Opinion
December 2, 1963 —
December 20, 1963.
APPEAL from a judgment of the county court of Milwaukee county: RUDOLPH J. MUDROCH, Judge. Affirmed.
For the plaintiff Helen Bischoff there was a brief by Martin R. Paulsen, attorney, and Lee W. Meyer of counsel, both of Milwaukee, and oral argument by Mr. Paulsen.
For the plaintiff Michael J. Cudahy there were briefs and oral argument by Vilas H. Whaley of Racine.
For the defendants Irene B. Brady and Elizabeth S. Casper there was a brief by Quarles, Herriott — Clemons, attorneys, and Lester S. Clemons of counsel, all of Milwaukee, and oral argument by Lester S. Clemons.
For the defendant minors and persons in military service, there was a brief and oral argument by Nathan Pereles, Jr., of Milwaukee, guardian ad litem.
Mrs. Helen Bischoff and Michael J. Cudahy appeal from that part of the judgment entered on March 29, 1963, which interprets the legal effect of certain documents involving the Patrick Cudahy Family Trust. The First Wisconsin Trust Company as trustee petitioned the county court to determine the proper distribution of a portion of the trust income.
In June, 1918, Patrick Cudahy, together with his wife and seven children, including Josephine C. Hoyt, created the Patrick Cudahy Family Trust. Each settlor transferred his respective shares of the capital stock of the Patrick Cudahy Family Company to the First Wisconsin Trust Company as trustee.
The trust was created so that the shares would remain in the family. In the fourth clause of the 1918 trust agreement the duties of the trustee are described in the following terms:
"FOURTH: To pay and distribute the net amount of such dividends remaining after the payment of expenses of administration as aforesaid from time to time as follows, to-wit:
"(A) To each subscriber as long as he or she shall live the net dividends received in respect of the shares of stock by him or her respectively transferred and assigned as aforesaid, ,
"(B) Upon the death of any subscriber, to pay to such then living appointee or appointees as such deceased subscriber in and by last will and testament admitted to probate shall designate and appoint, the net dividends received in respect of the shares of stock by such subscriber transferred and assigned as aforesaid or such portion or portions thereof as such appointment shall direct. No appointment hereunder shall be effective for a longer period than the natural life of the appointee.
". . .
"(C) If any subscriber shall die without making appointment as aforesaid, or if any appointee of such subscriber shall not be entitled to take or upon the termination of the term of any appointment, then said trustee shall from time to time pay the net dividends received in respect of the shares of stock by such subscriber transferred and assigned as aforesaid, or such portion thereof as shall be affected by such failure to appoint or inability of the appointee to take, or termination of the term of appointment, to the issue of such subscriber living at the time of distribution proportionately by right of representation.
"(D) In case a subscriber shall die without surviving issue, or the issue of a deceased subscriber shall become extinct after the death of such subscriber, and either (1) such subscriber shall not have made appointment as aforesaid, or (2) the appointee shall not be entitled to take, or (3) the term of appointment shall have expired, then and in either such events the said trustee thereafter shall pay the net dividends in respect of the stock transferred by such deceased subscriber or that portion thereof affected by either or any the foregoing contingencies to the surviving subscribers or their issue living at the time of distribution proportionately by right of representation."
By letters of January 19, 1944, and January 27, 1944, legal counsel advised Mrs. Hoyt and other subscribers of the 1918 trust agreement having a similar power of appointment that certain federal estate tax benefits would be received if Mrs. Hoyt would "partially release" powers given her under the 1918 agreement. Accordingly, Mrs. Hoyt executed such a partial release on February 25, 1944, and a portion of it read as follows:
"NOW, THEREFORE, In consideration of statutory benefits received and to be received, and intending to be legally bound, I do hereby irrevocably and forever release, relinquish, renounce and surrender in part and reduce and limit any and all right and power that I have under said Trust Indenture, as amended, to designate and appoint a person or persons to receive and to whom the Trustee shall pay the dividends received by the Trustee in respect of the shares of stock by me transferred and assigned pursuant to the terms of said Trust Indenture, as amended, or to designate and appoint a person or persons who may enjoy any other rights or benefits under said Trust Indenture, as amended, including any and all right and power that I have under that clause of said original Trust Indenture reading as follows :
"`FOURTH:
". . .
"`(b) Upon the death of any subscriber, to pay to such then living appointee or appointees as such deceased subscriber in and by last will and testament admitted to probate shall designate and appoint, the net dividends received in respect of the shares of stock by such subscriber transferred and assigned as aforesaid or such portion or portions thereof as such appointment shall direct. No appointment hereunder shall be effective for a longer period than the natural life of the appointee.'
