. 549
5 Scott & Ascher §33.1.1. 550
See generally §8.1 of this handbook (powers of appointment). 551
See generally §8.15.26 of this handbook (fraud on a power doctrine). 552
As we note in Section 8.1.1 of this handbook, a power of appointment is exercisable; it is never directly transferable. 553
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.22(a). 554
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.22(a). 555
Restatement (First) of Property §367, cmt. d. the estate pur autre vie is discussed generally in Section 8.15.64 of this handbook. The Restatement (Third) of Property speaks in terms of a general power “lapsing,” an unfortunate innovation.
Its predecessors spoke in terms of a power “expiring,”557 which is less ambiguous in that the term lapse can mean “to pass to another through neglect or omission.”558 As we note in Section 8.1.1 of this handbook, a power of appointment itself is never directly transmissible. But what if the donor of an expired power had neglected in the granting instrument to provide for takers-in-default, or the instrument’s gift-in-default clause was ineffective when the power expired? In that case the unappointed property passes upon a resulting trust back to the donor if the donor is then living, or into the probate estate of the donor if the donor is not then living, but, again, not until all valid intervening equitable interests have themselves expired.
Resulting trusts are covered generally in Section 4.1.1.1 of this handbook. In a radical departure from settled doctrine, the Restatement (Third) of Property provides that if the donee “merely failed to exercise the power” the unappointed property is captured by the donee or the donee’s estate.560 A resulting trust, however, would still be imposed in the case of expiration by disclaimer or release,
or upon the expiration by any means of a power of revocation, amendment, or withdrawal.
Again, as we did in more detail in our discussion of ineffective exercises of general powers in Section 8.15.12 of this handbook, we question the logic of treating a power of “revocation, amendment, or withdrawal” differently from other “types” of general inter vivos power of appointment, whether for capture purposes generally or for any other purpose. A resulting trust also would be imposed if the donee “expressly refrained from exercising the power.”563 Of course, this discussion is entirely academic if the donor is also the donee of the expired general power. The unappointed property would then end up in the probate estate of the donee in any case, whether by imposition of a resulting trust under traditional doctrine or by quasi-capture. The Restatement (Third) of Property exhibits a curious and tenacious aversion to invoking applicable resulting trust doctrine,
particularly in the sections devoted to unexercised or ineffectively exercised general powers of appointment. The result is an unhelpful dearth of context, particularly when it comes to following chains of title, as well as a fair amount of general incoherence. Take, for example, Section 19.22(b), which in part reads: “…but if the donee released the power or expressly refrained from exercising the power, the unappointed property passes under a reversionary interest to the donor or to the donor’s transferees or successors in interest.” The phrase “passes under a reversionary interest” is nonsensical in the trust context. What actually happens is that the legal title to the unappointed property passes from the trustee to the donor or his personal representative upon a resulting trust such that the equitable reversion, which had vested ab initio, becomes possessory. Nothing is passing from the trustee under, over, 556
See Restatement (Third) of Property (Wills and Other Donative Transfers) §19.22 (term lapse employed even in the section’s title). 557
See, e.g., Restatement (First) of Property §367, cmt. d. 558
The American Heritage Dictionary 1014 (3d ed. 1996). 559
See, e.g., Restatement (First) of Property §367(1). 560
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.22(b). 561
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.22(b). 562
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.22, cmt. f. 563
Restatement (Third) of Property (Wills and Other Donative Transfers) §19.22(b). 564
See, e.g., Restatement (Third) of Property (Wills and Other Donative Transfers) §25.2 (although the title to the sections is Reversion or Remainder, the resulting trust is mentioned once, and only in passing). or in a reversionary interest. We also quibble with the failure of all of the Restatements to expressly confirm that in the face of an expired power of appointment, title to property unappointed does not leave the hands of the trustee until such time as all valid intervening equitable estates have themselves expired, unless the terms of the trust so provide. An intervening equitable estate typically would be an equitable life estate.
See generally §8.27 of this handbook (the equitable life estate).