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In re Trust Under Deed of Kulig

Supreme Court of Pennsylvania

December 19, 2017

IN RE: TRUST UNDER DEED OF DAVID P. KULIG DATED JANUARY 12, 2001 APPEAL OF: CARRIE C. BUDKE AND JAMES H. KULIG

          ARGUED: May 10, 2017

         Appeal from the Order of the Superior Court at No. 2891 EDA 2014, dated December 24, 2015, Reconsideration Denied February 23, 2016, Affirming the Decree of the Court of Common Pleas of Bucks County, Orphans' Court Division, at No. 2013-0170 dated September 12, 2014.

          SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

          OPINION

          WECHT JUSTICE.

         This Commonwealth has a "long existing public policy . . . to protect the rights of [a surviving spouse]" against total disinheritance by his or her deceased spouse. In re Pengelly's Estate, 97 A.2d 844, 849 (Pa. 1953).[1] For centuries, the common law prevented such disinheritances under the doctrine of dower and curtesy, which established for surviving spouses threshold entitlements to their deceased spouse's property.[2] Pennsylvania's Probate, Estates and Fiduciaries Code ("PEF Code" or "the Code")[3] includes two provisions designed to protect against negligent omission of a spouse from a will or disinheritance by other means. First, if the parties marry after the operative will has been executed, Subsection 2507(3) of the Code entitles the excluded spouse (referred to as a "pretermitted spouse"[4]) to take the share of the estate to which she[5] would have been entitled had the decedent died intestate, i.e., without a will. See 20 Pa.C.S. § 2507(3). Second, Section 2203 confers upon any surviving spouse, including but not limited to a pretermitted spouse, a "right of election, " which entitles her to take a one-third share of specified categories of property, including the probate estate as well as assets nominally transferred during the decedent's lifetime (inter vivos) as to which he retained control to dispose of as he pleased at the time of his death. See 20 Pa.C.S. § 2203. The total amount of the elective share is reduced by other property and assets she obtained from the decedent by other means. See 20 Pa.C.S. § 2204.

         In today's case, we consider for the first time the effect of 20 Pa.C.S. § 7710.2, enacted in 2006, upon the scope of the assets used to calculate the pretermitted spousal share. Section 7710.2 provides that the rules of construction that apply to the provisions of testamentary trusts also apply to the provisions of inter vivos trusts.[6] For the reasons that follow, we reverse the Superior Court's determination that the revocable inter vivos trust at issue should have been included in David Kulig's estate for purposes of discerning the pretermitted spouse's statutory entitlement under Section 2507.

         On January 12, 2001, while married to Joanne Kulig ("Joanne"), David Kulig ("Decedent") executed a revocable trust (the "Trust") naming himself as trustee. The named beneficiaries of the Trust upon Decedent's death were his then-wife Joanne, and the children born to Decedent and Joanne. Pursuant to the terms of the Trust, Decedent had the prerogative to receive any portion of the trust income during his lifetime, to draw any amount of the trust principal for his own welfare, comfort, and support, and to terminate the Trust.

         Joanne died on August 15, 2010. On December 13, 2010, Decedent prepared a Last Will and Testament. Approximately one year later, on December 30, 2011, Decedent married Mary Jo Kulig ("Wife"), Appellee herein. Since the will had been executed before his second marriage, it made no provision for Wife. Nor did the will include any indication that Decedent had contemplated remarriage when he executed it.

         On February 3, 2012, barely one month after marrying Wife, Decedent died, survived by Wife and by his children, Carrie C. Budke and James H. Kulig (collectively "Children"), Appellants herein. By the terms of the Trust, if Joanne predeceased Decedent, the balance of the Trust corpus was to be divided and distributed to Children according to the Trust's terms. Upon Decedent's death, the Trust had a value of $3, 257, 184.74. As of June 14, 2012, Decedent's probate estate (excluding the Trust) was valued at $2, 106, 417.26. As well, Wife undisputedly was entitled upon Decedent's death to an ERISA benefit plan worth at least $1, 500, 000.

