For days, Alice had a nagging feeling that she was forgetting something. Being the owner and manager of a real estate empire, there were many things to remember, and just as many things she might have forgotten. That sense of something overlooked was particularly aggravating as Alice had spent the last month getting her estate in order, making sure that when she passed away her properties would be divided among her seven sons and one daughter exactly as she intended: everything to a trust of which her daughter, Honoria, was the sole beneficiary.
Finally, as she was leaving Frosty Favorites after consuming her daily soft serve cone (chocolate-vanilla swirl as always), Alice remembered that she had not yet signed the trust’s schedule of beneficiaries listing Honoria. Unfortunately, while still basking in the glow of her retrieved memory, Alice was struck and killed by a snowplow.
When her sons discovered that Alice had largely omitted them from her estate plan, they brought suit, arguing that the trust was void because Alice had not executed the schedule of beneficiaries. As a result, they claimed, all of Alice’s real estate was held by her, individually and not as trustee, at the time of her death, and passed by the residuary clause of her will, which distributed Alice’s assets to all eight of her children in equal shares.
In response, Honoria argued that the schedule of beneficiaries was a mere technicality and she should inherit all of the real estate, as Alice intended. On these facts, however, Honoria will have to settle for her one-eighth share.
A settlor declaring a trust and naming him or herself as trustee will often provide that the beneficiaries of the trust are shown on a Schedule of Beneficiaries executed by the settlor and filed with the trustee. But what happens when the settlor fails to execute the schedule and thereby fails to identify those who hold a beneficial interest in the trust property? In such circumstances, the trust is void and incapable of receiving the conveyance of any property transferred to it by the settlor.
In Arlington Trust Co. v. Caimi, 414 Mass. 839 (1993), the Supreme Judicial Court stated,
“Where the owner of property declares himself trustee for persons to be selected by him, the selection to be wholly within his control, no trust is created and the settlor continues to hold the property for his own benefit.” 2A Scott, Trusts § 112, at 157 (4th ed. 1987). As Caimi never designated a beneficiary as required by the declaration of trust, the JDC Realty Trust never came into existence ….
Id. at 848. (Emphasis added, footnote reference omitted). Similarly, in In re Callahan, 419 B.R. 109 (Bankr. D. Mass. 2009) decision clarified, 425 B.R. 728 (Bankr. D. Mass. 2010), the Court stated,
The United States argues that the marital presumption is inapplicable in the present case because the Debtor took title to the Falmouth Property as trustee of the 121 Westwood Road Realty Trust and not in her individual capacity. That would be true but for her failure to prepare a schedule of beneficiaries. In Arlington Trust Co. v. Caimi, the Supreme Judicial Court of Massachusetts held that where a settlor deeds property to himself as trustee and fails to designate a list of beneficiaries in the manner described in the trust instrument, the conveyance is a nullity and the trust never comes into existence. “Where the owner of property declares himself trustee for persons to be selected by him, the selection to be wholly within his control, no trust is created and the settlor continues to hold the property for his own benefit.”
419 B.R. at 127. (Footnote reference omitted). See also Dowd v. Johnson, 78 Mass. App. Ct. 1117, 2010 WL 5464854, *2 n.6 (2010) (unpublished Rule 1:28 opinion) (citing Arlington for proposition that “[T]he conveyance is a nullity as the receptor trust never came into existence for want of a beneficiary.”); Bongaards v. Millen, 55 Mass. App. Ct. 51, 53-54 (2002) (citing but distinguishing holding in Arlington that “where the settlor never identified any beneficiary in writing, as required by the declaration of trust, the trust ‘never came into existence and the attempted conveyance fail[ed] for lack of a cognizable recipient’”); United States v. Kattar, 81 F. Supp. 2d 262, 273 (D.N.H. 1999) (citing Arlington and also noting that “Under Massachusetts law, where the trust does not establish a definite, limited class of beneficiaries such that the beneficiaries are ascertainable and capable of enforcing the trust, the trust fails”). See also Massachusetts G.L. c. 203E, § 402 (stating that a “trust shall be created only if … (3) the trust has a definite beneficiary….” (Emphasis added).
The forgoing case law supports the conclusion that the settlor’s failure to properly identify the beneficiaries of a trust renders the trust void, and incapable of receiving a conveyance of property, whether that conveyance is from the settlor or from a third party. While in Arlington the conveyance was from the settlor to himself as trustee, the circumstances were different in Callahan. In Callahan, the issue was whether certain property (121 Westwood Road) held by the debtor wife as trustee of the 121 Westwood Road Realty Trust was subject to a tax lien filed by the United States against her husband. The wife had created the trust first and then received a conveyance as trustee from a third party, for valid consideration. However, the wife, as trustee, had failed to prepare and execute the schedule of beneficiaries referred to in the trust. Citing Arlington, the Bankruptcy Court held that failure to identify beneficiaries rendered the trust void. 419 B.R. at 127. The District court affirmed. In re: Callahan, 442 B.R. 1, 9-10 (D. Mass. 2010).
Accordingly, Alice’s failure to execute a schedule of beneficiaries renders her trust void and incapable of receiving a conveyance of her real estate pursuant to her will. Instead, the real estate will pass via the will’s residuary clause to all of her children equally.