Case ID: ny-2d_14/html/0272-01.html
Source: Caselaw Access Project
Author: {"author": "Chief Judge Desmond. Dye, J. Fuld, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of the Final Accounting of Morgan Guaranty Trust Company of New York, as Trustee under an Indenture of Trust Made by Dagmar Bauer, Respondent. Rosanna Arnott, as Executrix of Gabriel Popp, Deceased, et al., Appellants-Respondents; Midland Bank Executor and Trustee Company Limited, as Executor of Dagmar Bauer, Deceased, Respondent-Appellant; Dr. Barnardo’s Homes : National Incorporated Association, Respondent.
    Submitted March 23, 1964;
    decided June 4, 1964.
    
      
      Andrew E. Ullmann, Edward F. McLaughlin and Robert Granville Burke for appellants-respondents.
    I. The expressed intention of appointment to two nieces rebuts a presumed intention to appoint by the residuary clause. (Matter of Spitzmuller, 279 App. Div. 233, 304 N. Y. 608; Chase Nat. Bank v. Chicago Tit. & Trust Co., 246 App. Div. 201, 271 N. Y. 602, 659; McLean v. McLean, 174 App. Div. 152, 223 N. Y. 695; Matter of McMurtry, 35 Misc 2d 560; Tweddell v. New York Life Ins. & Trust Co., 49 App. Div. 258; Montague v. Dexter, 111 Misc. 380.) II. The restrictive language of the residuary clause charges the residue with payment of " before mentioned specific and pecuniary legacies ” and specifically excludes “property otherwise disposed of”. (Matter of Benson, 96 N. Y. 499; Lamb v. Lamb, 131 N. Y. 227; Masterson v. Townshend 123 N. Y, 458.) III. The provisions of the indenture of trust, creating the power of appointment, must be construed with the same force and effect as the provision of the will purportedly exercising the power. (Dana v. Murray, 122 N. Y. 604; Hillen v. Iselin, 144 N. Y. 365; Bishop v. Bishop, 257 N. Y. 40; Low v. Bankers Trust Co., 270 N. Y. 143; White v. Howard, 46 N. Y. 144; Matter of Disney, 190 N. Y. 128; Matter of Tamargo, 220 N. Y. 225; Matter of Hopner, 148 MisC. 748, 242 App. Div. 652; Matter of Edie, 117 App. Div. 310; Matter of O’Brien, 155 Misc. 803.)
    
      Michael Alexander, Bernard B. Smith and Walter I. Nathan for respondent-appellant and Dr. Barnardo’s Homes: National Incorporated Association, respondent.
    I. Dagmar Bauer’s power to appoint the corpus of the trust, if not properly exercised by the first codicil to her will, was effectively exercised by the residuary clause of the will. (Matter of Smith, 279 App. Div. 140, 304 N. Y. 612; Guaranty Trust Co. of N. Y. v. New York Trust Co., 297 N. Y. 45; Guaranty Trust Co. of N. Y. v. Harris, 267 N. Y. 1; Lamb v. Lamb, 131 N. Y. 227; McLean v. McLean, 174 App. Div. 152, 223 N. Y. 695; Oliver v. Wells, 254 N. Y. 451; Matter of Hayes, 263 N. Y. 219, 264 N. Y. 459; Lockwood v. Mildeberger, 159 N. Y. 181; Matter of Deane, 4 N Y 2d 326; Matter of McMurtry, 35 MisC 2d 560; Tweddell v. New York Life Ins. & Trust Co., 49 App. Div. 258; Montague v. Dexter, 111 Misc. 380; Matter of Spitzmuller, 279 App. Div. 233, 304 N. Y. 608; Chase Nat. Bank v. Chicago Tit. & Trust Co., 246 App. Div. 201, 271 N. Y. 602.) II. Dagmar Bauer became the sole owner of the trust prior to her death and, accordingly, the period for the suspension of beneficial interests should be computed from the date of her death. (Richardson v. Richardson, 298 N. Y. 135; Doctor v. Hughes, 225 N. Y. 305; Scholtz v. Central Hanover Bank & Trust Co., 295 N. Y. 488; Matter of Burchell, 299 N. Y. 351; Schenectady Trust Co. v. Emmons, 261 App, Div. 154, 286 N. Y. 626; City Bank Farmers Trust Co. v. Cannon, 291 N. Y. 125; New York Trust Co. v. Weaver, 298 N. Y. 1.) III. Even if Dagmar Bauer’s life is a measuring life in computing the period for the vesting of interests, her will and first codicil may be fairly construed to provide for a valid disposition of the trust corpus in the light of her general testamentary plan. (Kalish v. Kalish, 166 N. Y. 368; Matter of Bruckheimer, 193 Misc. 414, 267 App. Div. 783, 294 N. Y. 31; Matter of Horner, 237 N. Y. 489; Matter of Trevor, 239 N. Y. 6; Matter of Gorham, 283 N. Y. 399; Everitt v. Everitt, 29 N. Y. 39; V anderpoel v. Loew, 112 N. Y. 167; Matter of Colegrove, 221 N. Y. 455; Carrier v. Carrier, 226 N. Y. 114; Herzog v. Title Guar. & Trust Co., 177 N. Y. 86; Matter of Heller, 10 Misc 2d 363; Matter of Leo, 170 Misc. 491; Matter of Osborn, 169 Misc. 54; Matter of Crakow, 177 Misc. 1034.) IV. Dagmar Bauer at her death was domiciled in England and the testamentary disposition made by her of the trust corpus is governed by English law under which the disposition is valid in all respects. (Rous v. Jackson, 29 Ch. D. 521; Re Hughes [1921], 2 Ch. D. 208; Matter of Spitzmuller, 279 App. Div. 233, 304 N. Y. 608; Ball v. Cross, 131 N. Y. 330; Shannon v. Irving Trust Co., 275 N. Y. 95; Matter of New York Life Ins. & Trust Co., 157 App. Div. 916, 209 N. Y. 585; Maynard v. Farmers Loan & Trust Co., 208 App. Div. 112, 238 N. Y. 592.)
   Chief Judge Desmond.

