BE CAREFUL OF ILLEGAL ESTATE PLANNING CONDITIONS

By:  Jerry Shiles

Often clients come to us with special conditions or restrictions that they want included in their Wills or Trusts. Other times, the person coming to us is the personal representative of an estate or the trustee of a trust who needs assistance in determining how to handle certain conditions in a decedent’s estate plan. We prefer the former, but occasionally have to deal with the latter.

The key to any effective estate plan is that it say exactly what you want it to say in a way that is clearly enforceable. Recently, a court in Maryland was confronted with just this question. In the case of Home for the Incurables of Baltimore City v. University of Maryland Medical System Corp., the Court of Special Appeals had to decide what to do with some difficult language.

According to the case record, a testamentary trust was created through the Last Will and Testament of Dr. Jesse Coggins when he died in 1963. The Trust funds primary purpose was to provide for the care of one of the good Doctor’s heirs and specified that so long as his trust beneficiary was living, the income from the trust corpus would be provided to and used solely for the benefit of the beneficiary.

At the death of the named beneficiary in 1998, the income interest ended and the remainder of the trust corpus, nearly $29 million, was to be paid to the Keswick Home for the Incurables of Baltimore City. The Trust language, however, contained a restriction on how the funds were to be used. The caveat in the Trust was that these funds were to be used to construct a building "to house white patients who need physical rehabilitation." The Trust then said that if the Keswick Home did not agree to comply with this condition, the bequest would become null and void and the residue of the trust would pass to the University of Maryland Hospital to be used to provide physical rehabilitation services. The gift over to the University of Maryland did not contain any restrictions on who would be entitled to receive the benefit of these services.

When the income beneficiary died in 1998, the Trustee was at a lost as to what to do. Rather than risk making a mistake, the Trustee filed an interpleader action with the Circuit Court in Baltimore asking the court to decide which organization should receive the $29 million bequest.

At trial, the Keswick Home argued that the Court should simply remove the illegal racial restriction and allow the funds to pass to the Keswick Home for construction of a building to house patients (of any race, creed or color) who were in need of physical rehabilitation. The University of Maryland Hospital, on the other hand, argued that Dr. Coggins clearly intended the building to house only white patients and that the court did not have the authority to remove or excise the illegal restriction because Dr. Coggins had provided an alternate solution. That is, if the Keswick Home would not build a building solely for white patients, the money should be paid to the alternate beneficiary, in this case, the University of Maryland Hospital. The circuit court ruled in favor of the University of Maryland Hospital and Keswick Home appealed.

The Court of Special Appeals looked to a prior case, Flieshman v. Bregel, a case in which a mother had created a Trust that was to pay income equally to her two sons until the youngest reached age 30. At that time, the trust assets were to be divided equally between the two sons, provided that the older son was no longer married to his present wife. If the son was still married to the same wife, however, his share was not to be distributed to him, but rather was to be retained in the Trust. The Trustee would then pay the older son the income from his share of the Trust for the rest of his life and at his death, the Trustee would pay the remaining trust assets to a third beneficiary.

The Flieshman case had held that this condition was invalid as being contrary to public policy and divided the trust assets equally between the two sons when the youngest reached age 30. Applying this same analysis to the present case, the Court of Special Appeals reversed the Baltimore Circuit Court and awarded the funds to the Keswick Home. The Appellate Court noted that Maryland’s cy pres statute was designed to salvage charitable bequests where the testator had shown a general intent to leave property to a particular charity. The Court said if a bequest is clearly illegal and violates a strong public policy, just the illegal portion of the bequest will be excised and the remainder will be honored.

Although the facts of these cases are strange and you probably cannot imagine placing a similar condition in your own Will or Trust, they really are no different from situations continually encountered by estate planning attorneys.

Clients want to force their children to marry or to divorce. They want to compel them to obtain an education from a particular university or to work at a particular job. Sometimes, they want to force them to remain on the family farm, rather than seeking their fame and fortune elsewhere.

Some restrictions are legal. Others are not. If you are thinking about including a restriction or condition in your Will or Trust, be sure to consult with an estate planning professional knowledgeable in this area of the law. When you create an estate plan, you want it to be valid for all purposes. An estate planning attorney who merely parrots your own words back to you is not doing you any favors. The attorney’s job is to tell you what you can and cannot do and help you accomplish your purposes within the limits of the law.

In a recent case, an attorney attempted to impose an obligation on one of the beneficiaries which was not supportable by law. When the representative of the estate tried to enforce this condition, the results were foreseeable. The beneficiary refused to comply and it resulted in a serious rift in the family.

To avoid problems such as these, be sure to seek competent profession assistance when you plan your estate.

© Jerry E. Shiles 2003

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