This post is part 7 in our 7-part series on the Virginia Supreme Court’s ruling in Hunter v. Hunter (Record No. 190260). Today we focus on the opinion’s discussion of the issue of when a trust becomes irrevocable. Is it upon the death of the settlor (the person who created the trust)? Or at the time when the settlor loses the capacity to revoke the trust? You can find parts 1-6 of the series at the following links: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6.
For better or for worse, the Virginia Supreme Court did not decide that question in Hunter. Instead, it discussed the alternative viewpoints but declined to rule on the specific issue. The following is a summary of the Court’s discussion.
As background, the issue was presented to the Court in the following manner. The plaintiff in Hunter pled that on or after the time that the trustee began serving as trustee of the relevant trust, the settlor’s abilities declined, such that she lacked the capacity to revoke the trust. This allegation is significant because of a provision in the Virginia Uniform Trust Code that provides that “while a trust is revocable, the rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor.” Va. Code § 64.2-752(A). In the plaintiff’s pleading, he sought, among other things, a ruling about whether he was entitled to certain trust information. If the trust was still revocable at the relevant time, however, then there would be an argument that he’s not entitled to that information under Code § 64.2-752(A) because the trustee did not owe any duties to him (but rather, the trustee owed duties solely to the settlor).
The trustee tried to argue that the plaintiff was not entitled to information at that time because the trust was still revocable. The trustee tried to argue that the trust did not become irrevocable until the settlor dies.
The plaintiff, on the other hand, argued that a trust could become irrevocable before the settlor dies. The plaintiff cited to Virginia Code Section 64.2-750, which states: “The capacity required to create, amend, revoke, or add property to a revocable trust, or to direct the actions of the trustee of a revocable trust, is the same as that required to make a will.” The plaintiff argued that if the capacity required to revoke a trust is the same as that required to make a will, and if the settlor lacked such capacity at the relevant time (i.e., lacked the capacity to revoke the trust), then it logically follows that the trust is irrevocable at that time.
In Hunter, the Court discussed how the arguments “raise[] pertinent legal issues,” but declined to rule on them due to the trial court not having made factual findings on the settlor’s capacity. Interestingly, the Court added a footnote (number 12), in which it cited to Virginia Code Sections 64.2-750 and 64.2-752(A). It also noted a treatise (The Law of Trust and Trustees, by George Gleason Bogert, et al.) that commented on how the Model Uniform Trust Code has treated the concept over time. Specifically, the footnote cited the treatise for the proposition that the Model Uniform Trust Code originally provided “‘that the trustee’s duties were owed exclusively to the settlor only if the settlor had capacity to revoke the trust’ but that later amendments made this limitation optional so that without the limitation ‘the trustee cannot be held to account by other beneficiaries for its administration of a revocable trust during the settlor’s lifetime’ regardless of the settlor’s capacity” (emphasis in the original in the Court’s opinion, but not in the referenced treatise).
It’s hard to know what to make of the Court’s citations. Bogert’s treatise is far from the last word on the issue (and in fact it doesn’t even come down on one side or another). Attorneys should closely review the comments to Model Uniform Trust Code Section 603, which favor the view that rights of a beneficiary are activated upon the incapacity of a settlor compared to upon the death of a settlor.
Another thing that attorneys should consider is that trusts will often (but not always) contain language that describes the circumstances under which they become irrevocable. Attorneys should analyze that language, and further analyze how that language relates to the terms of the Virginia Uniform Trust Code (in short, many [but not all] of the provisions of the Virginia Uniform Trust Code may be “drafted around” in a trust instrument [see Va. Code § 64.2-703]).
This concludes our 7-part series on the Hunter case. If you have not read the earlier posts, I would encourage you to do so. The Hunter case is one of the most important cases on trusts to come out of the Virginia Supreme Court in years, and it’s essentially mandatory reading for attorneys.
I’ll sum up the series on the Hunter case with a quote from a commentary by a law professor – Charles E. Rounds, Jr:
Justice D. Arthur Kelsey’s opinion in the 2020 Virginia case of Hunter v. Hunter, as Trustee of the Third Amended and Restated Theresa E. Hunter Revocable Living Trust, is a tour de force, on a par with decisions authored by the likes of Justice Horace Gray (1828-1902) and other such scholar-jurists of years long gone by . . . . Thorough, clear, concise, jurisprudentially contextual, jargon-free, and rock solid when it comes to applying the common law as enhanced by equity, Kelsey’s opinion masterfully and efficiently . . . lays out the past, present, and likely future state of the law when it comes to the enforceability of in terrorem/no-contest clauses in trust instruments.
Posted to JD Supra.