Matter of Estate of Burgess

836 P.2d 1386, 190 Utah Adv. Rep. 49, 1992 Utah App. LEXIS 125, 1992 WL 165442

• Court: Court of Appeals of Utah
• Decided: July 7, 1992
• Docket: No. 910242-CA
• Status: Published

Opinions

OPINION

BENCH, Presiding Judge:

Appellants challenge the trial court’s holding that Mala Burgess effectively executed a power of appointment of a marital trust granted to her by her predeceased husband in his will. We reverse.

FACTS

Dr. J. Paul Burgess, a widower with three sons, married Mala Poulsen in 1957. She did not have children prior to the marriage and there were no offspring from this union. In 1965, Dr. Burgess executed a will which created a marital trust if Mrs. Burgess survived him (the Marital Trust). In the trust provisions of his will, Dr. Burgess granted to Mrs. Burgess a general power of appointment over the Marital Trust which, if effectively exercised, would enable her to distribute the Marital Trust estate through her will. His will provided as follows:

Upon the death of Mala P. Burgess, the remaining principal, including any uncollected and/or undistributed income shall be paid over, delivered, assigned, transferred or conveyed to and among such appointee or appointees, including her estate, and in any proportions and in any manner as she shall direct by Will in expressly intending to exercise this power by making specific reference therein to said power....

(Emphasis added.)¹

Dr. Burgess’s will further provided that:

In default of the complete exercise of the above described general power of appointment, any property, including principal and income then remaining in this Marital Trust, upon the death of Mala P. Burgess not effectively appointed by her shall be disposed of as a part of the Residuary Estate as hereinafter set out.

(Emphasis added.)

Under Dr. Burgess’s will, the residuary estate was to go to his three sons from his first marriage, appellants herein. Dr. Burgess died December 20, 1972.

After Dr. Burgess’s death, Mrs. Burgess established two inter vivos trusts and named one of her brothers, Gerald E. Poul-sen, as beneficiary. She also executed a will, making specific bequests to the appellants and to two of her nieces and leaving the rest of her estate to her brothers, ap-pellees herein. It is undisputed that Mrs. Burgess did not exercise the Marital Trust’s power of appointment in her will. This dispute arises from a cryptic holographic codicil executed by Mrs. Burgess on March 30, 1987. The codicil, as transcribed in its entirety, reads as follows:

[[Image here]]

[[Image here]]

Mrs. Burgess died on September 10, 1987Í In January 1990, the trustee of the Marital Trust filed a petition for interpretation of the will and codicil. The district court concluded that “[t]here is no formula” whereby Mrs. Burgess was to exercise her power of appointment. It then found that, Mrs. Burgess’s intent to exercise the general power of appointment was “fairly made.” The Marital Trust assets were therefore ordered to be distributed under the terms of Mrs. Burgess’s codicil.

Appellants contend that for Mrs. Burgess to have validly exercised the Marital Trust’s power of appointment in her codicil, she needed to make “specific reference therein to said power.” They argue that since there is absolutely no reference therein to the power, she failed to exercise the power. According to appellants, the Marital Trust assets should therefore be distributed as originally directed by Dr. Burgess in his will.

ANALYSIS

Standard of Review

The statutory rule in Utah is that “[t]he intention of a testator as expressed in his will controls the legal effect of his dispositions. The rules of construction expressed in the succeeding sections of this part apply unless a contrary intention is indicated by the will.” Utah Code Ann. § 75-2-603 (1978) (emphasis added). Absent any ambiguity in Dr. Burgess’s will, we interpret his will as a matter of law giving no deference to the interpretation of the trial court. Cf. Estate of Schmidt v. Downs, 775 P.2d 427, 430 (Utah App.1989). In general, a requirement that a donee specifically refer to a power of appointment in the exercise thereof is not an ambiguous provision. See Estate of Eddy v. Wong, 134 Cal.App.3d 292, 301, 184 Cal.Rptr. 521, 526 (1982). We do not find the trust provisions of Dr. Burgess’s will to be ambiguous and therefore apply a correction-of-error standard.

