New York Law Review

Tag: Trusts and Estates

  • In re Estate of Read, 41 N.Y.2d 946 (1977): Rule Against Perpetuities and “Second Look” Doctrine

    In re Estate of Read, 41 N.Y.2d 946 (1977)

    The New York Court of Appeals affirmed the Appellate Division’s application of the ‘second look’ doctrine to a trust, determining that the validity of a remainder interest under the Rule Against Perpetuities should be assessed based on facts existing at the trust’s creation and at the termination of the measuring life, rather than solely on the possibilities existing at the time of creation.

    Summary

    This case addresses the application of the Rule Against Perpetuities to a trust established in a will. The core issue revolved around whether a remainder interest created in the trust violated the rule. The Surrogate’s Court initially found a violation. However, the Appellate Division reversed, applying the “second look” doctrine, which allows courts to consider events that actually occurred after the trust’s creation when assessing the validity of the remainder interest. The Court of Appeals affirmed the Appellate Division’s decision, holding that the remainder interest did not violate the Rule Against Perpetuities because, when taking a “second look” at the facts as they existed at the end of the measuring life, the interest would necessarily vest within the perpetuities period.

    Facts

    A testator created a trust in their will, with income payable to the testator’s daughter, Dorothy, for life. Upon Dorothy’s death, the principal was to be divided into shares for Dorothy’s surviving children. If a child of Dorothy died before reaching age 25, their share would be divided among Dorothy’s surviving children. The will also stipulated that if Dorothy died without any children surviving her who reached 25, the remainder would go to a charity. At the testator’s death, Dorothy was alive and had one child, Michele. Dorothy later had another child, Carl. Dorothy died. Both Michele and Carl survived her, although Carl was under 25 at the time of Dorothy’s death.

    Procedural History

    The Surrogate’s Court initially ruled that the remainder interest violated the Rule Against Perpetuities. The Appellate Division reversed this decision, applying the “second look” doctrine and finding no violation. The case then went to the New York Court of Appeals.

    Issue(s)

    Whether the remainder interest created in the will’s trust violated the Rule Against Perpetuities, considering the facts and circumstances existing both at the time of the will’s creation and at the termination of the life estate (Dorothy’s death).

    Holding

    No, because the “second look” doctrine allows courts to consider events that actually occurred after the trust’s creation, and in this case, the remainder interest vested indefeasibly at Dorothy’s death when her two children were living and thus any interest would vest, if at all, within 21 years of her death, which is within the perpetuities period.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s decision, agreeing with its application of the “second look” doctrine. The court reasoned that while the traditional approach to the Rule Against Perpetuities considers only possibilities existing at the time the interest is created, the “second look” doctrine allows courts to assess the validity of the remainder interest in light of events that have actually occurred by the end of the measuring life. In this instance, because Dorothy was alive at the testator’s death and also had children at the time of her death, the court was able to ‘look’ at the facts as they existed at the end of Dorothy’s life and measure the interest from that point. Because Dorothy had two living children at the time of her death, the interest would necessarily vest within 21 years of her death (the perpetuities period). The court emphasized the importance of considering actual events to avoid unnecessarily invalidating testamentary dispositions and prevent unintended consequences. The Court of Appeals explicitly adopted the reasoning outlined in the Appellate Division opinion by Justice Simons, which highlighted that the “second look” doctrine strikes a balance between the rigid application of the Rule Against Perpetuities and the testator’s intent.

  • Matter of Snowden, 39 N.Y.2d 322 (1976): Adoptees’ Inheritance Rights Under Trust Agreements

    Matter of Snowden, 39 N.Y.2d 322 (1976)

    When a trust agreement grants beneficiaries a broad power of appointment, indicating a lack of strict adherence to bloodlines, adopted children may be included in the term “issue” for inheritance purposes, even under former Section 114 of the Domestic Relations Law.

