Irwin Union Bank & Trust Co. v. Long

• Decision Date: 25 June 1974
• Docket Number: No. 1--873A150,1--873A150
• Citation: 312 N.E.2d 908,160 Ind.App. 509
• Parties: IRWIN UNION BANK AND TRUST COMPANY, Defendant-Appellant, Philip W. Long, Plaintiff-Appellant, v. Victoria B. LONG, Defendant-Appellee.
• Court: Indiana Appellate Court

Page 908

312 N.E.2d 908

160 Ind.App. 509

IRWIN UNION BANK AND TRUST COMPANY, Defendant-Appellant Philip W. Long, Plaintiff-Appellant, v. Victoria B. LONG, Defendant-Appellee.

No. 1--873A150.

Court of Appeals of Indiana, First District.

June 25, 1974.

Alan H. Lobley, James S. Telfer, D. Robert Webster, Ice, Miller, Donadio & Ryan, Indianapolis, for appellant Irwin Union Bank & Trust Co.

Cline, King & Beck, Columbus, for appellee.

LOWDERMILK, Judge.

On February 3, 1957, Victoria Long, appellee herein, obtained a judgment in the amount of $15,000 against Philip W. Long, which judgment emanated from a divorce decree. This action is the result of the filing by appellee of a petition in proceedings supplemental to execution on the prior judgment. Appellee sought satisfaction of that judgment by pursuing funds allegedly owed to Philip W. Long as a result of a trust set up by Laura Long, his mother.

Appellee alleged that the Irwin Union Bank and Trust Company (Union Bank) was indebted to Philip W. Long as the result of its position as trustee of the trust created by Laura Long. On April 24, 1969, the trial court ordered that any income, property, or profits, which were owed to Philip Long and not exempt from execution should be applied to the divorce judgment. Thereafter, on February 13, 1973, the trial court ordered that four percent (4%) of the trust corpus of the trust created by Laura Long which benefited Philip Long was not exempt from execution and could be levied upon by appellee and ordered a writ of execution. Union Bank, as trustee, filed its motion to set aside the writ of execution. Said motion was overruled by the trial court, whereupon Union Bank filed its motion to correct errors, which was by the court overruled.

The pertinent portion of the trust created by Laura Long is as follows, to-wit:

'ITEM V C

'Withdrawal of Principal.

When Philip W. Long, Jr. has attained the age of twenty-one (21) years and is not a full-time student at an educational institution as a candidate for a Bachelor of Arts or Bachelor of Sciences degree, Philip W. Long shall have the right to withdraw from principal once in any calendar year upon thirty (30) days written notice to the Trustee up to four percent (4%) of the market value of the entire trust principal on the date of such notice, which right shall not be cumulative; provided, however, that the amount distributable hereunder shall not be in excess of the market value of the assets of the trust on the date of such notice other than interests in real estate.'

The primary issue raised on this appeal is whether the trial court erred in allowing execution on the 4% of the trust corpus.

Appellant contends that Philip Long's right to withdraw 4% of the trust corpus is, in fact, a general power of appointment. Union Bank further contends that since Philip Long has never exercised his right of withdrawal, pursuant to the provisions of the trust instrument, no creditors of Philip Long can reach the trust corpus. Appellant points out that if the power of appointment is unexercised, the creditors cannot force the exercise of said power and cannot reach the trust corpus in this case.

Appellee posits that the condition precedent to Philip Long's right of withdrawal has been met and therefore Philip Long has an absolute right to the present enjoyment of 4% of the trust corpus simply by making a written request to the trustee. Appellee contends that this is a vested right and is consistent with the intentions of the donor, Laura Long. Appellee further contends in her brief that the right of withdrawal is not a power of appointment, but is, rather, a power of augmentation and relies upon the Restatement of the Law of Property, § 318, which reads as follows, to-wit:

'Definition--Power of Appointment.

(1) Except as stated in Subsection (2), a power of appointment, as the term is used in this Restatement, is a power created or reserved by a person (the donor) having property subject to his disposition enabling the donee of the power to designate, within such limits as the donor may prescribe, the transferees of the property or the shares in which it shall be received.

(2) The term power of appointment does not include a power of sale, a power of attorney, a power of revocation, a power to cause a gift of income to be augmented out of principal, a power to designate charities, a charitable trust, a discretionary trust, or an honorary trust.'