"so that forever hereafter my right and power to appoint under the aforesaid quoted paragraph shall be limited to those natural persons within the following described class and shall not include any others, to wit: my husband, my descendants, the descendants of my husband, the spouses of any such descendants, and any natural persons who may qualify as donees described in Sections 812 (d) and 861 (a) (3) of the United States Internal Revenue Code as now in effect. The term 'descendants' as used herein shall include all persons within that term as it is used in Section 811 (f) (2) (A) of the United States Internal Revenue Code as now in effect; and the Trustee of said trust now or any time hereafter acting is hereby wholly discharged from any and all obligations with respect to any appointee or appointees of mine other than to those within the class by this instrument limited."
Four other subscribers with a similar power of appointment executed identical releases at approximately the same time as Mrs. Hoyt. Mrs. Hoyt died in 1961, her husband having predeceased her in 1954. The attorney who prepared her will testified that he had been unaware of the partial release executed in 1944. Pertinent portions of her will read as follows:
"I give and bequeath to Helen Bischoff, if she shall survive me, the sum of Ten Thousand Dollars ($10,000.00).
". . .
"I give and bequeath to Helen Bischoff, my diamond watch, my sapphire ring, my household furniture, furnishings, personal effects and silver not herein bequeathed, and any automobile that I may own at the time of my death.
". . .
"I give and bequeath to Helen Bischoff, for her lifetime only, the net dividends received in respect of the Nine Hundred Ninety-nine (999) shares of stock in the Patrick Cudahy Family Company, transferred and assigned to me, of which the Wisconsin Trust Company, now First Wisconsin Trust Company, is Trustee under a Trust Agreement dated June 7, 1918, and any supplemental agreements thereto, it being my intention to exercise the power of appointment given to me under said trust instrument.
"I give, devise and bequeath all the rest, residue and remainder of my estate of every kind, nature and description, and wherever situated, in equal shares, to my surviving nephews and nieces."
The court below concluded that Mrs. Bischoff did not come within the class of appointees described in the partial release and held that Mrs. Hoyt had no power to appoint Mrs. Bischoff. The county judge was of the opinion that the 1944 release executed by Mrs. Hoyt was effective and that the attempted appointment of Mrs. Bischoff in the will was invalid. This was the position taken by a guardian ad litem who had been appointed to represent certain minors and persons in military service.
The effect of the judgment of the court below is that the portion of the estate of Mrs. Hoyt which would have passed to Mrs. Bischoff had her testamentary appointment been effective passes instead to those who have a beneficial interest under the trust.
Statutes Involved.
1943 Stats.:
"232.495 RELEASE OF POWERS. (1) A power to appoint real or personal property, whether acquired prior to or subsequent to July 15, 1943, which is exercisable by deed, by will, by deed or will, or otherwise, in favor of the grantee or holder of the power, his estate, his creditors, or the creditors of his estate is releasable, either with or without consideration, by written instrument signed by the grantee or holder.
"(2) A power to appoint described in the next preceding subsection is releasable with respect to the whole or any part of the property subject to such power and is also releasable in such manner as to reduce or limit the persons or objects or classes of persons or objects in whose favor such power would otherwise be exercisable.
"(3) It is declared that such releases described in the two preceding subsections are in accordance with the public policy of this state and are valid and effectual whether heretofore or hereafter made.
"(4) Nothing herein contained shall be deemed to prevent the release of any power which was releasable, in whole or in part, prior to July 15, 1943."
1957 Stats.:
"232.495 RELEASE OF POWERS. (1) The grantee of any power to appoint real or personal property may, unless the instrument creating such power expressly otherwise provides:
"(a) At any time completely release his power.
"(b) At any time or times release his power in any one or more of the following respects:
"1. As to the whole or any part of the property which is subject thereto;
"2. As to any one or more persons or objects, or classes of persons or objects, in whose favor such power is exercisable;
"3. So as to limit in any other respect the extent to or manner in which it may be exercised.
"(2) Any such release may be effected, either with or without consideration, by written instrument signed by the grantee or holder.
"(3) A release of a power executed prior to September 1, 1957 has the same effect as if this section had been in effect at the time such release was executed."
The equities of this case are strikingly in favor of Mrs. Bischoff. The latter was Mrs. Hoyt's friend, nurse, and companion for almost seven years. Mrs. Hoyt's will clearly expressed her intention to have Mrs. Bischoff enjoy the benefits which would have resulted from the testamentary exercise of her power of appointment in favor of Mrs. Bischoff. A nephew of Mrs. Hoyt, Michael J. Cudahy, vigorously supported Mrs. Bischoff's position in this court.
