November 14, 2019

Residuary Clause Which Does Not Identify a Beneficiary Is Unenforceable; Doll v. Post

Category: Indianapolis Law Club | Author: | Share:

Estate planning is an important thing, but it must be done carefully to ensure that the intent of the person making the plan is carried out. When done incorrectly, this could result in intestate succession instead.

Waid established a revocable living trust. The final version of the trust bequeathed certain property to certain entities, but the trust did not specify who the beneficiary of the residue of the trust would be. Rather, it stated that the trustee could do with the residue as he saw fit.

Waid died and Post became the successor trustee. Post petitioned to docket the trust, asking for the court’s guidance on how to distribute the residue of the trust. The petition stated Post’s understanding that the residue would be distributed to charity.

Doll moved to intervene, arguing that the residuary clause failed as a matter of law because it identified no beneficiary.

The trial court found that the trust was ambiguous and, relying on extrinsic evidence, agreed with Post. Doll appealed.

The dispositive issue on appeal was whether the residuary clause could be enforced if it identified no beneficiary. The Court noted that the statutes required that a beneficiary be identified “with reasonable certainty.” And the Court found that the clause in this case “unambiguously fails to identify a beneficiary with reasonable certainty.” This failure to identify a beneficiary “does not confer unfettered authority on the Trustee to distribute the residue ‘in the sole discretion of the Trustee.’”

A trustee is the legal title holder of trust property. The beneficiaries are the equitable title holders. … Nothing close to such an identification even broadly exists here. The residuary clause instead simply directs the Trustee to do with the residue as he sees fit. There is no reasonably certain, ascertainable, or even an indefinite class of beneficiary identified. There is no beneficiary at all. There is no equitable title holder for whom the Trustee can hold legal title.

Post argued that this should not bar him from giving he residue to charity, as the trust was for a benevolent public purpose. And the cy pres doctrine could apply to the residue in a trust for a benevolent purpose. But that could not apply here, because the statutes only allowed that doctrine to apply if Waid made “a more general intention” to devote the residue to charitable purposes.

Accordingly, while in an ordinary sense of the word the residuary clause may appear “ambiguous”—that is, uncertain—on its face, in fact it unambiguously fails to designate a beneficiary with reasonable certainty or a beneficiary capable of being ascertained and thus fails as a matter of law. The trial court’s denial of Doll’s motion to intervene based on the court’s interpretation of the residuary clause is reversed.

As the residuary clause in the trust failed, the residue became a resulting trust. And, as Waid died intestate, this meant that the residue was to be passed pursuant to the intestate succession statutes.

It appears likely that Waid’s true intent was to give the residue of his trust to charity. But poor drafting means that this intent was likely thwarted.

Lessons:

  1. Residuary clause in a trust agreement must identify a beneficiary with reasonable certainty.
  2. The cy pres doctrine cannot allow a trustee to distribute a benevolent purpose trust’s residue to charity if the residuary clause does not give some general intention of allowing this distribution.
  3. If the trust documents to not state what is to be done with the residue of the trust, then the residue becomes a resulting trust, which is passed pursuant to a will or intestate succession.