Minnesota statutes provide a set of default interpretations for some of the language used in Minnesota wills.1 Unless a will includes language to the contrary, these statutes provide interpretations for things such as what property can be passed via will, what happens when a beneficiary dies before the testator, how and when gifts might be fulfilled before the testator’s death, and exercises of a power of appointment through the will, among others. This statutory language acts as a default backdrop in drafting wills, and helps form some of the basic presumptions attorneys use when deciding on will language.
The language used in many Minnesota wills either does not vary the default, or depends on the statutory provisions to deal with situations such as beneficiaries who die before the testator. This allows for cleaner drafting, easier to read documents, and updates to interpretations via statutory changes, to adjust to changing issues as necessary. However, that same language is also often used in revocable trusts, where the statutory defaults do not apply.
In re the Pamela Andreas Stisser Grantor Trust Under Second Amendment and Restatement of Trust Agreement dated June 6, 2001
Use of language in a trust which triggers a default interpretation in a will was recently at issue in In re the Pamela Andreas Stisser Grantor Trust Under Second Amendment and Restatement of Trust Agreement dated June 6, 2001 (“In re Stisser”), A10-1646 (Minn. August 1, 2012). Pamela Stisser (“Pamela”) created a revocable trust in 1966. She amended the trust in 1999 and 2001 after her marriage to Vernon Stisser (“Stisser”). The amended trust designated Pamela as the lifetime beneficiary, and her children and Stisser’s children as the remainder beneficiaries. Stisser was the sole beneficiary of Pamela’s will, but was not provided for in the trust. Stisser was also the personal representative of her estate.
Upon Pamela’s death, Stisser demanded the Trustee use trust funds to pay Pamela’s credit card debt, three mortgages totaling $2,996,017, and a $1,716,400 margin loan secured by a brokerage account. Stisser made this claim based on language in the trust agreement that “[t]he Trustee shall…pay…my legal debts.”
Under the statutory default, use of this language in a will would not be interpreted as providing for payment of secured debts, and Stisser would not have had a possible claim for payment of these debts. However, because the language was used in a trust, the default statutory provisions did not apply, leaving the interpretation in question.
The Trustee denied Stisser’s claim, and the parties eventually ended up in court.2 The Hennepin County District Court concluded that the trust was not obligated to pay Pamela’s secured debts (the mortgaged property and the margin loan). Stisser appealed, and the Court of Appeals found that the Trustee was obligated to pay the margin loan, but not the mortgages on the properties.
On August 1, 2012, the Supreme Court released In re Stisser, where the Court found that because a revocable trust is commonly used as a substitute for a will, common law that was developed on wills applies to trusts as well. The Stisser Court held that because payments of debts language was well understood to have a technical meaning that does not include paying off secured debts, the Trustee was not required to pay debts secured by Pamela’s personal and real property.
So, where does this leave us?
It is clear from the language of the statutes that these statutory defaults do not apply directly to the interpretation of trust documents. The Court’s decision in In re Stisser means the common law of wills applies to trusts to provide the same result as the statutory default for language dealing with payment of debts, and including language in a trust document along the lines of “pay my legal debts” does not mean the trust will need to pay off mortgages or other types of secured debt.
However, Minn. Stat. §§ 524.2-601 to 524.2-606, 524.2-608, and 524.2-609 are still up for interpretation. If an attorney is using the same language for both wills and trusts, the attorney should be aware that the statutory defaults may not apply to trusts, or may only apply through a common law application. Therefore, use of language taken from wills in a trust document should be clear and intentional. Additionally, clients should consider what they would like to have happen if a beneficiary dies before them, or whether they would like gifts they give during their lifetime to affect any provisions of the trust, among the other statutory issues. They should bring those concerns to the attention of their attorney, and the attorney should include language in the trust document that does not depend on the default provisions so that the wishes can be followed.
2 Litigation in this case has taken place in Minnesota, Illinois and Florida. For the purposes of this article, I am only addressing the Minnesota cases.