You may not be familiar with the Renunciation Rule. It often comes up in litigation over trusts, and it is a rule that all beneficiaries and trustees should be familiar with. Renunciation in this context requires that a person renounce (or refuse to take) any interest in a trust and give back any contested assets he has already received if he wants to argue that the trust is invalid. The old saying “you can’t have your cake and eat it too” applies here. You can’t argue that the trust should not be followed and still benefit from it by receiving assets.
An example: You claim that that a trust is invalid because it was created under duress or influence by a beneficiary of the trust. However, that trust provides that you should also receive $10,000, and you have received the $10,000. According to the Renunciation Rule, you would have to claim that you no longer wish to receive anything from the trust and would also need to give back to the trust the $10,000 that was distributed to you.
But, for argument’s sake, let’s say that there are multiple versions or amendments of the trust, and no matter which version the court decides to follow, you will stand to receive a minimum amount. In this scenario, the court recently decided in Gossett v. Gossett, that you actually would not need to wholly deny your claim to the trust OR give back any of the funds or assets you had already received if they were less or equal to the minimum amount.
In Gossett, a man’s trust agreement had been amended five times, with the third version leaving his current wife out of the trust and the fourth and fifth amendments including her. At the time of the man’s death, he had filed for divorce from his wife, but it had not been finalized. The man’s son from a previous marriage was a beneficiary in all versions of the trust and had already been given some funds from the trust by the wife (and now trustee) before he contested the last versions of the trust. Ordinarily, the Renunciation Rule would apply: He is named as a beneficiary in the trust, and he has already benefited from the trust by receiving some funds.
The court in this case, however, found that the Renunciation Rule would not apply. The Court ruled that the son had received no more than he would receive under any version of the trust. Since the son was legally entitled to a portion under any of the trust agreements, the Court could not require him to give any of it back.
In essence, the Renunciation Rule will not always apply. IF you are a beneficiary of a trust, make sure to not accept more than any minimum you are guaranteed to receive under any revised version of the trust if you are considering challenging its validity. As a trustee or a beneficiary, keep in mind that this rule is “equitable,” so the court will take into account all the facts and circumstances of a case in ruling whether or not it is fair to apply the rule to your case.