Master Recommends Finding That Divorce Decree Incorporating a Settlement Agreement—In Which Agreement the Donee Agreed to Exercise His Power of Appointment to Benefit the Children of His First Marriage—Does Not Bind the Donee or the Trust

In re: The Trust FBO Samuel Frances DuPont Under Trust Agreement Dated August 4, 1936 (Power of Appointment Trust), C.A. No. 12904-MG (September 25, 2018)

       In this case, in the context of summary judgment motions, the Master decided the issue of whether a Nevada divorce decree (incorporating a settlement agreement in which the donee agreed to exercise his power of appointment to benefit the children of his first marriage) bound the donee and the trust, or whether the donee’s last will and testament (which subsequently exercised the donee’s power of appointment to benefit his granddaughter from his second marriage) controls. The Master recommended a finding that the power of appointment in the donee’s will was the one that controlled and recommended that the Court order the trustee to distribute the trust principal and income consistent with the power of appointment as exercised in the donee’s will.

       The Master based her recommendation on the following. The Master, citing Estate of Tigani, noted that under Delaware law (which is what governs the trust and settlement agreement in this case) a contract to exercise a testamentary power of appointment is not valid. The parties contending that the settlement agreement controlled argued that Tigani did not apply because the settlement agreement had been incorporated into a court order and, thus, entitled to full faith and credit. But the Master disagreed. The Master also disagreed that there had been any change in the applicable law since the settlement agreement was reached in 1962. The Master additionally found that the case before her did not represent a collateral attack on the Nevada divorce decree as, among reasons, the trusts had no knowledge of, or involvement in, the earlier court proceedings. Further, the Master concluded that the settlement agreement did not constitute a release of the power of appointment as its express wording represented an attempt to affirmatively exercise the power.

       The Master also opted not to recommend the imposition of a constructive trust based on the donee’s actions and his breach of the settlement agreement. The Master stated that that would be inappropriate because it would adversely impact the trust at issue, not the donee’s property. The Master also rejected the contention that the trustee had breached his fiduciary duties. Lastly, the Master did recommend the payment from the trust of all parties’ reasonable fees and costs as they benefitted the trust (even though there was some self-interest serving as motivation as well).