Leazenby v. Clinton County Bank & Trust Co., 2--1274A304

• Decision Date: 28 October 1976
• Docket Number: No. 2--1274A304,2--1274A304
• Citation: 171 Ind.App. 243,355 N.E.2d 861
• Parties: Harold LEAZENBY, Administrator of the Estate of Cloyd H. Leazenby, Deceased, Defendant-Appellant, v. CLINTON COUNTY BANK AND TRUST COMPANY, Trustee, Plaintiff-Appellee. . 1
• Court: Indiana Appellate Court

Page 861

355 N.E.2d 861

171 Ind.App. 243

Harold LEAZENBY, Administrator of the Estate of Cloyd H Leazenby, Deceased, Defendant-Appellant, v. CLINTON COUNTY BANK AND TRUST COMPANY, Trustee, Plaintiff-Appellee.

No. 2--1274A304.

Court of Appeals of Indiana, First District. ¹

Oct. 28, 1976.

George G. Ponton, Power, Ponton & Nichols, Frankfort, for defendant-appellant.

James T. Robison, Robison, Robison & Miller, Frankfort, for plaintiff-appellee.

LYBROOK, Judge.

Defendant-appellant, Administrator of the Estate of Cloyd H. Leazenby, deceased (hereinafter referred to as Cloyd) appeals the judgment of the trial court in favor of the plaintiff-appellee, Clinton County Bank and Trust Company (Bank). The judgment determined that the trust created by Elsie G. Leazenby, who predeceased her husband, Cloyd, was a valid inter vivos trust which is not subject to the administration of her estate.

We affirm.

The facts most relevant to this appeal indicated that Cloyd H. and Elsie G. Leazenby were married in 1951, the second marriage for each. Cloyd was a farmer and he and Elsie lived on a farm for about nine years after they were married. When they were married, Cloyd owned his farm equipment and a car and each owned some household goods. In 1960, the Leazenby's moved from the farm to Sedalia, where Cloyd worked at a lumber yard and Elsie continued to be a housewife.

Mrs. Leazenby executed the trust instrument on August 25, 1969, at the Clinton County Bank. Cloyd was not present. Eventually all of Elsie's property was placed in the trust. The Trustee Bank took possession of the intangible property mentioned in the trust instrument. The trust provided that the settlor, Elsie, should receive the income for life, and that the trustee in its sole discretion was empowered to expend the income or corpus for her 'care, use, maintenance, and/or benefit.' The remainder beneficiaries of the trust were Elsie's two daughters, a granddaughter, and Cloyd who had a right to reside in her home for six months following her death. Cloyd and Elsie had no children together. Elsie reserved the power to transfer additional property to the trust and the right to revoke, alter, or amend the whole or part of the trust agreement by an instrument in writing. The interests and powers reserved by Elsie include (a) a life interest in the income from the trust property, (b) a power to revoke, alter, or amend the trust instrument, and (c) control over the actions of the trustee. The trust further provided that:

'9. It is the intent of the parties hereto that this trust be run as a convenience for the Settlor, and that the Trustee, in the absence of directions from Settlor, may exercise the broad discretion given it herein.'

Elsie died on August 13, 1972. On October 5, 1972, the Clinton Circuit Court admitted her Last Will and Testament to probate. Under the terms of the will, after payment of all her debts, the remainder of her property was given to the Clinton County Bank to be added to the trust and distributed pursuant to the terms of the trust. The will made no provision for Cloyd. The Court ordered that letters testamentary not be issued.

On October 24, 1972, Cloyd filed a petition for appointment of personal representative and issuance of letters testamentary for the estate of Elsie. The Court granted the petition and appointed the Clinton County Bank and Trust Company of Frankfort, as executor of the estate of Elsie G. Leazenby. The Clinton County Bank filed its Motion to Rescind Order and Strike Petition alleging that all of the decedent's property had been conveyed to the Clinton County Bank, as trustee, that there was no probate estate, and that there was no need for an executor. Cloyd filed objections to the Bank's petition, alleging that the trust was colorable and illusory and a fraud upon him because it defeated his statutory right to share in his spouse's estate as provided in IC 1971, 29--1--3--1 (Burns Code Ed.). Simultaneously Cloyd filed his election to take against the will of Elsie.

On February 27, 1974, Cloyd died. The motion to permit substitution of his son, Harold H. Leazenby, as Administrator of the estate of Cloyd was granted.

