Cate-Schweyen v. Cate
303 Mont. 232, 2000 MT 345, 15 P.3d 467 (2000)
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Rule of Law:
An inter vivos trust is invalid if the trustor fails to transfer or deliver the designated property to the trustee during their lifetime, and a document purporting to create an inter vivos trust cannot be recharacterized as a testamentary trust simply due to the trustor's unfulfilled intent to fund it.
Facts:
- On January 2, 1988, Jerome J. Cate (Jerry), a practicing attorney, drafted a handwritten document titled 'Irrevocable Trust Reserving Income For Life' in anticipation of his remarriage to JoAnn in February 1988.
- The document stated, 'I... do hereby sell, assign and convey all of my oil gas and mineral interests... to my daughter, Shannon Cate, to hold in trust for her benefit and the benefit of her sister Kristin Cate and her sister Sara Cate,' reserving the income from this trust for his lifetime.
- Jerry never physically transferred or conveyed the mineral interests named in the document to the trust or delivered the trust property to Shannon, the named trustee.
- Jerry died intestate on April 4, 1995.
- JoAnn Cate, as personal representative of Jerry’s estate, refused to convey the mineral interests to the trust upon the request of Jerry's daughters.
- A 1993 bill of sale executed by Jerry for a separate joint revocable inter vivos trust explicitly stated, 'This Bill of Sale and Assignment does not include any mineral interests owned by Jerome J. Cate... which have heretofore been placed in trust for the benefit of Shannon and Sara Cate.'
Procedural Posture:
- Shannon Cate-Schweyen, individually and as conservator for Sara Cate, filed a petition in September 1997 in the Eleventh District Court, Flathead County, requesting a declaration that either an express or resulting trust in mineral interests existed.
- JoAnn Cate responded, contending that the handwritten document was not a valid testamentary trust but a failed inter vivos trust, and therefore the identified mineral interests should be included within Jerry Cate’s estate.
- Both parties moved for summary judgment.
- Following a July 29, 1998 hearing, the District Court denied JoAnn Cate’s motion for summary judgment and granted summary judgment in favor of Shannon Cate-Schweyen, concluding that the handwritten trust document was testamentary.
- JoAnn Cate filed a motion to amend the order to reflect that the subject trust properties, if testamentary, should first be subject to probate and potentially reduced by statutory allowances and exemptions; this motion was deemed denied.
- JoAnn Cate appealed the District Court’s order to the Montana Supreme Court.
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Issue:
Does a handwritten document, which purports to 'sell, assign and convey' mineral interests to an 'irrevocable trust' for beneficiaries while reserving a life income for the trustor, but where the trustor never actually transfers the property to the named trustee, constitute a valid testamentary trust or a failed inter vivos trust?
Opinions:
Majority - Justice Nelson
No, the District Court erred in finding that the 1988 document represented a testamentary trust; instead, it was an inter vivos trust that failed for lack of delivery of property. The court's primary duty in trust interpretation is to ascertain the trustor's intent from the language of the agreement itself. The document used present conveyance language ('do hereby sell, assign and convey') rather than future testamentary language, and identified itself as 'irrevocable,' indicating an unmistakable intent to pass legal title during Jerry's lifetime and remove the property from his estate. A testamentary trust must take effect 'only upon the testator’s death,' generally be revocable, and involve the settlor retaining control, none of which were clearly present here. Since Jerry never delivered or conveyed the mineral interests to Shannon or the trust during his lifetime, the inter vivos trust failed due to a lack of property transfer, a fundamental requirement under Montana law and the Restatement (Second) of Trusts. The document itself was insufficient as an instrument of conveyance without further action. Furthermore, imposing a 'resulting trust,' an equitable remedy where trust property reverts to the original transferor or their estate when a trust fails, would lead to the same outcome of the property remaining in Jerry's estate, thus providing no benefit to Shannon. Therefore, no enforceable trust existed.
Dissenting - Chief Justice Turnage
Yes, the District Court was correct in concluding that the handwritten trust document was a valid testamentary trust. Under long-settled rules of construction for testamentary instruments, including trusts, the testator's intent controls. Jerry Cate's intent to create a testamentary trust for his daughters was "crystal clear," aiming to pass on inherited mineral interests as a family legacy. The document met the requirements of Montana's Statute of Wills for a holographic will and was never revoked. The majority’s failure to discern this clear intent is an error, and the decision of the District Court should be affirmed.
Dissenting - Justice Leaphart
Yes, the District Court was correct in concluding that this document was a valid holographic testamentary trust. Joining Chief Justice Turnage's dissent, several factors point to Jerry's testamentary intent. Jerry characterized himself as being of 'sound and disposing mind,' typical of testamentary documents. He drafted the document while cognizant of an impending remarriage to a woman he barely knew, suggesting a desire to protect assets for his daughters. The phrase 'twenty years subsequent to the date of my death' indicates a commencement date (date of death). As an experienced attorney, Jerry knew how to fund an inter vivos trust but chose not to, implying it was not intended as such. He used 'per stirpes,' a testamentary reference for distribution, and died without a formal last will and testament. The daughters were his natural heirs and expected recipients of his inherited mineral interests, and the document's handwritten, non-notarized nature is typical of holographic documents. When read as a whole and in light of the circumstances, Jerry clearly intended the document to be testamentary.
Analysis:
This case clarifies the strict formalities required for creating valid trusts, particularly distinguishing between inter vivos and testamentary trusts. It emphasizes that a trustor's clear intent, even if documented, is insufficient to establish an inter vivos trust without the essential step of actually transferring the property. The ruling reinforces that courts will not recharacterize a failed inter vivos trust as a testamentary one if the formal requirements for a testamentary disposition, beyond mere intent, are not met. This decision underscores the importance of proper legal execution for estate planning documents and limits the equitable remedy of a resulting trust to situations where the property would revert to the transferor's estate anyway.
