Hillman v. Hillman

• Decision Date: 06 February 2001
• Citation: 744 NE 2d 1078,433 Mass. 590
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: HOWARD B. HILLMAN v. TATNALL L. HILLMAN & others.

433 Mass. 590

744 NE 2d 1078

HOWARD B. HILLMAN v. TATNALL L. HILLMAN & others.¹

Supreme Judicial Court of Massachusetts, Suffolk.

February 6, 2001.

March 23, 2001.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, SOSMAN, & CORDY, JJ.

William G. Meserve for Howard B. Hillman, individually.

Robert J. Muldoon, Jr., for Howard B. Hillman, as trustee.

MARSHALL, C.J.

Howard B. Hillman filed a complaint for declaratory relief in the county court, seeking an interpretation of a power of appointment granted to him in a deed of trust executed by his mother in 1970. Specifically, he sought a declaration that the power of appointment does not authorize him to appoint the trust principal to himself, his estate, his creditors, or creditors of his estate. Because of the Federal tax implications, and because it is uncertain whether the Internal Revenue Service would abide by an interpretive decision on a matter of Massachusetts law other than a decision from this court, a single justice reserved and reported the case to the full court. See Simches v. Simches, 423 Mass. 683, 686 n.8 (1996); Shawmut Bank, N.A. v. Buckley, 422 Mass. 706, 710 (1996), and cases cited. See also the discussion in Walker v. Walker, ante 581 (2001). The defendants include ten individuals who are objects of Hillman's power of appointment, i.e., persons he may designate to receive trust principal either during his lifetime or through his will. Nine of these individuals also would become beneficiaries or contingent beneficiaries of the trust if Hillman were to die without exercising his power of appointment. Hillman himself, in his capacity as trustee of the trust, also is named as a defendant in the case.²

A guardian ad litem has been appointed to represent minors and unascertained persons who may have an interest in the trust. The guardian ad litem has filed a report indicating that he agrees with Hillman's interpretation concerning the limited scope of his power of appointment. Hillman further represents that the Internal Revenue Service, which is not named as a party, has been furnished with a copy of his complaint; however, the Internal Revenue Service has not sought to intervene or otherwise participate. See Putnam v. Putnam, 425 Mass. 770, 770-771 (1997). See also Berman v. Sandler, 379 Mass. 506, 509 n.5 (1980).

1. Basic trust provisions. On or about December 31, 1970, Hillman's mother, Dora B. Hillman (settlor), executed a deed of trust that created an irrevocable trust. Hillman is both the primary beneficiary of the trust and its sole trustee.³ When the trust was created, the trust principal consisted of residential real property in the town of Chilmark. Subsequently other property was added: beach lots adjacent to the Chilmark property; residential properties in the town of Beverly and in Greenwich, Connecticut; and cash and securities.⁴

Under the terms of the trust, Hillman is entitled to use and to occupy the trust properties free of rent, and to receive annually any net income derived from the principal.⁵ On his death, the properties may be used and occupied for the duration of the trust by his spouse, his issue, and his issue's spouses on terms and conditions prescribed in the deed of trust, and any net income is to be paid to the settlor's then living issue. The trust will terminate, at the latest, twenty-one years after the death of the last to survive from the group consisting of Hillman, his brother Tatnall L. Hillman, their spouses at the time the trust was created, and their children who were alive when the trust was created, and at that point the remaining principal is to be distributed to Hillman's then living issue. If all trust beneficiaries were to die before the scheduled termination of the trust, the trust will then terminate immediately, and the remaining principal is to be distributed to the settlor's living issue.

No discretion is given to any trustee under the deed of trust to make distributions of principal to any beneficiary of the trust while the trust remains in effect.⁶ However, paragraph G of Section First of the trust grants to Hillman, as trust beneficiary, the power to direct a trustee to distribute principal as follows:

"Anything hereinbefore contained to the contrary notwithstanding, Trustees shall pay or distribute such amounts or proportions of the remaining principal (including the Properties) of the trust during the lifetime of my said son, Howard B. Hillman, to or in trust for such of the following (whether then living or thereafter born) — my said son's spouse, his issue, my issue, or the spouses of any of his issue or of any of my issue — on such terms and in such amounts and proportions as my said son may from time to time appoint by written instrument, duly executed, notarized and delivered to Trustees, or, following his death, as he may have appointed by Will containing specific reference to this power of appointment" (emphasis added).

2. Discussion. The difficulty for Hillman lies in the settlor's reference to "my issue" in the power of appointment. Read literally and in isolation, this language would permit Hillman to appoint trust principal to himself, for he is among the settlor's issue. However, the adverse tax consequences that might flow from such an interpretation could be considerable.⁷ If Hillman were authorized by the power of appointment to appoint trust principal to himself, the entire principal of the trust would be includible in his estate at the time of his death and be subject to Federal estate tax, regardless of whether he exercises the power; moreover, during Hillman's lifetime, any capital gains realized on a sale of trust assets might be treated as Hillman's for Federal income tax purposes. See I.R.C. § 678 (a), § 2041 (a) (2), and § 2041 (b). See generally G. Bogert, Trusts and Trustees § 273.35 (2d ed. rev. 1992). See also J.F. Farr & J.W. Wright, Jr., Estate Planner's Handbook § 42, at 261-263 (4th ed. 1979) (discussing potential Federal gift tax consequences associated with powers of appointment).

When interpreting trust language, however, we do not read words in isolation and out of context. Rather we strive to discern the settlor's intent from the trust instrument as a whole and from the circumstances known to the settlor at the time the instrument was executed. Pond v. Pond, 424 Mass. 894, 897 (1997). Berman v. Sandler, 379 Mass. 506, 510 (1980). Putnam v. Putnam, 366 Mass. 261, 266 (1974). If, read in the context of the entire document, a given word or phrase is ambiguous, we may accept and consider extrinsic evidence showing the circumstances known to the settlor when he or she executed the document. Berman v. Sandler, supra. Putnam

v. Putnam, supra at 266-267.⁸ We tend to disfavor interpretations that would resolve ambiguities "by attributing to the [settlor] an intention which as a practical matter is likely to benefit the taxing authorities and no one else." Id. at 271.

Viewing the deed of trust in this case as a whole, and giving due weight to all its language, we agree with Hillman that the settlor did not intend the words "my issue" in the power of appointment to include Hillman.⁹ We arrive at this conclusion for at least three reasons, which we shall outline.

First, as can readily be seen from the language creating the power of appointment, quoted above, the settlor not only referred to Hillman once by name, but also referred to him...