In 1917 Dagmar Bauer, then a resident of New York, executed in New York City an irrevocable trust indenture which stipulated that she should receive the life income and that the remainder should go to her husband. In the event her husband predeceased her, the principal was to be distributed to such person or persons as she appointed by her will and, failing a valid disposition in her will, to the settlor’s next of kin pursuant to the statutes of the State of New York. Settlor’s husband predeceased her. She died a resident of London, England, in 1956, Her will, probated in England, contained a clause whereby she gave her property including any property over which she had a power of appointment “ except the property otherwise disposed of by this my Will or any Codicil hereto ” to Midland Bank Executor and Trust Company Limited in trust for Dr. B omar do’s Homes: National Incorporated Association of Stepney Causeway, London. A codicil revoked the prior bequest and left the trust fund to Midland Bank for the benefit of two nieces for life with the remainder to Dr. Barnardo’s Homes, etc., a charitable corporation of the United Kingdom and Northern Ireland.

Special Term held: that the law of England, where the owner of the power resided at the time of her death, governed; that under English law suspension of alienation dated from the date of exercise of power of appointment and not from the date of its creation; that the power was validly exercised in the codicil and the suspension of interests thereunder was valid but that even under New York law the exercise of the power should be upheld; and that the trust corpus should be turned over to Midland Bank to be held in trust under the terms of the codicil.

The Appellate Division, modifying, decided as follows: that it was the intention of the settlor to have New York law apply to all questions of distribution or construction of the instrument; that the settlor had created a remainder interest in the trust and that the permissible period of suspension must be computed from the time the trust was created; that the codicil, suspending alienation for three lives (the settlor’s and those of two nieces), was not an effective exercise of the power of appointment; and that the power was effectively exercised in the residuary clause. One Justice dissented in part and voted that the modification should be by directing distribution as in the case of intestacy, as provided in the trust agreement, he being of the opinion that the residuary clause should not be construed as an alternative exercise of the power.

The appellants-respondents, who are distributees of the settlor, argue that the expressed intention of appointment to two nieces rebuts a presumed intention to appoint by the residuary clause; that the restrictive language of the residuary clause charges the residue with payment of “ before mentioned specific and pecuniary legacies ’ ’ and specifically excludes ‘ ‘ property otherwise disposed of ”; and that the provisions of the trust indenture, creating the power, must be construed with the same force and effect as the provision of the will purportedly exercising the power. Respondent-appellant Midland Bank and respondent Dr. Barnardo’s Homes argue that the settlor’s power, if not properly exercised by the codicil, was effectively exercised by the residuary clause; that the settlor became the sole owner of the trust prior to her death and the period of suspension should be computed from the date of her death; that, even if the settlor’s life is a measuring life, her will may be construed to provide for a valid disposition of the corpus in the light of her general testamentary plan, and that the settlor’s testamentary disposition of the trust corpus is governed by English law under which the disposition is valid.

