The Uniform Probate Code upends the law of remainders.

• Date: 01 October 1995
• Author: Dukeminier, Jesse

Nothing is more settled in the law of remainders than that an indefeasibly vested remainder is transmissible to the remainderman's heirs or devisees upon the remainderman's death. Thus, where a grantor conveys property "to A for life, then to B and her heirs," B's remainder passes to Bs heirs or devisees if B dies during the life of A. Inheritability of vested remainders was recognized in the time of Edward 1, and devisability was recognized with the Statute of Wills in 1540.

Section 2-707 of the Uniform Probate Code (UPC),(1) adopted in 1990, upends this law. In a comprehensive remake of the law of remainders, section 2-707 provides that, unless the trust instrument provides otherwise, all future interests in trust are contingent on the beneficiary's surviving the distribution date. Additionally, if a remainderman does not survive to the distribution date, the UPC creates a substitute gift in the remainderman's then-surviving descendants. If the remainderman has no surviving descendants, the remainder fails, and on the life tenant's death the property passes to the testator's residuary devisees or to the settlor's heirs.

This sea change in the law of remainders was set in motion by the Code's revisers when they expanded the antilapse idea of the law of wius to include trust remainders.(2) Under the law of wills, if a devisee predeceases the testator, antilapse statutes give the devise to the devisee's descendants if the devisee bears a particular relationship to the testator -- usually kindred, but sometimes close kindred. The UPC drafters decided that the antilapse statute applicable to wills(3) should apply to will substitutes, such as contracts with payable-on-death (P-O-D) designations.(4) They then further adapted the antilapse statute to trust remainders, changing the requirement that a beneficiary survive the testator to a requirement that a remainderman survive to the date of distribution and applying it to all trust remainders and not just to remainders given to the testator's kindred.(5) There is merit in the idea that antilapse statutes should apply to all will substitutes, including revocable trusts, thus requiring the beneficiary to survive the decedent donor, and providing a substitute gift to the issue of beneficiaries who do not.(6) But expanding the antilapse idea to a requirement that trust remaindermen must survive to the termination of the trust raises entirely different questions. Irrevocable inter vivos trusts, testamentary trusts, and revocable trusts that continue as irrevocable trusts after the settlor's death are not will substitutes, and the substantive law of wills cannot be applied to them on the theory that they are functionally analogous transfers.

The proposal to supplant the existing law of remainders with an antilapse-like statute may have merit, not by analogy to will substitutes but as an independent claim that the antilapse idea better carries out the settlor's intent and better serves subsidiary public policies. There are two crucial questions. First, does the antilapse idea carry out the settlor's intent better than the traditional law of remainders? Second, does an antilapse law or the common law of remainders better serve public policy concerns, including reducing litigation and complexity? As for the first question, neither the Official Comment nor the drafters' law review commentary(7) presents empirical evidence indicating that most trust settlors want a remainderman to lose the remainder if he does not survive the life tenant, substituting his descendants for him if he leaves descendants. The drafters appear to be proceeding purely on their own speculation. In fact, it seems just as likely that trust settlors intend to cede control of the remainder to the remainderman to permit the remainderman to deal with changes in his family circumstances during the life tenant's life. Before a fundamental change in the law of remainders is made, some empirical evidence should show that the common law has read people wrong for centuries.

Favoring property passing to the descendants of a beneficiary is, of course, an old idea in the law. Courts often construe ambiguous trust instruments so as to pass a remainder to the remainderman's descendants rather than having it pass outside the remainderman's immediate family. But protection of descendants is not the issue here. If the remainder is devisable or inheritable, as under current law, descendants will take the remainder unless the remainderman diverts it to others. The issue is whether the power of a remainderman to act in what he perceives as the best interests of the family should be taken away.

Section 2-707 is a revolutionary statute, and states should carefully consider its ramifications before enactment. It is the purpose of this article to examine those ramifications.

LOSS OF FLEXIBILITY

A law of remainders fashioned by section 2-707 of the UPC will be very different from current law. Perhaps the most important practical difference will be the loss of flexibility in the beneficiary's disposition of future interests.

