Summary
In Smith v. Pratt, 95 N. H. 337, 63 A.2d 237 (1949), it was held that, when the trust instrument fails to disclose the intention of a declarant concerning ultimate disposition of the res, it will result to the creator of the trust in the absence of evidence of intention that the beneficial interest should pass to someone else.
Summary of this case from O'Neal v. WarmackOpinion
No. 3791.
Decided January 5, 1949.
Where under a trust instrument both the trustee and the beneficiary had life estates in real property but the beneficiary alone was granted power to dispose of it "by will or otherwise" subject to the former's life interest, and where the only consideration for the conveyance of such property to the trustee was a note given by the beneficiary to the vendor's mortgagee in substitution for the vendor's note, the beneficiary was deemed to have been the purchaser of such property and also the creator of the trust in the absence of evidence of a gift or loan to the trustee. In such case, where the trust contained no provision controlling disposition of the trust res upon the death of the beneficiary without having exercised her power of disposal and where no intention was expressed that the trustee who held title was to have a greater estate than a life interest, the beneficiary as the creator of the trust and purchaser of the res was entitled to a resulting trust in her favor of the remainder interest subject to the life estate of the trustee. The value of the deceased beneficiary's interest by reason of the resulting trust, so far as in excess of any claims against her estate escheats to the State (R. L., c. 360, As. 8-12) in the absence of any known heirs or other rightful claimants.
BILL IN EQUITY brought by the administrator of the estate of Lillian A. Knotts, deceased, intestate, to determine his rights as administrator in certain premises in Rindge to which the defendant has record title, subject to a mortgage given to secure the decedent's note. The estate is insolvent unless the real estate is an asset of the estate. The plaintiff was appointed upon petition of a creditor of the decedent. The intervenor, Eunice G. McLaughlin is also a creditor. The defendant claims to be entitled to the full legal and equitable title. The creditor claims a resulting trust in favor of the estate. The case is reserved and transferred upon an agreed statement of facts by Goodnow, C.J., for "determination of the rights of the parties as between the Lillian A. Knotts estate and Mattie L. Wyman Pratt."
From the agreed statement it appears that in 1929 Joseph S. Knotts, husband of the decedent, acquired title to the premises in question, mortgaging them to Cheshire County Savings Bank on the same day, to secure the payment of $2,500. "The bank foreclosed this mortgage on June 30, 1939, and conveyed the premises by foreclosure deed to Gardner C. Turner for $2,530." Within thirty days Turner mortgaged the premises to the same bank to secure the payment of $2,530. Less than three weeks later, on August 19, 1939, he conveyed the premises by quitclaim deed to the defendant Pratt, then Mattie L. Wyman. On the same date, the Turner mortgage was discharged, and a new mortgage was given by Mrs. Wyman to the bank to secure the payment of a note in the sum of $2,530 given by Lillian A. Knotts. This mortgage is undischarged.
By declaration of trust, also dated August 19, 1939, and witnessed by Turner, Mrs. Wyman, bound herself, her heirs and assigns "to hold, dispose of and convey for the use, trust and benefit of Lillian A. Knotts . . . as she may direct by will or otherwise" the premises conveyed to her by the deed of Turner. The balance of the declaration provided as follows:
"I further agree that in so far as my right to occupy the premises during my lifetime may be concurrent with the right of the said Lillian A. Knotts to occupy and use the premises that said rights shall be equal.
"I further agree for myself, my heirs and assigns, that I or they will not increase the mortgage to the Cheshire County Savings Bank of Keene, New Hampshire, in the amount of $2,530 which mortgage I hereby agree to execute to secure the note of the said Lillian A. Knotts to the said Cheshire County Savings Bank in the said amount above stated, nor will I or they create any new mortgage on the above described premises unless upon the written direction of the said Lillian A. Knotts.
"I further agree for myself, my heirs and assigns, that I will share equally with the said Lillian A. Knotts any payment of taxes, insurance, upkeep and interest on the said mortgage.
"I further agree that so long as I occupy the above described premises, I will undertake no major repairs, alterations or improvements without first obtaining the consent and approval in writing of the said Lillian A. Knotts.
"I further agree that in the event I should no longer desire to use and occupy the above described premises, or in the event that a particularly advantageous price for the same can be obtained, I will release to the said Lillian A. Knotts my right of use and occupancy during my lifetime provided that I be reimbursed from the sale price of the property for any major improvements or alterations which I have undertaken."
According to the agreed statement of facts, the defendant occupied the disputed premises "from 1939 to 1947 inclusive, from June to December of each year." Furniture and like personal property belonging to her remained in the house for the period. The decedent occupied the premises for about a month in each of these years until 1944, when she spent about two months there. She died there on November 3, 1945, having been in occupancy from the preceding May. She never undertook to direct disposition of the property "by will or otherwise."
Walter H. Gentsch, for the plaintiff, furnished no brief.
Roy M. Pickard (by brief and orally), for the defendant Pratt.