         The parties stipulated that Wife, a pretermitted spouse under Pennsylvania law, is entitled to receive the same share of Decedent's estate to which she would have been entitled had he died intestate, see 20 Pa.C.S. § 2507(3), [7] i.e., one half of the intestate estate, [8] as defined by Chapter 21 of the PEF Code. In providing that "the surviving spouse shall receive the share of the estate to which [s]he would have been entitled had the testator died intestate, " Subsection 2507(3) incorporates by reference Subsection 2101(a). Subsection 2101(a) defines the intestate estate as "[a]ll or any part of the estate of a decedent not effectively disposed of by will or otherwise." 20 Pa.C.S. § 2101(a) (emphasis added).

         The parties disputed whether the Trust may be considered part of the intestate estate for purposes of calculating the pretermitted spousal share or is instead available to Wife only in the event that she chooses to claim her elective share pursuant to Section 2203 of the Code, which expressly includes in the elective share "[p]roperty conveyed by the decedent during his lifetime to the extent that the decedent at the time of his death had a power to revoke the conveyance or to consume, invade or dispose of the principal for his own benefit." 20 Pa.C.S. § 2203(a)(3). In the former case, Wife would receive one half of the intestate estate and one half of the Trust corpus, with no deductions. In the latter case, Wife would have access to the Trust only by spousal election, pursuant to which she would receive one third of the probate estate and one third of the Trust corpus, subject to certain charges against the gross elective share. See 20 Pa.C.S. § 2204(c). According to the parties, if Wife prevails, she would take approximately $1.5 million more than she would if Children's view is correct.[9]

         Children filed a petition for declaratory judgment[10] before the Orphans' Division of the Bucks County Court of Common Pleas (hereinafter the "Orphans' Court"), seeking a declaration that the Trust was excluded from Wife's pretermitted spousal share. It is the "effectively disposed of . . . otherwise" in Subsection 2101(a)'s definition of the intestate estate that Children argue excludes revocable trusts from the intestate estate:

Assets that pass outside a decedent's probate estate, such as by the terms of a funded inter vivos trust (whether revocable or irrevocable), by operation of law (e.g., jointly owned assets, "payable on death" accounts, "in trust for" accounts) or by beneficiary designation (e.g., life insurance, IRAs), are not subject to the intestacy statutes because such assets are "effectively disposed of . . . otherwise."

         Brief for Children at 16-17 (emphasis in original) (citing Estate of Sauers, 32 A.3d 1241, 1249 (Pa. 2011) (excluding life insurance benefits as estate assets); Estate of Rood, 121 A.3d 1104, 1115 (Pa. Super. 2015) (excluding "payable on death" accounts as probate assets)).[11] Because revocable trusts typically, as in this case, provide for the disposition of the trust upon death of the settlor, they are by their nature materially the same as a joint bank account that passes by operation of law to the surviving holder or an account in the decedent's name with a payable-on-death designation. Children contend that no Pennsylvania case law has treated any such account, or a revocable trust, as part of the intestate estate for purposes of intestacy or pretermission. This, they contend, is the essence of assets "disposed of . . . otherwise" as intended by Subsection 2101(a). Wife opposed the petition, arguing primarily that, in calling for the application of the same interpretive principles to trusts that apply to wills, Section 7710.2 of the Code established that inter vivos trusts, like other assets, must be considered part of the intestate estate for purposes of calculating the pretermitted share.

         On September 12, 2014, the Orphans' Court issued a Decree entering judgment in Wife's favor and a Memorandum Opinion in support thereof. The court began by asserting that Subsection 2507(3) effectively provides for a "modification" of a will that excludes a spouse who marries a decedent after execution of the will when the will contains no indication that it was prepared in anticipation of the marriage. Orphans' Court Opinion ("O.C.O.") at 7. Pursuant to Subsection 2507(3), the court found, Wife was entitled to the share of the probate estate that would have passed through intestacy in the absence of a will.