In this respect, section 2-707 can be fairly described as retrogressive, slipping trusts back to the days before flexible powers of appointment came into widespread use. When a trust is created for A for life, remainder to B, B has the equivalent of a general power of appointment over the remainder. If B dies before A, B can transmit the remainder at death to anyone B chooses. Under UPC section 2-707, B's remainder is made contingent upon surviving A. If B dies during A's life leaving descendants, B's descendants are substituted for B. B has no power to transmit the remainder to others.

A principal feature of sound estate planning in the twentieth century is creating flexibility in trusts, which experience has shown to be highly desirable.(8) The transmissible vested remainder rule of the common law is a substitute for a power of appointment overlooked by the settlor. B can devise the remainder to B's spouse, taking advantage of the estate tax marital deduction, and making it possible for the spouse to use her $600,000 exemption from the federal estate tax and $1 million exemption from the generation-skipping transfer tax in transferring the trust property to their children. Or B can devise the remainder to B's children in such shares and on such terms as appear wise. If B's children are minors, B can devise the remainder in trust for the children until they reach majority, avoiding conservatorship. If one of B's children is disabled and supported by the state in a state institution, B can devise the child's share in a trust providing the child only with benefits supplementing those the state provides, thus avoiding the state's seizure of the child's full share as the child's creditor, as section 2-707 would allow.

Under section 2-707, B does not have these choices. In all cases B's descendants are substituted for B if B dies during A's life. If B's descendants are minors, a court will have to appoint a conservator to manage their property -- an undesirable and expensive arrangement that B can avoid under present law. In some states, the court must appoint guardians ad litem to represent minors in the trustee's accounting -- an additional expense. Whether or not B has children, B cannot pass the property to B's spouse. No statute can pick the appropriate substitute takers as well as living persons.(9)

It seems particularly odd that the UPC revisers in section 2-707 make it impossible for B to benefit B's spouse any longer, inasmuch as the modern trend is to increase the protection of the spouse. The Retirement Equity Act of 1984,(10) requiring a pension to be paid as a joint-and-survivor annuity to the employee and his or her spouse unless the spouse consents otherwise, is an illustration of this modern trend. So, too, are laws calling for equitable division of property upon divorce. The 1990 UPC provisions relating to intestacy(11) and the elective share(12) continue this trend by increasing the spouse's share significantly beyond that given in most states. Studies have shown that in many cases -- especially in smaller estates and where the decedent has no descendants -- the spouse is the primary object of the decedent's bounty.(13)

Where trusts have been created for a child for life, with a remainder to the child's children, overlooking the needs of the child's surviving spouse, desperate beneficiaries sometimes have adopted their spouse as a child in an attempt to continue trust support for the spouse.(14) These wife-adoption cases are vivid lessons in how far beneficiaries will go to remedy inadequate trust drafting that has overlooked a beneficiary's natural desire to benefit a spouse. Section 2-707 imbeds this omission in the statutes. Why do the revisers assume that the decedent would want to be generous with his or her spouse but would want to cut out a beneficiary's spouse? Is this merely an irresistible atavism of our English inheritance, revering the blood line and effacing the son's wife?

LITIGATION ISSUES INVOLVING LAPSE INTRODUCED INTO LAW OF REMAINDERS OF REMAINDERS

Section 2-707 is a rule of construction. It yields to a finding of a contrary intent. If a remainder is given "to B or her estate" or "to B whether or not B survives the life tenant," B's remainder will be devisable and inheritable as under current law.

Establishing a contrary intent may be a fruitful source of litigation. It imports into the law of remainders issues commonly litigated in cases of lapse under the law of wills. A look at three of these issues is illustrative. First, suppose that a trust is created "for A for life, then to B and her heirs." Does the use of the phrase "and her heirs" indicate a contrary intent, an intent that B's heirs take if B does not survive? Of course, all lawyers know that "and her heirs" is superfluous, meaning only "in fee simple," and yet in some lapse cases "and her heirs" has...