B-209050.OM., OCT 29, 1982

B-209050.OM., OCT 29, 1982

SUBJECT: CLAIM OF IRENE H. PRESCOTT FOR ARREARS OF RETIRED PAY DUE HERBERT MCPHERSON, USN (DECEASED) - B-209050-O.M.

ASSOCIATE DIRECTOR, AFMD - CLAIMS GROUP (ROOM 5858):

CLAIM FILE Z-2837374 IS RETURNED. IN HER LETTER OF AUGUST 17, 1982, IRENE H. PRESCOTT REQUESTED RECONSIDERATION OF THE CLAIMS GROUP'S AUGUST 3, 1982 DENIAL OF HER CLAIM AS FRIEND AND TRUSTEE FOR THE ARREARS OF RETIRED PAY DUE TO HERBERT MCPHERSON, USN, WHO DIED SEPTEMBER 16, 1981. THE CLAIM WAS DISALLOWED ON THE BASIS THAT MS. PRESCOTT DID NOT QUALIFY UNDER THE GOVERNING STATUTORY PROVISION, 10 U.S.C. SEC. 2771(A) (1976), AS A PERMISSIBLE RECIPIENT OF BENEFITS OWED TO A DECEASED MEMBER OF THE ARMED FORCES. WE CONCLUDE THAT THE CLAIM SHOULD BE ALLOWED SINCE THE RECORD REVEALS NO LIVING RELATIVE OR LEGAL REPRESENTATIVE OF MR. MCPHERSON WHO WOULD QUALIFY AS A PREFERRED RECIPIENT UNDER CLAUSES (1) THROUGH (5) OF SUBSECTION 2771(A), AND SINCE MS. PRESCOTT DOES QUALIFY UNDER CLAUSE (6) OF THAT SUBSECTION AS THE "PERSON ENTITLED UNDER THE LAW OF THE DOMICILE OF THE DECEASED MEMBER."

ON APRIL 6, 1976, MR. MCPHERSON EXECUTED A WILL PROVIDING FOR THE DISPOSITION OF THE RESIDUE OF HIS ESTATE AND OF ALL PERSONAL PROPERTY "NOT OTHERWISE SPECIFICALLY DISPOSED OF" TO THE MCPHERSON FAMILY TRUST. FN1 THE WILL NOMINATED IRENE H. PRESCOTT AS EXECUTRIX. A TRUST AGREEMENT FOR THE MCPHERSON FAMILY TRUST, EXECUTED BY MR. MCPHERSON AS SETTLOR ON THE SAME DAY, ALSO NAMED MS. PRESCOTT AS TRUSTEE AND THE BENEFICIARY OF THE REMAINDER OF TRUST ASSETS AFTER DISTRIBUTION OF $5,000 TO THE FIRST BENEFICIARY. THE AGREEMENT PROVIDED FOR DISTRIBUTION OF THE TRUST ASSETS AND FOR FORMAL TERMINATION OF THE TRUST UPON THE DEATH OF THE SETTLOR. MR. MCPHERSON'S DEATH CERTIFICATE REVEALS THAT HE HAD NO SURVIVING SPOUSE AT THE TIME OF HIS DEATH ON SEPTEMBER 16, 1981, AND THAT HE HAD BEEN DOMICILED IN THE STATE OF CALIFORNIA. THE STANDARD FORM 1174 (CLAIM FOR UNPAID COMPENSATION) WHICH MS. PRESCOTT SUBMITTED TO THE NAVY INDICATES THAT MR. MCPHERSON HAD NEITHER A DESIGNATED BENEFICIARY FOR THE UNPAID FUNDS NOR ANY NEXT OF KIN CAPABLE OF INHERITING THEM. APPARENTLY THE NAVY HAS RECEIVED NO DESIGNATION OF A BENEFICIARY FOR ACCRUED PAY FROM MR. MCPHERSON, AND NO CLAIMS OTHER THAN MS. PRESCOTT'S HAVE BEEN RECEIVED FOR MR. MCPHERSON'S ACCRUED PAY.

ACCORDING TO THE JANUARY 18, 1982 LETTER FROM THE RETIRED PAY DEPARTMENT OF THE NAVY FINANCE CENTER TO THE CLAIMS GROUP, MR. MCPHERSON WAS ENTITLED TO $258.71 AT THE TIME OF HIS DEATH. HOWEVER, IN THAT LETTER, THE NAVY REQUESTED ADVICE AS TO WHETHER PAYMENT COULD BE MADE TO MS. PRESCOTT IN THE ABSENCE OF A COURT-APPOINTED EXECUTOR OF MR. MCPHERSON'S ESTATE. THE CLAIMS GROUP DENIED MS. PRESCOTT'S CLAIM ON THE GROUND THAT HER STATUS AS "EXECUTRIX" OF THE ESTATE, ASSERTED UNDER PART D OF THE SF 1174, WAS INSUFFICIENTLY DOCUMENTED, SINCE SHE HAD SUBMITTED NEITHER COURT CERTIFICATE NOR LETTERS TESTAMENTARY.

THE GOVERNING STATUTE IN THIS CASE PROVIDES THAT AMOUNTS DUE TO DECEASED MEMBERS OF THE ARMED FORCES SHOULD BE PAID TO THE "PERSON HIGHEST ON THE FOLLOWING LIST LIVING ON THE DATE OF DEATH:

(1) BENEFICIARY DESIGNATED BY HIM ***. (2) SURVIVING SPOUSE. (3) CHILDREN AND THEIR DESCENDANTS ***. (4) FATHER AND MOTHER ***. (5) LEGAL REPRESENTATIVE. (6) PERSON ENTITLED UNDER THE LAW OF THE DOMICILE OF THE DECEASED MEMBER."

10 U.S.C. SEC. 2771(A) (1976).

SINCE THE RECORD REVEALS NO DESIGNATED BENEFICIARY, NEXT OF KIN, OR LEGAL REPRESENTATIVE IN THIS CASE, SECTION 2771(A)(6) GOVERNS. SEE MATTER OF NORTHAN, B-199455, SEPTEMBER 29, 1980; MATTER OF GUST, B-191818, NOVEMBER 21, 1978. THE ISSUE IS WHETHER, IN THE ABSENCE OF FORMAL COURT ADMINISTRATION, A TRUSTEE WHO IS ALSO A BENEFICIARY MAY BE ENTITLED TO THE RETIRED PAY DUE TO THE DECEASED SETTLOR OF A TRUST UNDER THE LAWS OF CALIFORNIA.

IN CALIFORNIA, AS IN MANY OTHER STATES, THE COMBINATION OF WILL AND INTER VIVOS TRUST EMPLOYED BY MR. MCPHERSON FOR DISPOSITION OF HIS ASSETS UPON DEATH IS KNOWN AS A POUR-OVER TRUST. THE EFFECT OF THIS DEVICE IS TO TRANSFER THE ASSETS OF AN ESTATE TO THE CORPUS OF A TRUST FOR DISTRIBUTION BY THE TRUSTEE ACCORDING TO THE PROVISIONS OF THE TRUST INSTRUMENT. THE UNIFORM TESTAMENTARY ADDITIONS TO TRUSTS ACT (UNIFORM ACT) RECOGNIZES THE VALIDITY OF POUR-OVER TRUSTS UNDER THE STATUTE OF WILLS.

THE CHAPTER OF THE CALIFORNIA PROBATE CODE WHICH ADOPTS THE UNIFORM ACT PROVIDES THAT A "BEQUEST *** MAY BE MADE BY A WILL TO THE TRUSTEE *** OF A TRUST ESTABLISHED BY THE TESTATOR *** IF THE TRUST IS IDENTIFIED IN A WRITTEN INSTRUMENT." CAL.PROB. CODE ANN. SEC. 170 (DEERING 1970). ADDITION, CALIFORNIA LAW REQUIRES THAT THE PROPERTY SUBJECT TO A POUR-OVER TRUST BE "ADMINISTERED AND DISPOSED OF IN ACCORDANCE WITH THE PROVISIONS OF THE INSTRUMENT," ID. SEC. 170, AND BE "PAYABLE OR TRANSFERABLE DIRECTLY TO THE TRUSTEE, WITHOUT BECOMING SUBJECT TO ADMINISTRATION." ID. SEC. 177. ALTHOUGH THE LAW PROVIDES A MECHANISM BY WHICH A TRUSTEE MAY PETITION THE COURT FOR ADVICE OR ASSISTANCE IN THE DISTRIBUTION OF THE TRUST, SUCH PETITIONING IS NOT MANDATORY. ID. SEC. 179. THUS, POUR-OVER TRUSTS, LIKE TESTAMENTARY TRUSTS IN CALIFORNIA, SEE ID. SEC. 1120, ARE NOT SUBJECT TO JUDICIAL INTERVENTION OR SUPERVISION IN THE ABSENCE OF A REQUEST FROM THE TRUSTEE. AS NOTED IN 51 COMP.GEN. 437, 438 (1972), THIS LACK OF COURT INVOLVEMENT IN THE ADMINISTRATION OF PRIVATE TRUSTS IS THE GENERAL RULE.

SINCE MR. MCPHERSON'S RIGHTS TO THE RETIRED PAY WERE VESTED AT THE TIME OF HIS DEATH, ACCORDING TO THE PROVISIONS OF HIS WILL, THOSE PROPERTY RIGHTS PASSED DIRECTLY INTO THE MCPHERSON FAMILY TRUST, ADMINISTERED BY MS. PRESCOTT AS TRUSTEE. UNDER CALIFORNIA LAW, "TESTAMENTARY DISPOSITIONS *** ARE PRESUMED TO VEST AT THE TESTATOR'S DEATH." CAL.PROB. CODE ANN. SEC. 28 (DEERING 1970).

THESE FACTS MAY BE DISTINGUISHED FROM THOSE OF CASES WHERE PAYMENT TO A TRUSTEE WAS DENIED, 51 COMP.GEN. 437 (1972); B-174780, JUNE 25, 1973. LIKE THE SITUATION IN B-190857-O.M., MARCH 21, 1978, IN THIS CASE, THERE IS NO DESIGNATED BENEFICIARY OF THE FUNDS, AND THE TRUST APPEARS TO BE A VALID INSTRUMENT UNDER STATE LAW. BECAUSE A POUR-OVER TRUST MAY BE ADDED TO AND DISTRIBUTED WITHOUT COURT INVOLVEMENT, MS. PRESCOTT, AS TRUSTEE AND AN ULTIMATE BENEFICIARY, APPEARS TO BE THE APPROPRIATE RECIPIENT OF MR. MCPHERSON'S UNPAID COMPENSATION UNDER CALIFORNIA LAW. THEREFORE, MS. PRESCOTT IS ENTITLED TO RECEIVE PAYMENT UNDER 10 U.S.C. SEC. 2771(A)(6) (1976) AND HER CLAIM SHOULD BE ALLOWED IF OTHERWISE CORRECT. PAYMENT SHOULD ISSUE TO HER IN HER CAPACITY AS "TRUSTEE."

IN VIEW OF THE SMALL AMOUNT OF COMPENSATION DUE IN THIS CASE AND THE ABSENCE OF OTHER CONTESTING PARTIES, A DECISION HAS BEEN MADE ON THE RECORD AS PROVIDED. IN FUTURE CASES, HOWEVER, CERTIFIED COPIES OF THE INSTRUMENTS AT ISSUE AND COURT VALIDATION OF THE TRUSTEE'S LEGAL STATUS MAY BE REQUIRED.

FN1 FOR PURPOSES OF THIS MEMORANDUM, IT IS ASSUMED THAT THE REFERENCE IN THE FOURTH CLAUSE OF MR. MCPHERSON'S WILL (P.1) TO THE "PRESCOTT FAMILY TRUST" WAS A TYPOGRAPHICAL ERROR AND THAT THE TESTATOR INTENDED TO INDICATE THE MCPHERSON FAMILY TRUST AS IN THE THIRD CLAUSE.