Class Gifts, Later-Born Grandchildren, and the Ambiguous Ambiguity

One of the challenges in estate planning is making and expressing decisions now within documents that may be ultimately administered and interpreted many years down the line — sometimes under changed circumstances. In some situations, this planning requires a great deal of forethought, nuance and flexibility to achieve goals.

Certain changes are fairly easy to anticipate though. For example, we know that beneficiaries sometimes die ‘out of order’, and that descendants (or other “class” beneficiaries) may be (and often are) born after creation of a will or trust. These are contingencies that we always want to consider and address within an estate plan.

Class Gifts

In many cases, gift provisions will take the form of a “class gift” that includes within the class those born after creation of the class (e.g. “divide equally among all of my then living children, including those born or adopted in the future.”). After all, you probably don’t really want to benefit older children to the exclusion of younger children simply because the younger children just happen to be born after you signed your trust.

But alas, in the hands of a divorce attorney preparing an irrevocable trust in 1958 — class gifts + later-born grandchildren = latent ambiguity?

The Judevine Case

That was the question in Bank of America, N.A. v. Judevine, 2015 IL App (1st) 140532 (January 26, 2015) Cook Co.,1st Div. (DELORT). The essential facts of the case are:

In 1958, Herbert Kochs divorced Phyllis Anderson. Incident to their divorce, Herbert created an irrevocable trust (drafted by the divorce attorney) providing income from the trust to Phyllis, and her mother, for their lives. At the death of the survivor between Phyllis and her mother, the remaining assets in the trust would then be divided and distributed among Herbert’s grandchildren. But which grandchildren? When the trust was created in 1958, Herbert had 4 grandchildren. When it came time to distribute the remaining $1.6 million in the trust 53 years later in 2011, Herbert (then deceased) had 15 grandchildren.

Let’s go to the trust (think: NFL ‘booth review’). The provision at issue reads as follows:

“Upon the death of both Phyllis Anderson and her mother, the Trust Estate shall be distributed in equal shares to those who are then living of the Settlor’s grandchildren, namely:

William Shaw and Robert Shaw, and

Susan Doniphan Hamilton and

Oliver Theodore Hamilton, IV,

provided, however, that if any of such grandchildren are then deceased leaving one or more descendants then living, the share which such deceased grandchild would have received if then living shall be distributed to his or her then living descendants, per stirpes.”

 

What’s in a Name(ly)?

To (sort of) quote Shakespeare: What’s in a name(ly)? A lot, according to Judge Neil H. Cohen of the Cook County Chancery Division, who granted summary judgment in favor of the 4 named grandchildren. Judge Cohen held that the provision unambiguously provided only for the 4 “namely” grandchildren to the exclusion of the 11 later-born grandchildren, and that the class description (‘grandchildren’) was included merely by way of identification.

The appellate court disagreed, holding that there was a latent ambiguity.

Ambiguous or not Ambiguous? That is the Question

Quick tutorial on ambiguities — ‘patent’ and ‘latent’:

• Ambiguity means that language is reasonably susceptible to more than one meaning
• ‘Patent’ means that the ambiguity is apparent from the language employed
• ‘Latent’ means that the ambiguity is not readily apparent in the language, but instead arises when applied to outside facts.

The majority opinion noted that there is no similar controlling Illinois authority (a case of first impression), although there were similar cases from other states finding in favor of a class gift. The court held that there was an honest difference of opinion, that various rules of construction favored the later-born grandchildren, and that while the trust named 4 grandchildren (the only ones then living) it also referred to grandchildren generally.

Yet, the appellate court did not give the later-born grandchildren an outright victory. Instead, the court ruled that there was a latent ambiguity for which extrinsic (outside) evidence should be heard by the trial court in order to ascertain the settlor’s intent.

Justice Cunningham issued a strongly worded dissent in which she noted that the settlor could have easily said “any” of his grandchildren without naming them, but didn’t.

Closing thoughts

1. This was sloppy drafting by the divorce attorney (would an estate planning attorney draft a marital dissolution settlement agreement incident to an estate plan?).

2. The “then living” phraseology seems important as it relates to grandchildren generally. Unless it was intended to bring later-born grandchildren into the class, this phrase appears superfluous. Was it included for a reason? Were the names added just for reference purposes but not for the purpose of limiting the class?

3. I don’t think either interpretation is completely unreasonable. The case was originally brought by the trustee, Bank of America, as a petition for construction. That decision doesn’t seem inappropriate — I would have advised a trustee client to do the same in light of competing claims and confusing language. The trial judge didn’t even agree on that count, and thus denied attorney’s fees. The appellate court reversed this denial as an abuse of discretion (and the dissenting justice concurred in that regard).

4. The parties and judges in this case can’t even agree over whether they should be able to disagree. It’s ironic that the courts here, and in other cases, often seem to have trouble precisely defining and deciding when language is ambiguous. If reasonable judges (in this case, it was ultimately 2-2) can’t even agree on what is or isn’t ambiguous, then is ambiguity itself ambiguous?

Image courtesy of freedigitalphotos.net/winnond