Opinion
December 2, 1935.
January 6, 1936.
Wills — Construction — Vesting of estates — Rule against perpetuities — Exercise of power of appointment — Effect of void remainder on life estate — Consideration of validity of remainders.
1. The exercise of a power of appointment is not rendered void as in violation of the rule against perpetuities because of the fact that within its terms an estate may be created which possibly would be too remote; the question depends upon the validity of the appointment which is in fact made. [114]
2. The validity of a life estate is not affected by the fact that the remainder is void as in violation of the rule against perpetuities, where the creation of the life estate is not part of a general scheme or design to circumvent the rule. [121]
3. Where there is a gift of a life estate, with a general power of appointment, subject to a gift over in default of appointment, the alternative gift over precludes an absolute ownership. [120-21]
4. Where the life tenant of a trust estate, the daughter of testator, was given a general power of appointment by will over the trust estate, and by will appointed the estate in trust for the life of her husband and after his decease to her children then living and descendants then living of deceased children, such trust as respects income to continue until the decease of the last survivor of her children, at which time the principal was to be divided among the living descendants, such appointment was held to create valid life estates in the donee's children for the life of the survivor, where it appeared that at the death of the donee, the children surviving had then been living. [118-21]
5. Where a life estate is validly appointed, it is premature for the court to pass upon the validity of the remainders. [120]
Argued December 2, 1935.
Before FRAZER, C. J., SCHAFFER, MAXEY, DREW, LINN and BARNES, JJ.
Appeal, No. 284, Jan. T., 1935, by life tenants, from decree of O. C. Phila. Co., Jan. T., 1918, No. 229, in Estate of E. Burgess Warren, deceased. Decree affirmed.
Audit of account of substituted trustee. Before MARX, P. J., specially presiding.
Adjudication filed, holding in substance that life tenancies of income were valid but that the ultimate limitations of principal were void. Exceptions filed to the adjudication by guardian ad litem for children of surviving children of donee of power of appointment, and by the life tenants respectively.
The opinion of STEARNE, J., of the court below, is in part as follows:
The exceptions raise the question whether this appointment by a donee of a general power of appointment is void in whole or part as contravening the rule against perpetuities. The rule, which for centuries has had much learning and effort expended in its application, was one of the methods adopted by the judiciary, in the interest of public policy, to prohibit the undue limitation and prolongation of estates. Mr. Gray in his learned treatise, The Rule Against Perpetuities, says (page 2), that the rule is a mode "adopted by the common law for forwarding the circulation of property which it is its policy to promote." Without attempting to trace the development of the rule, it will suffice to say that the limit, under the rule, for the creation of executory interests to commence, is "within the period of a life or lives in being and twenty-one years, allowing for the period of gestation." It should be noted that it matters not how many lives there may be "so that the candles are all burning at the same time," for the longest liver is but a single life.
In testing any given case under the rule there is a distinction made between the effect of testamentary or inter vivos provisions made by the testator or settlor himself, and those made by a donee of a power of appointment under the terms of the trust. The distinction while narrow, is, nevertheless, extremely important. In cases of trusts created by a testator or settlor the validity of the disposition is governed by possible events, not necessarily by actual events as they may have happened to materialize. For instance, if an interest could arise beyond the limit fixed by the rule, the disposition is void irrespective of the fact that such a person was in fact born within the limitation of the rule. The test is whether, under the provisions of the trust, it is possible for a person to take an interest held to be too remote under the rule. If so, the limitation is void: Jarman on Wills, 233; Lilley's Est., 272 Pa. 143; Ledwith v. Hurst, 284 Pa. 94; Scott's Est., 301 Pa. 509; Friday's Est., 313 Pa. 328.
Contradistinguished from the case of the creation of a future interest in the original will or deed is when such interest is created by the donee of a power. While the remoteness of the appointed estate is still measured from the time of the creation of the power (Lawrence's Est., infra), it is the fact and not the possibility which rules. If the appointment as actually made does not violate the rule, such appointment is not rendered void merely because the appointee might have appointed in a manner too remote. It is well settled that the exercise of a power of appointment is not rendered void because of the fact that within its terms an estate might be created which possibly would be too remote. The determination of the validity of the appointment in such cases depends upon the facts as they actually exist at the time the appointment is made and not possibilities: Lawrence's Est., 136 Pa. 354; Boyd's Est., 199 Pa. 487; McClellan's Est., 221 Pa. 261; 48 Corpus Juris, page 978, section 63, page 979, section 65, note No. 74.
