You can’t have your cake and eat it too. Similarly, you can’t disclaim your interest in a trust – and simultaneously exercise control over the interest you are supposedly disclaiming. That was the issue in In re Alexander L. Ringer Testamentary Trust, Docket No. 340350, 2018 WL 6709361 (Mich. Ct. App. Dec. 20, 2018) (unpublished).
In Ringer, the decedent’s family entered into a written agreement to resolve an inheritance dispute. Under the agreement, the decedent’s daughter, Deborah, received the assets located outside of North America, while the decedent’s daughter, Miriam, and brother, Claude, received the assets located in North America. Deborah disclaimed (i.e., renounced) her interest in the North America assets and authorized the transfer of such assets to Miriam and Claude. Miriam and Claude disclaimed their interests in the non-North America assets and authorized the transfer of such assets to Deborah.
Then Deborah’s children got involved. They pointed out that when a trust beneficiary “disclaims” her interest in the trust, then the interest passes as though the beneficiary died before the interest vested. Under the trust agreement, Deborah’s children were to receive Deborah’s share of the trust if she died before the settlor. Therefore, the children argued, because Deborah had “disclaimed” her interest in the trust, the children were entitled to such interest.
The probate court ruled against the children, and on appeal, the Michigan Court of Appeals agreed. The appellate court ruled that the disclaimer was ineffective because Deborah had assigned the same assets to Miriam and Claude. The assignment was inconsistent with the disclaimer; if Deborah had renounced all rights to the assets, then what power did she have to assign the assets to Miriam and Claude? The inconsistent assignment rendered the disclaimer ineffective, so Deborah’s children were not entitled to receive Deborah’s trust share. (The case was decided under Illinois law, but the outcome would have been the same under Michigan law. See MCL 700.2910.)
What is to be learned from this case? Agreements to resolve family inheritance disputes should be drafted with care. The children’s lawsuit was based on use of the word “disclaim” in the agreement. If the agreement was intended to include a disclaimer, then the parties should not have taken action under the agreement (i.e., assigning the disclaimed assets) which was inconsistent with the disclaimer. If the agreement was not intended to include a disclaimer, then a different word could have been used.
If you need assistance with a probate court matter, please contact Warner attorneys David Skidmore (firstname.lastname@example.org) or Laura Morris (email@example.com).