Opinion ID: 2627725
Heading Depth: 1
Heading Rank: 2

Heading: Because It Provided for Contingent Beneficiaries, The Trust Was Valid.

Text: ¶ 12 It is an issue of first impression whether naming a contingent beneficiary satisfies the requirement that a trust may not have the same person as sole trustee and sole beneficiary. The right to dispose of property is an inalienable natural right that persists throughout a person's lifetime, but the right to control disposition of property after death is subject to statutory limitations. [16] Oklahoma law permits an individual to dispose of property at death by trust. [17] ¶ 13 The grandchildren argue that even if 84 O.S. 2001 §132 is only applicable to wills, the Trust was illusory and invalid because Neighbors was the Trust's sole trustee and sole beneficiary. The trustees counter that because the trust provided for Mary K. Crow and Jean Ann Morgan as contingent beneficiaries, it was valid. ¶ 14 When it is applied to the law of trusts, the so-called merger doctrine is the equitable concept that a valid trust must have a separation of the legal estate from the beneficial enjoyment, and that no trust can exist where the same person possesses both. [18] Title 60 O.S. 2001 §175.6, without using the term merger doctrine, codifies the principle that if a trustor is a beneficiary and the sole trustee, a valid trust also requires a beneficiary other than the trustor. [19] Title 60 O.S. 2001 §175.3(K) defines a trust beneficiary as any person entitled to receive from a trust any benefit of whatsoever kind or character. [20] ¶ 15 The majority rule is that a trust is not illusory or invalid simply because the interests of its beneficiaries, other than the trustor, are contingent. The Restatement (Third) of Trusts §25, Comment b provides in pertinent part: (The) validity (of) an inter vivos trust is not affected by the fact that the interests of all beneficiaries other than the settlor do not take effect in possession or enjoyment before the settlor's death, or that they are contingent or subject to conditions subsequent, including the exercise of a power of revocation, withdrawal, amendment, or appointment reserved to the settlor, whether exercisable during life or by will. [21] The reporter's note to Restatement (Third) of Trusts §25, Comment b provides in pertinent part: (C)ourts regularly and properly find valid trusts where settlors have retained complete control, and where other beneficiaries usually, if drafting is competent, have only future interests that are not only defeasible (by revocation or amendment) but also contingent upon surviving the settlor and maybe other events as well. . . . ¶ 16 Seven states have enacted statutes which explicitly provide that a trust which has the same person as sole trustee and sole present beneficiary is not invalid if it provides for a contingent or successor beneficiary. [22] Nineteen states and the District of Columbia have adopted a version of the Uniform Trust Code, which provides at §402(b) that a beneficiary is definite if the beneficiary can be ascertained at the time of the creation of the trust or at some time in the future, subject to the rule against perpetuities. [23] The Uniform Comment to §402(a)(5) provides that the merger doctrine is not applicable to a trust with the same person as sole trustee and sole life interest beneficiary if another person is designated the remainder beneficiary. [24] Two other states, which do not have a statute directly addressing the issue, have adopted the Restatement view in appellate court opinions. [25] While there are a few state court decisions which take a view contrary to the Restatement, each of these decisions has been subsequently overruled by statute. [26] A few other decisions appear to require a present, vested beneficiary other than the sole trustee, but, by using terms like vested interest subject to divestment to rename contingent interests, embrace the Restatement view for all practical purposes. [27] Our research has not disclosed a viable case or statute contrary to the Restatement view on this issue. ¶ 17 In Thomas v. Bank of Okla., N.A., 1984 OK 41, ¶ 21, 684 P.2d 553, this Court determined that a revocable inter vivos trust may not be employed to defeat a surviving spouse's forced share of an estate as provided by 84 O.S. 2001 §44. The Court held that such a trust was illusory as to the surviving spouse and set forth the method of determining the validity of a trust: (T)he test of the validity of a trust is whether the transfer is real or illusory; that the test is whether the settlor in good faith divested himself of the property ownership or simply made an illusory transfer as a mask for the effective retention of the property. [28] Here, it is clear that the Trust was not an artifice for the effective retention of Neighbors' property. Instead, Neighbors employed the common estate-planning device of creating a revocable inter vivos trust and simultaneously executing a pour-over will to provide for her heirs at the time of her death. [29] The Restatement view is persuasive and consistent with the definition of a trust beneficiary found at 60 O.S. 2001 §175.3(K). [30] A trust is not illusory simply because it has the same person as the sole trustee and only vested present beneficiary if it provides for at least a contingent beneficiary.