Staples v. King

• Decision Date: 10 August 1981
• Citation: 433 A.2d 407
• Parties: Elizabeth H. STAPLES v. Deanna D. KING et al. *
• Court: Maine Supreme Court

Page 407

433 A.2d 407

Elizabeth H. STAPLES v. Deanna D. KING et al. ^*

Supreme Judicial Court of Maine.

Argued June 8, 1981.

Decided Aug. 10, 1981.

Burton G. Shiro (orally), Waterville, for defendant.

Before McKUSICK, C. J., and WERNICK, GODFREY, ROBERTS and CARTER, JJ.

GODFREY, Justice.

Plaintiff Elizabeth H. Staples appeals from an order of the Probate Court dismissing her complaint. Mrs. Staples had petitioned the Probate Court to declare void certain revocable inter vivos trusts that her husband, Joseph L. Staples, had created shortly before he died intestate. On appeal Mrs. Staples contends that the Probate Judge erred as a matter of law in concluding that her complaint failed to state a claim upon which relief could be granted and that the Probate Court lacked jurisdiction to impose a constructive trust on the defendants. We sustain the appeal.

Mr. Staples died on February 19, 1979. On November 16, 1978, he had executed seven written inter vivos trusts. In six of the trusts the corpus consisted of stocks or bonds; in the seventh the corpus was a bank account. Two of the trust instruments named Deanna D. King, the Staples' only child, as the sole beneficiary; two other instruments names Joanna King, a grandchild, as the sole beneficiary; the other three named Angela D. King, another grandchild, as the sole beneficiary.

In those trusts that employed stocks or bonds as the corpus, Mr. Staples reserved various rights and powers to himself as trustee during his lifetime; including the following: the power to pay or cause to be paid, all income or stock distributions to himself; the right to register the stocks in his own name; the right to redesignate the beneficiary should the current beneficiary die in the settlor's lifetime, with a reversion to the settlor's estate in default of such redesignation; and the power to revoke the trust in whole or in part without the beneficiary's consent and without notice to the beneficiary. Two of the trusts contained a direction to the successor trustee to distribute the trust principal to the settlor should he become sick or disabled. In the trust containing the bank account, Mr. Staples reserved the power to direct that interest be distributed to him rather than compounded; the right to revoke the trust pro tanto by withdrawing money from the account; and the right to redesignate the beneficiary should the current beneficiary die before the settlor, with a reversion to his estate in default of such redesignation. At Mr. Staples' death Deanna D. King became the successor trustee of the trusts for the benefit of the grandchildren, and one Ruth E. Brackett became successor for the benefit of Deanna D. King.

On June 4, 1980, Mrs. Staples filed in Probate Court a complaint against the beneficiaries and successor trustees of Mr. Staples' trusts. In Count I of that complaint Mrs. Staples claimed that Mr. Staples had executed the trusts when he knew he was terminally ill, and further alleged that the trusts were "illusory, colorable, and so far testamentary as to be invalid under 18 M.R.S.A. § 1057 et seq., as amended." On those grounds Mrs. Staples sought to have the trusts declared void and the corpora of the trusts included in Mr. Staples' intestate estate. Mrs. Staples' ultimate objective was to render the trust corpora available for her distributive share of her husband's estate.

In Count II of that complaint Mrs. Staples alleged that the trust beneficiaries had caused Mr. Staples to execute the trusts through fraud or undue influence. Mrs. Staples sought either a money judgment equal to the value of the trust assets attributable to each beneficiary, or an equitable order holding each beneficiary a constructive trustee for the benefit of Mrs. Staples.

Finally, in Count III of the complaint Mrs. Staples sought a money judgment against Ruth Brackett, alleging that she had caused Mr. Staples to transfer his estate to others through fraud or undue influence.

The defendants answered and moved to dismiss the complaint on the grounds that it failed to state a claim upon which relief could be granted and that the Probate Court lacked subject-matter jurisdiction of the action. Thereafter, apparently anticipating the defendant's argument that her complaint sought relief at law rather than in equity, Mrs. Staples voluntarily dismissed Count III of her complaint and those portions of Count II that sought recovery of a money judgment from the defendants.

After a hearing on the defendants' motion to dismiss, the Probate Court dismissed all the remaining portions of Mrs. Staples' complaint. With regard to Count I the probate judge ruled, "Count I is hereby dismissed for failure to state a claim upon which relief may be granted. Relief is apparently sought pursuant to 18 M.R.S.A. § 1057. The court does not read that statute to support this cause of action." Concerning Count II the probate judge stated simply, "Count II is dismissed. Cyr v. Cote, 396 A.2d 1013 (Me.1979)." After Mrs. Staples moved the Probate Court to clarify its order, the judge explained that he had dismissed Count II because the Probate Court lacked subject-matter jurisdiction to impose a constructive trust on the defendants.

1. The Cause of Action to Invalidate the Trusts

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 persons have an unfettered right to dispose of their property as they wish during their lifetime. While acknowledging that an inter vivos trust may 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 defendants have confused the evidentiary merits of Mrs. Staples' 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, M., 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, a growing number of courts have held...