    Summary

    This case concerns whether adopted children can inherit from a trust established in 1922, based on the interpretation of “issue” in the trust agreement and the application of former Section 114 of the Domestic Relations Law. The court held that because the trust agreement gave beneficiaries a broad power to appoint the trust corpus to anyone they chose, the settlor demonstrated a lack of strict adherence to bloodlines, implying an intent to include adopted children within the definition of “issue.” Thus, the adopted children were entitled to their deceased father’s share of the trust.

    Facts

    James and Marian Snowden created a separation and trust agreement in 1922, funding a trust for the benefit of Marian and their children. Upon Marian’s death, the trust corpus was to be divided per stirpes among the surviving children and the “issue” of any deceased child. Each child’s share was held in trust with distributions at ages 30, 35, and 40. If a child died before the trust terminated, their share would be paid to appointees by will, or lacking that, to their living “issue,” or lacking that, to their next of kin. James Snowden died in 1930, Marian in 1969. One daughter died in 1943 survived by natural children. The son died in 1964 survived by two adopted children. Another daughter, childless, survived her mother.

    Procedural History

    The case began as a proceeding to settle the trustee’s account after Marian Snowden’s death. The lower court ruled against the adopted children, denying them their father’s share of the trust. The Appellate Division affirmed, with a divided court. The dissenting justices in the Appellate Division disagreed, leading to this appeal to the New York Court of Appeals.

    Issue(s)

    Whether, under the terms of the 1922 trust agreement and considering former Section 114 of the Domestic Relations Law, the term “issue” includes adopted children, thereby entitling them to inherit their deceased father’s share of the trust corpus.

    Holding

    Yes, because the settlor granted his children a broad power of appointment, demonstrating an intent not to limit inheritance strictly to blood relatives, which implies that adopted children should be included within the meaning of “issue.”

    Court’s Reasoning

    The court reasoned that the “precautionary addendum” of former Section 114, which restricted adopted children’s inheritance rights to protect remaindermen, should be narrowly construed. The court cited Matter of Rockefeller (12 N.Y.2d 124) stating it did not apply if it “affirmatively” appeared from the context of the trust instrument or from extraneous facts “that the grantor intended to include adopted children”. The court emphasized that the key consideration is the settlor’s intent. Here, the settlor’s grant of a broad power of appointment to his children indicated he was not solely concerned with preserving the trust corpus for his bloodline. As the court stated, “Since the settlor had authorized his child to appoint those not of his blood, it is difficult to believe that he did not intend adopted, as well as natural, children to be included in the word, ‘issue,’ wherever used in the trust instrument.” The court distinguished cases like Matter of Carll, where the trust explicitly limited the remainder to the grantor’s bloodlines. The court also noted the 1963 amendment to the Domestic Relations Law, which favored including adopted children in generic terms like “issue,” unless the instrument specifically provided otherwise, reflecting a public policy of integrating adopted children into their new families for inheritance purposes.

  • Matter of Vought, 25 N.Y.2d 163 (1969): Enforceability of Inalienability Clauses in Remainder Interests

    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.”

  • Matter of Flyer, 23 N.Y.2d 579 (1969): Trustee’s Discretion to Consider Beneficiary’s Resources Before Invading Trust Principal

    Matter of Flyer, 23 N.Y.2d 579 (1969)

    When a trustee has sole discretion to invade a trust’s principal for the support of a beneficiary, the trustee may consider the beneficiary’s independent resources before deciding to invade the principal, unless the will indicates an absolute gift of principal or an intent that the beneficiary’s needs are irrelevant.

    Summary

    This case addresses whether a trustee with absolute discretion to invade the principal of a trust for the life beneficiary’s support must consider the beneficiary’s private resources before invading the principal. The New York Court of Appeals held that the trustee could consider the beneficiary’s independent resources, because the testator’s will did not create an absolute gift of principal and indicated that invasion of the principal depended on the beneficiary’s needs. The court emphasized that the testator’s intent, gleaned from the entire will and surrounding circumstances, is paramount in determining the scope of the trustee’s discretion.

