May 28, 2014
Authored by: Luke Lantta
An irrevocable trust, once set up, can be a difficult thing to terminate or modify. In Purcella v. Olive Kathryn Purcella Trust, we see how difficult it is to modify or terminate a trust even in a friendly jurisdiction like Alaska. Therefore, those considering an irrevocable trust need to consider that irrevocable means what it says, and those advising persons in their wealth planning should make sure that they explain that irrevocable means what it says.
Olive Kathryn Purcella sought to terminate her trust or to modify her trust, claiming that she did not intend to execute an irrevocable trust or that the irrevocable trust was the product of undue influence. Ms. Purcella’s lawyer had suggested that she create a trust because she was going to receive some money from a dispute regarding a family company and because one of Ms. Purcella’s sons was purportedly “going through vast sums” of Ms. Purcella’s money. Ms. Purcella ended up executing an irrevocable trust, but later claimed that she never intended to put her property into a trust, did not know what an irrevocable trust was, and would have never executed the trust if she knew that, once she put her money into the trust, she could not get it back.
On the other hand, Ms. Purcella’s estate planning attorney testified that they discussed an irrevocable trust as a good way of protecting Ms. Purcella from her son’s spending and as a Medicaid planning device, that he explained to Ms. Purcella what an irrevocable trust was and how the trust would operate, and that Ms. Purcella told him that an irrevocable trust “looked good to her.” The attorney also testified that he went through the trust instrument with Ms. Purcella and explained to her that the trust was irrevocable and that the trustee would have complete discretion over distributions. Another of Ms. Purcella’s attorneys witnessed this conversation. The estate planning attorney met separately again with Ms. Purcella and asked her if she really wanted to create a trust, told her she was not obligated to sign the trust, and told her that when you put all your money into an irrevocable trust you can’t get it back.
Among other reasons, Ms. Purcella contended that reformation of this trust was warranted because of unanticipated circumstances. More specifically, Ms. Purcella claimed that she did not anticipate that the circumstances would arise where she would not have control over when or if her bills were paid or when or how her money was to be spent. The Alaska Supreme Court, however, noted that the misunderstanding about the ultimate effect of a legal instrument, like a trust, is not an unanticipated circumstance. Therefore, just because trust administration doesn’t play out how the trustor thought it might is not reason to modify a trust. All the more reason for estate planners to carefully explain the implications of a document – in plain language – and, if possible, have others witness those conversations.