275 N.Y. 371 | NY | 1937
The Decedent Estate Law (Cons. Laws, ch. 13, arts. 2, 3) regulates the testamentary disposition and the descent and distribution of the real and personal property of decedents. It does not limit or affect disposition of property inter vivos. In terms and in intent it applies only to decedents' estates. Property which did not belong to a decedent at his death and which does not become part of his estate does not come within its scope.
The share in the real and personal property of a decedent, not devised or bequeathed, which a husband or wife takes is now fixed by section 83 of the Decedent Estate Law. Prior to the revision of the Decedent Estate Law which took effect on September 1, 1930, a decedent could by testamentary disposition effectively exclude a wife or husband from the share of the estate which would pass to her or him in case of intestacy. That was changed by section 18 of the revised Decedent Estate Law. By that section "a personal right of election is given to the surviving spouse to take his or her share of the estate as in intestacy, subject to the limitations, conditions and exceptions contained in this section." These limitations and exceptions include a case where "the testator has devised or bequeathed in *375 trust an amount equal to or greater than the intestate share, with income thereof payable to the surviving spouse for life." (Subd. b.) The Legislature has declared that its intention in enacting these sections of the revised Decedent Estate Law was "to increase the share of a surviving spouse in the estate of a deceased spouse, either in a case of intestacy or by an election against the terms of the will of the deceased spouse thus enlarging property rights of such surviving spouse." (Laws of 1929, chap. 229, § 20.)
Ferdinand Straus died on July 1, 1934, leaving a last will and testament dated May 5, 1934, which contained a provision for a trust for his wife for her life of one-third of the decedent's property both real and personal. In such case the statute did not give the wife a right of election to take her share of the estate as in intestacy. She receives the income for life from a trust fund of the amount of the intestate share, but does not take the share. That share is one-third of the decedent's estate. It includes no property which does not form part of the estate at the decedent's death. The testator on June 28, 1934, three days before his death, executed trust agreements by which, in form at least, he transferred to trustees all his real and personal property. If the agreements effectively divested the settlor of title to his property, then the decedent left no estate and the widow takes nothing. The widow has challenged the validity of the transfer to the trustees. The beneficiary named in the trust agreement has brought this action to compel the trustees to carry out its terms. The trial court has found that the "trust agreements were made, executed and delivered by said Ferdinand Straus for the purpose of evading and circumventing the laws of the State of New York, and particularly sections 18 and 83 of the Decedent Estate Law." Undoubtedly the settlor's purpose was to provide that at his death his property should pass to beneficiaries named in the trust agreement to the exclusion of his wife. Under the provisions of the *376 Decedent Estate Law the decedent could not effect the desired purpose by testamentary disposition of his property. The problem in this case is whether he has accomplished that result by creating a trust during his lifetime.
The validity of the attempted transfer depends upon whether "the laws of the State of New York and particularly sections 18 and 83 of the Decedent Estate Law" prohibit or permit such transfer. If the statute, in express language or by clear implication, prohibits the transfer, it is illegal; if the laws of the State do not prohibit it, the transfer is legal. In strict accuracy, it cannot be said that a "purpose of evading and circumventing" the law can carry any legal consequences. "We do not speak of evasion, because when the law draws a line, a case is on one side of it or the other, and if on the safe side is none the worse legally that a party has availed himself to the full of what the law permits. When an act is condemned as an evasion what is meant is that it is on the wrong side of the line indicated by the policy if not by the mere letter of the law." (Bullen v. Wisconsin,
That does not mean, of course, that the law may not place its ban upon an intended result even though the means to effect that result may be lawful. The statute gives to a spouse a property right. The question is, how far the statute protects that right even while it remains only expectant and contingent. A right created by law may be protected by law against invasion through acts otherwise lawful. A wrong does not cease to be a wrong because it is cloaked in form of law. The test of legality, then, is whether the result is lawful and the means used to achieve that result are lawful. Here, we should point out that the courts below have not based their decision primarily upon the finding that the trust agreements were executed for the purpose of evading and circumventing the law of the State of New York. The courts have also found, and the evidence conclusively establishes, that the trust agreements were made for the purpose of depriving the decedent's widow of any rights in and to his property upon his death. Under the trust agreements executed a few days before the death of the settlor, he reserved the enjoyment of the entire income as long as he should live, and a right to revoke the trust at his will, and in general the powers granted to the trustees were in terms made "subject to the settlor's control during his life," and could be exercised "in such manner only as the settlor shall from time to time direct in writing." Thus by the trust *378 agreement which transferred to the trustees the settlor's entire property, the settlor reserved substantially the same rights to enjoy and control the disposition of the property as he previously had possessed, and the inference is inescapable that the trust agreements were executed by the settlor, as the court has found, "with the intention and for the purpose of diminishing his estate and thereby to reduce in amount the share" of his wife in his estate upon his death and as a "contrivance to deprive * * * his widow of any rights in and to his property upon his death." They had no other purpose and substantially they had no other effect. Does the statute intend that such a transfer shall be available as a means of defeating the contingent expectant estate of a spouse?
In a few States where a wife has a similar contingent expectant interest or estate in the property of her husband, it has been held that her rights may not be defeated by any transfer made during life with intent to deprive the wife of property, which under the law would otherwise pass to her (Thayer v. Thayer,
Motive or intent is an unsatisfactory test of the validity of a transfer of property. In most jurisdictions it has been rejected, sometimes for the reason that it would cast doubt upon the validity of all transfers made by a married man, outside of the regular course of business; sometimes because it is difficult to find a satisfactory logical foundation for it. Intent may, at times, be relevant in determining whether an act is fraudulent, but there can be no fraud where no right of any person is invaded. "The great weight of authority is that the intent to defeat a claim which otherwise a wife might have is not enough to defeat the deed." (Leonard v. Leonard,
In this case the decedent, as we have said, retained not only the income for life and power to revoke the trust, but also the right to control the trustees. We need not now determine whether such a trust is, for any purpose, a valid present trust. It has been said that "where the settlor transfers property in trust and reserves not only * * * a power to revoke and modify the trust but also such power to control the trustee as to the details of the administration of the trust that the trustee is the agent of the settlor, the disposition so far as it is intended to take effect after his death is testamentary * * *." (American Law Institute, Restatement of the Law of Trusts, § 57, subd. 2.) We do not now consider whether the rule so stated is in accord with the law of this State or whether in this case the reserved power of control is so great that the trustee is in fact "the agent of the settlor." We assume, without deciding, that except for the provisions of section 18 of the Decedent Estate Law the trust would be valid. (Cf. Robb v. Washington Jefferson *381 College,
Judged by the substance, not by the form, the testator's conveyance is illusory, intended only as a mask for the effective retention by the settlor of the property which in form he had conveyed. We do not attempt now to formulate any general test of how far a settlor must divest himself of his interest in the trust property to render the conveyance more than illusory. Question of whether reservation of the income or of a power of revocation, or both, might even without reservation of the power of control be sufficient to show that the transfer was not intended in good faith to divest the settlor of his property must await decision until such question arises. In this case it is clear that the settlor never intended to divest himself of his property. He was unwilling to do so even when death was near.
The judgment should be affirmed, with costs.
CRANE, Ch. J., HUBBS, LOUGHRAN and RIPPEY, JJ., concur; FINCH, J., concurs in result; O'BRIEN, J., taking no part.
Judgment affirmed. *382