Estate Planning: Can a Trust Beneficiary Devise His Interest?

Estate Planning: Can a Trust Beneficiary Devise His Interest?

In The Case Of In Re Estate Of Herbert Trust, The Michigan Court Of Appeals Held That A Trust Beneficiary Can Devise His Vested Interest In The Trust To His Wife By Means Of His Last Will And Testament. In This Case, The Settlor Funded A Trust For Herself And Her Three Children. Settlor Died First And Then One Of Her Sons, William, Who Had Devised His Interest To His Wife. The Trust Stated That A Child’s Share Of The Trust Would Terminate If “Any Of The Settlor’s Children Die Before Said Trust Estate Or Any Part Thereof Is Delivered Over To Him Or Her As Provided In The Trust.” 

Frederick, The Other Son And Trustee, Contended That William’s Share Terminated Because He Had Not Received Any Delivery Of Any Part Of The Trust. This Would Have Meant That William’s Share Would Go To His Children. The Opinion Makes No Mention, But If William Had No Children, The Interest Would Presumably Lapse And Be Divided By Frederick And Elizabeth, The Two Surviving Children Of The Settlor.

Both The Trial Court And The Court Of Appeals, However, Found That The Income Generated By The Sole Trust Asset, Nickels Arcade, Was Part Of The Estate And Had Been Delivered Regularly To William. Despite His Brother’s Argument, The Court Held, “Because William’s Interest Was Not A Mere Life Estate, It Was Unnecessary That The Trust Instrument Grant To Him A Power Of Appointment.” Lastly, Because His Wife Was Not A “Creditor,” The Spendthrift Clause In The Trust Did Not Prevent The Devise. 

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