To illustrate the distinction in the operation of the rules: Suppose A bequeathes his estate to B for life, and after B's death to B's children for the life of the survivor with provision that upon the death of any of B's children, so possessing a life estate, that their children should take the deceased parent's share until the decease of the surviving child, with remainder over to the issue of all children. Obviously, the substitutionary provisions for the disposition of the income until the death of the surviving child would be void as too remote. It would be possible that one of B's children might die over 21 years after B's death, and then let in a new estate. Therefore, the whole provision as to the substitutionary gift of income would be void, as would the remainder. On the other hand, if A gives his estate to B for life with a general power of appointment, and B gives the estate to her children for life of the survivor (who are all living at the death of A) and under exactly the same provisions as above stated, then the whole disposition is valid. The naming of these children, so living, is but "lighting another candle" which is burning during the lives of A and B. It is still necessary to look to the original will or deed, and to read into it the terms of the appointment. However, where it appears that the appointment in fact names persons in being in the lifetime of the donor, the disposition is valid and is not rendered void because it might have been possible to appoint otherwise.
The only case in Pennsylvania which appears contrary to the above rules is Smith's Est., 88 Pa. 492. It is true that this case in terms has never been overruled. Part of the decision, however, was expressly overruled. The remainder has been criticised by eminent textbook writers, doubted by the learned justice who wrote the opinion and has not been followed by Judge PENROSE in this court, affirmed in a later decision of the Supreme Court. In this situation we are of opinion that Smith's Estate is not now a binding authority upon the principle upon which it was originally decided. A discussion of the facts and decision, in Smith's Estate, and its subsequent history, may be helpful in illuminating the situation as it exists in the present case. In Smith's Estate the testator devised the residue of his estate to trustees to pay a share thereof inter alia to a daughter for life and upon her death to pay the principal to such persons and upon such uses as the daughter might appoint. The daughter appointed to her children for life with a general power of appointment, and in default to their heirs. A most important element, which is particularly emphasized herein, is that all the children (donees) of the daughter were living at the time of the death of testator. The lower court (the Orphans' Court of Philadelphia) upheld the validity of the trust for the benefit of the children of the daughter for life. The Supreme Court, in an opinion by Mr. Justice PAXSON reversed this decision and declared the entire appointment void as against the rule against perpetuities. Obviously, that part of the appointment which passed the estate to the children of the life tenant (daughter) for life ought to have been upheld because the life estates were created and commenced to operate immediately upon the ending of an existing life, and which life was in existence at the time of the death of the original testator. The Supreme Court in Lawrence's Est., 136 Pa. 354, expressly overruled this part of Smith's Estate, and directly decided that "when the donee of a power to devise, who was in being at the creation of the power, appoints by will, in trust for life tenants to take at his death, with remainders over, such appointment for life will be good, whether the appointees for life were born before or after the creation of the power, and even if the estate appointed in remainder be too remote." This of course corrected the original error and since Lawrence's Estate this has been the uniform decision of the Supreme Court. But upon the main point, to wit, the validity of the remainders, Smith's Estate was not expressly overruled. Mr. Justice PAXSON expressly ruled that the exercise of the power of appointment must be written into the will of the donor, and all of its provisions must be considered as if contained in the will of the donor. The learned justice then makes the test of remoteness as of the date of the death of the donor. He treats the appointment as if made by the donor himself and subjects it to the test (page 495) of "possible and not actual events." This of course is not the generally accepted rule. All authorities are now in accord that the true test is to ascertain what in fact the donee of the power actually did, and if that does not transgress the rule the appointment is valid.
It is interesting to note that Mr. Justice PAXSON, the writer of the opinion in Smith's Estate, says in Coggins's App., 124 Pa. 10, page 30: "Subsequent reflection has left some doubt in my mind as to the soundness of the ruling in that case [Smith's Estate] upon the main question involved, and, as I wrote the opinion, I may be allowed to criticise it."
