Also known as: revocable inter vivos trust · revocable living trust · revocable living trusts · revocable trust · living trust
Written by attorneys — see sources below.
A trust created during the settlor's lifetime under which the settlor retains the power to revoke or amend the trust and to direct the trustee's actions. The capacity required to create, amend, revoke, or add property to the trust is the same as that required to make a will.
Renata Russo, while competent to execute a will, signs an amendment to her revocable inter vivos trust directing the trustee to distribute certain assets to a new charity upon her death. After her death her heirs challenge the amendment on capacity grounds. The court applies the will-capacity standard and upholds the amendment because Renata possessed the requisite understanding at the time she executed it.
Riley Rivera, as executor of an estate, sues in federal court claiming that assets held in a revocable inter vivos trust were improperly transferred before death. The opposing party moves to dismiss, arguing the probate exception bars federal jurisdiction. The court denies the motion because the claim concerns the validity of the trust instrument itself rather than core probate administration.
Vickie Lynn Marshall, also known as Anna Nicole Smith, met J. Howard Marshall II in October 1991 and married him on June 27, 1994. J. Howard died on August 4, 1995. Although he had given Vickie substantial gifts and money during their relationship, his will made no provision for her. Vickie maintained that J. Howard had intended to secure her future through a catchall trust. Respondent E. Pierce Marshall, one of J. Howard’s sons, stood as the sole ultimate beneficiary under his father’s estate plan, which consisted of a living trust and a pourover will directing all remaining assets into the trust. In January 1996, while J. Howard’s estate remained subject to probate proceedings in Harris County, Texas, Vickie filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Central District of California. In June 1996 Pierce filed a proof of claim in that bankruptcy case asserting that Vickie had defamed him through statements made to the press shortly after J. Howard’s death. Vickie answered and asserted a counterclaim alleging that Pierce had tortiously interfered with her expected gift by imprisoning J. Howard against his wishes, surrounding him with hired guards, making misrepresentations to him, and transferring property contrary to his expressed intentions. The Bankruptcy Court granted summary judgment to Vickie on Pierce’s defamation claim. After a trial on the merits it entered judgment for Vickie on her tortious interference counterclaim and awarded her more than $449 million in compensatory damages, less any amount recovered in the Texas probate action, plus $25 million in punitive damages. Pierce then moved to dismiss for lack of subject-matter jurisdiction, arguing that the claim belonged exclusively in the Texas probate proceedings. In the Texas Probate Court, Pierce sought a declaration that the living trust and will were valid. Vickie initially challenged the instruments and asserted her own tortious interference claim there but voluntarily dismissed both claims after the Bankruptcy Court’s judgment. Following a jury trial the Probate Court declared the trust and will valid. On review of the Bankruptcy Court’s judgment the District Court rejected the probate-exception argument. The court adopted the Bankruptcy Court’s findings with supplements. It awarded Vickie approximately $44.3 million in compensatory damages together with an equal amount in punitive damages. The Ninth Circuit reversed. It held that the probate exception barred federal jurisdiction because the claim raised questions ordinarily decided by a probate court and because the Texas Probate Court had asserted exclusive jurisdiction over all of Vickie’s claims. The Supreme Court granted certiorari in 2005.
View caseRavi Reddy's estate includes interests in a revocable inter vivos trust. A state probate court determines the settlor's intent regarding revocation rights. In a later federal tax dispute the IRS argues the federal court may disregard the state ruling. The court holds that the state adjudication of the trust's character controls the federal tax consequences.
