When the residue of a probate estate is to pour over into an inter vivos trust, when does the property become a trust asset?

Charles E. Rounds, Jr. - Suffolk University Law School

Assume a will provides that the residue of the probate estate shall be transferred to the trustee of an inter vivos trust, said property to be held in accordance with the trust’s terms. When does interest in the residue become a trust asset? (1) When the will is executed (signed and witnessed)? (2) When the testator dies? (3) When the executor/personal representative (PR) transfers possession to the trustee? Answer: 2. At the time of the testator’s death, the trustee received a vested equitable property interest, subject to partial or total divestment in satisfaction of post-mortem third-party claims against the residue. In equity, possession of legal title and/or the subject property itself is not determinative of rights ownership. A trust beneficiary’s equitable interest in the trust property, for example, whether present or future, vested or contingent, is itself an interest in property, though legal title to the trust corpus itself is in the trustee. Think of shares of beneficial interest in a trusteed mutual fund. So also a legatee’s equitable interest in the probate estate is property, even when the PR has yet to relinquish legal title. In our fact pattern, the trustee, as of the time of death, received in his fiduciary capacity not legal title to the residue but an equitable property interest in the residue, which interest he held for the benefit of the trust beneficiaries. Fiduciary ownership brings with it fiduciary duties. As to why the equitable interest was vested subject to divestment rather than contingent, see §8.2.1 of Loring and Rounds: A Trustee’s Handbook (2024), the relevant portion of which section is excerpted in the appendix below.

It is self-evident that the trustee received no rights in the testator’s property while the testator was alive. A will speaks at death, not before.

In a dispute over the duty of an inter vivos trustee in a pour-over situation to monitor, pre-possession, the behavior of the PR, one trial court has failed to appreciate that possession is not an essential condition of rights ownership. The trustee, it held, had no duty prior to taking title to the residuary assets to take any action against the PR with respect to those assets, including investigating, questioning, or monitoring the PR’s behavior. It further found no duty to “shape or “gather” the property that had yet to pour over into the trust. But the trustee had taken rights ownership of the residue as of the date of death and had immediately assumed fiduciary duties with respect thereto as a consequence. The appellate court also missed the property issue, referring to the pre-distribution residue as “potential” trust property “not yet part of the trust.” See Barash v. Lembo, 303 A.3d 577 (Conn. 2023). Still, it correctly concluded that there was a pre-possession fiduciary duty, and perforce a pre-possession fiduciary right, to monitor the fiduciary behavior of the PR. That duty, according to the appellate court, was incident to the trustee’s general duty to see to it that the trust received all the property due the trust. The doctrinal fallacy with that rationale is that, as a matter of equity, enforceable rights to the residue were already a trust asset. As such, the trustee owed the trust beneficiaries a fiduciary duty, and perforce possessed a fiduciary entitlement, to ride herd on the one, namely the PR, who had legal title to and temporary fiduciary control of the residuary’s corpus.

Please see full publication below for more information.

LOADING PDF: If there are any problems, click here to download the file.

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.

© Charles E. Rounds, Jr. - Suffolk University Law School | Attorney Advertising

Written by:

Charles E. Rounds, Jr. - Suffolk University Law School

Charles E. Rounds, Jr. - Suffolk University Law School on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide