Seidel v. Werner, 81 Misc. 2d 220 (N.Y. 1975)
An agreement to exercise a power of appointment that is not presently exercisable is unenforceable under EPTL 10-5.3, regardless of whether the power is associated with a testamentary or inter vivos trust and even if the donee of the power is also the grantor of the trust, provided the grantor does not retain an unlimited power to revoke the trust.
Summary
This case concerns the enforceability of a decedent’s agreement to exercise two testamentary powers of appointment in favor of his son. The decedent had agreed in 1944 to exercise these powers, associated with both a testamentary trust from his mother and an inter vivos trust he created himself, but his 1964 will appointed the trust assets to his estate, excluding his son. The court held that under EPTL 10-5.3, the agreement was unenforceable for both trusts because the statute prohibits contracts to appoint powers not presently exercisable. The court reasoned that while an exception might exist where the grantor-donee retains unlimited power to revoke the trust, this was not the case here, and the statute’s prohibition applied regardless of the grantor-donee relationship when such revocation power is absent.
Facts
The decedent was the donee of two powers of appointment: one over a testamentary trust created by his mother’s will, and another over an inter vivos trust he created. In 1944, to resolve family issues, the decedent agreed to exercise these powers in favor of his son, James, and executed a will reflecting that agreement. However, in 1964, the decedent executed a new will that appointed the assets of both trusts to his estate, effectively disinheriting his son.
Procedural History
The son sought to enforce the 1944 agreement after the decedent’s death. The Surrogate’s Court held the agreement unenforceable under EPTL 10-5.3 for both trusts. The Appellate Division reversed in part, enforcing the agreement against the inter vivos trust but upholding the Surrogate’s decision regarding the testamentary trust. The New York Court of Appeals reversed the Appellate Division, reinstating the Surrogate’s Court decision.
Issue(s)
Whether EPTL 10-5.3 renders unenforceable an agreement to exercise a testamentary power of appointment when the donee of the power is also the grantor of an inter vivos trust, and the grantor does not have an unlimited power to revoke the trust?
Holding
No, because EPTL 10-5.3 applies to both testamentary and inter vivos trusts, prohibiting the enforcement of agreements to exercise powers of appointment that are not presently exercisable, even when the donee is also the grantor, provided the grantor lacks an unlimited power of revocation. The explicit provisions of EPTL 10-5.3 apply, and the decedent’s agreement is unenforceable.
Court’s Reasoning
The court’s reasoning centered on the interpretation and application of EPTL 10-5.3, which states that a donee of a power of appointment that is not presently exercisable cannot contract to make an appointment. The court acknowledged the argument that the statute might primarily target powers created by someone other than the donee but declined to create a broad exception for inter vivos trusts where the donee is also the grantor. The court suggested that if the grantor had an unlimited power to revoke the trust, the statute’s proscription could be circumvented. However, because the decedent’s 1927 inter vivos trust did not provide such a power, and revocation was not possible under the applicable pre-1951 law due to the contingent remaindermen’s interests, EPTL 10-5.3 applied. The court found the rights of creditors (under EPTL 10-7.4) distinct from those of the grantor-donee in determining enforceability of the agreement. The court emphasized that without a reserved or implied power of revocation, the decedent lacked sufficient dominion over the trust assets to warrant an exception to EPTL 10-5.3. The court stated: “…to say that where the grantor had power to revoke and thus to recapture the trust assets, he nevertheless could not agree to appoint the same assets, would be to exalt form over substance.” The court ultimately held that the agreement to exercise the powers of appointment was unenforceable for both trusts.