However, in oral argument, appellee stated that the label that is put on the provision of the trust instrument is immaterial.

It is the position of appellee that if the right of withdrawal is not a power of appointment under § 318, supra, then the cases and authorities relied upon by appellant which relate to powers of appointment will not be in point.

Appellee also argues that Philip has absolute control and use of the 4% of the corpus and that the bank does not have control over that portion of the corpus if Philip decides to exercise his right of withdrawal. Appellee argues that the intention of Laura Long was to give Philip not only an income interest in the trust but a fixed amount of corpus which he could use as he saw fit. Thus, Philip Long would have a right to the present enjoyment of 4% of the trust corpus. A summation of appellee's argument, as stated in her brief, is as follows: 'So it is with Philip--he can get it if he desires it, so why cannot Victoria get it even if Philip does not desire it?'

We have had no Indiana authority directly in point cited to us by either of the parties and a thorough research of this issue does not reveal any Indiana authority on point. Thus, this issue so far as we can determine is one of first impression in Indiana.

The distinction which appellee seeks to rely upon based on the Restatement of the Law of Property in regard to a power of augmentation is apparently such a distinction only in that authority. We have found no cases or treatises which follow the distinction made in the Restatement. We have found one treatise which expressly refutes the distinction between a power of appointment and a power of augmentation, as set out in the Restatement. Appleman, Basic Estate Planning, Ch. XVI, p. 696, discusses the Restatement distinction as follows:

'The 'Definitions' section of the Restatement of the Law of Property says: 'The term power of appointment does not include * * * a power of revocation, a power to cause a gift of income to be augmented out of principal, * * * a discretionary trust * * *.' Today, for estate and gift tax purposes and consequently for estate planning purposes, this statement must be virtually disregarded.'

Further, appellee has failed to point out exactly how the distinction made in the Restatement would affect the case at bar. Appellee cites no authority which says that an unexercised power of augmentation can be reached by creditors.

Appellant, for the sake of argument, conceded that even if the trust language was a power of augmentation, the same rules would be in effect in this case as they would apply to creditors.

Broadly speaking, a power is said to be general if it can be exercised in favor of anyone whom the donee may select. A power is defined in Thompson on Real Property, 1961 Repl., Future Interests, § 2025, as follows:

' § 2025. What a 'power' is.--Broadly stated, a 'power' is an authority enabling one person to dispose of an interest which is vested in another. It is an authority reserved by or limited to one to do certain acts in relation to the subject matter of the gift for his own benefit or for the benefit of another. The word 'power,' as defined by the Restatement of the Law of Property, 'is an ability on the part of a person to produce a change in a given legal relation by doing or not doing a given act.' It is an authority to do some act in relation to lands, or the creation of estates therein, or of charges thereon, which the owner granting or reserving such power, might himself lawfully perform.

Powers are either general or special. They are general when they are capable of being exercised by the donee in favor of any person, including himself, and are not restricted as to the estate or interest over which he may exercise the power, while the power is special if its exercise is restricted to particular persons, or a particular class of persons, or if it can by exercised only for certain named purposes or under certain conditions. The donee under a general power has an absolute disposing power over the estate; but where he cannot exercise the power for his own benefit during his lifetime, the power is not general. . . .'

In the case of In Re Kuttler's Estate (1958), 160 Cal.App.2d 332, 337, 325 P.2d 624, 628, 629, a power of appointment was defined as follows "A power of appointment, which may be created by deed or by will, is defined, generally, as a power or authority given to a person to dispose of property, or an interest therein, which is vested in a person othet than the donee of the power."

The Supreme Court of Texas, in the case of Republic National Bank of Dallas v. Fredericks (1955), 155 Tex. 79, 88, 283 S.W.2d 39, 46, discussed and defined power of appointment and stated:

'Subject to certain restrictions, the common law accords to the individual a right to delegate to another person the power of designating or selecting the takers of his property. The authority thus to control the disposition of the estate of the grantor or testator is referred to as a 'power of appointment.'

'A power of appointment is a power of disposition given to a person over property not his own, by some one who directs the mode in which that power shall be exercised by a particular instrument. It is an authority to do an act which the owner granting the power might himself lawfully perform.' Thompson on Wills, 3rd Ed., p. 596, Sec. 400.'

See, also, Commissioner of Internal Revenue v. Walston (4 Cir., 1948), 168 F.2d 211.

An examination of the...