In Re Maloney Trust

377 N.W.2d 791, 423 Mich. 632

• Court: Michigan Supreme Court
• Decided: November 22, 1985
• Docket: 70868, (Calendar No. 1)
• Status: Published

Opinions

Cavanagh, J.

The issue presented by this case is whether the subject trust instrument evidences an intention of the settlor to exclude adopted grandchildren from the class of beneficiaries. The probate court and Court of Appeals concluded that adopted grandchildren were excluded. We disagree, and reverse.

I

Jane Gilmore Maloney, the settlor, created an irrevocable inter vivos trust on December 29, 1964, designating it as the "Jane Gilmore Maloney Grandchildren’s Trust, dated December 29, 1964.” It provided that until February 1, 1975, the income from the trust would be distributed to public bodies or charitable organizations. On February 1, 1975, the trust property was to be separated into equal funds for each of the settlor’s grandchildren living on that date.¹ The trust instrument further provided that if additional grandchildren were born after February 1, 1975, and before the final distribution of the trust property,^{2 3}separate funds for these grandchildren were to be created by deducting equal shares from the then-existing funds.

On February 1, 1975, there were three grandchildren of the settlor living, and separate funds were created as provided by the trust instrument.³ The present dispute arose because on June 25, 1976, one of the settlor’s sons adopted three children.⁴

The trustee was uncertain as to the status of the adopted children and brought an action seeking a declaratory judgment as to their right to participate as beneficiaries of the trust. The action was treated as a petition for instructions, and was transferred to the probate court under MCL 700.22; MSA 27.5022.

The probate court and the Court of Appeals recognized that MCL 700.128; MSA 27.5128 creates a presumption that adopted persons are within terms such as "grandchild,” unless it appears from the terms of a trust agreement or will that they are to be excluded:

In the construction of a trust agreement or will, whether executed on, before, or after June 23, 1966, the term "child”, "grandchild”, "issue”, "heir”, "descendant”, "beneficiary” or other equivalent term shall be construed to include any adopted person and his descendants whether natural or adopted unless a contrary intention appears by the terms of the instrument or unless the estate devised to the "child”, "grandchild”, "issue”, "heir”, "descendant”, "beneficiary” or equivalent person vested before June 23, 1966, in an already ascertained person or persons who have an immediate indefeasible right of enjoyment or a present indefeasible fixed right of future enjoyment in the estate.[⁵]

Both courts, however, found such an intention to exclude adopted grandchildren because of the settlor’s use of the words "born” and "date of birth” at several points.⁶ The probate court reasoned that inclusion of adopted grandchildren would require rewriting the trust document to add reference to the date of entry of an order of adoption. The court directed the trustee not to withdraw assets from the existing trusts for the natural-born grandchildren of the settlor.

The guardian ad litem of the adopted grandchildren appealed, but the Court of Appeals affirmed in an Unpublished per curiam opinion. The Court of Appeals also focused on the reference to when grandchildren were "born” and to their "dates of birth.” It noted several cases in other jurisdictions holding that classifications of beneficiaries by birth indicates an intent to include only natural born persons.⁷ It agreed with the probate court that inclusion of adopted grandchildren would require too drastic a revision of the operative provisions of the trust:

We cannot agree, as appellants apparently contend, that only a declaration similar to "I intend to exclude adopted grandchildren” would clearly and unambiguously express the settlor’s intent. To read the words "born or adopted” into the document at every place where the term "born,” or similar language referring to birth, appears, exceeds the proper bounds of trust construction and amounts to reformation.

We granted leave to appeal. 419 Mich 933 (1984).

II

A fundamental precept which governs the judicial review of wills is that the intent of the testator is to be carried out as nearly as possible. As with other legal documents, the "intent” is to be gleaned from the will itself unless an ambiguity is present. The law is loath to supplement the language of such documents with extrinsic information. This is especially so in the case of testamentary documents because the maker is not available to provide additional facts or insight.

However, presence of an ambiguity requires a court to look outside the four corners of a will in order to carry out the testator’s intent. Accordingly, if a will evinces a patent or latent ambiguity, a court may establish intent by considering two outside sources: (1) surrounding circumstances, and (2) rule of construction. In re Butterfield Estate, 405 Mich 702, 711; 275 NW2d 262 (1979). [In re Kremlick Estate, 417 Mich 237, 240; 331 NW2d 228 (1983), reh den 417 Mich 1143 (1983).]

These general rules apply to the interpretation of trust documents. We note that generally, a settlor must relinquish permanent control of trust property to enjoy the favorable tax consequences inherent in an irrevocable inter vivos trust. Bogert, Trusts & Trustees (2d ed), §234, pp 47-48. Accordingly, we should ascertain the settlor’s intent at the time the instrument was created.

We cannot say that the wording of the trust is clear and unambiguous. We believe that the Court of Appeals and the probate court have attached undue importance to the use of the term "born” and "date of birth” in the trust instrument. Those terms appear to us to be convenient ways of explaining the mechanics of the administration of the trust. We are not persuaded that those terms clearly indicate an intent to exclude adopted grandchildren.

