McKean Estate

• Decision Date: 09 June 1950
• Docket Number: 2490 of 1949
• Citation: 71 Pa. D. & C. 429
• Parties: McKean Estate
• Court: Pennsylvania Commonwealth Court

71 Pa. D. & C. 429

McKean Estate

No. 2490 of 1949

Common Pleas Court of Philadelphia County, Pennsylvania, Orphans Division

June 9, 1950

Exceptions to adjudication.

Wilbur H. Haines, Jr. and J. B. H. Carter for exceptants.

James E. Gallagher, Jr., Stradley, Ronon, Stevens & Young, and Frank C. P. McGlinn, contra.

Before Sinkler, P. J., Klein, Bolger, Ladner, Hunter and Boland, JJ.

OPINION

The facts appear from the following extracts from the adjudication of

KLEIN, J., auditing judge.

By revocable deed dated February 26, 1943, Thomas McKean transferred and assigned certain assets described in schedule " A" annexed thereto to Fidelity-Philadelphia Trust Company in trust, the terms of which need not be recited in this adjudication as by further deed dated March 14, 1947, he revoked the deed of February 26, 1943, and directed that all of the assets held by the trustee be retained by it in trust to pay $ 416.66 per month out of the net income therefrom to his divorced wife, Catherine Radford McKean, until her death or remarriage, with the further provision that if she should remarry, either before or after settlor's death, the trustee should pay her$ 10,000 and all other payments should cease. The deed directed that the balance of the net income should be paid to settlor for life and after his death to his wife, Virginia Marshall McKean, for her life, and upon her death to settlor's son, Radford McKean, for his life. Upon the death of settlor's son he directed that the trustee should distribute the entire principal among the descendants of the son then living, per capita, and if settlor's son should die without leaving descendants or if all of his descendants should die before the principal is distributed, he directed the trustee to pay the net income from five twelfths of the principal to Princeton University in perpetuity to be used at the discretion of the trustees of the university, and to pay the balance of the net income in perpetuity equally to the trustees of St. Paul's School, Concord, N.H., and to the Rector, Church Warden, and Vestrymen of the Church of Good Shepherd, Rosemont, Pa., to be used for the best interest of that school and church, respectively....

The widow, Virginia, claims that by reason of her election under section 11 of the Estates Act of April 24, 1947, P. L. 100, she has the right to treat the trust as a testamentary disposition and that consequently the trust res should be included in settlor's estate for the purpose of ascertaining her elective share. Mr. Carter, her counsel, concedes that, if the question is to be decided under the law as it existed prior to the enactment of the Estates Act of 1947, his contention would be without merit. He contends, however, that settlor's reservation to himself of the right to revoke the trust agreement was such a retention of control over the trust res that the transaction did not constitute a " conveyance" of the property under the provisions of the Estates Act of 1947.

Section 11 of the act provides as follows:

" Section 11. Powers of Appointment -- Rights of Surviving Spouse. A conveyance of assets by a person who retains a power of appointment by will, or a power of revocation or consumption over the principal thereof, shall at the election of his surviving spouse, be treated as a testamentary disposition so far as the surviving spouse is concerned to the extent to which the power has been reserved, but the right of the surviving spouse shall be subject to the rights of any income beneficiary whose interest in income becomes vested in enjoyment prior to the death of the conveyor."

The date upon which the Estates Act becomes effective is fixed by section 21, which provides:

" Section 21. Effective Date. This act shall take effect on the first day of January, one thousand nine hundred forty-eight and except as set forth in section 3 hereof, shall apply only to conveyances effective on or after that day. As to conveyances effective before that day, the existing laws shall remain in full force and effect."

Section 1 of the act defines the meaning of the word " conveyance" as used therein. It reads as follows:

" Section 1. Definitions -- The following words and phrases, when used in this act, unless the context clearly indicates otherwise, shall have the meanings ascribed to them in this section:

" (2) 'Conveyance' means an act by which it is intended to create an interest in real or personal property whether the act is intended to have inter vivos or testamentary operation."

