In re Theodora Nickels Herbert Trust
303 Mich. App. 456
Mich. Ct. App.2013Background
- Theodora Nickels Herbert created an irrevocable trust for herself and three children; upon her death the trust was divided into equal shares for William James Herbert (decedent), Elizabeth Sherman, and respondent (trustee).
- Trust provided annual net income distributions to each child and allowed a child to request distribution of principal in writing, subject to special rules for the Nickels Arcade (trust’s sole asset) including a beneficiary right of first refusal and installment purchase terms.
- Article V §3 stated that if a settlor’s child died before the trust estate or any part thereof was delivered to him, that child’s share would be delivered to his then-living issue by right of representation.
- William died in 2010, leaving a will devising his estate to petitioner Barbara Ann Williams; petitioner sued to be named successor beneficiary to William’s trust interest; trial court granted relief and respondent trustee appealed.
- Central dispute: whether William died before “said trust estate or any part thereof [was] delivered over to him,” i.e., whether past income distributions (and the right to principal) constitute delivery of part of the trust estate such that his interest could be devised by will; and whether spendthrift or other trust provisions prevented testamentary disposition.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether income (and other trust property subject to distribution) constituted part of the “trust estate” and was "delivered over" to William before death | Petitioner: income distributions and trust property subject to the trust counted as "trust estate" and were delivered (so §3 contingency did not apply) | Trustee: §3 applied because William died before the trust estate or any part thereof was delivered to him | Court: Agreed with petitioner; income and property subject to the trust are part of the trust estate and annual income distributions constituted delivery of part of the estate, so §3 did not bar devise |
| Whether William’s beneficial interest was vested and thus devisable by will | Petitioner: William held a vested beneficial interest (income plus a present right to principal payment) capable of being reduced to a sum in gross and therefore devisable | Trustee: William had only a lifetime income interest or otherwise could not devise his interest | Court: William had a vested interest (income and present right to payment) and could devise it; not a mere life estate |
| Whether a power of appointment was required to devise William’s trust interest | Petitioner: No power of appointment required because interest was vested and reducible to a sum in gross | Trustee: Trust did not grant William a power of appointment, so he could not devise the interest | Court: Power of appointment not required; William’s present rights sufficed for testamentary disposition |
| Whether the spendthrift provision prevented testamentary disposition of William’s interest | Petitioner: Spendthrift provision protects against creditors/alienation during life but does not bar devise upon death of the beneficiary | Trustee: Spendthrift clause bars assignment/transfer and thus precludes testamentary disposition | Court: Spendthrift provision did not preclude devise; protection ends at death and does not prevent succession to devisee (petitioner) |
Key Cases Cited
- In re Reisman Estate, 266 Mich App 522 (court reviews trust interpretation de novo)
- In re Kostin, 278 Mich App 47 (settlor’s intent derived from trust document; consider ambiguity exceptions)
- In re Bem Estate, 247 Mich App 427 (definition of vested beneficial interest)
- In re Childress Trust, 194 Mich App 319 (vesting and testamentary disposition principles)
- In re Allen’s Estate, 240 Mich 661 (vested trust interests may be devised)
- In re Edgar Estate, 425 Mich 364 (validity and effect of spendthrift provisions)
- Cowdery v Northern Trust Co, 321 Ill App 243 (persuasive authority that spendthrift restraints do not bar testamentary disposition of accrued income)