Master Holds that a Donee of a Testamentary Limited Power of Appointment May Not Remove the Appointee's Standing by Contracting to Exercise that Power During Her Life

Delaware Fiduciary Litigation Blog

Posted November 4, 2015

IMO: The Estate of James Vincent Tigani, Jr., deceased, and the J. Vincent Tigani Jr., a/k/a James Vincent Tigani, Jr. Revocable Trust, U/A dtd, April 10, 1995 C.A. No. 7339-ML (September 30, 2015)

In a recent draft report, Master LeGrow addressed the standing of a vested beneficiary subject to divestiture and the required capacity to execute a will exercising a power of appointment. In resolving the standing issue, the Master addressed two novel questions of law: (1) whether a contract to exercise a testamentary power of appointment is valid, thereby stripping the appointee/beneficiary of standing to challenge the trustee at the time the contract is executed (rather than at the donee’s death), and (2) whether that same contract also acted as a release of the donee’s power of appointment, likewise stripping the appointee/beneficiary of standing to challenge the trustee at the time the contract is executed.

In this case, a son tried to remove his mother as the executrix of his father’s estate and also as the trustee of his father’s trust. The mother settled the estate successfully during the litigation. The facts reveal the deterioration of a parent-child relationship over a period of a few years amid several uncomfortable, and often angry verbal exchanges between the two parties. Many years before his death, the decedent (who was the grantor of the estate and trust at issue) executed a pour-over will (“the Will”) and revocable trust (“the Trust”). The decedent designated his son, the Petitioner, and his other two children, as residual beneficiaries of his “substantial estate.” However, the Petitioner’s residual interest was subjected to a limited testamentary power of appointment (“the Power of Appointment”) granted to the Respondent (Petitioner’s mother and also the decedent’s widow).

The relationship between the Petitioner and his parents was a rather complicated one. Prior to the decedent’s death, he and the Petitioner were not on good terms, and the decedent and his wife (the Respondent) were considering disinheriting him. However, the decedent died, never disinheriting him. After the decedent’s death, the Petitioner and Respondent’s relationship quickly fell apart. Immediately following the decedent’s death, Petitioner demanded information from Respondent regarding his father’s estate. Failing to reconcile, Petitioner filed a lawsuit against his mother alleging that she was delusional and unfit to be trustee.

In response to the lawsuit and the allegations regarding her competency, Respondent executed a codicil intended to exercise the Power of Appointment, which included instructions to the executor/executrix of her estate to remove the Petitioner as a beneficiary of the Trust created by the decedent’s last will and testament.

The Master explained that this case “became side-tracked by issues of standing and testamentary capacity,” specifically whether the Respondent’s revisions to her last will and testament divested the Petitioner of standing to maintain the action and, if so, whether the Respondent “had the requisite capacity to execute” the revisions made following the decedent’s death.

Respondent argued that the contract to exercise her testamentary power of appointment was presently enforceable, and thus stripped Petitioner of his status as a beneficiary. She further argued that the contract also acted a release of the Power of Appointment, which also stripped Petitioner’s status as a beneficiary.

With regards to whether a “contract to appoint” is valid in Delaware or not, the Master concluded that Delaware law does not recognize a “contract to exercise a power of appointment” as a presently-enforceable agreement . She state that there is no Delaware caselaw on point and thus had to rely on the Restatement and other secondary sources for guidance. According to the Master, those sources “indicate that contracts to exercise a testamentary power of appointment are not valid, with limited exceptions.” According to the Master, a donor who extends to a donee a testamentary power of appointment “essentially requires the donee to wait and see and take into account later developing facts before exercising the power.” In this case, the Master determined, the Respondent attempted to take control of the power before the donor intended for her to obtain the authority to do so. Additionally, the Master decided the Petitioner’s contract to appoint was invalid because it “confers a benefit on a donee when the donee is not a permissible appointee.”

With regard to whether the contract to exercise the Power of Appointment also acted as a release of the power to appoint Petitioner, the Master stated that even if the contract did act as a release, the release did not change his status as default beneficiary. In other words, if in the event the Respondent failed to/chose not to exercise her power of appointment at all, Petitioner would still take a third of the Trust assets as a default beneficiary, and the release of her power to appoint him could not change that fact. Furthermore, the Master reasoned that “most courts in other jurisdictions have concluded that a taker in default has an interest in the property that is the subject of the power of appointment and has standing to compel an accounting from a trustee.” Consequently, the Master held that because the Respondent failed to identify “any reason why Delaware should deviate from this majority rule,” and due to the risk that the adoption of the minority rule could allow the Respondent to insulate herself “from any form of judicial review of her actions as trustee,” her attempt to divest the Petitioner as a taker in default of the Power of Appointment did act as a “release” of the Power of Appointment over the Trust, but it did not alter the Petitioner’s position as a taker in default of the Power of Appointment.

Because the release did not alter Petitioner’s position as a taker in default and the power to exercise the Power of Appointment could only be exercised at her death, the Mast herd that the Petitioner was still a vested beneficiary subject to divestiture, and thus still had standing because he is a “beneficiary” as defined by 12 Del. C. § 3327. The Master wrote that the “statute’s use of the general term beneficiary, without any language restricting the class of beneficiary to whom it refers, fairly encompasses” the Petitioner.  

Regarding the Respondent’s capacity, the Master concluded that the Petitioner maintained the requisite capacity to make changes to her estate planning documents in the immediate aftermath of her husband’s death. The Master, mostly relying on a comparison between the consistencies of the Petitioner’s expert witnesses’ testimony with the inconsistency of the Respondent’s expert witness, concluded that the Respondent’s claim did not satisfy the two-part test established by the Court in Tracy v. Prudential Life Insurance Co. of America, which requires: (1) A testator to have an insane delusion; and (2) for the testator to change the beneficiaries of the estate because of that delusional belief. On the Respondent’s capacity, the Master concluded, clearly the Respondent “misunderstood the Petitioner on a number of occasions” but that those misunderstandings and the resulting prejudice didn’t constitute insane delusions. The Master, relying on the lack of consistent evidence or testimony provided by the Petitioner, determined that the Respondent obviously dislikes the Petitioner, and that it “is plain that she has ample reason to be angry with him, and he with her,” but that “[n]one of that rises to a level that permits this Court to substitute its judgment for that of a testator.”

Note: This law firm represents the Respondent in this case

Author(s)

Neil R. Lapinski
Director
Gordon, Fournaris & Mammarella, P.A.
Phillip Giordano
Associate
Gordon, Fournaris & Mammarella, P.A.
William M. Kelleher, Director
Director
Gordon, Fournaris & Mammarella, P.A.
Henry Meldrum – Law Clerk