When Is a "Will" not a "Will"? When It Is a "Deed," Says Court
In 1996, James Bernard Spencer created an irrevocable trust for the benefit of his wife and his four children. He transferred assets to the trustee of the trust, irrevocably, but in the trust document he reserved the right to change who gets the trust income and assets.
The trust instrument declares that the trust is irrevocable and “that there is no right in [Mr. Spencer] to amend or modify its terms.” How could Mr. Spencer have changed the terms of a trust that is “irrevocable”?
The method that Mr. Spencer chose is called a “Power of Appointment.”
In the trust document, he reserved to “himself a Testamentary Power of Appointment exercisable in the Last Will and Testament of Grantor [Mr. Spencer] to appoint the Trust Income and Corpus to a designated class of beneficiaries.”
In short, Mr. Spencer reserved the right to change his mind about who would be the beneficiaries of his irrevocable trust. But he could change his mind only by making a Will and only if his Will stated explicitly that he intended to change his mind. (In legal language, changing one’s mind in this context means “exercising the power of appointment over the trust income and assets”).
The assets in the trust consisted of 150 acres of farmland in Minnesota, originally valued at $290,000. The trust gave Mr. Spencer and his wife Blossom the right to live on the farm; after the death of the survivor of them, trust assets were to be distributed to Mr. Spencer’s children, “by right of representation, in equal shares.”
In 2001, Mr. Spencer’s oldest son Charles died, survived by three children.
In 2009, Mr. Spencer became ill and was diagnosed with esophageal cancer. On August 16, four days before he died, while still an in-patient at the Mayo Clinic, Mr. Spencer signed a document that had been prepared by a certified public accountant (who does not identify herself as an attorney). The document is entitled, “Testamentary Power of Appointment / James Bernard Spencer Irrevocable Trust.” The document, in its entirety, provides as follows:
As per ARTICLE III, Section 2, I, James Bernard Spencer exercise my right to designate the following class of beneficiaries to the Trust.
Beneficiaries will be as follows, 1/3 of the trust to Kathleen M. Mosloski or her heirs, 1/3 of the trust to Christine M. Koch or her heirs, 1/3 of the trust less $90,000 to Charlene A. Spencer. The $90,000 will be distributed ($45,000 each) to Ms. Mosloski and Ms. Koch in addition to their 1/3 shares.
Since my son, Charles J. Spencer has pre-deceased me and his children and heirs have received adequate funds previously, they are specifically excluded from this agreement.
Mr. Spencer’s signature was witnessed by one person and notarized by a notary public.
How could this document be a “Deed” and not a “Will”?
The probate court thought it was a Will and so held: “All of the formal requirements for executing a will under the law have been met in the drafting of the [document]. The document was in writing, signed by decedent, and signed by two witnesses who witnessed decedent’s signature. Nothing more was required of decedent.”
Not so, said the Minnesota Court of Appeals.
Under Minnesota law, “When a power of appointment is exercisable only by will, a donee may not exercise it by deed.” Charles’ children did not dispute that the document complied with the statutory formalities required of a Will. But, they argued, the document was not a Will. It was something else. It was a Deed.
Although a narrow definition of “deed” means a conveyance of real estate; the broader definition of “deed,” under the common law of property, is “any written instrument that is signed, sealed, and delivered and that conveys some interest in property.”
A “will,” on the other hand, is generally is defined as “a document by which a person directs his or her estate to be distributed upon death.”
And so the appeals court construed the August 16, 2009, document, as not a will but a deed. It does not state it is a will and, more important, does not otherwise resemble a will. The document does not “reflect the maker’s testamentary intent.” It is, therefore, not a Will, but an instrument that purports to “deed” an interest in property to Kathleen, Christine, and Charlene. It fails as a Will because it doesn’t “appoint” the trust assets to them or designate them as beneficiaries after Mr. Spencer’s death.
Because his trust explicitly requires that the power of appointment be exercised only by a Will, the exercise by a Deed was ineffective to change the trust beneficiaries.
In re the Trust of James Bernard Spencer Irrevocable Trust, Dec. 24, 2012.