Merits

It is important to note initially that Mrs. Burgess never had title to the property placed in the Marital Trust estate. “Title to the property concerned remains with the donor until the power has been effectively exercised by the donee, at which time title passes through the donee as a conduit to the appointee.” Holzbach v. United Virginia Bank, 216 Va. 482, 219 S.E.2d 868, 870 (1975). Dr. Burgess’s will therefore controls the final disposition of the trust estate unless Mrs. Burgess properly exercised the power of appointment in compliance with Dr. Burgess’s requirements. “When a donor imposes such a requirement, a donee, who enjoys no title to donor’s property, can make no valid appointment affecting that property unless [the donee] complies with donor’s requirements.” Id. 219 S.E.2d at 872.

When a donor requires that a donee specifically refer to a particular power of appointment in order to exercise it, the donee’s failure to specifically refer to the particular power constitutes a failure to execute the power. This issue was addressed by Colorado in Thompson v. Estate of Smith, 41 Colo.App. 366, 585 P.2d 319 (1978). In that case, the donor husband granted his wife a power of appointment, “but only if [her] will specifically refers to this power. ” Id. 585 P.2d at 320. In Smith, the wife devised by will her remaining estate “including any property in which I hold a power of appointment.” Id. at 321. The trial court found that the donee wife intended to exercise the power of appointment and thus determined that the power had been validly exercised. Id.

The Colorado Court of Appeals reversed. It recognized that “the question of whether a power of appointment has been validly exercised depends not on the intent of the donee of the power, but on whether the power was exercised in the manner prescribed by the donor, i.e. by making specific reference in her will to this power.” Id.

These specific reference clauses have a well reasoned purpose, which is to insure a considered and intentional, rather than an inadvertent exercise of the power. Inadvertent and blind exercise of unknown powers may and often have led to adverse results such as incurring unnecessary estate taxes, giving the property to the wrong people, and making invalid dispositions of the property.

Id.

A donor may clearly impose restrictions upon the manner in which the power he or she is granting is to be exercised. Id. The Colorado appellate court reasoned that, although reference was made by the wife to any property over which she held a power of appointment, the trust required specific reference to “this power.” Since the power of appointment was not exercised in the manner prescribed by the donor, it was ineffective. Id.

Express language directing the manner whereby a donee may execute a power must be strictly complied with by the donee for there to be a valid and effective appointment. Holzbach, 219 S.E.2d at 871. In In re Estate of Schede, 426 Pa. 93, 231 A.2d 135 (1967), the Pennsylvania Supreme Court noted:

For over a hundred years, the law has been clearly settled that strict and literal compliance with the terms of a special power of appointment is absolutely necessary for its valid and effective exercise. That means that the appointing instrument must specifically refer ... to the power which was granted by [donor’s] will and which [donee] seeks to exercise and execute.

[[Image here]]

The estate appointed is that of the donor, and not of the donee, and in making the appointment the intention of the donor, and not of the donee must prevail.... “The donor of a power, inasmuch as he is disposing of his own property, may prescribe whatever ceremonies he pleases for its execution; and although these may be perfectly arbitrary, yet, being required by the creator of the power, they can be satisfied only by a strictly literal and precise performance of them.”

Id. 231 A.2d at 137 (quoting Slifer v. Beates, 9 S. & R. 166, 181) (emphasis added). Accord, Holzbach, 219 S.E.2d at 871; Leidy Chem. Found., Inc. v. First Nat’l Bank, 276 Md. 689, 351 A.2d 129, 132 (1976).

Parol evidence that a donee actually intended to exercise a power of appointment, but failed to refer specifically to the power in-the will, does not satisfy a donor’s requirement that the power be specifically referred to in the will. In First National Bank of McMinn County v. Walker, 607 S.W.2d 469 (Tenn.1980), the donee’s attorney testified that the donee actually intended to exercise the power of appointment by means of a general exercise of any and all powers of appointment which had been granted to her. Id. at 475. The Tennessee Supreme Court held that despite the parol evidence, the donee had not made the specific reference required by the donor and therefore failed to effectively exercise the power. Id.

