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Stouse v. First Nat. Bank of Chicago

November 16, 1951



CULLEN, Commissioner. In a declaratory judgment proceeding, the Jefferson Circuit Court upheld the validity of a trust instrument executed by Sallie A. Hert, and the validity of the residuary clause of Mrs. Hert's will, in which the residue of her estate was bequeathed to the trustees named in the instrument, for distribution in accordance with the terms of the instrument. Two amendments to the trust instrument were upheld as being valid codicils to the will.

Two of the heirs of Mrs. Hert, who also are beneficiaries of the trust and legatees under the will, have appealed, contending that both the trust and the will are invalid. The remaining heirs, beneficiaries and legatees, the trustees, the executors, and the administrators with the will annexed of the estate in Kentucky, maintain that both instruments are valid.

The Trust Instrument

The trust instrument was executed, in Kentucky, on June 8, 1944. At that time Mrs. Hert was a resident of Florida, and the instrument so recites. Three trustees were named, one being Mrs. Hert, and the other two being The First National Bank of Chicago and Alfred L. Kuehn, a resident of Chicago. The instrument provided that following Mrs. Hert's death, C. R. Aley and J. Matt Chilton, both residents of Kentucky, should become additional trustees. By an amendment of April 2, 1947, Charles I. Dawson and W. R. Cobb, residents of Louisville, Kentucky, were named as additional original trustees.

The corpus of the trust consisted of blocks of stock in several corporations, the principal block being the controlling shares of American Creosoting Company, of which Alfred L. Kuehn (one of the trustees) was president. Following the execution of the trust instrument, the stock certificates were surrendered for cancellation and new certificates were issued to the trustees.

The trust instrument reserved to Mrs. Hert, for her life, the net income from the trust estate. Following her death, the trustees were to pay designated sums to certain employes and a friend of Mrs. Hert, and to hold the balance of the estate in trust for a period not to exceed 30 years from the date of the trust instrument, during which period the income was to be paid to designated beneficiaries in stated proportions. At the expiration of the period, the corpus was to be divided among the income beneficiaries according to their respective shares in the income. A brother, a sister, and several nephews and nieces of Mrs. Hert were beneficiaries of three-fourths of the income, and a number of nephews and nieces of Mrs. Hert's deceased husband were beneficiaries of the other one-fourth. The two appellants here are nieces of Mrs. Hert, being children of her deceased brother, and under the trust instrument each is given a one-sixteenth share of the income and corpus. If the trust and will should be declared invalid, they each would receive a one-sixth share of Mrs. Hert's estate.

In Section 16 of the trust instrument, Mrs. Hert reserved the right during her lifetime to modify, amend or revoke the trust, in whole or in part.

Section 10 of the instrument provided, in part: 'So long as the said Sallie A. Hert is a qualified Trustee hereunder and subject to no disability, the Trustees shall exercise the powers conferred upon them only upon the written instructions of the said Sallie A. Hert, and without liability for any action or non-action pursuant to such instructions. * * *'

The trust instrument was not attested according to the requirements for attestation of a will, under the Kentucky, Florida or Illinois law.

It is the contention of the appellants that by reason of the reservation to Mrs. Hert of the income for life, plus the power to revoke or amend, plus the power to control the trustees in the performance of their duties, the trust instrument is testamentary in character and, not having been executed as required of a will, the instrument is void. The appellants rely upon the rule stated in Subsection (2) of Section 57 of the Restatement of the Law of Trusts, as follows:

'(2) Where the settlor transfers property in trust and reserves not only a beneficial life estate and a power to revoke and modify the trust but also such power to control the trustee as to the details of the administration of the trust that the trustee is the agent of the settlor, the disposition so far as it is intended to take effect after his death is testamentary and is invalid unless the requirements of the statutes relating to the validity of wills are complied with.'

It is conceded by the appellants that the reservation of a beneficial life estate, plus the power to revoke and modify, is not enough to make the instrument testamentary (see Subsection (1), Section 57, Restatement of the Law of Trusts). There must in addition be the factor of such control over the trustees as to make the trustees nothing more than agents of the settlor.

The appellees maintain that the powers of control reserved by Mrs. Hert are not of such a character as to reduce the other trustees to the status of mere agents. They also argue that the rule as stated in the Restatement does not prevail in Illinois, and that the Illinois law controls because of Section 17 of the trust instrument, which provides: 'This trust shall be governed by Illinois law and all questions of interpretation, construction, and administration shall be controlled by the laws of Illinois.'

It is obvious that if we find the powers reserved by Mrs. Hert were not such as to come within the rule laid down in the Restatement, we will not reach the question of whether the Illinois law controls.

As we view this case, we have only the narrow question of whether the powers reserved by Mrs. Hert with respect to control of the trustees in the administration of the trust were so great as to make the trustees merely her agents. Before undertaking a discussion of the other authorities on this question, we call attention to ...

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