Equitable Trust Co. v. Paschall

13 Del. Ch. 87 | New York Court of Chancery | 1921

The Chancellor.

The question is, whether the trust fund of two. thousand dollars goes to the distributees of- Mary S. Der rickson under the intestate laws of Delaware by virtue of the trust instrument, or to the trustees under the will by virtue of the residuary clause.

Mrs. Derrickson in creating the trust in the two thousand dollars fund, reserved to herself the annual income during life and a power to appoint by her last will and testament, and in default of such last will and testament directed that the fund be paid to her distributees under the intestate laws. She thus chose to limit and restrict the general right of dominion over the fund which theretofore she had possessed. Whether she might have revoked the trust arrangement, I need not consider, for the fact is that she did not attempt to do so. Whatever might have been her right as regards revocation, she died leaving the trust arrangement in the same condition in which she had chosen originally to place it. I must, therefore, conclude that her will is to be construed with the thought in mind that the trust was regarded by her as continuing to exist in all its terms.

If, therefore, the will is to operate upon the trust fund, it must be upon the theory that it may do so solely as an exercise of the power which she had reserved unto herself in creating the trust.

The only portion of the will that may in any wise be said to amount to an exercise of the power is that portion constituting the general residuary clause.

This clause, however, phrased as it is, cannot, under the authority of Lane v. Lane’s Adm’r., 4 Pennewill, 368, 55 Atl. 184, 64 L. R. A. 849, 103 Am. St. Rep. 122, decided by the Supreme Court oü this state, be said to operate as a valid exercise of the power to appoint; for none of the tests laid down in that case for ascertaining the intent to exercise the power can be found to be present. This is so, unless there is merit in the contention that the circumstance in this case, to-wit, that the power here was reserved by the owner, whereas in the Lane Case the power was conferred on a stranger, may serve to differentiate the two cases in the principle to be applied.

In support of this contention the case of Birdsall v. Richards, 18 Pa. 256, is cited. That case appears to hold that a trust arrangement similar to that here involved leaves in the owner of the property an estate as well as a power, and that, accordingly a residuary clause though inoperative as an exercise of the power is nevertheless good as a disposal of the estate. The Pennsylvania court relies on Sir Ewdard Clere’s Case, 6 Co. 17, for the proposition that where there is both an estate and a power in the same individual, such individual may elect as to whether he will dispose under the power or devise as owner. That he may do so, is, I take it, an indisputable proposition. The difficulty, however, that I find with Birdsall v. Richards is in accepting the view that the- testator in that case did as a matter of law have a disposable estate as well as a power.

The case now before me is quite similar to Birdsall v. Richards. In one particular, however, there is a material distinction which lies in the fact that in the Birdsall Case there was an exercise of the power, and later a revocation of the same by codicil and a cotemporaneous republication of the residuary clause. This feature was emphasized by the justice who wrote the opinion.

It may be said that Mory v. Michael, 18 Md. 227, upon the proposition that, in such trust arrangements as are here involved, there is a disposable interest as well as a power, would appear to be in conflict with Birdsall v. Richards, supra. I am aware that the the limitation to child or children in the Mory Case may be a feature which would remove its apparent conflict with the Birdsall Case in Pennsylvania.

However this may be, I am of the opinion that Mrs. Derrickson, when she placed the two thousand dollars fund in trust and left it there undisturbed, retained no interest in it except within the terms of the trust attaching to it. The trust continuing, she had, aside from the power to appoint, no disposable estate in the corpus. If in addition to the power to appoint by will, she also had an estate which she could bequeath as her property (as is contended), it follows that if she died insolvent her creditors could take the fund and thus defeat the limitation to the distributees. And this would be so notwithstanding the fund was intended to be paid by the trustee, not to her executors or administrators, but direct to her distributees.

