Some form of legal action is the first thought of most children who are disinherited by their parents, especially when their perceived share of the parents’ estate goes to their siblings instead. If it is your intention to create an estate plan that disinherits a child or to challenge a plan that disinherits you, many options exist.
The Orphans’ Court of Common Pleas of Montgomery County, Pennsylvania recently ruled on one parent’s strategy to disinherit in the Zucker Estate.
This case provides insight into how accurate trust drafting can achieve financial support goals and provide a spouse with flexibility in their estate plan. The focus in this case was a challenge to a marital trust and the critical difference between exclusive and non-exclusive powers of appointment. A factual background will serve as point of reference for the key takeaways in the Zucker case.
- 1996 – Mr. Z, a Montgomery County resident, drafts Will, including a marital trust for the benefit of his wife Mrs. Z. The marital trust includes powers of appointment held by Mrs. Z
- 2002 – Mr. Z dies, survived by Mrs. Z and three children (SZ, KG, WG)
- 2003 – Mrs. Z drafts Will
- 2005 – Mrs. Z drafts codicil exercising her exclusive powers of appointment and specifically disinheriting WG
- 2013 – Mrs. Z dies
- 2013 – WG files suit in Montgomery County Orphans’ claiming powers were nonexclusive and exercised in bad faith
The marital trust in Mr. Z’s Will existed to provide Mrs. Z with financial security for the rest of her life. Then, by terms of the trust, she had the power to appoint, “all or any part of the principal […] to or for any one or more of my children.” Providing for Mrs. Z was not the issue in this case. The issue in Zucker is what powers Mrs. Z had over disposition of the trust principal after her death. How the marital trust in Mr. Z’s Will was drafted governs the extent of Mrs. Z’s power.
After careful parsing of the language in Mr. Z’s Will, the Montgomery County Orphans’ Court reached two conclusions – the powers of appointment were exclusive and no “good faith requirement” in exercising that power exists. Essentially, Mrs. Z was able to use her powers in bad faith, to disinherit a child.
The importance of determining whether powers of appointment will be exclusive or non-exclusive before drafting cannot be overstated. Fortunately, it’s a matter left solely to the discretion of the testator. In its most basic terms, an exclusive power allows the holder (here, Mrs. Z) to disinherit persons when disposing of the marital trust assets. This is in contrast to one with non-exclusive powers that do not allow the holder to disinherit a member of the class stated in the original trust.
The key language in the trust was, “to or for any one or more of my children.” This gave Mrs. Z exclusive powers of appointment. If she had not exercised those powers, the trust would have been distributed equally among her three children. But, Mrs. Z did exercise her powers to specifically exclude WG, who initiated the suit before the Montgomery County Orphans’ Court. Due to carefully drafted language entitling Mrs. Z to exclusive powers of appointment, she succeeded in excluding WG from the trust assets.
WG’s second argument against her exclusion from the trust assets also failed. WG claimed that Mrs. Z used her powers in bad faith, out of hate for WG. The court dismissed this stating no precedent existed in Montgomery County requiring good faith in exercising a power of appointment over trust assets.
Whether your goal is to provide for your spouse, children or both – careful drafting can help effectuate those goals. Spelling out your intentions with the help of an experienced lawyer is an easy way to ensure the advice from Zucker keeps your family out of the courtroom.
If you need assistance with probate or with developing your Estate Plan, please call one of our Probate Lawyers or Estate Planning Attorneys for a free consultation. We have Estate Planning Attorneys in New Jersey, Pennsylvania, New York, Minnesota and Florida.
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