In re Estate of Stratton

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In re Estate of Stratton (94-513); 165 Vt 7; 674 A.2d 1281

[Opinion Filed 08-Mar-1996]

NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.

No. 94-513

In re Estate of Allen L. Stratton Supreme Court

On Appeal from
Grand Isle Superior Court

Merchants Trust Company On Appeal from
Chittenden Superior Court
v.

Francis Peisch, Esq. November Term, 1995

Stephen B. Martin, J.

Richard H. Wadhams, Jr., of Pierson, Wadhams, Quinn & Yates, Burlington, for
defendant-appellant

PRESENT: Gibson, Dooley, Morse and Johnson, JJ.

GIBSON, J. Attorney Francis Peisch appealed to Grand Isle Superior
Court a probate court decision with respect to the estate of Allen L.
Stratton. In a related action, Merchants Trust Company sued Peisch in the
Chittenden Superior Court for malpractice as executor and attorney for the
same estate. Peisch moved in both courts for permission to pursue an
interlocutory appeal, and the motion was granted as to each proceeding.
The certified questions are answered and the matter remanded.

Appellant was executor and attorney for the estate of Allen L.
Stratton, whose one natural child was a daughter, Alene Stratton. Sometime
prior to August 20, 1969, Allen L. Stratton opened an account at the
Burlington Savings Bank entitled "Allen L. Stratton, Trustee for Alene
Harris Stratton." Alene Stratton, then known as Alene Stratton Srba, died
on August 8, 1982. On September 5, 1984, Allen L. Stratton opened a
deposit account at the Bank of

Vermont, accompanied by a letter to an officer of the bank stating in
relevant part:

Per my phone call today, I am enclosing my check #1117, for
$100,000.00.

Will you please issue a C/D in this amount for 29 months, with
interest guaranteed for 29 months at 12% (effective yield 12.55%.)

This C/D should be issued in the name of ALLEN L.
STRATTON, TRUSTEE For ALENE HARRIS STRATTON.

As you confirmed, this C/D Account, viz - ALLEN L.
STRATTON, TRUSTEE For ALENE HARRIS STRATTON, will
be treated as a separate account and so insured by FDIC, and not
combined in any way with my other C/D's already issued by the
Bank of Vermont and/or Burlington Savings Bank, in my name
only - viz - ALLEN L. STRATTON.

On September 21, 1986, Allen L. Stratton died. Shortly thereafter,
appellant filed a petition to open the Allen L. Stratton Estate as executor
and later a petition to re-open the intestate estate of Alene Stratton
Srba, which he had previously administered. Appellant took possession of
the 1969 and 1984 accounts in February 1987 and thereafter filed an
inventory in the Alene Stratton Srba Estate listing both accounts, the
proceeds of which he distributed to Alene Stratton Srba's three children in
April 1987.

In September 1988, Merchants Trust Company, as administrator of a
trust created in Allen L. Stratton's will, filed a petition in the Grand
Isle Superior Court seeking, and obtaining, removal of appellant as
executor of the Allen L. Stratton Estate for numerous reasons, including
his unauthorized removal of the 1984 account as an asset of the estate. In
December 1992, Merchants brought an action against appellant in the
Chittenden Superior Court for malpractice in rendering legal advice to the
Allen L. Stratton Estate and for converting the proceeds of the 1984
account.

The matters were consolidated, and following a prehearing conference
the court ruled that the 1984 account was an asset of the Allen L. Stratton
account as a matter of law, since a person who has died prior to the
creation of a trust cannot be a beneficiary of the trust, and consequently,
no trust is created in such circumstances, citing Restatement (Second) of
Trusts,

§ 112, cmt. f (1959).(FN1) The court granted appellant's motion for
interlocutory review and certified the following questions pursuant to
V.R.A.P. 5(a):

(a) whether Bank of Vermont Account No. 01-878370
entitled "Allen L. Stratton, Trustee for Alene Harris Stratton"
created by Allen Stratton after the death of Alene Harris (Stratton)
Srba, when Allen L. Stratton knew that she was already dead, is
an asset of the Estate of Allen L. Stratton, or, alternatively, is an
asset of the Estate of Alene Harris (Stratton) Srba.

(b) whether Burlington Savings Bank Account No. 159284
entitled "Allen L. Stratton, Trustee for Alene Harris Stratton"
created by Allen L. Stratton before the death of Alene Harris
(Stratton) Srba, with further deposits being made to the account by
Allen L. Stratton after the death of Alene Harris (Stratton) Srba,
is an asset of the Estate of Allen L. Stratton, or, alternatively, is
an asset of the Estate of Alene Harris (Stratton) Srba.

(c) whether the two above certified questions are, on the
one hand, questions of law to be decided by the court, or, on the
other hand, questions of fact or mixed questions of law and fact to
be decided by the jury.