The Court of Appeals noted that classification by birth generally indicated an unambiguous intent to include only natural born persons. See n 7. However, numerous cases from this and other jurisdictions indicate that such an interpretation is far from the general or prevailing view. On the contrary, different circumstances, statutes, and instruments have created a variety of results. See generally, 76 Am Jur 2d, Trusts, § 144, pp 386-387; Bogert, supra, § 182, pp 267-306. 86 ALR2d 115, § 4 (Later Case Service, pp 343-346).

We find that the wording of the trust is ambiguous. Accordingly, the rule of construction which includes adopted persons should be employed. MCL 700.128; MSA 27.5128. That statute requires an expression of intent to the contrary. However, we find no indication of an affirmative intention to exclude adopted children.⁸ At the time the trust instrument was executed, there were no adopted grandchildren, and we think it likely that the settlor simply did not consider that possibility. We hold that, in the absence of any expressed intention, the statutory presumption that adopted grandchildren are to be treated like any other grandchild controls.

The judgment of the Court of Appeals and the probate court’s order dated September 9, 1981, are reversed. The case is remanded to the probate court for an entry of an order instructing the trustee to make a proper division of the trust assets and to provide equal trusts for the adopted grandchildren in accordance with the terms of the instrument.

Reversed.

Williams, C.J., and Levin, J., concurred with Cavanagh, J.

1 The trust instrument provided that if there were no grandchild living on that date, such a fund should be created on the date of birth of the first grandchild.

2 The final distribution date was to be when the settlor’s youngest surviving son reached fifty years of age or on the death of both sons.

3 Another grandchild was born on June 1, 1980.

4 All three of the adopted children had been born before 1975.

5 In 1957 the Legislature amended the adoption code to provide that adopted persons have all of the rights of natural children. 1957 PA 255. That statute did not mention wills and trusts. The predecessor of the current statute was enacted effective June 23, 1966. 1966 PA 128, former MCL 702.14a; MSA 27.3178(84a). These statutes reversed the common-law presumption that terms such as "child,” "grandchild,” or "issue” created a presumption against including adoptees. See, e.g., In re Graham Estate, 379 Mich 224; 150 NW2d 816 (1967); Russell v Musson, 240 Mich 631; 216 NW 428 (1927).

6 The portions of the trust instrument include the following provisions:

"3. February 1, 1975, or the date of birth of the first grandchild of mine bom after February 1, 1975, if there is no grandchild of mine living on February 1, 1975, shall he the 'initial division date.’ The 'final division date’ shall be the date whenever after February 1,1975, my youngest son at the time living has reached age fifty years or both of my sons have died. 'Son’ and 'sons’ in this instrument refer to my two sons now living, namely, Steven H. Maloney, bom August 20, 1942, and Daniel G. Maloney, born November 22, 1944.

"5. On the initial division date the trustee shall divide the trust property into as many equal separate funds as there are grandchildren of mine then living, and a fund shall be named for each such grandchild. If a grandchild or grandchildren of mine shall be born between the initial division date and the final division date, then as of the date of birth of each such grandchild the trustee shall deduct equally from the separate funds named for other grandchildren of mine then held hereunder sufficient amounts to provide an additional separate fund to be designated by the name of such newly born grandchild equal in value to the average value (after deduction of such amounts) of the funds from which the deductions are made.

"7. If no grandchild of mine is born before the final division date, then on that date the trustee shall divide and allocate the trust property in equal shares between my sons, if then living, otherwise per stirpes among the then living descendants of my parents. Each share so allocated shall be retained in trust as a separate and independent trust fund designated by the name of the beneficiary to whom it is allocated and held and disposed of as provided in this instrument.”

7 Vaughn v Vaughn, 161 Tex 104; 337 SW2d 793 (1960); Wachovia Bank & Trust Co v Andrews, 264 NC 531; 142 SE2d 182 (1965); First National Bank of Kansas v Waldron, 406 SW2d 56 (Mo, 1966). Contra In re Trusteeship Under Agreement With Nash, 265 Minn 412; 122 NW2d 104 (1963).

8 In In re Trusteeship Under Agreement With Nash, n 7 supra, pp 419-420, the court was faced with a similar argument regarding the effect of the settlor’s use of the term "hereafter born,” in the face of a statutory presumption like that in the Michigan statute. The court found no intent to exclude adoptees:

"We therefore conclude that settlor, Willis K. Nash, used no expression indicative of his attitude toward adopted children of his son, Willis Vanderhoef Nash. He very likely gave the matter no thought. The phrase 'hereafter born’ was obviously intended to include those who might become children of the life tenant before the termination of the trust. It does not, in our opinion, negative the possibility of adopted children. In dividing the trust for distribution to remainder-men, settlor designated them only as 'children’ of his son. We cannot assume he and his attorneys were wholly oblivious to the laws of adoption when they drafted the trust instrument. Settlor having at most shown an indifference to their effect, we are not prepared to say that considerations of public policy require us to find settlor entertained a conscious purpose to exclude adopted children. The reasoning and philosophy expressed by the legislature and the courts in this state require a contrary conclusion.” (Emphasis added.)