In 1930 a New York resident created a revocable trust that was amended in 1931. The trust directed income from the corpus to his wife for life. It also granted her a general power of appointment. In default of appointment half the corpus passed to the decedent's heirs and half to the wife's heirs. In 1951 the wife executed an instrument that purported to release the general power and convert it into a special power. The decedent died in 1957. His estate claimed a marital deduction for the widow's trust on the federal estate tax return. The Commissioner disallowed the deduction under section 2056(b)(5) of the 1954 Code and assessed a deficiency. The estate petitioned the Tax Court for redetermination. While that proceeding was pending the estate obtained a New York Supreme Court decree declaring the 1951 release a nullity. The Tax Court accepted the decree as controlling and allowed the deduction. A divided Second Circuit affirmed. The companion case involved the estate of a Connecticut decedent who died in 1958. His will directed payment of estate taxes without proration and created a residuary trust granting his wife a general testamentary power of appointment. The Commissioner disallowed part of the marital deduction. The executor then obtained a probate court order applying the state proration statute. The District Court refused to treat the probate decree as binding on federal tax questions. The Second Circuit agreed the decree was not conclusive. The two cases reached the Supreme Court after the Second Circuit panels reached differing conclusions on the effect of the state decrees. Certiorari was granted to resolve the conflict among the circuits.
View caseRonald Reed files for bankruptcy and asserts a counterclaim alleging that assets placed in a revocable inter vivos trust were fraudulently conveyed. The bankruptcy court enters final judgment on the tort claim. On appeal the judgment is vacated because the bankruptcy judge lacked constitutional authority to decide the common-law claim without Article III protections.
Vickie Lynn Marshall married J. Howard Marshall II, Pierce Marshall’s father, approximately one year before J. Howard’s death. Shortly before J. Howard died, Vickie filed suit against Pierce in Texas state probate court asserting that Pierce had tortiously interfered with a gift J. Howard intended to provide her through a trust. After J. Howard’s death, Vickie filed a petition for bankruptcy in the United States Bankruptcy Court for the Central District of California. Pierce filed a proof of claim in the bankruptcy proceeding asserting a defamation claim against Vickie’s estate arising from statements made to the press by Vickie’s lawyers accusing him of fraud in controlling his father’s assets. Vickie responded by filing a counterclaim for tortious interference with the expected gift from J. Howard. On November 5, 1999, the Bankruptcy Court granted Vickie summary judgment on Pierce’s defamation claim. After a bench trial, on September 27, 2000, the Bankruptcy Court entered judgment for Vickie on her counterclaim and later awarded her over $400 million in compensatory damages and $25 million in punitive damages. The District Court concluded that Vickie’s counterclaim was not a core proceeding under 28 U.S.C. §157(b)(2)(C) and therefore treated the Bankruptcy Court’s judgment as proposed findings of fact and conclusions of law. The District Court conducted an independent review of the record. It declined to give preclusive effect to a Texas state court judgment that had been entered in Pierce’s favor. The District Court awarded Vickie compensatory and punitive damages, each in the amount of $44,292,767.33. The Court of Appeals for the Ninth Circuit reversed. It held that the Bankruptcy Court lacked authority to enter final judgment on Vickie’s counterclaim because the counterclaim was not so closely related to Pierce’s proof of claim that its resolution was necessary to resolve the allowance or disallowance of that claim. This holding made the Texas probate court judgment the earliest final judgment, which the Court of Appeals held the District Court should have afforded preclusive effect. The Supreme Court granted certiorari.
View caseNo. Under governing marital property rules, property acquired during marriage remains marital even after transfer to a revocable trust. The trust vehicle affects only legal title and management, not the underlying classification between spouses. Absent a valid marital property agreement or decree reclassifying the asset, each spouse retains an undivided one-half interest subject to equitable division.
Supporting sources
Divorce automatically revokes any revocable disposition or fiduciary nomination in favor of the former spouse. The trust instrument is then applied as if the former spouse had predeceased the settlor, allowing contingent or alternate beneficiaries to take instead. This rule applies unless a court order, property settlement, or express term in the instrument preserves the former spouse's rights.
Supporting sources
No. A revocable inter vivos trust is a will substitute that transfers a future interest during the settlor's life. It need not comply with statutory will formalities even though it serves a testamentary function and may be amended or revoked by a later will.
Supporting sources
…Pierce Marshall (Pierce), one of J. Howard’s sons, was the ultimate beneficiary of J. Howard’s estate plan, which consisted of a living trust and a “pourover” will. Under the terms of the will, all of J. Howard’s assets not already included in the trust were to be transferred to the trust upon his death. Competing claims…