Appellant argues that the court erred in ruling that a person who has
died prior to the creation of a trust cannot be a beneficiary of the trust,
since in the present case Allen L. Stratton knew that his daughter was no
longer living at the time he opened the 1984 account. The principle
enunciated in § 112 of the Restatement and relied on by the court does
apply most commonly to cases in which a beneficiary is alive when the trust
instrument is created but dies

prior to the vesting of the trust, or where the settlor is unaware that the
intended beneficiary is deceased at the time the trust is created and does
not apply where the beneficiary is living when an inter vivos trust is
created. See, e.g., First National Bank of Bar Harbor v. Anthony, 557 A.2d 957, 959 (Me. 1989); Estate of McReynolds, 800 S.W.2d 798, 800 (Mo. Ct.
App. 1990).

But the essence of the Restatement rule is that a trust may not be
created in favor of a person who is deceased, for the more basic reason
that a person who is dead is not the subject of rights or duties. 2 A.W.
Scott & W.F. Fratcher, The Law of Trusts § 112.3, at 166 (4th ed. 1987).
That principle is no less applicable where the person identified as
beneficiary is dead when the trust is created than it is where the named
beneficiary predeceases the settlor.

Appellant argues that where it is apparent that a settlor or testator
intends to benefit the estate of a deceased beneficiary by naming the
deceased person in a will or trust instrument, that intent should be given
effect, notwithstanding the general rule to the contrary, quoting
Restatement (Second) of Property § 18.5 cmt. a (1986). But the quoted
Property Restatement provision (which is in any event limited to
appointments by donees of powers of appointment) makes clear that the
intent to benefit the successors of a predeceased beneficiary must be
expressed in the appointment itself. Compare id., illus. 1 (giving example
of language resulting in lapse ("to my niece Mary and her heirs")) with
id., illus. 2 (giving example not resulting in lapse ("to my niece Mary or
her heirs")).

In the present case, there is no language in the instrument suggesting
any intent to benefit the successors of Alene Stratton Srba. Cf. Bogert,
Trusts and Trustees § 164, at 154 (2d ed. 1979) (where death of beneficiary
is unknown to settlor, trust assets may pass to beneficiary's successors
where there is "clear indication in the instrument that the successors of
the sole beneficiary are to take as beneficiaries if [the sole beneficiary]
should be dead") (emphasis added). The only indication in the instrument
bearing on Allen L. Stratton's intent is that he sought to maximize his
per-account FDIC insurance coverage. Even if we recognized an exception to
the § 112 rule where the language of a trust instrument reflected an
intention to

benefit a predeceased beneficiary's successors, appellant has not suggested
any reason to vary from the rule in this case. In the absence of such a
showing, it was not error for the court to rule that the 1984 account was
an asset of the Allen L. Stratton Estate as a matter of law.

Appellant argues in the alternative that the letter accompanying the
1984 account was ambiguous, that parol evidence could have been allowed to
resolve the ambiguity, and that its construction was therefore a question
of fact to be determined by the jury. At trial, however, appellant did not
suggest that there was any evidence bearing on Allen Stratton's intent,
other than the letter establishing the 1984 account. Appellant did offer
the parol evidence theory at trial, but his sole support for it was the
following statement in his trial brief:

In the instant case, Allen Stratton's knowledge that Alene was
already deceased when he opened the 1984 CD account in her
name and his knowledge that her children would take as her heirs
clearly indicates his intention that Alene's children were the
intended beneficiaries of the account.

This tender of "parol evidence" is a restatement of appellant's
construction argument. He in effect argues that if language is ambiguous,
its construction is necessarily a jury question, whether or not any
extrinsic evidence exists that might shed light on the drafter's intent. A
necessary ingredient in a parol evidence theory is parol evidence. Here,
none was tendered.

Appellant cites Borah v. Lincoln Hospital Ass'n, 46 N.W.2d 166 (Neb.
1951), for the proposition that parol evidence should be admissible to
clarify a "latent ambiguity" concerning the true identity of a named
legatee or beneficiary. Borah dealt with a case of confusion of names, and
the holding was limited to the proposition that where the description of a
legatee does not accurately apply to anyone, extrinsic evidence may be
presented to identify the person intended. Id. at 170. In the present
case, the beneficiary was not unidentified; she was deceased. Again, there
was no language in the instrument reflecting an intent to benefit her
estate. There was no error.

As to the second question certified, the 1969 Burlington Savings Bank
account consisted of funds contributed by Allen L. Stratton both prior to
and after the death of Alene Harris Srba.

The court ruled that the account lapsed under Vermont law governing Totten
Trusts, and appellant has not argued to the contrary in his brief.

The questions certified are answered as follows:

(a) Bank of Vermont Account No. 01-878370 is an asset of the Allen L.
Stratton Estate;

(b) Burlington Savings Bank Account No. 159284 is an asset of the
Allen L. Stratton Estate.

Remanded.

FOR THE COURT:

_______________________________________
Associate Justice

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Footnotes

FN1. § 112 states:

A trust is not created unless there is a beneficiary who is definitely
ascertained at the time of the creation of the trust or definitely
ascertainable within the period of the rule against perpetuities.

Comment f states in relevant part:

A person who has died prior to the creation of a trust
cannot be a beneficiary of the trust. Thus, if property is
transferred inter vivos in trust for a named person who is dead at
the time of the transfer, no trust is created. In such a case the
transferee ordinarily holds upon a resulting trust for the transferor.

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