State Street Bank & Trust Co. v. Reiser
7 Mass. App. Ct. 633, 389 N.E.2d 768 (1979)
Dunnebier created an inter
vivos trust. He filled it with stock.
The trust gave Dunnebier the power to revoke as well as the right to
direct the disposition of the principle and the income.
At the same time, he
executed a will that left the residue of his estate to the trust.
Later, Dunnebier applied for a
bank loan from State Street Bank. He used the stock in the trust as
collateral for the loan without mentioning to the bank that the stock was
technically owned by the trust.
Dunnebier died suddenly.
There was not enough money in his estate to pay off the loan to the bank.
The bank looked to get the
money out of Dunnebier's trust.
The trust, which has a
provision stating that the trustee had the discretion to pay expenses and
debts of administration of Dunnebier's estate out of trust assets.
The will had a provision
instructing that the executor pay his debts.
The bank suggested that the
two instructions should be read together and demanded that the trust
administrator pay off the loan.
The Probate Court found that
the bank could not demand assets be paid out of the trust. The bank
The Appellate Court reversed
and ordered the trust to pay off the debt.
The Appellate Court noted
that if Dunnebier were still alive, the Court could order him to pay the
debt out of the trust, since he had the power to direct the disposition
of trust assets.
Therefore, the Appellate
Court reasoned that a creditor should have the same ability after death
to reach what they could in life. So, the trust could be ordered to pay
Basically, assets in an inter
vivos trust which the decedent had
control over during life can be reached by creditors after death. Assets
that the decedent had no control over during life, such as a money from a
life insurance policy that only entered the trust after death, cannot be
reached by creditors.
Public policy dictates that
people should pay their bills, so it would be unjust enrichment to avoid
Like spenthrift trusts and augmented estates, creditors can't get to the will substitutes
until they have already exhausted all the money left in the estate.