Gray on The Rule Against Perpetuities, which is the leading textbook upon this subject, severely criticises this decision [quoting from Gray, in section 523].
Judge PENROSE of this court regarded Smith's Estate as overruled when he wrote the opinion, affirmed per curiam, in Boyd's Est., 199 Pa. 487. Certainly the affirmation by the Supreme Court of Judge PENROSE'S opinion in that case had the effect of overruling Smith's Estate, which unquestionably was an erroneous statement of the law, subsequently criticised not only by its author and by such an eminent textwriter as Gray, and not followed by either Judge PENROSE or by the Supreme Court. In our opinion the decision in Boyd's Estate, taken in consideration with the facts, squarely settled any doubt, as to the state of the law now prevailing. In Boyd's Estate the trust was for the benefit of a daughter for life, and upon her death according to her general appointment. The daughter exercised the power of appointment in favor of her son "providing that at the age of 25 years he should receive $25,000 absolutely" and as to the residue for the son for life, with remainder over. Contrary to Smith's Estate, Judge PENROSE ruled that (page 493) "the gift to [the son] of $25,000 upon attaining the age of twenty-five years — if that event occurred within 21 years of the death of his mother, the donee of the power (but not otherwise) — is valid." In other words, Judge PENROSE and the Supreme Court looked to see what the mother (the donee of the power) actually did. It appeared that the son was in fact over four years of age when his mother died. That being so, facts and not possibilities govern. As the son must attain 25 years within 21 years from the date of death of his mother, the bequest was held good. As to the residue, the grandson was not in being at the death of his grandfather, but survived his mother (the donee of the power). Following Lawrence's Estate, the life estate in the son was held valid, because it took effect upon the death of the life tenant. Obviously, the remainder was bad and was held void as too remote.
Cox v. Dickson, 256 Pa. 510, and Hazard's Est., 25 Dist. R. 225, have had our consideration. Both of them involved the same will. It is to be observed, however, that the donor died in 1865. The appointee under the donee's appointment was not born until 1873. Tested under the above authorities, when the appointment is examined, the appointor in fact violated the rule in that she created future estates too remote. Had the appointee been born during the life of the original donor and survived him, the appointment would not have violated the rule. Herein lies the distinction and illustrates the rule.
We are therefore of opinion, and so decide, that a power of appointment is not rendered void because within its terms an appointment might possibly have been made which is too remote. The question depends upon the validity of the appointment which was in fact made.
With these principles as our guide we have applied them to the facts of the instant case. E. Burgess Warren placed his residuary estate in trust, inter alia, to pay over to his daughter, Caroline, one-fourth of the net income therefrom for life. At the death of Caroline, his trustee was directed to hold and dispose of the fourth share in the principal or corpus "in such manner as shall be directed in and by [Caroline's] last will and testament." There were provisions that in case Caroline should die intestate, the trust estate should be paid to Caroline's children and their issue. Caroline died testate and appointed the estate to her trustee, to hold for the life of her husband (who has since died) and after his decease "to divide the income of the said trust estate into as many parts or shares as at the times of half-yearly distributions there shall be children of mine then living and children of mine then dead represented by descendants then living, subdividing the share of income falling to each set of descendants of a then dead child of mine among them per stirpes, upon the principle of representation, and to pay, assign, transfer and set over to each child and descendant of a deceased child who shall thus be found entitled, his or her share of the income half-yearly. The share of income thus falling to any descendant of mine who may be a minor, to be used and applied by my trustee in and about the maintenance, education and support of such minor during minority, directly, without intervention of a guardian." The trust as respects income is to continue until "the decease of the last survivor of my children." At this time — the death of Caroline's surviving child — the principal is directed to be distributed as follows: "to divide the principal of said trust into as many parts or shares as there shall be children of mine then dead represented by descendants then living, subdividing the share of principal falling to each set of descendants of a dead child of mine amongst them per stirpes, upon the principle of representation, and to pay, assign, transfer and set over to each descendant of a deceased child of mine who shall thus be found entitled, his or her share absolutely and in fee." Caroline died leaving surviving a husband (who is now deceased) and two children (married daughters), both of whom are still living. The daughters each have issue, who are minors represented by a guardian ad litem.