However, regardless of the equities, if Mrs. Hoyt's partial release of her reserved testamentary power of appointment was valid when it was made in 1944 and was not revocable, it follows that her testamentary appointment of Mrs. Bischoff was invalid.
We must first resolve whether the partial release of the power of appointment was effective. The execution of the instrument by Mrs. Hoyt on February 25, 1944, was a liberate and meaningful act. Prior to its preparation and execution, Mrs. Hoyt had the guidance of an analytical report from her lawyers; they recommended the partial release in order to diminish federal estate taxes on Mrs. Hoyt's estate, We consider that in the issue before us it is immaterial whether the tax savings which Mrs. Hoyt sought to obtain were ultimately obtained. The document had independent legal significance even though its purpose was to gain a specified tax benefit.
Mrs. Bischoff contends that Mrs. Hoyt was unable to release the reserved power of appointment because to do so would breach a contractual arrangement with her cosettlors. A trust, by its terms, may embody contractual burdens amongst those who establish the trust. However, we are unable to apply the contract theory espoused by Mrs. Bischoff to the instant trust. With reference to the shares of stock which Mrs. Hoyt transferred to the trust, she reserved the life income therefrom and also reserved the right to designate by her will who was to receive the dividends from such shares for the natural life of the appointee. Upon default in the exercise of the appointment, the trust instrument provided that the income would be enjoyed by her issue or, if none, by the surviving settlors or their issue. Mrs. Hoyt died without leaving a surviving spouse or any surviving issue.
We construe the provision for a power of appointment in the instant case to constitute a reserved property right in the settlor as distinguished from a contractual or promissory obligation with reference to the power.
In our opinion, the power of appointment which Mrs. Hoyt held under the 1918 trust agreement was subject to her right to release such power in whole or in part, and this right existed pursuant to the common law. No one could claim an interest as a prospective appointee under this power of appointment. Mrs. Hoyt was free to designate any natural person or persons whom she chose to appoint, and she was not under any duty to exercise the power. This, therefore, was not a special power in trust as contemplated in sec. 232.22, Stats., and considered in Ruggles v. Tyson (1899), 104 Wis. 500, 517, 79 N.W. 766, and in Will of Uihlein (1953), 264 Wis. 362, 380, 59 N.W.2d 641.
Since it was not a special power in trust and since it was releasable under the common law, Mrs. Hoyt's partial release of her power was not dependent upon either the 1943 or the 1957 versions of sec. 232.495, Stats. We do not construe the 1943 statute as restricting the right of a donee of a power to release such power. The 1943 adoption of sec. 232.495 was designed to take advantage of certain federal estate-tax exemptions. See Explanation of Proposed Repeal and Re-creation of Sec. 232.495, relating to ch. 650, Laws of 1957, Wisconsin legislative reference library drafting files. This section may not be construed as abbreviating the common-law right to release powers. Under the common law, all powers were releasable except powers in trust. Simes and Smith, The Law of Future Interests (2d ed.), p. 525, sec. 1057.
Restatement, Property (1948 Supp.), p. 506, sec. 335, concludes as follows:
"All special powers of appointment can be released by the donee unless the donor in creating the power manifests an intent that it shall be non-releasable."
The authors, at page 508, report that Wisconsin statutory expressions were merely declaratory of pre-existing nonstatutory law.
Had Mrs. Hoyt been the donee of a power in trust, she could not have extinguished that power in contravention of the plan of distribution created by the donor. It is arguable that even a power in trust is releasable under the 1957 version of sec. 232.495, Stats.; however, we are not required to construe the scope of that version of the statute in the instant case. The rule which precludes the release of a power in trust does not prevent the release of a power wherein the donee is giving up something which is unqualifiedly his. In this light, Mrs. Hoyt, who was both the donor and the donee of the power, possessed the right to appoint by her will, to fail to appoint, or to extinguish her power in whole or in part.
The partial release by its own terms evidences that such action was made "irrevocably and forever." Whether Mrs. Hoyt at the time of the execution of her will was mindful of her pre-existing release, or whether she had forgotten such pre-existing document, is not of significance. Her partial release was valid when made, and she divested herself of the authority to revoke such release. The trial court correctly ruled that Mrs. Bischoff could not qualify as an appointee of the power under Mrs. Hoyt's will.
By the Court. — Judgment affirmed.