In some respects, this blog post is very legalistic. However, it emphasizes the need for drafting attorneys -- and their clients -- to make sure that a person's wishes are clearly spelled out in each estate planning document, and that each estate planning document complements, rather than contradicts or calls into question, the provisions of other estate planning documents.
The two surviving children of Constantine W. Pournaras, Elaine Jaffe (Jaffe) and William C. Pournaras (William)—are battling over a Superior Court judgment that gives Jaffe declaratory relief and prohibits William from transferring assets of their father’s irremovable living trust into his estate. The case made its way to the Supreme Court of Rhode Island.
Findlaw recently published the case of “Jaffe v. Pournaras.” In this case, Constantine, who passed away in 2012, executed signed documents during his lifetime that are at issue: a revocable living trust (the living trust), an irrevocable living trust (the irrevocable trust), and a last will and testament.
The living trust named Constantine as trustor and sole trustee with William as the sole successor trustee. According to Jaffe, the living trust was "funded with approximately $500,000." The living trust provides that, upon Constantine's death, the trustee (William) "shall pay the property located at 43 Knollwood Avenue, Cranston * * * to * * * POURNARAS [William]* * *"; the living trust also provides that, if the trust owned liquid resources, the trustee shall pay $50,000 from those liquid resources to Jaffe, not including the aforementioned real property.
The irrevocable trust names William as trustee. Jaffe says that William advised her that the irrevocable trust contained assets worth approximately $694,000. The irrevocable trust reserved to Constantine the power "to appoint any part or all of the [t]rust [e]state to or for the benefit of any of [his] descendants, in equal or unequal amounts, either directly or in [t]rust, as [he] may direct." It also specified that this power of appointment is "exercisable by written instrument during [his] lifetime or by [w]ill or any [c]odicil thereto[.]" The power of appointment, however, is limited and cannot "be exercised in favor of [Constantine's] estate, the creditors of [his] estate or in any way that would result in any economic benefit to [him]." The trust also directs William, as trustee, to divide the trust assets into "separate and equal shares" between Jaffe and William, as his surviving children, upon Constantine's death.
The will names William as personal representative and provides that he "shall distribute [Constantine's] residuary estate to the then acting [t]rustee" of the living trust (William). Section 5.01 of the will defines "residuary estate" as, in relevant part, "any property over which [Constantine] may have a power of appointment * * * less all valid claims asserted against [his] estate * * *."
In 2014, the will was admitted to probate, and Jaffe filed a complaint seeking declaratory and injunctive relief to prevent William from transferring the assets of the irrevocable trust into Constantine's estate, and to have William removed as trustee. She alleged that he intended to transfer assets from the irrevocable trust to Constantine's estate by exercising the limited power of appointment in the irrevocable trust. However, William argued that the will was intended to be an exercise of the limited power of appointment contained within the irrevocable trust.
Chief Justice Paul A. Suttell said in his opinion that the court's primary objective when construing language in a will or trust is to ascertain and effectuate the intent of the testator or settlor, if that intent is not contrary to law. Plain language of the will or trust is considered first, and the court won’t resort to considering extrinsic evidence, where the intent is clear "from within the four corners of the will[.]"
Jaffe argued that the plain language of the irrevocable trust was clear and expresses Constantine's intention to prohibit the limited power of appointment from being exercised in favor of Constantine's estate or creditors of his estate. She argued that Constantine could have but did not exercise his limited power of appointment by his will to appoint the property to a third party, such as directly to his living trust or to [William]. She said the language in the will didn’t constitute a valid exercise of the power of appointment, because it would contravene the plain language of the irrevocable trust, which expressly prohibits the exercise of the power of appointment for the benefit of Constantine's estate. The Supreme Court agreed.
The Chief Justice found that if the exercise of the power of appointment were deemed valid, the very terms of the will would place the assets of the irrevocable trust in his residuary estate, subjecting them to the demands of creditors. That would be contrary to Constantine's intent, as expressed in the irrevocable trust.
In this case, the Supreme Court ruled that the language of Constantine’s irrevocable trust was clear. Therefore, there was no need to examine his intent by using extrinsic evidence. He wished to make sure that the power of appointment was used to benefit his descendants. The Supreme Court ruled that the decision of the Superior Court was correct and upheld its decision.
Reference: Findlaw (February 23, 2018) “Jaffe v. Pournaras”