Appellees argue that despite the foregoing common-law rule, the Utah Probate Code permits the court to determine whether the power was exercised based upon the donee’s, rather than the donor’s, intent. Utah Code Ann. § 75-2-610 (1978) provides:

A general residuary clause in a will, or a will making general disposition of all of the testator’s property, does not exercise a power of appointment held by the testator unless specific reference is made to the power or there is some other indication of intention to include the property subject to the power.

This statute clarifies whether a general disposition of property, wherein there is no reference to any power of appointment, operates as an execution of powers of appointment that may have been granted to the testator. This statute does not apply in this case because it does not address the question presented, i.e., whether a donee must execute a power of appointment in the manner dictated by the donor. There is no indication in the statute that the legislature intended to circumscribe a donor’s freedom to dictate the manner in which a power of appointment must be executed. A donor has the “right to dispose of his property as he [sees] fit.” Holzbach, 219 S.E.2d at 872.

Where, as here, the donor has expressly imposed conditions upon the donee’s ability to exercise the power, section 75-2-610 cannot supersede those conditions.² See section 75-2-603. We conclude that section 75-2-610 may only effect an appointment to the extent the donor has not created limitations in the trust provisions as to how the power is to be executed.

This holding is supported by the Editorial Board Comment to section 75-2-610: “This wording permits a court to find the manifest intent if the language of the will interpreted in light of all the surrounding circumstances shows that the donee intended an exercise, except, of course, if the donor has conditioned exercise on an express reference to the original creating instrument. ” Id. (Emphasis added.) The assumption in such cases is that the donor intends the trust property to pass under the trust itself, unless the donee affirmatively exercises the power. Id.

We therefore conclude that, even in light of section 75-2-610, the test remains “whether [the] donee manifested her intent in the manner prescribed by [the] donor, i.e., by making specific reference ‘in her will’ to the power granted by [the] donor’s will.” Holzbach, 219 S.E.2d at 871. This conclusion does not, as asserted by the dissent, “prevent[ ] a layperson from effectively exercising such a power of appointment by holographic instrument.” All a layperson would need to do is identify the specific power of appointment when exercising it. This Mrs. Burgess has not done.

Appellants also claim the district court erred in concluding that sufficient evidence was presented to conclude that Mrs. Burgess intended to exercise the general power of appointment. We do not reach this issue because, as we have already established, Mrs. Burgess’s intent does not govern in this case. We nevertheless respond briefly to the dissent’s arguments regarding Mrs. Burgess’s intent.

The dissent seeks to apply an equitable exception to the general rule set forth above. See generally Restatement of Property § 347 (1940) (a technically insufficient appointment may nevertheless be effective if it “approximates the manner of appointment prescribed by the donor”). The dissent relies upon cases where the donee at least made a general reference to any and all powers of appointment held by the donee,³ or made clear attempts to exercise the appointment but failed to comply precisely with all of the limitations placed upon the power.⁴ In the present case, Mrs. Burgess’s codicil does not even contain a general reference. Nor does it contain the terms “power of appointment” or “marital trust” or any other descriptions thereof that might indicate Mrs. Burgess was knowingly attempting to exercise her power.

The trial court found that Mrs. Burgess intended to exercise the power because the word “Trust” appears at the top of the codicil. The simple appearance of the word “Trust” on a document does not “approximate” the manner of execution prescribed by Dr. Burgess, nor does it establish that Mrs. Burgess was attempting to exercise her power of appointment. The appellants argued below that the codicil was intended to distribute Mrs. Burgess’s own inter vi-vos trusts which she had established and which contained sufficient assets to make the cash gifts set forth in the codicil. Appellants also point to the first sentence of the codicil which states: “After everything’s taken care of, what is left is to go as follows,” as indicating a desire to amend the residuary clause of the will. The trial court held that Mrs. Burgess intended to replace the will with the codicil, in which case the codicil would not have concerned the Marital Trust estate, but rather Mrs. Burgess’s own estate. Suffice it to say, the patent ambiguity of the codicil precludes a clear finding of Mrs. Burgess’s intent, and therefore precludes an application of the equitable exception urged by the dissent.⁵

Of course, the donee’s intent to exercise the power of appointment must be evident from the document itself. Thus for example, if the donee’s will makes “no reference at all to any power,” and the donor required “specific reference to the power,” the will cannot exercise the power of appointment, even under the equitable exception.

