In In Re Estate of Bernard, 182 Wn. App. 692, 332 P.3d 480 (2014), review denied 339 P.3d 634 (2014), the Washington State Court of Appeals Division 1 reversed a trial court order invalidating a trustor’s estate plan. In upholding the validity of the testamentary documents, the appellate court’s ruling confirmed long-standing practices of Washington State estate planners relating to revocable living trusts and to RCW 11.96A.220 non-judicial binding agreements, commonly referred to as “TEDRA agreements.”
In April of 2008, James Bernard (“James”) filed a petition for a guardianship of the person for his father, Thomas Bernard (“Tom”). The guardianship proceeding was subsequently dismissed. On March 25, 2009, Tom executed his Last Will and Testament and Revocable Living Trust, naming James as the sole beneficiary of his estate. Two days later, Tom and James executed a Non-Judicial Agreement Re Trust Pursuant to RCW 11.96A (the “March TEDRA”). In the March TEDRA, Tom and James agreed that Tom could not modify his estate planning documents without first notifying James, noting a hearing, and obtaining a court order authorizing the modification. The March TEDRA defined Tom and James as the only necessary parties to that agreement. A summary memorandum of the March TEDRA was subsequently filed with the court, rendering it the “equivalent to a court order” under RCW 11.96A.230.
In August, Tom sought to change the remainder beneficiaries of his Revocable Living Trust. The remainder beneficiaries would receive the majority of his estate if James failed to survive Tom, and James additionally had no issue. Tom and James executed an amendment (the “August TEDRA”) to their prior agreement authorizing the modifications without the notice, hearing, and court order process set forth in the March TEDRA. A summary memorandum of the August TEDRA was subsequently filed with the court.
James predeceased Tom leaving no issue. Following Tom’s death, the former contingent beneficiaries in the March documents (the “respondents”) challenged the validity of the August amendments.
The King County Superior Court trial judge ruled that the March TEDRA agreement became the equivalent of a court order upon filing, and could thereafter not be amended by the contracting parties without further court approval. According to the trial court, the August codicil and trust amendment were therefore null and void as a matter of law. If upheld, the trial court’s ruling threatened the validity of countless non-judicial amendments to filed TEDRA Agreements in Washington State.
On appeal, the Court of Appeals held that the “trial court erred when it concluded that the March TEDRA agreement could not be modified by the August TEDRA agreement,” noting that “[a]llowing the parties who initially reached a non-judicial resolution to a matter involving a trust or estate to subsequently change their agreement regardless of whether the original agreement or a memorandum of the agreement was filed with the court is without question within the intent and purpose of TEDRA.” 182 Wn. App. 692, 712-713.
The respondents additionally asserted that the August TEDRA agreement was invalid because they were necessary parties to any amendment of the March TEDRA. The respondents argued: 1) beneficiaries of a revocable living trust are per se necessary parties to agreements affecting the trust, and 2) the respondents were necessary parties because they were persons a guardian ad litem had the discretion to interview in the previously dismissed separate action for a guardianship of Tom’s person.
In upholding the long-standing, statutorily-confirmed policy that beneficiaries of a trust have no rights so long as the trust remains revocable by the trustor, the court confirmed that “the nature of a beneficiary’s interest differs materially depending on whether the trust is revocable or irrevocable.” 182 Wn. App. 692, 724; see also RCW 11.103.040 (“While a trust is revocable by the trustor, rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the trustor.”). The court noted that because “[i]t is … undisputed that the trust was revocable and that this transaction was conducted while the trustor was still alive….the [respondents] did not then have a legally cognizable interest at the time of the August TEDRA agreement.” The respondents’ second necessary party argument was not addressed by the court.
The Bernard decision confirms two important principles under Washington State common and statutory law: (1) the necessary parties can amend a TEDRA agreement without court involvement regardless of whether that TEDRA agreement is filed with the court, and (2) revocable living trusts confer no enforceable rights upon its beneficiaries until the trustor’s death.
If you have any questions with respect to these matters, please contact the estate planning attorneys at Montgomery Purdue Blankinship & Austin PLLC.