Citing Clear and Unambiguous Terms, Master Rules Against Next of Kin In Favor of Intestate Beneficiaries

Delaware Fiduciary Litigation Blog

Posted September 5, 2017

IMO Trust Created Under the Will of Harold S. Schutt C.A. #10574-MZ (July 17, 2017)

      In this case, the testator’s trust, which was created under his will, contained language that left his estate to the more distant of his relatives, as opposed to his more immediate family members. The testator’s more immediate family members challenged the trust’s language, claiming that it was ambiguous as to which relatives would receive the testator’s estate.

      Master Zurn, however, concluded that the trust language at issue was not ambiguous and noted that the testator explicitly explained that he favored his more distant relatives because he believed his more immediate family members were adequately provided for. 

      The testator’s trust was created under his will in 1960. The trust terminated when the last beneficiary died without issue, which was on June 17, 2013. Upon termination of the trust, the balance of the trust principal was to be paid in equal shares, per stirpes,

. . . to the person or persons who would have been entitled to inherit the same from me under the intestate laws of the State of Delaware pertaining to personal property of mine had I died at the time intestate, unmarried, possessed of such principal and not survived by any issue my said son Charles Porter Schutt by his wife Phyllis DuPont Schutt or by my nephew, David S. Foster, or any of his issues . . . .

      The testator’s only living issue after the trust terminated was the issue of Charles Porter Schutt by his wife, Phyllis (the “Petitioners”). Unsurprisingly, the Petitioners filed the petition challenging the trust’s language. The respondents were members of the testator’s more distant relatives (i.e. the person or persons who would have been entitled to inherit under Delaware’s intestate laws had the testator and his brother had no issue at the time the trust terminated) (the “Respondents”). The Respondents are the issue of the testator’s first cousins.

      The issue of the trust’s language was presented by both sides on a motion for summary judgment. Following oral argument on the matter, Master Zurn issued a draft report, of which the CPS Beneficiaries took exceptions. On July 17, 2017, Master Zurn issued her Final Report. In the Final Report, Master Zurn concluded, that it was undisputed that the class of intestate heirs described in the trust were bounded in some way, because the trust also described a third and fourth class of beneficiaries to take in the event the intestate class failed.

      The Petitioners argued that the testator’s class of intestate heirs, as defined by Delaware law, was problematic because it could never fail, and that this created a latent ambiguity that justified looking into extrinsic evidence to interpret and limit the testator’s class of intestate heirs. Their support for their argument was that the testator’s attorneys that drafted the will were from Pennsylvania, and that it was unlikely that any Delaware attorneys worked on the will. More specifically, the Petitioners argued that at the time the will was drafted, Pennsylvania intestate law cut off consanguinity in a manner that, when combined with the other exclusions in the testator’s trust, would have limited the intestate class to the testator’s brother’s (Walter) two then-living sons, whose marital status, and issue made it conceivable at the time the testator drafted the trust that Walter’s line could have died out before the trust terminated, justifying the creation of a third and fourth class. As such, the Petitioners argued that the Pennsylvania attorneys likely thought that Delaware intestacy law did the same.

      The Respondents argued that the trust was not ambiguous because if no intestate heir could be identified or found, such that the principal would escheat to the state, then and only then would the Petitioner take; and if they died out, then the trustees should give the estate to charity.

      Master Zurn was unpersuaded by the Petitioners’ argument that a latent ambiguity was created simply because the Pennsylvania law firm was operating under the assumption that Delaware’s intestate laws mirrored Pennsylvania’s intestate laws. Essentially, the Master thought it was too much of a leap to conclude that a sophisticated law firm would have just copy-and-pasted a Pennsylvania will for a wealthy Delaware client. The Master further concluded that the trust was unambiguous, that each term had a meaning that was reasonable and consistent with the object and purpose of the testator’s will as a whole, and that there was a specific plan for the Petitioners to obtain the principal.

      As mentioned above, the Petitioners took exceptions to these findings. Master Zurn dismissed those exceptions, issuing a final report dismissing their motion for summary judgment.

Author(s)

Phillip Giordano
Associate
Gordon, Fournaris & Mammarella, P.A.