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The Pour-Over Provisions in Michael Jackson’s Will

(Article published in the Jul  22, 2009 issue of Manila Standard Today) 

It is debatable whether Item III in Michael Jackson’s Last Will dated 07 July 2002 is a device that is nicknamed in US trust literature as  a “pour-over provision”.  The garden variety “pour-over provision” pours over the residue (meaning, what remains of the estate after payment of taxes, just debts, specific devises and legacies) to a trust existing at the time the will is executed. Item III of MJ’s will does not give just the residue, it gives the whole estate.

 The first paragraph of Item III in part reads: “ I give my entire estate to the Trustee or Trustees then acting under that certain Amended and Restated Declaration of Trust executed on March 22, 2002 [a just little over three months before he executed his will] by me as Trustee and Trustor which is called the MICHAEL JACKSON FAMILY TRUST,…”  Hence, the question is whether it is a mere “pour-over provision” or in fact an important  institution of heir.

 Regardless, however, it is still an excellent jump-off point for a discussion on this device of estate planning that is very popular abroad and thus needs to be included in the tool box of Philippine lawyers who are assisting their clients, Filipinos and foreigners, make their wills.

 The proximity of the date of the will and date of the trust suggests that MJ must have been in the first half of 2002 thinking of how to distribute his estate upon his death.  The trust must have been established earlier than March 22, 2002; thus the description in his will of the constituting trust document as “Amended and Restated.”
 










     

The method that MJ used to create the trust, i.e. by a Declaration of Trust, restricts to the barest minimum the number of persons who are privy to its terms. Despite the legal requirement that the creation of a trust requires a conveyance of the trust property, a Declaration of Trust (which simply involves a property owner declaring himself, orally or in writing, that henceforth he holds the property in trust for another or others) is a generally recognized and in fact a preferred mode of creating a trust.  Its advantage is secrecy; no other person besides the trustor’s lawyer who may have helped in writing the document would know of its exact terms and conditions. 

 The legality of a pour-over provision in a will in favor of a trust that was revocable, or even only, amendable, was in the early days challenged mainly on the ground that the testator could not have intended to give his property under such tentative circumstances.  But a number of judges, in line with the general thrust to give free rein to will-making, decided in its favor.

 Two justifications were usually used: first, the doctrine of incorporation by reference, which permits a testator to incorporate into his will another document by merely making reference to it; and second, what we may call the doctrine of sufficient certainty, meaning that by giving the title of the document, date it was executed, the name of the trustee and other identifying features, the testator has made it sufficiently certain who wanted to benefit from his bounty. 

 In the Philippines, the justification of sufficient certainty is not likely to be used to justify a pour-over provision since Article 798 requires testamentary capacity at the time of the will’s execution. Testamentary capacity, in turn, requires knowledge of “the proper objects of his bounty.”  How could the testator know the persons he is benefiting when there is no way of knowing whether beneficiaries of the trust he is naming as heir may be changed, or, if the trust is revocable, may be revoked after the execution of the will?

 The use of the doctrine of incorporation by reference to legitimize a pour-over provision has a better chance, but not very much.  The law requires that the trust document must be in existence at the time of the execution of the will, must be clearly described and identified, stating among other things the number of pages; must be identified by clear and satisfactory proof as the document or paper referred to; and, what is most difficult to comply with, must be signed by the testator and the witnesses on each and every page, except in case of voluminous books of account or inventories (Art. 827, Civil Code).

 There is thus a need, I submit, in order to make the “pour-over provision” a reliable estate planning tool in the Philippines for an enactment of a statute similar to the Uniform Testamentary Additions to Trust Act which, I understand, has been adopted by MJ’s home state, California.  Essentially, the model law allows a pour-over provision in a will into a trust “if the trust is identified in the testator’s will and its terms are set forth in a written instrument (other than a will) executed before or concurrently with the execution of the testator’s will or in the valid last will of a person who has predeceased the testator (regardless of the existence, size or character of the corpus of the trust).”

 The pour-over is permitted, in the model statute, even if the trust is revocable or merely amendable, or both; even if the trust was in fact amended after the execution of the will or after the death of the testator. 

  Unless the testator provides otherwise, the property poured over to the trust, under the model statute, is to be considered part of the trust and not as a new trust under the will and is thus to be administered as part of the former.  Amendments in the trust before the death of the testator, regardless of whether they were made before or after the execution of the will are automatically accepted, but those made after the testator’s death can be given effect only if the testator so stated in his will.  Of course, if the trust is revoked or is terminated before the death of the testator, the bequest or devise to the trust is not to be given effect.

 Some of the provisions of the Uniform Testamentary Additions to Trust Act may or may not be too liberal for our present taste.  But what is definite is that our country would be taking one step forward towards aligning our will law with the more progressive jurisdictions elsewhere if our legislators were to mull over the pour over.
 

 

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