         The Orphans' Court then turned to Section 7710.2, which provides that "[t]he rules of construction that apply in this Commonwealth to the provisions of testamentary trusts also apply as appropriate to the provisions of inter vivos trusts." 20 Pa.C.S. § 7710.2. The court observed that the 2005 Joint State Government Committee Comment to Section 7710.2 asserts that it "imports 20 Pa.C.S. §§ 2507, 2514, and 2517 and other statutory and judicial rules of interpretation that apply to trusts under wills, " i.e., testamentary trusts. Therefore, Section 7710.2 mandated application to the Trust of the same presumption applicable to the will under Subsection 2507(3). Accordingly, the estate comprising the pretermitted spousal share necessarily included the Trust corpus.

         In so ruling, the Orphans' Court relied upon various aspects of the commentary appended to Section 7710.2. For example, the commentary to Section 7710.2 notes the "functional equivalence between the revocable trust and a will, " such that "the rules for interpreting the disposition of property at death should be the same whether the individual has chosen a will or revocable trust." 20 Pa.C.S. § 7710.2, Uniform Law Cmt. ("ULC"). The comment continues: "Few legislatures have yet to extend these rules of construction to revocable trusts. . . ." Id. Thus, rather than "attempt[ing] to prescribe the exact rules to be applied to trusts, " the Code "adopts the philosophy of the [Restatement (Third) of Trusts Section 25] that the rules applicable to trusts ought to be the same [as those applied to wills], whatever those rules might be." Id. The Orphans' Court inferred "that our General Assembly intended to place revocable inter vivos trusts on an equal footing with testamentary instruments and afford pretermitted spouses with an opportunity to claim an intestate share of said trusts." O.C.O. at 10. The court concluded that, by enacting Section 7710.2 with the ULC, the General Assembly, "became one of the 'few legislatures' to extend the rules of construction to revocable inter vivos trusts, by importing [Subs]ection 2507(3)'s spousal protections for pretermitted spouses." Id. at 11.

         The Orphans' Court further found that the General Assembly "implicit[ly] accept[ed] . . . the concept that statutory policy as to pretermitted heirs[12] . . . should be 'applied by analogy to the omitted [spouse] in the substitute for a will, or in the transfer revocable by the donor at the time of the donor's death.'" Id. at 12 (quoting Restatement (Third) of Trusts § 25, Reporters Notes to cmt. d and e (Tentative Draft No. 1, approved 1996)). The Orphans' Court evidently inferred the legislature's adoption of Section 25 of the Restatement from the ULC's several references to it, which included the observation that Section 7710.2 "is patterned after" Section 25(2) of the Restatement.[13] 20 Pa.C.S. § 7710.2, ULC. Notably, the Orphans' Court cited no support for an explicit adoption of these or any other provisions of the Third Restatement in any other source of Pennsylvania law, or in the operative statutory text of any provision in the PEF Code.

         Notwithstanding the superficial technicality of this analysis, the thrust of it is straightforward. Subsection 2507(3) reflects a legislative presumption as to the intent of a testator who failed to account for certain events that post-dated execution of his will- in this case, a post-execution marriage. The Orphans' Court interpreted Section 7710.2 as directing courts to assume the same intent not only with regard to the intestate estate incorporated by reference in Subsection 2507(3), but also as to revocable inter vivos trusts. Thus, to the extent that Subsection 2507(3) requires the implicit modification of a testamentary instrument in favor of, e.g., a spouse married by the testator after executing the will, one also must infer such an intent with regard to the substance of a revocable trust executed before the marriage, and modify the instrument accordingly.