We agree with the dissenting opinion at the Appellate Division and summarize our holdings as follows:

(1) The law to be applied here is the law of New York which was the donor’s domicile and where there was executed the trust agreement containing the power of appointment (Matter of Spitzmuller, 304 N. Y. 608; Matter of Deane, 4 N Y 2d 326; Restatement, Conflict of Laws, § 287). This rule applies where the same person is donor and donee (Matter of Pratt, 8 N Y 2d 855).

(2) The trust was irrevocable and created a remainder interest but no reversionary interest in Mrs. Bauer. She retained no more than a testamentary power of appointment and hers was, therefore, one of the “measuring lives” (Richardson v. Richardson, 298 N. Y. 135).

(3) The original trust plus the codicil trust thus involved three lives in being, resulting in unenforcibility under the applicable former New York law (Personal Property Law, former § 11; Real Property Law, former § 42) and thus the attempt in the will and codicil to exercise the power of appointment was ineffective.

(4) Since the residuary clause specifically excludes ‘ ‘ property otherwise disposed of by this * * * will or any codicil ’ ’, it cannot be construed to refer to the appointive property as to which the will contained an invalid dispositive clause.

(5) Since, therefore, there has been no valid testamentary disposition of the trust principal it must, as directed by the indenture itself, be distributed to the settlor’s next of kin pursuant to the statutes of New York.

The order appealed from should be modified accordingly, with costs to parties filing separate briefs.

Dye, J.

(dissenting). The validity of the power of appointment and the future interest herein should be governed by the law of England where the sole owner of the beneficial power resided at the time of her demise. Under English law, the future interest and suspension of the power of alienation date from the exercise of the power of appointment and not from the date of its creation.

The order of the Appellate Division should be modified by reinstating the order of Special Term and, as so modified, should be affirmed.

Fuld, J.

(dissenting). I agree with Judge Dye.

We deal here with a testatrix (Dagmar Bauer) who died in England, where she had long been domiciled, after there executing a will in which she exercised a general power of appointment, of which she was donor as well as donee, pursuant to a trust indenture executed in Few York almost 40 years earlier. The court’s decision to apply Few York law to test the validity of Mrs. Bauer’s exercise in England (in 1954) of the power of appointment which she had reserved to herself (in 1917) strikes me as an unfortunate example of adherence to mechanical and arbitrary formulae. The same considerations which prompted a departure from the inflexible and traditional choice-of-law rules in other cases (see, e.g., Auten v. Auten, 308 N. Y. 155; Babcock v. Jackson, 12 N Y 2d 473), it seems to me, should move the court to re-examine the wisdom and justice of continuing to apply similarly inflexible rules, without regard to significant underlying factors, in disposing of cases such as the present one.

The traditional rule which identifies the instrument exercising the power with the instrument creating it, for the purpose of testing the validity of the exercise of the power (see Matter of New York Life Ins. & Trust Co., 209 N. Y. 585; Matter of Deane, 4 N Y 2d 326), assumes that ownership of the appointive property remains at all times in the donor of the power and that the donee of the power serves merely as a conduit or agency through which the donor’s intention with respect to the appointive property is realized. (See, e.g., 3 Powell, Law of Real Property [1952], p. 287.) Such an assumption is, perhaps, justified where the power created is special ” and confines the donee’s exercise of the power within the limits proscribed by the instrument creating the power. However, the assumption is certainly not justified when the power created is ‘ ‘ general ” or “ beneficial ”, whether exercisable by deed or will or by will alone, and no restrictions of any other kind are imposed on its exercise by the donee. In the latter case — and in the one before us upon the death of Mrs. Bauer’s husband—it is evident that the donee is vested with the equivalence of ownership as to the appointive property. (See, e.g., Cheshire, Private International Law [6th ed., 1961], p. 578.) And this is particularly true where the donor and donee of the general power are the same person. This being so, it runs counter to reason to assume that the donor in such a case becomes his own agent to preserve an attachment to the place where the original trust agreement was executed, even though he has abandoned that place as his residence and acquired a new domicile in another jurisdiction, to the laws of which he voluntarily subjected himself.

