Master Adopts Draft Report on Issues Regarding Standing, Exercising Testamentary Powers of Appointment, and Insane Delusions and Clarifies the Mootness Doctrine with regard to Capacity Challenges

Delaware Fiduciary Litigation Blog

Posted March 29, 2016

IMO Vincent J. Tigani, Jr. Estate CA #7339-ML (February 12, 2016)

On September 30, 2015, former-Master LeGrow issued a Draft Report addressing whether a donee’s exercise of a testamentary limited power of appointment to disinherit the petitioner could divest the petitioner, a vested beneficiary subject to divestiture, of standing to remove the donee as trustee of the trust. The Draft Report also addressed whether the donee lacked capacity to exercise the power of appointment to disinherit the petitioner. The Master’s Draft Report unequivocally found that the donee had the requisite capacity to exercise the power of appointment, but found that the power of appointment to disinherit the petitioner would not be effective until the donee’s death, thereby preventing the donee from divesting the petitioner of standing.

The petitioner took exceptions to a number of the Master’s rulings in the Draft Report, namely that the Master erred in finding that the donee had capacity and that the Master’s ruling on capacity was mooted by a finding that the exercising of the power of appointment could not divest petitioner of standing because it would not be effective until the donee’s death. In his exceptions, the petitioner also sought a ruling that the donee was now forever barred from exercising the power of appointment because the Master had found in the Draft Report that her exercise was a fraud on the power and that she irrevocably spent that power. The petitioner further sought a ruling that the donee waived any argument that she “released” her power to appoint petitioner as a beneficiary because the donee did not raise that argument until the post-trial reply brief.

On February 12, 2016, the Master issued her Final Report, adopting the entire Draft Report. However, the Master issued a supplemental letter to clarify and expand upon petitioner’s issues raised in his exceptions briefing. In that letter, the Master held that the petitioner had not properly raised the issue of whether the donee “spent” her power of appointment and was thereby barred from re-exercising it below and, thus, refused to rule on that issue. The Master further clarified that her rulings on whether the power was “exclusionary” or “non-exclusionary” and whether the donee had the requisite capacity were not moot because they fell within the recognized exceptions to the mootness doctrine. That is, the Master held that these issues are likely to recur and that this Court may resolve them when it did. With regards to the donee’s capacity, the Court further pointed out that the allegations raised by petitioner as to why she lacked capacity to exercise the power of appointment were the same allegations raised by him his complaint to remove her as trustee, and that these questions of the donee’ s alleged delusional behavior would have to be resolved at some point in this case.

In response to the petitioner’s mootness challenges, the donee argued that the Court could hear the capacity challenges under Delaware’s newly enacted pre-mortem validation statute for powers of appointments. Petitioner argued that because the donee did not properly follow the statute’s procedures, the Court could not hear the capacity challenge at this time. The Court, however, pointed out the irony in this argument because it was the petitioner who brought the capacity challenge. Specifically, the Master stated that “that statute simply operates to bar a capacity challenge where a testator provides notice and no challenge is brought within the statutory period. That does not mean that a party who affirmatively challenges a testator’s capacity, and loses that challenge, may later claim prejudice because the notice procedures for pre-mortem will validation were not observed.” This interpretation of the statute is one of first impression in Delaware.

And finally, the Court found that the donee had not waived her argument that she released her power to appoint petitioner as a beneficiary. In doing so, the Court noted that it is the Court’s preference to decide issues on the merits rather than on technicalities and that the standing issue crystallized over the course of the briefing and oral argument so that donee should not be prejudiced from raising the release argument in her reply brief.  

Note: This firm represented the Respondent-donee in this matter.

Author(s)

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