Rarely, has the NH Supreme Court had a case with the potential to disrupt trust law and practice as In re Teresa Craig Living Trust recently transferred as an interlocutory appeal without ruling by Judge King of the NH Trust Docket.
Craig presents the issue of whether the pretermitted heir statute, RSA 551:10, applies to trusts. The claimants (grandchildren of the settlor) argue that the NH legislature in 2004 in enacting section 1-112 of the NH Trust Code as part of the initial enactment of the Trust Code incorporated by reference the pretermitted heir statute and made it applicable to trusts. If this argument is accepted by the Court, then many trusts signed since 2004, even if administered and closed, will be subject to potential pretermitted beneficiary claims.
The pretermitted heir statute provides essentially that, if there is not a sufficient reference to a child of the decedent in her Will, then the law presumes the child was inadvertently omitted and he or she is entitled to receive the same share of the probate estate as if the parent died without a Will. In Robbins v. Johnson, 147 N.H. 44, 45-46 (2001), the Court declined to extend the pretermitted heir statute to trusts “[a]bsent a clear indication from the legislature that this is its intention.” The Craig claimants contend that 1-112 of the Trust Code is the “clear indication from the legislature” Robbins requires.
RSA 564-B:1-112 provides:
Rules of Construction. The rules of construction that apply in this state to the interpretation of and disposition of property by will also apply as appropriate to the interpretation of the terms of a trust and the disposition of the trust property. In interpreting or construing the terms of a trust, the settlor’s intent shall be sovereign to the extent that the settlor’s intent is lawful, not contrary to public policy, and possible to achieve. For purposes of determining the benefit of the beneficiaries, the settlor’s intent as expressed in the terms of the trust shall be paramount.
The claimants contend that RSA 551:10 is a rule of Will construction within the meaning of this statute and is incorporated by reference. Although nothing in the legislative history of the NH Trust Code references pretermitted heir rights, no other provision in the Code supports the claim, and there has been no court decision or commentary (to my knowledge) advocating this interpretation of section 1-112, Judge King in a thoughtful Order found the claim to be sufficiently meritorious for Supreme Court review.
We represent the Craig Trustee and stressed below and will stress on appeal with the amicus support of the NH Trust Council the upheaval that an adverse ruling on this issue will have on trust law and administration. The potential consequences are significant:
- Because the Court will be issuing a ruling as to the statute’s construction, the ruling will be retroactive to all trusts signed after its enactment in 2004, including those potentially administered and closed.
- The law under the pretermitted heir statute is settled that the Court is only to look at the instrument at issue to determine whether there are pretermitted heirs. This makes sense in the probate context because there can only ever be a single valid Will, which the law requires must be in a signed writing. In contrast, a settlor can:
- Make a valid trust orally as well as in writing; and
- Can at any one time have any number of trusts, including special needs trusts, charitable trusts, spendthrift trusts, asset protection trusts, business trusts, real estate trusts, life insurance trusts, and a myriad others – the combinations are endless.
Application of the pretermitted heir statute to the myriad permutations of written and oral trusts that have been created in this state since 2004 will immensely disrupt the law and administration of trusts. Given the complexity of the issues, the development of pretermitted heir rights in the trust context in our view is a task for the legislature and would necessarily involve: defining the specific types and characteristics of trusts subject to these claims; the duties of trustees to pretermitted claimants; and the process to be followed to determine those rights.