Second National Bank of New Haven v. Harris Trust &
29 Conn. Supp. 275, 283 A.2d 226 (1971)
Caroline created a partially
revocable inter vivos trust. The
income from the trust was to be given to her daughter Margaret. Margaret
was also given a general testamentary power of appointment over half the trust assets. The other half was
to be given to Margaret's children, per stirpes, at Margaret's death.
Caroline retained the right
to revoke the income, but not to
revoke the trust assets.
Margaret's children were
also named as takers in default,
which meant that if Margaret failed to appoint to the money in her will,
the kids would get it by default.
If Margaret had no children,
the money would go to Caroline's other daughter, Mary M., or her kids per
Caroline died without revoking
the trust. Margaret partially released her power of appointment, turning it into a special power of
appointment, limiting her choices of
appointees to her descendents.
There are tax reasons for
Margaret eventually had two
children, Mary W., and Charles. Both were born after Caroline's death.
Margaret later died, leaving a
will that exercised her general testamentary power of appointment by creating a new trust that gave income to
Margaret's daughter Mary W. for 30 years. After 30 years, the trust
principle would be given to Mary W., or her children, per
This violated the Rule
The way it was worded, Mary
W. got the money 30 years after Margaret died. So, her interest vested
30 years after the death of the last life in being at the time of the creation of the interest
That's longer than the 21
year limitation required by the Rule Against Perpetuities.
Mary was born after
Caroline created the irrevocable
trust, but before Caroline died, which was the point when the income became irrevocable.
The trustee (Harris Trust)
went to Court to determine what to do with the money.
If Margaret's exercise of
her power was not effective, then the takers in default clause would kick in and the money would be
immediately split 50-50 between Margaret's two children.
The Doctrine of Capture would also apply. That Doctrine says that if
there is an ineffective exercise of a power, the money gets pushed into
the donee's estate, and so
Margaret's two kids would take as her heirs (so the exact same result)
If Margaret's exercise was
effective, then all the trust assets would go to the trustee, who would
pay Mary W. income for 30 years and then give her 100% of the trust
The Trial Court found that the
appointment was valid.
The Trial Court found that
"a donee of a power
of appointment in exercising that
power, acts merely as a conduit of the donor's bounty."
Basically, the appointment
is 'read back' into the original instrument, as if the donee was just filling in the blanks in the donor's will.
Aka the Relation Back
Therefore the clock in the Rule
Against Perpetuities starts running
when the trust is created, not when it is appointed.
There is an exception where
the trust is revocable. In those
cases, the clock starts running when the ability to revoke ceases, but
in this case, that would still be Caroline's death, and the Rule
Against Perpetuities would still be
violated because Mary W. had to live 30 years longer than Margaret and
It's debatable whether
this even applies in this case because the income was revocable, but the principle was irrevocable.
However, the Court looked to
Margaret's will, and found that her gift to Mary W. should be construed
as creating a vested interest subject to defeasance, as opposed to a conditional gift (which wouldn't be vested until the condition
The gift to Mary W.
contains no condition precedent,
and the taker (Mary W.) is ascertainable.
A condition precedent would be something like, "you get the
money when you turn 21." But in this case, Mary W. starts getting
paid immediately, so there is no condition she needs to meet to start
getting the money.
There is a 'condition
subsequent' that Mary W. has to meet to get all the money (live for 30 years), but based on
the way the Court read the law, that doesn't make the gift conditional.
Therefore, since the gift to
Mary W. vested immediately upon the death of Margaret, the Rule
Against Perpetuities was not
On the other hand, the part
of the gift that said Mary W.'s children would receive the trust
principle if Mary did not live for 30 years was a conditional gift because there was a condition
precedent that Mary had to die within
30 years for them to be eligible to get the money. Also, since they were
a class, it would be
impossible to know how many kids Mary W. would eventually have, and the
class would not be ascertainable.
Therefore, the gifts to
Mary W.'s children violate the Rule Against Perpetuities, and are invalidated.
Therefore, the part of the
will that talks about what happened if Mary W. dies before 30 years is
If Mary W. dies before 30
years are up, the trust assets go into her estate, not to her children
as specified in the trust instrument.
It goes into her estate
because her gift is already vested.
Therefore, Mary W. gets the
money whether she lives for 30 years or not, and any question of
contingency goes away and the gift to Mary is indefasibly vested from
the day of Margaret's death.
This case is another example
of a bad attorney. If the trust instrument had given Mary W. an income
for 21 years and not 30 years, there would be no potential violation of
the Rule Against Perpetuities, and
all the litigation could have been avoided.
The Relation Back Doctrine says that any time a donor gives a donee any power other than a general inter
vivos power, you start calculating the
Rule Against Perpetuities at
the time the donor created the power, not when the donee exercises the power.
In this case, the Court really
stretched in order to get around the Rule Against Perpetuities. Another thing they could have done was to use
the doctrine of cy pres, to
reduce the appointment to 21 years.