In re Gilbert, 39 N.Y.2d 663 (1976)
When interpreting an inter vivos trust, a court must ascertain and give effect to the grantor’s intent as manifested in the trust documents, especially when tax considerations appear to have influenced the grantor’s decisions.
Summary
This case concerns the interpretation of two trust instruments executed by Abbey E. Gilbert, specifically whether an “addendum” to the original trust created a separate trust that terminated after ten years, or whether it amended the original trust. The court held that the addendum created a separate trust, terminating ten years after its creation, due to the grantor’s clear intent to obtain tax advantages associated with Clifford trusts, the explicit language of the addendum, and the lack of proper consent for amending the original trust. This decision upheld the grantor’s probable intention and ensured the intended tax benefits.
Facts
On December 28, 1961, Abbey E. Gilbert created an irrevocable trust (the “Trust Indenture”) naming Elizabeth M. Guenther, his wife, as the income beneficiary for life, with a provision for his children to receive income if she died within ten years. The trust corpus would revert to Gilbert, if living, or to his children. Elizabeth consented to this trust. Eleven days later, on January 8, 1962, Gilbert executed an “Addendum,” conveying identical securities to the same trustees, stating the term was “for a period of ten years from the date of this Addendum * * * and not longer.” Elizabeth did not consent to the addendum. Gilbert died in 1964.
Procedural History
In 1973, Gilbert’s children petitioned for a construction of the “addendum” to terminate on January 8, 1972. Elizabeth opposed, arguing it should be part of the original trust which existed for her lifetime. Special Term held that the “addendum” terminated on January 8, 1972. The Appellate Division affirmed. This appeal followed.
Issue(s)
- Whether the “Addendum” to the trust created a separate trust that terminated ten years from its creation, or whether it amended the original trust to extend for the life of Elizabeth?
Holding
1. Yes, the “addendum” created a separate trust terminating on January 8, 1972, because the grantor’s intent, as evidenced by the instruments, was to secure tax advantages associated with Clifford trusts; the addendum explicitly stated a ten-year term “and no longer”; and Elizabeth did not properly consent to an amendment of the original trust.
Court’s Reasoning
The court emphasized that the grantor’s intent, as evidenced by the instruments themselves, is paramount in construing an inter vivos trust. The court noted the grantor’s likely intent to establish a Clifford trust, which allows trust income to be taxed to someone other than the grantor while allowing the grantor to retain management and receive the principal upon termination. To qualify as a Clifford trust, the reversionary interest must not take effect within ten years or until the income beneficiary’s death. Here, the court found the 11-day gap between the two instruments suggested the grantor aimed for the $3,000 annual federal gift tax exclusion. While the first instrument provided for an alternative termination date (Elizabeth’s death), the second explicitly stated a ten-year term “and not longer.” The court reasoned that the second instrument could not amend the first without Elizabeth’s properly executed written consent, which was lacking. The court stated: “In fact, the second instrument could not have served as an amendment, since our statutes require that there must be a properly executed written consent to an amendment of a trust by all persons beneficially interested in it.” Furthermore, construing the second instrument as a separate trust upheld the instrument, in line with the principle that “where two different constructions are possible, that is to be chosen which upholds and does not destroy the instrument.” The court emphasized that termination of the second trust after ten years would not cause the corpus to vest in unintended beneficiaries, as the children were the contingent beneficiaries under both instruments. The court concluded that the operative language of the second instrument, rather than its title, governed, affirming the lower court’s decision.