February 2016
IMO the Estate of James L. Simmons, Sr.; Simmons v. DeRamus, et al. C.A. No. 9965-ML (February 11, 2016)
In this final report, the primary issue presented to Master LeGrow was whether a jointly titled bank account, originally included in an inventory of an estate’s assets, should be treated as a “convenience account” or as a true joint tenancy with a right of survivorship.
In 1976, the decedent established the bank account in question. At the time, the decedent asked his son, James (the executor of his estate), to sign paperwork related to the account. From thereon, James was listed as an account holder with the decedent. Over the next thirty years, they never spoke about the account again. Thirteen years after the creation of the account, the decedent established his will leaving his estate in equal shares to all of his children.
When the decedent died, James, as the executor of the estate, failed to realize the potential significance of the jointly held account. He listed it as an estate asset on an inventory filed pro se and distributed the assets of the estate in accordance with the decedent’s will. However, a dispute arose amongst the beneficiaries which led James to hire counsel who discovered that the account was jointly titled in James’s name. James filed this action seeking repayment of the funds paid to the beneficiaries from the jointly titled account. The beneficiaries filed a counterclaim alleging that James failed to properly administer the estate, including the remaining funds in the bank account.
Relying on the Delaware Supreme Court’s decision in Walsh v. Bailey, the Master determined that the account agreement unambiguously provided that the joint account would be treated as a survivorship account (the account agreement included language that “any joint account established with us is a joint tenancy with right of survivorship”). Therefore, according to the Master, no extrinsic evidence could be looked to for the purpose of evaluating the decedent’s intention in creating the account.
However, the Master held that Walsh did not bar equitable claims to the funds, so the Court could use its equitable powers to impose a resulting trust in such circumstances where: (1) the depositor created a joint account for purposes of convenience; (2) the depositor subsequently executed a will; and (3) the will would be nearly meaningless if the joint held property did not constitute part of the estate. The Master found that the facts of this case met this test. She noted that the bank account constituted a majority share of the estate’s total value, and that the decedent intended to distribute his estate evenly amongst his several children. Also, the Master considered the fact that James himself initially failed to realize that the account was not part of the estate’s assets, having included it in the original inventory.
Consequently, based on the case precedent and the facts before her, the Master recommended that James be recognized as the trustee of a resulting trust for the account, and, after accounting for the remaining expenses of the estate, that he should be required to distribute the assets of the account to the decedent’s intended beneficiaries.
IMO: Raymond L. Hammond Irrevocable Trust Agreement and PNC Bank Delaware Trust Company, as Trustee, Dated October 5, 2007. C.A. No. 10463-ML (January 28, 2016)
This dispute concerned a power of appointment (the “Power of Appointment) included within an agreement (the “Trust Agreement”) in Raymond Hammond’s (“Raymond”) qualified disposition trust (the “Trust”). In the Trust Agreement, Raymond reserved for himself a special testamentary power of appointment, to be exercised provided that he specifically referenced the Trust in his last will and testament (the “Will”). According to the Trust Agreement, if Raymond died without exercising the Power of Appointment and without a spouse, the trust assets were to pass to a residuary trust for the benefit of four individuals, including Kyle Kozak (“Kyle”). The disagreement between the parties was whether Raymond, who failed to specifically reference the Trust in the Will, effectively exercised the Power of Appointment.
Before Raymond died, he and his wife, Lisa, divorced. However, they maintained a close relationship. Upon separating in 2010, they entered into an agreement regarding their marital property rights and obligations. The separation agreement, entered by the New Jersey Superior Court, stated that Lisa “shall remain, for her lifetime, the irrevocable beneficiary of [Raymond’s] [T]rust with PNC and shall remain the beneficiary even after the divorce.” In 2012, Raymond executed the Will and named Lisa as the executor and sole heir of his estate. However, the Will failed to specifically reference the Power of Appointment included within the Trust Agreement.
Following Raymond’s death in 2014, Lisa sought an order from the New Jersey court that issued the divorce decree to declare her to be the Trust’s sole beneficiary. In response, PNC (the trustee of the Trust) filed this Petition for Instructions in its attempt to determine whether Lisa is a beneficiary of the Trust. Both Lisa and Kyle answered the Petition, and Kyle filed a motion for judgment on the pleadings.
Lisa, in her motion, conceded that Raymond never complied with the “technical terms” of the Power of Appointment, but she argued that, under Carlisle v. Delaware Trust Co., despite the Trust Agreement’s unambiguous terms, the court may, and must, consider extrinsic evidence to make a determination that Raymond intended to exercise the Power of Appointment. Kyle, in his motion, argued that the court should interpret the Trust “according to the settlor’s intent at the time the [T]rust was created,” and that, because the Power of Appointment wasn’t properly exercised, the court should not consider Lisa’s arguments about Raymond’s intent and whether it changed after he created the Trust. Additionally, Kyle argued “that any evidence of Raymond’s intent during or after the divorce is immaterial because,” regardless of Raymond’s intent, the court lacks the power to modify the Will.