The controlling fact, in our opinion, is that when Caroline died, and her appointment went into effect, her two children surviving (Margaret F. B. Purves and Barbara B. Jefferys), were both living at the death of E. Burgess Warren the donor.
Therefore, under Lawrence's Estate, Boyd's Estate, and McClellan's Estate (supra), these children being alive at the donor's death, the appointment to them for the life of the survivor is clearly within the rule. As the survivor is but one life, the contingent interest in income of the issue of a deceased child until the death of the surviving child is also valid. While no one has questioned the validity of the present life estates in the children of Caroline as they presently exist, yet we emphasize the above situation because of the claim of these children that their life estates have merged with a void remainder. These children do not possess vested life estates. When one of them dies, their interest ceases, and it is paid to their issue until the death of the survivor. Therefore, even though the remainders should be void, and it should be determined that under E. Burgess Warren's will these children have vested remainders, there can be no merger because the children do not possess both the vested life estates and remainders. As the life estates are validly appointed, it is premature for the court to pass upon the validity of the remainders: Lewis's Est., 29 Dist. R. 796 (affirmed in 269 Pa. 379) ; Lockhart's Est., 29 Dist. R. 179 (affirmed in 267 Pa. 390) ; Whitman's Est., 248 Pa. 285; Ewalt v. Davenhill, 257 Pa. 385; Jones's Trust Est., 284 Pa. 90, and Hecht's Est., 316 Pa. 12.
It is argued that because Caroline had a life estate and a general power of appointment, she possessed the equivalent of a fee and hence the validity of her appointment should be measured commencing as of her death. But Caroline did not possess a fee. It is to be noted that there was a gift over in default of appointment. The alternative gift over precludes an absolute ownership: Lyon v. Alexander, 304 Pa. 288; Rehr v. Trust Co., 310 Pa. 301; Roberts's Est., 18 Pa. D. C. 463; Curran's Est., 312 Pa. 416, and Perkins's Trust Est., 314 Pa. 49, were surcharge cases where appointees under a general power of appointment were held to be bound by acts of the donee with respect to consenting to investments. But, irrespective of this, Caroline, the donee of the power, expressly chose to exercise it — not as her own estate but as the estate of the donor over which she possessed the right of appointment.
Neither do we regard the trust void in its entirety as a mere scheme or design to circumvent the rule. There are cases, like Feeney's Est., 293 Pa. 273, and Johnston's Est., 185 Pa. 179, where such a plan was attempted. In those cases the life estates were held merely incidental to and for the purpose of supporting void remainders. Mr. Warren gave his daughter a life estate, and she, under her appointment, gave her children (grandchildren of Warren living at the time of his death) life estates. Irrespective of how remote the remainders may have been, in such circumstances, the life estates are valid: Whitman's Est., 248 Pa. 285.
We are therefore, of opinion that Caroline's appointment of income to her two children (who were living at the decease of the donor) and their issue for the life of the survivor of them was a valid exercise of the power; that while unquestionably presumptively the remainders are valid, yet because there is no merger, and no general invalidity of the whole scheme, we refrain from passing upon the validity of such remainder. We agree with the auditing judge that the fund must be awarded back to the trustees for the purposes of the trust. We refrain from passing upon the validity of the remainders until the termination of the life estates.
Exceptions of Mrs. Jefferys and Mrs. Purves are dismissed. The exceptions of the guardian ad litem. Nos. 1, 3 and 4, are sustained, and No. 2 is dismissed. The adjudication as thus amended is confirmed absolutely.
Life tenants appealed. Errors assigned, among others, were dismissal of exceptions to adjudication.
Maurice Heckscher, of Duane, Morris Heckscher, for appellants.
Henry C. Remick, for appellee.
Samuel B. Scott, of Scott Burton, for Girard Trust Co., appellee.
This case was correctly determined by the orphans' court sitting in banc, as will appear by that part of the opinion of Judge STEARNE set forth in the reporter's notes.
Decree affirmed at appellants' cost.