         Upon review, the Superior Court largely adopted the Orphans' Court's reasoning. It, too, recognized Subsection 2507(3) as a "rule of construction" subject to Section 7710.2's direction that "the rules of construction that apply . . . to the provisions of testamentary trusts also apply as appropriate to the provisions of inter vivos trusts." See In re Trust Under Deed of Kulig, 131 A.3d 494 (Pa. Super. 2015) (hereinafter "Kulig Trust"). Although the Superior Court at least suggested that its ruling was compelled by the plain language of Sections 2507 and 7710.2, the court also explicitly relied upon the 2005 Joint State Government Commission Comment to Section 7710.2. Indeed, in addition to basing its conclusion "on [the ULC] and the plain unambiguous text of Section 7710.2, " Kulig Trust, 131 A.3d at 499, the court also stated unequivocally that "the orphans' court was correct to refer to the comments to Section 7710.2 to discern our Legislature's intent." Id.; see 1 Pa.C.S. § 1939.

         The court found the following Section 7710.2 commentary particularly convincing:

The revocable trust is used primarily as a will substitute, with its key provision being the determination of the persons to receive the trust property upon the settlor's death. Given this functional equivalence between the revocable trust and a will, the rules for interpreting the disposition of property at death should be the same whether the individual has chosen a will or revocable trust as the individual's primary estate planning instrument. Over the years, the legislatures of the States and the courts have developed a series of rules of construction reflecting the legislative or judicial understanding of how the average testator would wish to dispose of property in cases where the will is silent or insufficiently clear. . . .
* * * *
Rules of construction attribute intention to individual donors based on assumptions of common intention. . . . Rules of construction can also concern assumptions as to how a donor would have revised donative documents in light of certain events occurring after execution.

20 Pa.C.S. § 7710.2, ULC (emphasis added).

         The court concluded that, in enacting Section 7710.2, the General Assembly "intended the rule of construction employed to ascertain a decedent's intent in connection to a pretermitted spouse be applied to inter vivos trusts." Kulig Trust, 131 A.3d at 499. The court rejected Children's argument that 20 Pa.C.S. § 2203, which allows for a spousal election that includes a one-third share of "[p]roperty conveyed by the decedent during his lifetime to the extent that the decedent at the time of his death had a power to revoke the conveyance or to consume, invade or dispose of the principal for his own benefit, " 20 Pa.C.S. § 2203(a)(3), provides the only means by which a pretermitted spouse may take against a revocable trust. The court reasoned that Section 2203 is not a rule of construction, but rather an independently prescribed spousal right that exists regardless of the decedent's presumed intention, and is available to any surviving spouse, not just a pretermitted spouse. That is to say, even a spouse named in the will might choose an elective share if it is of greater value than the decedent's specific bequest, whereas no spouse contemplated or provided for by a will, no matter how meagerly, may recover under Section 2507, which applies only when there is no sign that the Decedent considered the surviving spouse. See 20 Pa.C.S. § 2507(3) (precluding application of that subsection if "it appears from the will that the will was made in contemplation of marriage to the surviving spouse"). Thus, the Superior Court affirmed the Orphans' Court's determination that the Trust should be incorporated into the estate for purposes of Wife's share as a pretermitted spouse.

         Children filed a Petition for Allowance of Appeal. We granted review in order to consider whether the Superior Court erred in construing Section 7710.2 by reference to the commentary while deeming that provision unambiguous-and by extension whether the Superior Court erred in ruling that Section 7710.2 compelled inclusion of the Trust in the Estate subject to the pretermitted spousal share. In re: Trust Under Deed of Kulig, 158 A.3d 1234 (Pa. 2016) (per curiam). Children assert that the Superior Court's interpretation contradicts prior precedent concerning reliance upon statutory commentary and leads to absurd results.

         We review this question of statutory interpretation de novo, and the scope of our review is plenary. Trust Under Agreement of Taylor, 164 A.3d 1147, 1153 (Pa. 2017) (hereinafter "Taylor Trust").

The purpose of statutory interpretation is to ascertain the General Assembly's intent and to give it effect. 1 Pa.C.S. § 1921(a). In discerning that intent, courts first look to the language of the statute itself. If the language of the statute clearly and unambiguously sets forth the legislative intent, it is the duty of the court to apply that intent and not look beyond the statutory language to ascertain its meaning. See 1 Pa.C.S. ยง 1921(b) . . . . Courts may apply the ...

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