Vulnerability of a trust that had been revocable and funded by settlor inter vivos to postmortem spousal election generally subject to “exhaustion” of settlor’s probate estate, which may never happen

Charles E. Rounds, Jr. - Suffolk University Law School
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In an ever-increasing number of jurisdictions, the surviving spouse of the settlor of an inter vivos trust, via the spousal election statute, may be afforded postmortem access to the trust property, provided the deceased spouse had reserved a general inter vivos power of appointment, such as an unrestricted right to revoke or amend. The Uniform Probate Code is in accord, as is the Restatement (Third) of Property and the Restatement (Third) of Trusts. So is the UTC.

Upon the death of the settlor of a self-settled revocable inter vivos trust, the settlor’s surviving spouse, assuming he or she makes the statutory spousal election, will first seek full satisfaction from the settlor’s probate estate. It is “traditional doctrine” that the assets of a settlor’s probate estate must have been “exhausted” for the assets of the self-settled revocable inter vivos trust to become accessible in satisfaction of the election entitlement, and only to make good on any shortfall. See UTC §505(a)(3) & cmt. See also UPC §6-102(b) & cmt. Exhaustion is not inevitable in such situations. Take, for example, Matter of Estate of Dower, 405 Mont 443, 495 P.3d 1083 (2021), the court concluding that the husband’s probate estate was sufficient to satisfy the wife’s statutory allowances, this due to the abatement of the specific devises made to her under the husband’s will. A surviving spouse invoking his or her election rights does not make him or her a postmortem creditor of the deceased spouse’s estate. That having been said, the default law is that the postmortem creditors of the settlor of a revocable inter vivos trust also must look to the settlor’s probate estate in the first instance before turning their sights on the property of the revocable inter vivos trust. The default primary vulnerability of the probate estate in the creditor-accessibility context is taken up generally in §5.3.3.1 of Loring and Rounds: A Trustee’s Handbook (2022), the relevant parts of which are reproduced in the appendix below. The Handbook itself is available for purchase at: https://law-store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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