New York Law Review

Tag: testamentary trust

  • In re Van Cleaf’s Will, 29 N.Y.2d 931 (1972): Determining “Next of Kin” in Testamentary Trusts

    In re Van Cleaf’s Will, 29 N.Y.2d 931 (1972)

    Unless a contrary intent is evident in the will, the identity of “next of kin” entitled to a testamentary gift is determined at the death of the designated ancestor, not at the time of distribution.

    Summary

    This case addresses the timing for determining the “next of kin” in a testamentary trust. John C. Van Cleaf’s will created a trust for his wife, Mary, with the remainder to his son, John Jr., and upon the son’s death, to the son’s “next of kin then surviving.” The son died before his mother. The court had to determine if the son’s “next of kin” should be identified at his death (making his mother the beneficiary) or at his mother’s later death. The court held that absent a clear contrary intention in the will, the next of kin are determined at the death of the ancestor, meaning the mother was the rightful beneficiary. The dissenting judge argued that the will’s language did not suggest postponing the determination of the remaindermen.

    Facts

    John C. Van Cleaf died in 1920, establishing a testamentary trust. The trust’s income was for his wife, Mary, during her life, and then for his son, John Jr. The will stated that upon John Jr.’s death, the principal should be paid to his “next of kin then surviving.” John Jr. died in 1933, unmarried and intestate. His mother, Mary, survived him. Mary died in 1970, leaving a will attempting to devise the trust principal to her relatives. The trustee sought court approval to distribute the remainder to Mary’s estate.

    Procedural History

    The Surrogate’s Court ruled that John Jr.’s next of kin should be determined at Mary’s death in 1970, distributing the remainder to collateral relatives of John Jr. The Appellate Division affirmed this decision, with one judge dissenting. The case then went to the New York Court of Appeals.

    Issue(s)

    Whether the “next of kin” of John C. Van Cleaf, Jr. should be determined as of the date of his death in 1933, or as of the date of his mother’s death in 1970, for the purpose of distributing the remainder of the testamentary trust.

    Holding

    No, the “next of kin” should be determined at the time of John Jr.’s death in 1933, because there is no clear indication in the will to suggest that the testator intended to postpone the determination to the time of distribution. Therefore, Mary Van Cleaf, as John Jr.’s mother and sole next of kin at the time of his death, was the rightful beneficiary.

    Court’s Reasoning

    The court applied the general rule that when a will bequeaths property to the “next of kin” of a designated person, the members of that class are ascertained at the death of the designated ancestor. The court found no language in John C. Van Cleaf’s will that clearly expressed an intention to deviate from this rule. The will stated, “Upon the death of my said son, the principal of said fund shall be paid to the next of kin of my said son then surviving.” The court reasoned that this language, on its own, was explicit enough to apply the general rule. The court distinguished this case from New York Life Ins. & Trust Co. v. Winthrop, where there were compelling reasons to believe the testator intended to postpone the ascertainment of next of kin to the date of distribution. Here, the court found that John Van Cleaf’s intent was to benefit his immediate family, his wife and son, as evidenced by the fact that he used the same “next of kin then surviving” language to ensure that if his son died prematurely, the principal of his trust would immediately accrue to his mother’s benefit. The dissenting judge stated, “When a testator wills property to ‘next of kin’, or ‘relatives’ or ‘heirs’ of a designated person, the members of the donee class are as a general rule ascertained as of the death of the designated ancestor… whose ‘kin’ are referred to.” The dissent emphasized that the will’s language did not suggest postponing the determination of the remaindermen, arguing that the testator likely wanted his widow to have the power of disposition over the trust remainder rather than it passing to distant relatives.

  • Seidel v. Werner, 81 Misc. 2d 220 (N.Y. 1975): Enforceability of Agreement to Exercise Power of Appointment

    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.