In exercising the general power of appointment in England 37 years after she had conferred such power upon herself, Mrs. Bauer was justified in treating the appointive property as her own, and it is reasonable to suppose that, in disposing of such property under a will executed in England by an English solicitor, designating an English institutional executor and trustee to administer the trust and conferring benefits, at least in part, upon an English charity, Mrs. Bauer (through her English solicitor) had exercised the power in the light of English, rather than New York, law. The inference is inescapable that she intended the disposition of the appointive property to be governed by the same law which would govern the disposition of her personal estate, namely, the law of her last domicile. Since no discernible New York policy or interest dictates the application of its law to invalidate the disposition by the English testatrix valid under her personal law—and, indeed, now valid under present New York law—such intention should be given effect.

I do not, of course, mean to suggest that New York law would not govern the validity and effect of the provisions of the trust indenture. That instrument was executed in 1917 against the background of New York law, which Mrs. Bauer at that time undoubtedly intended would control. (See Hutchison v. Ross, 262 N. Y. 381; Shannon v. Irving Trust Co., 275 N. Y. 95.) However, I reject as insupportable any suggestion in Matter of New York Life Ins. & Trust Co. (209 N. Y. 585, supra), the authoritative precedent in this area, that the law governing the trust conclusively governs the exercise of the power of appointment in every case, even to the extent of overriding the manifest intent of the donor-donee to have the law of his last domicile apply so as to effect a valid exercise of the general power.

Nor does precedent commit this court to so inflexible a rule as underlies its decision. The rather cryptic opinion in Matter of New York Life Ins. & Trust Co. (209 N. Y. 585, supra) “ adopt [ed] the rule applied in Massachusetts and concur [red] in the reasoning of Chief Justice Gray in support of it in Sewall v. Wilmer (132 Mass. 131).” A reading of the Sewall case reveals that Chief Justice Gray, who wrote for the court, was not insensitive to the existence of factors to which I have adverted; thus, he noted (p. 135) that Mrs. Wilmer, the donee of the power,‘‘ had never owned the property in question, nor paid any consideration for it, nor had the power been created by herself ” (see, also, p. 136). Moreover, in Matter of Spitzmuller (304 N. Y. 608, affg. 279 App. Div. 233), a case in which the donor and the donee were the same, this court declined to apply the law of this State although the instrument creating the power expressly provided that it was to be “ governed * * * according to the laws * * * of New York”, and in Matter of Deane (4 N Y 2d 326, 331, supra) the court took pains to point out that the Spitzmuller case—upon which the appellants in Deane relied—was distinguishable on the ground (among others) that “ there the same person was both creator and donee of the poiver ”. (Emphasis supplied.)

In sum, then, I would disavow the rule requiring the inexorable application of the law governing the instrument creating the power and I would apply the law of the jurisdiction intended by the donor-donee to control—in the case before us, England which, quite obviously, has the principal, if not the sole, interest and concern with ‘ ‘ ‘ the outcome of *. * * [this] litigation’”. (Auten v. Auten, 308 N. Y. 155, 161, supra.)

The order of the Appellate Division should be reversed and that of Special Term reinstated.

Judges Van Voorhis, Burke and Scileppi concur with Chief Judge Desmond ; Judges Dye and Fuld dissent in separate opinions in each of which the other concurs and Judge Bergan concurs in both.

Order modified in accordance with the opinion herein, and, as so modified, affirmed, with costs to all parties appearing separately and filing separate briefs payable out of the trust fund. 
      
      . It should be noted that, under section 2041 of the Internal Revenue Code (U. S. Code, tit. 26, § 2041), the right to exercise the power is made taxable, for estate tax purposes, to the donee of the power.
     
      
      . In support of this position, it is highly significant that, by virtue of section 141 of new article 5 of the Real Property Law (L. 1964, eh. 864, el$. June 1, 1965), property covered by a general power of appointment, “ not presently exercisable” (for instance, by will alone), can be subjected to the claims of the donee’s creditors where the donee was also the donor of the power.