Ensuring the financial well being of family after death is a fundamental concern for clients when estate planning. By Trust or by Will, various strategies exist to satisfy that concern. Keeping up to date on real cases helps ensure our strategies are appropriately tailored to your needs.
The Orphans’ Court of Common Pleas of Montgomery County, Pennsylvania recently ruled on one family’s strategy in Zucker Estate. This case provides insight into how accurate trust drafting can achieve your financial support goals. The court focuses on the marital trust and critical difference between exclusive and non-exclusive powers of appointment. A factual background will serve as a point of reference for the key takeaways in Zucker.
- 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 exclusive powers of appointment and specifically disinheriting WG.
- 2013 – Mrs. Z dies.
- 2013 – WG files suit in Montgomery County Orphans’ claiming powers were non exclusive and exercised in bad faith.
The marital trust in Mr. Z’s Will existed to provide financially for Mrs. Z 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 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.
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 trust assets. Contrasted 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. 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 in Montgomery County existed to imply good faith into the exercise of powers of appointment.
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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