    Facts

    Jacob Flyer created a trust for his wife, Elsie, giving his daughter as trustee discretion to use income and principal for Elsie’s support and maintenance. Elsie suffered a severe stroke and was institutionalized. Besides the trust, Elsie had approximately $10,000 in assets and $1,800 annual income from Social Security. Elsie’s sister, acting as her committee, argued that the testator intended an absolute gift of both income and principal, irrespective of Elsie’s independent resources, and requested the trustee pay Elsie’s outstanding hospital bills. The trustee, one of the testator’s daughters, contended that the testator intended Elsie’s private income to be used first.

    Procedural History

    The Surrogate’s Court agreed with Elsie’s sister, holding that the trustee must pay for Elsie’s support from the trust without regard to her private resources. The Appellate Division affirmed this decision. The dissenting justices in the Appellate Division argued that the trustee should consider Elsie’s independent income. The New York Court of Appeals reversed the Appellate Division’s order.

    Issue(s)

    Whether a trustee, vested with sole and absolute discretion to invade the principal of a trust for the support of the life beneficiary, may take the latter’s private resources into account before deciding to effect an invasion.

    Holding

    No, because the testator’s will did not create an absolute gift of principal, made the prime gift income and the testator intended that the invasion of the principal be dependent upon the needs or requirements of the beneficiary.

    Court’s Reasoning

    The court emphasized that the testator’s intent controls, and this intent should be determined from the entire will and the surrounding circumstances, not merely from the specific language granting the trustee discretion. The court stated, “A trustee, particularly when given uncontrolled discretion to invade principal… may, before deciding to effect an invasion, take into account the beneficiary’s independent resources where there is no ‘absolute’ gift of principal, the prime gift being that of income, and the testator intended that the ‘invasion of the principal… [be] dependent upon the needs or requirements of the beneficiary.’” The court distinguished this case from those where the testator intended a gift of principal as broad as the gift of interest, without any condition of need. Here, the court reasoned that the testator’s primary concern was for his daughters and their children, and he intended to preserve the estate for them. The court noted that any income not needed for Elsie’s support was to be added to the principal that the daughters would inherit, and elaborate provisions were made for gifts over to grandchildren. Additionally, the testator used Elsie’s Social Security payments for her care while he was alive, indicating an expectation that those resources would continue to be used for her support. Therefore, the trustee was permitted to consider Elsie’s independent income before invading the principal.

  • In re Slosson’s Estate, 216 N.Y. 79 (1915): Elective Inheritance Rights Under Power of Appointment

    In re Slosson’s Estate, 216 N.Y. 79 (1915)

    When a will grants a power of appointment and the donee partially exercises that power, beneficiaries who would have taken in default of appointment can elect to take under the original will for the portion they would have received in default, even if the donee validly appointed a portion of the estate to others.

    Summary

    This case addresses whether children can elect to take under the original grantor’s will when their mother (the donee of a power of appointment) partially exercises that power, diverting some of the trust estate to other beneficiaries. The court held that the children could elect to take under the original will for the portion they would have received in default of appointment, despite the mother’s partial exercise of the power. This is consistent with the principle that a valid, partial exercise of a power of appointment does not preclude beneficiaries from taking the remaining portion under the original grant.

    Facts

    Peter Naylor’s will created a trust for Josephine Slosson, granting her the power to dispose of the trust estate via her will. The will stipulated that if Josephine did not exercise this power, the trust estate would pass to those who would have received it had Josephine died intestate and owning the property. Josephine’s will disposed of about two-thirds of the trust estate to her children (who would have taken in default) and about one-third to others. The children elected to take the two-thirds share under Naylor’s will, not their mother’s.

    Procedural History

    The Surrogate’s Court held that Josephine’s will was a valid disposition of the trust estate due to the diversion of one-third to other beneficiaries and thus the children’s shares were subject to a transfer tax. The Appellate Division affirmed this conclusion. The case then went to the New York Court of Appeals.