In re Strobel, 149 Ariz. 213, 717 P.2d 892, 897 (1986) (citation omitted). See also Roberts v. Northern Trust Co., 550 F.Supp. 729, 735 (N.D.Ill.1982) (“Where ... evidence of the donee’s intent is weak, a liberal construction of the condition of specific reference may well defeat the intentions of both donor and donee.”).

CONCLUSION

Dr. Burgess, as donor of his estate, required that if Mrs. Burgess desired to dispose of the Marital Trust estate in a manner contrary to his own desire that it pass to appellants, she must have specifically referred to the power of appointment he granted to her. Since Mrs. Burgess never specifically referred to the power, we hold that she failed to effectively exercise the power of appointment. Title to the assets of the Marital Trust estate therefore remained in Dr. Burgess’s estate. The case is remanded so that the Marital Trust estate may be distributed under the terms of Dr. Burgess’s will.

RUSSON, J., concurs.

1 . Powers of appointment such as this are commonly used in connection with marital trusts as a result of federal estate tax laws. See generally First Nat'l Bank of McMinn County v. Walker, 607 S.W.2d 469, 472 (Tenn.1980).

2 .The dissent claims that "Dr. Burgess did not indicate he intended more than to require Mrs. Burgess to purposefully exercise the power.” This is simply incorrect. In his will, Dr. Burgess provided that the only way Mrs. Burgess could alter his own disposition of the Marital Trust estate was if she exercised the power of appointment "by making specific reference [in her will] to said power." (Emphasis added.) Had he intended only for Mrs. Burgess to “purposefully exercise the power,” he would have so stated. Instead, he chose to require her to express her intentions by making specific reference to the power. Furthermore, he emphasized that if Mrs. Burgess did not "completely] exercise" the power, the Marital Trust assets would pass to appellants.

3 . Motes/Henes Trust v. Motes, 297 Ark. 380, 761 S.W.2d 938 (1988); Cross v. Cross, 559 S.W.2d 196 (Mo.App.1977); First Union Nat'l Bank v. Moss, 32 N.C.App. 499, 233 S.E.2d 88 (1977).

4 . In re Strobel, 149 Ariz. 213, 717 P.2d 892 (1986) (donee clearly attempted to comply with specific reference requirement but mistakenly referred to an empty testamentary trust rather than the active inter vivos trust); Estate of McNeill, 463 A.2d 782 (Me.1983) (donee did not satisfy requirement that power be exercised in testamentary instrument because will intended to exercise power was invalid for lack of witness signature).

5 . The dissent erroneously indicates that Mrs. Burgess specifically referred to the Marital Trust and the power of appointment. As is evident from the codicil itself, no such references were made.

The dissent also asserts that Mrs. Burgess bequeathed property covered by the Marital Trust. There was no express indication in the codicil that the property being distributed was to come from the Marital Trust estate. The cash distributions could have come either from Mrs. Burgess’s own inter vivos trusts or her estate. Any conclusion by the trial court that the codicil described ‘‘assets which were subject to the power of appointment” is simply not supported by the text of the codicil.

The final point made by the dissent as evidence of Mrs. Burgess’s intent to exercise her power was the fact she dedicated a "full page” of her codicil to the distribution of the “trust.” The length of the purported distribution, however, is totally irrelevant to the identity of the assets being distributed. Also, the codicil does not indicate that the subject matter of the second page is any different from the subject matter of the first. Given the cryptic nature of the codicil, it is just as plausible that Mrs. Burgess intended the assets listed on the second page be used to satisfy the bequests on the first page.