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In re Estate of Spencer - 232 N.W.2d 491 (Iowa 1975)

Rule:

When there is a default in the exercise of a special power of appointment, equity courts will distribute the corpus in accordance with the intent of the donor of the power. They do so on one of two theories, either by holding there is an implied gift or an implied trust. The distinction between the two is often blurred and is without great significance in any event.

Facts:

A husband and wife owned a section of land in Greene County, Iowa. The husband owned 480 acres, while the wife owned the remaining 160-acre quarter-section. The wife died in 1944. By her will, she left her real estate in trust for the benefit of her four children with her husband as the trustee. As trustee, he had the power to dispose of the real estate by will or deed by granting a life estate to the four children and the remainder to go to their children (her grandchildren). This power was to be exercised when the husband made an "equitable" distribution of his own 480 acres in the same manner as provided for his land. If any child died without children, the share of such child went to his or her surviving brothers and sister. The husband died in 1972 without having exercised by deed the power of appointment conferred upon him. He was survived by all four of the children, by 13 grandchildren, and by one great-grandchild. The trial court found that the husband's purported exercise of the power of appointment by use of a trust, instead of an outright life estate, violated the terms of the power and was invalid. The executor and guardian ad litem contended on appeal that the exercise of the power of appointment was in conformance with decedent wife's direction, and that the court could enforce the trust by carrying out the intended gift to the persons designated in decedent wife's will. The trial court concluded Fern's quarter-section must pass as intestate property because her will contained neither a gift over in default of the exercise of the power nor a residuary clause. Under this ruling, the property would go to Fern's four children, all of whom still survive, as tenants in common.

Issue:

In a case involving the construction of trust provisions established under the wife's will, was it valid for the husband to exercise of the power of appointment by use of a trust instead of an outright life estate?

Answer:

Yes

Conclusion:

On appeal, the Supreme Court of Iowa explained that the real disputants here are Harold Spencer as executor of L. J.'s estate and Lyle, successor trustee under Fern's will. They sought to determine which of them shall have the power of management and control of the trust property. There is also the ultimate question as to whose will- decedent husband L. J.'s or decedent wife Fern's - will govern disposition of this land. The Court affirmed in part and reversed in part the decree of the trial court, holding that decedent husband's creation of a trust under a power of appointment granted in decedent wife's will was valid in part and directing that property devolve by implied gift as set out in the trial court's opinion. The Court found nothing in Fern's will to "manifest a contrary intent;" thus, the Court held that L.J.'s exercise of the power of appointment by designating a trustee to carry out Fern's intent was valid. The Court held that the exercise of the power was valid in establishing a trust to carry out the life estate granted to the decedents' children, but invalid in attempting to circumvent the direction that the remainder, after the termination of the life estates, vest as intended. The Court adopted an implied gift theory as the rationale by which to carry out substantially decedent wife's intent.

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