Stewart v. MERCHANTS NAT. BK. OF AURORA
1972 Ill. App. LEXIS 1800, 3 Ill. App. 3d 337, 278 N.E.2d 10 (1972)
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Rule of Law:
A settlor who is the sole beneficiary of a trust may revoke it, even if it contains a spendthrift clause or purports to be irrevocable, and even if its stated purposes have not been accomplished, provided the trust instrument does not create a true remainder interest in third parties but rather a reversionary interest in the settlor's estate.
Facts:
- The appellant suffered personal injuries, including serious damage to one eye, after being struck by an automobile while riding his motorcycle to work.
- Following the settlement of a personal injury action, the appellant's attorney suggested the creation of a special ten-year spendthrift trust in 1967.
- The appellant's attorney formally designated himself as the settlor of the trust, with the appellant as the beneficiary.
- The trust's primary purposes were to provide for the appellant's rehabilitation from his injuries and for regular payment of mortgage indebtedness on a new home.
- The trust instrument stipulated that upon the beneficiary's death (if it occurred before May 25, 1977, or exhaustion of funds), any remaining principal or accumulated income would first pay for the beneficiary’s funeral expenses, estate claims, and taxes, and then be distributed as the beneficiary’s Last Will and Testament might provide, or to the beneficiary’s heirs-at-law in equal shares if no valid will existed.
Procedural Posture:
- The appellant (beneficiary) filed a petition in the trial court (court of first instance) to revoke a special ten-year trust after three years from its execution.
- The trial court held that the appellant could not revoke the trust, reasoning that interests of minors and unborn heirs were involved.
- The appellant subsequently took this appeal to challenge the trial court's decision.
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Issue:
1. Does the person who furnishes the consideration for the creation of a trust qualify as the settlor, even if another party formally executes the trust instrument? 2. Did the trust instrument, which directed remaining principal and income to 'heirs-at-law in equal shares' upon the beneficiary's death if no will existed, create a contingent interest in the beneficiary's heirs requiring their consent for revocation, or was the beneficiary the sole beneficiary? 3. Can a settlor who is also the sole beneficiary compel the termination of a trust even if the trust's stated purposes have not yet been accomplished?
Opinions:
Majority - Mr. Justice Guild
1. Yes, the appellant was the settlor of the trust, even though his attorney formally executed the trust instrument. The court held, citing Guaranty Trust Co. v. New York Trust Co., that 'The person who furnishes the consideration for the creation of a trust is the settlor, even though, in form, the trust is created by another.' In this case, the appellant provided the funds for the trust from his personal injury settlement, thus making him the true settlor. 2. No, the trust did not create a contingent interest in the appellant’s heirs-at-law requiring their consent for revocation; the appellant was the sole beneficiary. The court found that the language directing property to 'heirs-at-law in equal shares' did not create a remainder interest, but rather constituted words of limitation, indicating a reversionary interest in the appellant's estate. The court relied on May v. Marx, which held that similar language created no remainder interests in heirs, making the settlor the sole beneficiary. The court clarified that the statutory abolition of the 'Doctrine of Worthier Title' (Ill. Rev. Stat. (1955) Ch. 38, Sec. 188) does not compel a construction that overrides the expressed intent of the maker of the instrument. The settlor's intent, as revealed by the ability to designate legatees via will and the provision for payment of estate expenses, indicated the property was intended to remain 'his property.' 3. Yes, a settlor who is the sole beneficiary can compel the termination of a trust even if its stated purposes have not been accomplished. Citing Restatement (2nd) of Trusts, Sec. 339, the court stated: 'If the settlor is the sole beneficiary of a trust, he can compel the termination of the trust, although the purposes of the trust have not been accomplished.' Since the appellant was deemed the sole beneficiary, the unfulfilled rehabilitative purposes did not prevent revocation.
Analysis:
This case significantly clarifies the determination of a trust's true settlor and the interpretation of beneficiary interests, especially concerning 'heirs-at-law' language. It reinforces the principle that the settlor's intent governs the nature of interests created in a trust, even after the statutory abolition of the Doctrine of Worthier Title. The ruling grants substantial power to a sole beneficiary-settlor to revoke a trust, enhancing their control over their property, irrespective of stated trust purposes or express irrevocability clauses. This precedent guides future cases involving trust modification or termination where the settlor and beneficiary are the same individual.
