Opinion ID: 2280223
Heading Depth: 1
Heading Rank: 1

Heading: The Cause of Action to Invalidate the Trusts

Text: On appeal Mrs. Staples argues that 18 M.R.S.A. § 1057, as amended by P.L.1965, ch. 425, § 11, the former provision for the widow's elective share, [1] evidences a legislative policy that a decedent should not be permitted, in effect, to disinherit his surviving spouse by making transfers that deplete his estate. Mrs. Staples does not condemn all inter vivos transfers, but only those, such as her husband's trusts, that allow the donor to retain substantial incidents of ownership of the transferred property during his lifetime. In addition, Mrs. Staples regards her husband's trusts as informal substitutes for a will and thus prohibited by virtue of the Statute of wills then in effect, 18 M.R.S.A. § 1, as amended. [2] The defendants reply that personals have an unfettered right to dispose of their property as they wish during their lifetime. While acknowledging that an inter vivos trust many be held invalid as against a surviving spouse if the decedent executed the trust with intent to retain practical ownership of the corpus during his life, the defendants contend that the trusts in this case manifest no such intent. We must conclude that the defendant's have confused the evidentially merits of Mrs. Staples's action with the facial validity of her claim. This Court has repeatedly held that a complaint should not be dismissed for failure to state a claim upon which relief may be granted unless it is clear from the face of the complaint that the plaintiff is entitled to no relief under any state of facts that could be proved in support of the claim. See, e. g., Hildebrandt v. Department of Environmental Protection, Me., 430 A.2d 561 (1981). Because the probate judge dismissed Count I for failure to state a claim upon which relief may be granted, we need not decide whether Mr. Staples in fact executed the trusts with intent to retain dominion over the trust property. We need only determine whether the facts alleged in Mrs. Staples' complaint, if proved, would entitle her to the relief she requests. This Court has heretofore recognized the right of a married person to deplete his or her estate, even with intent to defeat the claims of the spouse, as long as that depletion is accomplished through complete gifts. See, e. g., Lambert v. Lambert, 117 Me. 471, 104 A. 820 (1918). However, where the married person purports to transfer property out of his estate but in fact retains substantial control over the property for his lifetime, such a transfer will not be effective against the claims of the surviving spouse: [W]here the transfer is a mere device or contrivance by which the husband, retaining to himself the use and benefit of the property during his life, and not parting with the absolute dominion over it, seeks at his death to deprive his widow of her distributive share, it is to be regarded as fraudulent as to the wife and void. Wright v. Holmes, 100 Me. 508, 513, 62 A. 507, 509 (1905). An example of such an illusory transfer is found in Brown v. Crafts, 98 Me. 40, 56 A. 213 (1903). There the decedent had transferred to his daughter certain stocks, bonds, and mortgages by means of written instruments that contained all the formalities necessary for the transfer. However, upon receiving the property, the daughter issued to the decedent a power of attorney that authorized him to recover possession of the property, to manage, control, and receive the income from the property, and finally to pledge the property for personal debts and to sell it to satisfy his indebtedness. The daughter then redelivered the property to the decedent. After reviewing these transfers, the Law Court concluded that they constituted a single, illusory transaction. Although the decedent purported to make a gift, his retention of dominion over the property during his lifetime rendered the transaction an invalid substitute for a will. Because the decedent, in substance, owned the property at his death, the Court ruled that the property should have been included in his estate and thus subject to the spouse's distributive share. We have not had occasion to apply the holding in Brown v. Crafts to a situation in which the transfer being challenged was an inter vivos trust. A transfer that would be incomplete as an outright gift may yet be valid as a gift in trust. The mere fact that the settlor appoints himself trustee and retains powers to revoke the trust and to use the trust corpus for his own benefit during his lifetime is not in itself a sufficient basis for regarding an inter vivos trust as incomplete, Restatement (Second) of Trusts § 26, Comment h (1959), or invalid for non-compliance with the Statute of Wills, id. § 57. However, courts in growing numbers have held that where the effect of an inter vivos trust is to remove assets from the decedent's estate that would otherwise have been available for the surviving spouse's distributive share, and the decedent has reserved to himself the practical attributes of ownership of the trust property for his lifetime, the trust property may be subject to claims made by the surviving spouse under the laws regulating succession to decedents' estates. [3] The case most often cited for that proposition is Newman v. Dore, 275 N.Y. 371, 9 N.E.2d 966 (1937). In Newman, the New York Court of Appeals recognized the right of a married person to dispose of his property before death, even with the motive of avoiding his surviving spouse's claims to his estate. Because the spouse has only an expectancy of receiving a distributive share of the decedent's estate during the latter's lifetime, the spouse has no legal interests that can be infringed by completed inter vivos transfers. However, in the view of the New York court, the statutes granting the surviving spouse an elective share of the decedent's estate, in conjunction with the statutes governing the formalities of wills, limit the settlor's capacity to create inter vivos trusts that deplete the spouse's potential share in his estate while allowing the settlor to exercise substantial control over the trust property during his life. Therefore, the Newman court concluded, if a settlor retains so much power over the trust property that he remains the owner of it for all practical purposes during his lifetime, the trust will be held ineffective as against the claims of the surviving spouse even though the trust may not be so testamentary in nature as to be invalid under the statute of wills. The critical inquiry under Newman v. Dore is not whether the settlor intended to disinherit his spousean irrelevant factor if the settlor has actually divested himself of his propertybut rather whether the settlor intended to surrender complete dominion over the property to the trustee and trust beneficiaries. See Estate of Barnhart, 194 Colo. 505, 574 P.2d 500 (1978); Castellano v. Cosgrove, 280 So.2d 676 (Fla.1973); Matter of Nemecek's Estate, 85 Ill.App.3d 881, 41 Ill.Dec. 157, 407 N.E.2d 655 (1980); Ackers v. First National Bank, 192 Kan. 319, 387 P.2d 840 (1964); Kempf v. Kempf, 288 Minn. 244, 179 N.W.2d 715 (1970); Moore v. Jones, 44 N.C.App. 578, 261 S.E.2d 289 (1980); Land v. Marshall, 426 S.W.2d 841 (Tex.1968); 1 Scott on Trusts § 57.5 (3d ed. 1967 & Supp.1981); Annot., 39 A.L.R.3d 14 (1971). We find the reasoning of Newman v. Dore persuasive. Although 18 M.R.S.A. § 1057 did not, by its express terms, support Mrs. Staples' cause of action, that statute expressed a legislative policy that a surviving spouse may not be completely disinherited by the decedent. Section 1057 of title 18 permitted the surviving spouse to elect to take the equivalent of her intestate share of the decedent's estate when the decedent has left a will. It would be irrational to allow a married person to circumvent the statute by simply refraining from making a will and, instead, executing trusts which appear to deplete his estate but which reserve for himself, in effect, the benefits of owning the trust property. As the Newman court noted, from the technical point of view such a conveyance does not quite take back all that it gives, but practically it does. 275 N.Y. at 381, 9 N.E.2d at 969. [4] In the present case Mrs. Staples was entitled to have her husband's trusts declared invalid as against her upon proof that when he executed the trusts he did not intend to relinquish ownership of the trust propertyor, in the more archaic language used in Mrs. Staples' complaint, upon proof that the trusts were illusory, colorable, and so far testamentary as to be invalid under 18 M.R.S.A. § 1057. Although we intimate no opinion concerning the merits of Mrs. Staples' action, we must conclude that Count I of her complaint did state a claim upon which relief could be granted. Accordingly, the probate judge erred as a matter of law in dismissing Count I.