Elder Law FAX -- November 7, 2005

Trust Is Revocable Notwithstanding Death of One Grantor-Spouse
A Pennsylvania appeals court has reversed a trial court decision which voided a gift of trust property to two of the surviving trustee's three children. The gift was approved even though as a result, a child of the spouse who died first was disinherited.

Robert Rudloff and Helen Rudloff owned as joint tenants, with a right of survivorship as husband and wife, a home located in Lower Makefield, Pennsylvania. In 1993, they signed a trust agreement that named themselves as joint trustees of trust property and transferred their home to themselves as trustees.

The trust agreement names their three children, Judy Scalfaro, Richard Rudloff, and James Rudloff, as beneficiaries of the trust.

Helen Rudloff died in 1996. In 2000, her husband Robert, as surviving trustee of the trust, executed a deed conveying all of the trust property (the home) to Richard and James. If this conveyance was valid, the legal result would be that the trust would terminate and any property rights that daughter Judy would have in the trust property would be extinguished.

Robert Rudloff died the following year. Thereafter, Judy Scalfaro filed a lawsuit against her two brothers, Richard and James, alleging that the deed of conveyance by Robert to his two sons was invalid, on the grounds that the trust agreement required the consent of both trustees -- that is, Robert and Helen -- and, therefore, when Helen died, as surviving trust grantor and trustee Robert lacked authority to modify the terms of the trust.

In short, asserted Judy, when Helen died, the trust became irrevocable. If so, Robert could not then legally withdraw the home from the trust and give it to James and Richard.

'The trust agreement itself explained the authority of the grantors, Robert and Helen, to revoke the trust: "We reserve unto ourselves the power and right at any time during our lifetime to amend or revoke in whole or in part the trust hereby created without obtaining the consent of any beneficiary and without giving notice to any beneficiary. The sale or other disposition by us of the whole or any part of the property held hereunder shall constitute as to such whole or part a revocation of this trust."

Moreover, the trust provided that "In the event of the physical or mental incapacity or death of one of us, the survivor shall continue as sole Trustee."

In holding that the deed by Robert was void, the trial court noted language in the trust referring to authority granted to "us" and "ourselves" and never said anywhere that after the death of one spouse-trustee, the surviving trustee possessed the legal authority to revoke the trust.

The appeals court opinion, written by Justice Todd of the Superior Court of Pennsylvania, noted the existence of a case decided in 1997 by the Utah Supreme Court, in which essentially the same issue was before that court and the language of the trust was essentially identical.

In the Utah case, as Justice Todd observed, the issues were whether, under the terms of the trust, the joint trustees were authorized as trustees to convey the trust property to whomever they chose; and, second, once a trustee had died, the surviving trustee had succeeded to all of the powers previously belonging to the joint trustees.

The Utah Supreme Court upheld the conveyance by the surviving trustee, thereby revoking the trust. As Justice Todd observed, under the quoted paragraph above, the first sentence clearly refers to Robert and Helen as grantors of the trust, reserving the right as grantors to revoke the trust. The second sentence refers to themselves a trustees, granting to the trustees the power to convey the property.

Construing Pennsylvania trust law, Justice Todd, writing for the 2 to 1 majority, that a successor trustee assumes all of the rights, powers, duties and liabilities of the original trustee. In the absence of a specific trust provision limiting or denying Robert the authority as trustee to convey out of trust, thereby revoking it, the appeals court upheld the gift to Richard and James.

Scalfaro v. Rudloff, September 30, 2005.

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