The following explanatory comment is taken from the report of the Joint State Government Commission of the General Assembly of Pennsylvania:

" Comment: This is similar to the definition of 'conveyance' in section 1 of the Uniform Property Act, which reads:

" 'The term " conveyance" means an act by which it is intended to create one or more property interests, irrespective of whether the act is effective to create such interests, and irrespective of whether the act is intended to have inter vivos or testamentary operation.'

" Restatement, Property, Section 11, also defines 'conveyance' in the same manner as the Uniform Property Act, except that it omits the last clause 'and irrespective of whether the act is intended to have inter vivos or testamentary operation.'"

Mr. Carter does not question the fact that settlor created a valid trust. He argues, however, that as long as settlor retained the right to alter or revoke the trust agreement and designate other beneficiaries, those named in the deed had nothing but expectancies. He maintains that the only " interests" in property created by the trustee was the income interest which the first wife received and that the other beneficiaries had no property interests. We cannot agree with these contentions.

In Dickerson's Appeal, 115 Pa. 198, 210 (1886), the court said:

" A reserved right of revocation is not inconsistent with the creation of a valid trust. If the right is not exercised during the lifetime of the donor, and according to the terms in which it is reserved, the validity of the trust remains unaffected as though there never had been a reserved right of revocation: Stone v. Hackett, 78 Mass., 227."

This was followed by Lines v. Lines, 142 Pa. 149, 167 (1891), in which Chief Justice Paxson said:

" It is idle to call this a testamentary paper. It passed his entire legal title to the trustee, with a present interest. He parted with the property wholly and entirely.... The power of revocation reserved in the deed, having never been exercised, was precisely as if it had never existed."

In Dolan's Estate, 279 Pa. 582 (1924), Justice Kephart said (p. 589):

" The annexation of the power of revocation does not affect the grantee's power of enjoyment, or prevent the sale of the property, privately or judicially, though the grantee takes the estate with the possibility of its being divested by the happening of an uncertain event, to wit, the exercise of the power of revocation. Through the exercise of that right reserved, the property may be recalled. But the right to revoke, unexercised, is a dead thing. Its presence in a deed does not alter the character of the instrument or estate granted; to all intents and purposes, title and possession pass just as effectively as any deed or grant could make it, continuing in that state so long as the power of revocation lies dormant." (Italics supplied)

Mr. Justice Stearne, in Shapley Trust, 353 Pa. 499 (1946), said (p. 500):

" We need not restate what has been so accurately written in the court below concerning the line of demarcation between a valid inter vivos trust and one which is testamentary in character. It will suffice to say that where the deed vests a present interest in the beneficiaries it is a valid inter vivos trust. It is not rendered testamentary in character because the settlor reserves a beneficial life estate, and in addition, a power to revoke or modify in whole or part. See Windolph v. Girard Trust Company, 245 Pa. 349, 91 A. 634; Beirne v. Continental-Equitable Title and Trust Company, 307 Pa. 570, 161 A. 721; Fidelity Trust Company, Admr., v. Union National Bank of Pittsburgh et al., 313 Pa. 467, 169 A. 209; Reese's Estate, 317 Pa. 473, 177 A. 792; Section 57(1) Restatement, Trusts; Scott on Trusts, Section 57.1."

See also Lyon Trust, 164 Pa.Super 140 (1949).

In the present case it is clear that the deed created a valid trust, transferring title to the trust property to the trustee and granting present interests to the beneficiaries named therein.

There can be no question that the trust was an active one, as broad powers were invested in the trustee. Moreover there is no suggestion of fraud in the transaction and the provisions of the trust, under the circumstances of this case, seem to be eminently fair to the widow.

The right of revocation, retained in the deed by settlor, not having been exercised by him in his lifetime " is a dead thing" . The deed of trust constituted a complete conveyance, effective on March 14, 1947, the day upon which it was executed. The provisions of the Estates Act of 1947, therefore, have no application to this trust, the validity and effect of which must be ascertained under the law as it existed prior to January 1, 1948, the effective day of the statute. This trust was not a testamentary disposition under the law in effect prior to January 1, 1948, and the election by the surviving widow is a nullity with respect to the property forming the res of this inter vivos trust....

HUNTER J., June 9, 1950. -- The question before the court is whether a surviving spouse, by an election under section 11 of the Estates Act of April 24, 1947, P. L. 100, 20 PS § 301, may treat a revocable...