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California’s Pour Over Provision and MJ’s Will

(Article published in the Jul  29, 2009 issue of Manila Standard Today) 
 
         Eric Ryan, a law clerk at the Ord & Norman of San Francisco, California, a firm led by Edward O. C. Ord whom we work with often in international tax and trust cases, sent me last Tuesday (21 July) a copy of §6300 of the California Probate Code, confirming the statement I made last week that California had adopted the Uniform Testamentary Additions to Trusts Act allowing wills in that state to pour-over assets into trusts.

Section 6300 of the California Probate Code reads: “A devise, the validity of which is determinable by the law of this state, may be made by a will to the trustee of a trust established or to be established by the testator or by the testator and some other person or by some other person (including a funded or unfunded life insurance trust, although the settlor has reserved any or all rights of ownership of the insurance contracts) 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 trust property).  The devise is not invalid because the trust is amendable or revocable, or both, or because the trust was amended after the execution of the will or after the death of the testator.  Unless the testator's will provides otherwise, the property so devised (1) is not deemed to be held under a testamentary trust of the testator but becomes a part of the trust to which it is given and (2) shall be administered and disposed of in accordance with the provisions of the instrument or will setting forth the terms of the trust, including any amendments thereto made before or after the death of the testator (regardless of whether made before or after the execution of the testator's will).  Unless otherwise provided in the will, a revocation or termination of the trust before the death of the testator causes the devise to lapse.”

The Uniform Testamentary Additions to Trusts Act (UTATA) was first promulgated in 1960, by the American Bar Association (ABA) to goad state legislatures to remove doubts about the validity of testamentary provisions that designated the trustee of a trust without naming specifically the beneficiaries thereof.  Previous judicial attempts at favoring the so-called pour-over provisions, by invoking common law doctrines of either incorporation by reference or acts of independent significance (which I labeled last week to be understandable locally as the doctrine of “sufficient certainty”) left unresolved many issues. The ABA thus recommended the nationwide adoption of a uniform statute by the various states. More than thirty years later, in 1991, a version was proposed to align the old recommendations with the Uniform Probate Code that was approved in 1990. Essentially, the new version increased the intent-effectuating characteristics of the original model law.
 










     

Section 6300 of the California Probate Code hews closely to the model Uniform Testamentary Additions to Trusts Act.  But a noticeable difference is that California’s pour-over statute speaks only of devises, whereas, in contrast, the model law deals with both devises and bequests. 

A Philippine lawyer is familiar with the distinction: devises are testamentary gifts of specific real property while bequests are of particular personal property. He is thus expectedly curious as to whether, in addition to his interest in Neverland which is real property,  Michael Jackson’s personal properties too, after payment of obligations, would be, poured into the Michael Jackson Family Trust.  After all, the entire residue of the estate (which could conceivably be made up of both real and personal property) was willed to the trustee or trustees of said trust, yet the California enabling law expressly permits only a “devise”.

Michael Jackson (or at least, his lawyer), however, seemed to have been aware of the problem and, with “Moonwalk” seamlessness provided a neat solution.  He willed, “if for any reason this gift is not operative or is invalid, or if the aforesaid Trust fails or has been revoked”, his residuary estate to the same trustees and directed them to administer and dispose of his estate as if he had written in the same terms as appear in the Michael Jackson Family Trust.  In short, if his Plan A of simply a pour-over did not work, then Plan B was to create a new trust of his residuary estate that mirrored the original trust. 

 The Plan A, though, was that his estate be simply pour over into the family trust and, as authorized under §6300 of the California Probate Code, not deemed to be held under a testamentary trust of the testator but instead treated as part of the inter-vivos  trust to which it is given.  That colatilla mandating the holding of the poured over res as part of the inter-vivos trust and not as a testamentary trust is a clear attempt to cut the Gordian knot of legal debate on whether the res after being so poured over, retained the character of its testamentary source or whether it had become henceforth an indistinguishable part of receptacle trust.

 A thorny problem in pour-overs is the question, particularly of amendable trusts, of exactly what terms of the trust were to apply to the poured-over residue, should there be subsequent changes in the receiving trust.  Does the testator refer to the trust as it stands as of the time he makes the will (on the theory that those are the only terms he knows of)? Or, as of the time of his death, whether or not the trust was amended after the execution of the will (because that is the time the will takes effect)? Or, as the trust may from time to time be legally altered, even after the death of the testator? The rationale for the last being a trust is primarily for the benefit of the beneficiary whose needs can effect changes in the terms of the trust.

 Michael Jackson was, on that issue, as decisive as his dance moves.  Under Plan A, amendments in the Michael Jackson Family trust are, said he, to be given effect if “made prior to my death.” If Plan B, on the other hand, were to go into operation, the estate goes into a testamentary trust that is to be managed and disposed of like the Michael Jackson Family Trust “but without giving effect to any subsequent amendments after the date of this Will.”

 By requiring the recognition of amendments to the Michael Jackson Family trust prior to his death should the pour over be recognized, MJ obviously wanted to manifest his desire to retain full control of his estate to the very end.  However, if Plan A went awry and the pour-over failed, consequently not giving him that full control, then he wanted the disposition to be according to his directions as of March 22, 2002 which presumably was the last time he had control, making amendments to his estate plan.

 MJ obviously wanted to cover all the legal bases in the same manner that his presence dominated the scene every time he was on stage.  Undoubtedly with effective legal assistance, he apparently, from a Philippine lawyer’s perspective, was able to do so, with the same grace as he did his dance. 
 

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