Second National Bank of New Haven v. Harris Trust & Savings Bank
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 stirpes.
  • 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 doing this.
  • 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 stirpes.
    • This violated the Rule Against Perpetuities.
      • 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 (Margaret’s death).
        • 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 principle.
  • 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 Doctrine.
      • 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 Caroline.
        • 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 was met).
      • 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 violated.
    • 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 invalidated.
        • 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.