May the donee of a limited testamentary power of appointment irrevocably and immediately exercise it inter vivos by contract?

Charles E. Rounds, Jr.
Contact

The Delaware Chancery Court [In re Estate of Tigani, C.A No. 7339-ML (Del. Ch. Ct. Feb. 12, 2016)] has confirmed that the donee of a limited testamentary power of appointment may not irrevocably, immediately, and effectively exercise it inter vivos by contract. Tigani was not about whether a contract-to-exercise might ultimately be enforceable but whether actual execution of the “contract” was a present exercise of the power such that the takers in default of exercise, in this case the designated trust remaindermen, lost their status as trust beneficiaries to the extent they were not also appointees. Here are the facts: Widow had three children (D1, D2, D3). She was trustee of her late husband’s trust, its current beneficiary, and donee of a limited testamentary power of appointment. The three were takers in default of exercise and permissible appointees. She and (D3) had a falling out. D3 sued widow for breach of trust. Widow “contracted” with D1 and D2 to exercise the power in their favor. If the power had been effectively and immediately exercised, D3 would no longer have been a taker in default. Being no longer a trust beneficiary as a consequence, he would lack standing to continue the equity action against widow. The Master essentially said to widow: “Nice try, but...” First, the power is not presently exercisable, it is only exercisable at the death of the donee; second, in this case enforcement of the “contract” would constitute a fraud on the power as widow though not a permissible appointee would nonetheless be benefiting from the power’s exercise, D1 and D2 having agreed as consideration for the exercise in their favor to assist widow for life with care and maintenance. Relevant sections of Loring and Rounds: A Trustee’s Handbook: §5.1 (who qualifies as a trust beneficiary); §8.1.1 (limited testamentary powers); §8.15.26 (fraud on special powers). Section 5.1 is reproduced in its entirety below.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Charles E. Rounds, Jr., Suffolk University Law School | Attorney Advertising

Written by:

Charles E. Rounds, Jr.
Contact
more
less

Suffolk University Law School on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.