Arthur Olson (by brief and orally), for the creditor, McLaughlin.
In support of her claim of complete ownership of the property, the defendant relies upon her record title and the failure of the decedent to exercise the power of disposal conferred upon her by the declaration of trust. The decedent's creditor seeks to establish a resulting trust in favor of the estate by reason of the alleged payment of the purchase price for the premises by the note of the decedent given to the bank.
The declaration of trust contains no provision controlling disposition of the trust res upon the death of the principal beneficiary, Mrs. Knotts, without having exercised her power of disposal. It is devoted primarily to definition of the respective interests of Mrs. Knotts and the trustee inter se during the life of Mrs. Knotts. While the trust was declared to be for the latter's benefit, it was subject to the right of the trustee to use and occupy the premises during her lifetime. Subject to that right, Mrs. Knotts was entitled to equal use and occupancy, and to dispose of the premises "by will or otherwise." For herself, her heirs and assigns, the trustee agreed to pay one half of the recurring expenses of the property, and that she or they would not increase the mortgage or create any new mortgage or undertake any major alterations except upon written direction or with written approval of the beneficiary. She agreed to release to the beneficiary her right to occupy the premises upon "reimbursement for the cost of any major alterations," in the event that she no longer desired to occupy the same or that "a particularly advantageous price" for the same should be obtainable.
The agreed facts do not disclose the circumstances which prompted the transactions culminating in the declaration of trust by the defendant. The clauses defining with particularity the relative rights of the defendant and Mrs. Knotts show a purpose to endow the latter with almost complete control of the property, although legal title was in Mrs. Wyman. Whether the arrangement was made to permit Mrs. Knotts to dispose of the property without interference by her husband, or to protect her from her own improvidence, or for some other reason, is a matter of speculation.
So far as the express trust discloses its purpose, it indicates only an intention that the trustee and the beneficiary should each have a life estate so long as she chose. Had the property been sold, at Mrs. Knott's direction and for a "particularly advantageous price," the proceeds of the sale would have belonged to her, subject only to "prior reimbursement" of Mrs. Wyman for any major improvements or alterations made after the declaration of trust. Significantly, although Mrs. Wyman agreed to release her life estate in such a case, there was no requirement that she should be paid its value. Further, she was precluded from borrowing against the property without Mrs. Knotts' consent. By will Mrs. Knotts might have directed conveyance of the premises to any nominee, subject only to Mrs. Wyman's life estate. This she did not do; nor was the property disposed of in any other way. The trust instrument fails to disclose the intention of the declarant concerning disposition of the res, in the contingency which has arisen.
In such a case, in the absence of evidence of an intention that the beneficial interest shall pass to some one else, it will result to the creator of the trust. Normally the creator of a trust established by declaration is the declarant; but this is not necessarily so. While the declaration was made by Mrs. Wyman it does not necessarily follow that she was creator of the trust. The circumstances surrounding the conveyance of the premises to her must be examined. So far as appears, the acquisition of title from Turner, the declaration of the trust, and the substitution of the Knotts' note and Wyman mortgage for the like note and mortgage given by Turner, constituted a single transaction. They occurred on the same day. The only consideration disclosed by the record for Turner's conveyance to Mrs. Wyman was Mrs. Knotts' note, given to the bank in exchange for Turner's. There is no suggestion of any relationship by blood or marriage between Mrs. Knotts and Mrs. Wyman which might give rise to a presumption that the property was purchased as a gift by one to the other. There is no evidence of any payment by Mrs. Wyman, and none that Mrs. Knotts' note was a gift or loan to Mrs. Wyman.
In this situation, Mrs. Knotts must be deemed to have been the purchaser of the premises and the creator of the trust. Restatement, Trusts, ss. 424, 425, 434, 435, and comments thereunder. The consideration for the conveyance which was accompanied by creation of the trust moved from her. The express trust created has not exhausted the res, and the instrument reveals no intention that the trustee should have the property in the contingency which has now arisen. Cf. Woodbury v. Hayden, 211 Mass. 202. See Giersch v. Grady, 85 Conn. 685; Restatement, supra, s. 412, comment d. On the contrary, it was expressly provided that she should have a life estate. From the purchase by Mrs. Knotts, a trust results in her favor of the remainder interest, not otherwise disposed of by the express trust. French v. Pearson, 94 N.H. 18; Foley v. Foley, 90 N.H. 281; Lahey v. Broderick, 72 N.H. 180; Crowley v. Crowley, 72 N.H. 241; Hall v. Congdon, 56 N.H. 279, 282. See also, Restatement, supra, ss. 430, 431.
Accordingly the defendant holds title subject to a resulting trust of the remainder after her life estate, in favor of the estate of Lillian A. Knotts. Should the realized value of the estate's interest prove to be more than sufficient to satisfy the claims of creditors, in the continued absence of known heirs disposition of any balance will be governed by the provisions of R. L., c. 360, ss. 8-12.
Decree for the plaintiff.
All concurred.