  • Matter of Estate of Wilson, 21 N.Y.2d 782 (1968): Testamentary Trust Validity and Corporate Control

    Matter of Estate of Wilson, 21 N.Y.2d 782 (1968)

    A testamentary trust that unduly restricts the power of a corporation’s board of directors by dictating operational decisions is invalid, and if such restrictions are integral to the testator’s intent, the entire trust may fail.

    Summary

    This case concerns the validity of a testamentary trust established by the testator, Wilson, who bequeathed his controlling shares in W. S. Wilson Corporation to a trust. The will directed the trustees, all employees of the corporation, to vote the stock to elect themselves as directors and to ensure the testator’s wife (and later, daughter) served as chairman of the board with a minimum compensation. The trustees sought a construction of the will, arguing the trust’s provisions violated corporate law. The court found certain provisions invalid as they infringed upon the directors’ managerial discretion. A dissenting opinion argued that these invalid provisions were so fundamental to the testator’s intent that the entire trust should fail, leading to intestacy.

    Facts

    The testator, W.S. Wilson, owned 68% of the shares of W. S. Wilson Corporation. He bequeathed these shares to a testamentary trust (Trust No. 1). The trustees were six employees of the corporation, to serve without compensation from the trust and only as long as they remained employed by the company. The will mandated the trustees to vote the stock to elect themselves as directors. The will also stipulated that the testator’s widow (and upon her death, his daughter) should be appointed chairman of the board at a minimum salary of $12,000 per year, plus a bonus. The will further restricted the board’s power by limiting their ability to increase commission rates for the corporation’s salesmen unless certain business targets were met.

    Procedural History

    The trustees, facing potential conflicts of interest, petitioned for a construction of the will, arguing the trust was invalid. The lower courts ruled on the validity of specific provisions. The case reached the New York Court of Appeals, where the decision was modified, affirming in part and reversing in part the lower court’s ruling.

    Issue(s)

    1. Whether the provisions of the testamentary trust, which direct the trustees to vote the testator’s stock to elect themselves as directors and to appoint his wife (or daughter) as chairman of the board with a specified compensation, are invalid as an impermissible restriction on the powers of the corporation’s board of directors?

    2. Whether, if some provisions of the trust are invalid, those provisions are so integral to the testator’s intent that the entire trust should fail?

    Holding

    1. Yes, because directions in a will cannot usurp the power granted to a board of directors to manage the business of a corporation according to their best judgment.

    2. The dissenting judges said Yes, because the testator conditioned the trust’s existence on the now-invalidated provisions, indicating his intent that the entire trust should fail if those conditions could not be met.

    Court’s Reasoning

    The court majority agreed that the direction to appoint the testator’s widow or daughter as chairman of the board with a specified salary was invalid because it interfered with the directors’ fiduciary duty to manage the corporation. Citing General Corporation Law § 27, the court emphasized that the business of a corporation must be managed by its board of directors, free from undue restrictions imposed by a testator. The dissenting judge said that the invalid provisions were fundamental to the testator’s purpose. He quoted the testator’s will: “As a condition of this trust I direct that my W. S. Wilson Corporation stock shall be so voted as to provide for the services of both my Wife and my Daughter…”. According to the dissent, the testator made it clear that he had no intention of creating the trust unless these directions were followed. The dissenting opinion cites Scott, Trusts (2d ed., 1956, Vol. 1, pp. 581-582): that the gift is absolute unless it appears that the testator would probably have desired that if the condition should be illegal the gift should fail altogether. Therefore, the dissent argued, the entire trust should fail, and the assets should pass to the widow and daughter through intestacy. This case highlights the tension between testamentary freedom and the legal requirement that corporate directors exercise independent judgment in managing a corporation. The dissent’s reasoning emphasizes the importance of discerning the testator’s intent and refusing to enforce a trust when its essential elements are invalidated, changing the testamentary scheme. “principal purpose and intent to enable my trustees to retain my stock in W. S. Wilson Corporation * * * upon the condition that a minimum income shall be thus payable to my Wife and my Daughter for life, and thereafter as herein provided.”