    Issue(s)

    Whether the valid disposition by Josephine of a portion of the trust estate to individuals who could only receive it through such disposition negates the right of her children to elect to take the remaining portion of the trust estate under the original will of Naylor?

    Holding

    No, because the valid exercise of a power of appointment as to a part of a trust estate, coupled with either an ineffectual attempt or a failure to exercise it as to the remaining part, does not prevent those entitled from receiving their shares under the original will, as diminished by the exercise of the power.

    Court’s Reasoning

    The court relied on the principle established in Matter of Ripley, 192 N.Y. 536, which held that a valid exercise of a power of appointment regarding a portion of a trust estate, coupled with a failure to exercise it for the balance, does not preclude those entitled from taking their shares under the grantor’s will. The court stated that “It is immaterial whether there is a neglect or failure to exercise the power as to the balance of the trust estate, or an attempt to exercise it ineffectual because of the refusal of the donees to accept the disposition. In either of such cases, there is a failure of disposition under the appointment and the original will effects the transfer of the part of the trust estate undisposed of.” The court also referenced Matter of Lansing, 182 N.Y. 238, clarifying that beneficiaries are not forced to take under the power of appointment if they would have taken in default. Here, the children could elect to take under Naylor’s will for the two-thirds they would have received in default, irrespective of Josephine’s partial appointment to others. The order of the Appellate Division was reversed, and the case was remitted to the Surrogate’s Court to modify its order by deducting the value of the children’s shares from the taxable estate.

  • Matter of Wilcox, 194 N.Y. 288 (1909): Rule Against Perpetuities and Contingent Life Estates

    Matter of Wilcox, 194 N.Y. 288 (1909)

    A trust is invalid if, under any possible contingency, it could suspend the absolute power of alienation for longer than two lives in being at the creation of the trust.

    Summary

    This case addresses the application of the rule against perpetuities to testamentary trusts. The testator created a trust that, depending on various contingencies, could potentially extend beyond two lives in being at the time of his death. The court found that the possibility of such an extension rendered the entire trust invalid, emphasizing that the validity of a trust is determined not by what actually happens, but by what could possibly happen under its terms. This ruling underscores the strict interpretation and application of the rule against perpetuities to prevent prolonged restrictions on property alienation.

    Facts

    The testator’s will established a trust for the benefit of his wife, son, and daughter. After the wife’s death, the will divided the estate into two independent trusts for the son and daughter. The son’s trust was to last for his life or until he reached 30 years of age. The will specified different contingencies: if the son died before the wife, his income share would be split between the wife and daughter; if the son survived the wife, his trust would be bounded by his life or reaching age 30.

    Procedural History

    The lower court initially upheld the validity of the trust but deemed the accumulation of income provision void. The General Term reversed this decision. The Court of Appeals reviewed the case to determine the trust’s validity under the rule against perpetuities.

    Issue(s)

    Whether a trust is valid if, under any possible contingency, it could suspend the absolute power of alienation for a period longer than two lives in being at the time of the trust’s creation.

    Holding

    No, because New York’s rule against perpetuities prohibits any trust that, under any circumstance outlined in the will, could suspend the power of alienation beyond two lives in being at the testator’s death.

    Court’s Reasoning

    The court emphasized that the validity of a trust under the rule against perpetuities is determined by possible, not actual, events. The court stated, “Where a trust is created which by no possibility and in no contingency can endure longer than during the existence of two lives in being, of what consequence can it be that if one contingency happen, the estate is to be measured by two named lives, and if the other contingency happen, the estate is still to be measured by two named lives, but one of them is different from the one named in the other contingency?” The court determined that the will’s provisions, particularly those related to the son’s potential death before the wife, created a scenario where the trust term was limited by the lives of the wife and daughter. However, if the wife died first, the trust was limited by the lives of the wife and son (or until the son reached 30). Since the two lives measuring the duration of the trust differed based on the contingency, the court had to determine if this arrangement violated the rule. The Court of Appeals reversed the General Term and affirmed the Special Term, holding the trust valid.