Noting the absence of any “real dispute” between the parties regarding Raymond’s intent when he settled the Trust, Master LeGrow concluded that the Trust Agreement was unambiguous. The Master wrote that Lisa’s argument, that Raymond intended for her “to continue as beneficiary of the Trust during her lifetime despite the divorce,” failed for two reasons: (1) She failed to point to any part of the Trust that was ambiguous so her extrinsic evidence of Raymond’s intent after creating the Trust was immaterial and; (2) Raymond’s intent at any time other than when he created the Trust was irrelevant since “[a] settlor’s intent at the time a trust is established is the controlling inquiry,” and because “an intent developed after creating a trust is irrelevant for purposes of construing the trust.”
The Master decided that Raymond failed to effectively exercise the Power of Appointment due to the formality (that he must specifically refer to the Trust in the Will) that he included in the Trust Agreement. Although Delaware law requires only that a donee’s “intention to execute the power” be “apparent and clear,” the Master pointed to a settlor’s ability to create a power of appointment which includes strict “formalities” that “the donee must observe in order to execute the power.” According to the Master, formalities “replace the judicial inquiry into whether the donee’s intent to execute the power was apparent and clear.” Therefore, the Master rejected Lisa’s argument that the court may, and must, consider extrinsic evidence of Raymond’s intent after the creation of the Trust because “where a power contains such formalities, judicial inquiry into a donee’s intent is not necessary because observance of the formalities is conclusive, and exclusive, proof of intent.”
The Master concluded that the court lacks the power to reform a will and recommended that the court grant Kyle’s motion for judgment on the pleadings.
In re: Estate of Bennie Farren, C.A. No. 8714-MA & McGlaughlin v. Farren, C.A. No. 9385-MA (January 19, 2016)
In this case, the Delaware Court of Chancery declined to accept the Petitioner’s argument that, for a claim to be valid as a just debt against an estate it must be brought against the estate in the form of a final judgment. We addressed a previous recommendation by the court related to this decedent’s estate (the “Estate”) in a recent blog post. To access our earlier blog post for more detailed information about the facts of the case, please go to: http://www.gfmlaw.com/blog/master-recommends-removal-executor
The disputed claim (the “Arrearage Claim”) was brought against the Estate by the Executor’s mother (the Decedent’s ex-wife), which she filed based on a child support order entered by a Florida court in 1986 (modified in 1987) totaling $228,459.47, including $24,300 in missed payments plus compound interest on the amounts due. The Executor, the claimant’s son, accepted the Arrearage Claim as a valid debt of the Estate but his decision to do so meant that the Estate’s debts exceeded its liquid assets. The excess debt led the Executor to file a petition to sell the Decedent’s former residence to compensate for the Estate’s debt. However, the Decedent, in his will, left a life estate in the residence to the Petitioner (the Decedent’s live-in companion at the time of his death). The Court recognized that if the Executor’s petition were granted the Petitioner “will not be able to continue living in [the Decedent’s] former residence,” and “[a]t the age of 77, she would have to leave the place she has called home for nineteen years.”
The Petitioner objected to the Executor’s petition to sell the former residence and moved to prevent the Estate from accepting the Arrearage Claim as a just debt. Additionally, she sought to remove the Executor as executor of the Estate. She argued that by accepting his own mother’s claim against the Estate, the Executor “breached the fiduciary duties he owes to the Estate and its beneficiaries.” The Petitioner contended that, first, the Florida child support order needed to be registered with the Delaware Family Court to determine the amount of arrearage. Only then could the Arrearage Claim be brought against the Estate as a just debt. Since “the deadline for filing claims against the Estate has passed,” according to the Petitioner, the Decedent’s ex-wife’s claim would be invalid because of the ex-wife’s failure to file the claim against the Estate in time.
On the validity of the debt, the court held that, under Delaware law, “[t]here is no requirement that a claim be based on a judgment or any other court document.” And regardless, the court wrote, “the Florida orders constituted a final judgment entitled to full faith and credit under the United States Constitution.” Although the claimant “had the option to register the orders with the Family Court and have that court calculate the amount due under the orders, she was not required to follow that course as a prerequisite to asserting a claim against the Estate.” In fact, the Arrearage Claim “complied with the statutory requirements for presentation” under both state and federal law. The court noted that an executor “must recognize the effect of a foreign judgment,” therefore, the Executor correctly “accepted the claim based on the Child Support Order and the arrearage affidavit” that were submitted to him by his mother.
The court declined to agree with the Petitioner that the Delaware Court of Chancery “lacks jurisdiction to address any disputes relating to the claim because exclusive jurisdiction over child support orders lies with the Family Court.” Although the claimant “had the option of registering the orders with the Family Court, she did not have to take that route.” The court, pointing to the various grants of authority of jurisdiction between the Court of Chancery and the Family Court, held that this is “an area where this court and the Family Court can and should cooperatively exercise concurrent jurisdiction.” Accordingly, the court determined, “if the party subject to the support order is alive, this court logically should defer to the Family Court.” But “[o]nce a support obligor is dead. . . the ability to grant relief falls” to the Court of Chancery.
The court granted summary judgment, in part, and determined that the Arrearage Claim was a valid claim. But the court determined that calculating the amount of interest due on the arrearage required additional proceedings. With regard to the Executor’s petition to sell the property, the court declined to authorize the sale and reasoned that, based on the circumstances, “a more equitable alternative to an immediate sale may be available.” Lastly, the court held that “issues of fact preclude granting summary judgment” on the Petitioner’s motion to remove the Executor as executor of the Estate. Based on the evidence presented, the court found that there exists “a dispute of fact for trial regarding whether [the Executor] administered the Estate in good faith.”
