Matter of Vought, 25 N.Y.2d 163 (1969)

A testator may validly restrict the alienation of a vested remainder interest in the principal of a trust during the term of the trust, provided that the legal title of the trust assets remains alienable by the trustees.

Summary

The New York Court of Appeals addressed whether a testator could validly restrict the alienation of a vested remainder interest in the principal of a trust. The testator’s will created a trust for his widow, with the remainder to be paid to his two sons upon her death. One son, Chance, assigned his remainder interest before his mother’s death. The will contained a clause stating that the principal was not assignable. The court held that the inalienability clause was valid and enforceable, preventing Chance’s assignees from claiming his share of the trust principal. The court reasoned that allowing such restrictions aligns with modern policy considerations and respects the testator’s intent.

Facts

Chance Vought, Sr., created a testamentary trust in 1930, providing income to his widow for life, with the principal to be divided equally between his two sons, Chance, Jr. and Peter, upon her death.
The will included a clause stating that the trust principal “shall not be assignable”.
Chance, Jr. executed several assignments of his remainder interest between 1959 and 1960.
Chance, Jr. predeceased his mother in 1964. His mother died in 1965.
The trust corpus was valued at $1,857,876.20 at the time of the accounting.

Procedural History

The Surrogate’s Court, New York County, held that Chance, Jr.’s remainder interest vested indefeasibly upon his father’s death, but the will validly prohibited assignment of the principal. Therefore, the assignments were void.
The Appellate Division unanimously affirmed without opinion.
The Court of Appeals granted leave to appeal.

Issue(s)

Whether a settlor has the power to make inalienable a principal remainder interest limited on an entrusted life estate, when the creating instrument specifies that the interests of all beneficiaries shall be inalienable.

Holding

Yes, because, absent strong statutory direction or precedent restricting provisions making principal inalienable, the testator’s intent should be given effect to protect intended beneficiaries, provided the legal title of the assets remains transferable.

Court’s Reasoning

The court recognized that the issue was one of first impression, with no direct statutory prohibition against creating an inalienable equitable interest in trust principal. While prior cases had upheld the alienability of remainder interests, none involved a restriction imposed by the creator of the trust.

The court distinguished between restrictions on legal estates and equitable estates. A restriction on a legal estate renders the property totally untransferable, while a restriction on a beneficial interest doesn’t shackle the principal because the trustees retain the power to sell or convey the assets.

The court addressed policy considerations, stating that allowing inalienability provisions enables creators to postpone a beneficiary’s control of wealth until they are better equipped to manage it. This desire is not unnatural, nor does it unduly burden those who extend aid to the beneficiary, provided they do so knowing they cannot be reimbursed from the principal against the creator’s wishes.

The court noted the prevailing weight of authority supports the power to impose inalienability on principal. The Restatement (Second) of Trusts now allows for inalienability of the principal.

The court rejected the assignees’ argument that they should be entitled to the interest now that the trust has ended. Such a result would render the inalienability provision meaningless, as the beneficiary would effectively transfer their right to later possession, frustrating the creator’s wishes.

The court emphasized that the assignees suffered no loss greater than that for which they bargained on the face of the assignments.

The court stated: “In the absence of any strong statutory direction, or any developed body of precedent restricting provisions making principal inalienable, the will of the testator should be given effect, and the interest of the assignor be deemed unassignable during the life of the trust.”