Again, supposing she had an estate in the fund as distinct from the power over it, as is contended, then, if she had, as a matter of fact, desired to make a will such as she did, and, at the same time, had not desired to exercise the power to appoint, preferring that the fund should go as provided in the trust agreement, she would, in order to accomplish her purpose, have been required to expressly deny in her will that she meant her residuary clause to operate upon the power. This would necessitate the laying down of a rule that, in such cases as this, the possessor of the power must, if he elect not to exercise it, expressly declare a refusal to exercise it. This would constitute a rule quite the reverse of the general rule universally held applicable, viz.: that failure to refer to the power, or its subject matter, expressly, or by implication, always indicates a refusal to exercise it.

Moreover, I am unable to see how, if there was an estate in the fund as well as a power to appoint, the limitation to appointees under a will, or to the distributees under the intestate laws, could become effective qua such in any event, for such estate or property right would be a part of the estate whether the deceased died testate or intestate. The limitations to appointees or to disdistributees would, therefore, have to be held pure surplusage. At least such in substance would be the effect, for if there was a wiJl containing a general bequest, it would go to the executor for the benefit of the persons named by the will without the aid of any power, and if no such will, it would go to the adminstratdr for the benefit of the distributees under the intestate laws without the aid of the limitation contained in the trust arrangement— subject in either case to the rights of creditors. If such was the intent in employing the language used, I am at a loss to understand why such a cumbersome method of expressing it should have been employed. Such, I think, was not the intent. Rather, it is more reasonable to hold that in creating the trust,- Mrs. Derrickson divested herself of all rights in the fund except as the terms of the trust saved to her; and that she did not retain an interest or estate disposable of by her aside from the trust arrangement.

The Pennsylvania case of Birdsall v. Richards, therefore, if it is to be regarded as holding that in such case as is now before me there is a disposable estate as well as a power, does not make a favorable appeal to my judgment.

The question of whether a power has been exercised, is a question of intention. Courts have, in adjudications extending over a long period of time, laid down certain well defined rules for the ascertaining of that intention. It is suggested that where the power is a reserved one, that is to say, is in the individual in whom the right of property resided at the time of the creation of the power, a different rule is to be observed in the ascertainment of the intent from that which is to be observed where the donee of the power is a stranger to the property. This thought is urged because, it is said, where the power is reserved by the owner, such owner must be considered as having actual knowledge of its existence, and therefore no express reference to it is necessary, whereas, if the donee of the power is a stranger there is no presumption that he was aware of its existence, except as he may disclose his knowledge by a reference to it in the executing instrument, and that therefore, in such latter case there ought to be a reference to the power.

I find no authority sustaining this view. The argument appears to be founded on a false premise in that it assumes that the question of whether a power has been exercised is to be determined by the question of whether the possessor of the power had knowledge of its existence in him. I do not think that such is the philosophy underlying the rules dealing with the subject. A power is optional. It may be exercised or it may not be. A party may know he has the power and yet elect not to use it. The question in each case is, whether he intended to act upon it. And this question of intention is not determined in the affirmative by simply showing that the possessor of the power knew that it was vested in him. To hold otherwise would tend to disturb all the rules which courts have for generations erected for guidance in disposing of questions of the kind now before me.

I hold that with respect to the two thousand dollars fund mentioned in the trust"agreement of April 15, 1907, there was no disposable property interest or estate in Mary S. Derrickson, which she -could dispose of by her will; that if she by her will desired to give it to any particular person or individual, she should have done so by way of appointment in accordance with the trust arrangement. The residuary clause, therefore, in view of this holding, did not carry any interest in the way of an estate in this fund. •

I further hold that the residuary clause was not an exercise of the power to appoint under the terms of the trust arrangement, taking the view that the principle laid down in Lane v. Lane's Adm’r., supra, is applicable to this case.

I also hold that the two thousand dollars fund should be paid by the trustee to such person or persons as are entitled to receive the same as distributees of Mary S. Derrickson under the intestate laws of the state of Delaware.

Let a decree be.prepared in accordance with this opinion.