After trial was held, the court entered its judgment which stated in part:

'The Court having heard evidence and argument of Counsel and having considered the briefs, and being now duly advised now finds that the order entered herein October 24, 1972, admitting decedent's will to probate, appointing the executor and directing the issuance of letters testamentary was improvident and erroneous, based upon a misapprehension of fact regarding the existence of property which would pass under the laws of descent and distribution.

'The Court further finds that the trust created by decedent on August 29, 1969, was a valid inter vivos trust which acquired title to all of decedent's property, subject to the terms of the trust agreement, whereby the same is not subject to administration in her estate.'

The following issues are presented for our review:

1. Is the decision of the trial court contrary to law because it permitted the settlor spouse, Elsie G. Leazenby to create a revocable inter vivos trust which defeated the right of her surviving spouse, Cloyd H. Leazenby, to share in her estate at her death?

2. Was the decision of the trial, court, which found the trust to be valid, contrary to the evidence?

We shall consolidate our discussion of the two issues in this case.

This appeal raises the question, not recently discussed in Indiana case law, which is, to what extent may a married person, who transfers his or her property in trust, retain interest in and control over such property for his or her lifetime, and also make provision for distribution of the property upon his or her death in such a manner as to deny the surviving spouse his or her distributive share to which he or she is entitled by statute. The question involves a conflict between two public policy considerations, one of which favors a provision for support of a surviving spouse in case of disinheritance by the deceased spouse, and the other which favors unfettered inter vivos alienability of one's real or personal property.

The legislature has provided either surviving spouse with a right to take, in an election against the will, a statutory share of the deceased spouse's real and personal property. IC 1971, 29--1--3--1 (Burns Code Ed.). As a second childless spouse, with a deceased wife who had children by a previous marriage, Cloyd may elect to take one-third of the net personal estate of the testator plus a life estate in one-third of her land.

This election interest is not absolutely vested as was the ancient dower interest; it is only an expectant interest, determined at the time of death, and dependent upon the contingency that the property to which the interest attaches becomes part of the decedent's estate. Newman v. Dore (1937), 275 N.Y. 371, 9 N.E.2d 966; IC 1971, 29--1--3--1 (Burns Code Ed.).

The question remains then, what property of the deceased spouse, Elsie, may be reached by her surviving spouse, Cloyd, upon his election to take against her will? Only such property as would have passed under the laws of descent and distribution may be considered. IC 1971, 29--1--3--1 (Burns Code Ed.). Thus if the inter vivos trust is valid, the trust res will not be in Elsie's estate.

We have considered the Indiana cases, cases from other states, and other authorities, and have concluded that when a settlor transfers and assigns to a trustee title to property owned by him in the creation of a trust inter vivos, and if that trust is found to be a valid trust, then there is no right in the surviving spouse to any of the assets of that trust to satisfy an elected distributive share at the settlor's death.

Some states have held that a trust, otherwise valid under the laws of that particular state, will be found invalid as against the spouse of the settlor, in his or her claim for a distributive share of the deceased spouse's estate, if the inter vivos trust instrument reserved in the settlor extensive powers of dominion and control. Newman v. Dore, supra; Smith v. Northern Trust Co. (1944), 322 Ill.App. 168, 54 N.E.2d 75; Montgomery v. Michaels (1973), 54 Ill.2d 532, 301 N.E.2d 465; Land v. Marshall (Tex.S.Ct., 1968), 426 S.W.2d 841.

However, there is a great disparity of views expressed by the courts on the issue of whether reserved dominion and control will invalidate a valid inter vivos trust for the benefit of the surviving spouse, the main concern being what degree of dominion and control is necessary to partially invalidate the trust in this way. The present vagueness in the law in regard to inter vivos transactions gives latitude to judges in finding a result beneficial to the particular surviving spouse consonant with that state's policy. However, uncertainty imposes a hardship on conscientious settlors and beneficiaries who cannot be certain which good faith arrangements will be upheld. Power, The Law and the Surviving Spouse: A Comparative Study, 39 Ind.L.J. 262 (1964).

For this reason we reject a holding that would find a valid trust under Indiana law to be nevertheless vulnerable to a surviving spouse's election against the will of the deceased spouse. In the discussion which follows we review bases which have been used to invalidate inter vivos dispositions, for the benefit of a surviving spouse's elected share.

First, the trust will be found invalid, if the settlor retains so much control over the disposition and management of the property in the trust that the trustee possesses only a naked or nominal title, which does not impair the full ownership of the cestui que trust or beneficiary. Stroup v. Stroup (1895), 140 Ind. 179, 39 N.E. 864; Pond v. Sweetser (1882), 85 Ind. 144. This is established by statute, by the provision that when the trustee has neither a power nor a duty related to the administration...