Contracts to Make a Will – and More

Background: A popular feature of many sophisticated trusts, to add flexibility to the trust to respond to future changes in the circumstances of trust beneficiaries, is to give a trust beneficiary a testamentary power of appointment over the trust assets, or a portion of the trust’s assets. The person to whom the testamentary power of appointment is given, called the donee, usually must exercise the power of appointment in his or her Will, or in another writing expressly that evidences an intent to exercise the testamentary power of appointment. What happens if the donee of the testamentary power of appointment ‘jumps the gun’ and irrevocably exercises the power of appointment while still alive by contract? That was the legal question in a Delaware Chancery Court decision.

In re Estate of Tigani, C.A. No. 7339-ML (Delaware Chancery Court, February 12, 2016)

Facts: The decedent created a trust for the ultimate benefit of his three children who were the remainder beneficiaries of the trust. The decedent’s widow was named as trustee of that trust; she was also its current income beneficiary. The widow-trustee was also given a limited testamentary power of appointment over the trust’s corpus. The ‘takers-in-default’ if the widow did not exercise her limited testamentary power of appointment were the three children, the assets to be distributed in shares of equal value. One of the three children sued the widow claiming a breach of trust, which obviously caused a ‘falling out’ between them. In retaliation, as a litigation tactic to that pending breach of trust claim, the widow then entered into a binding ‘contract’ with the other two children (remaindermen) to exercise the limited testamentary power of appointment in their (the other two childrens’) favor on her death. If the power of appointment had been effectively and immediately exercised by the widow, the complaining child would then lack legal standing to continue the breach of trust action against the widow-trustee, i.e. he would no longer be a trust beneficiary with legal standing to bring the breach of trust claim.

Court: The Master in the Chancery Court said ‘nope’ the one child continued to have an interest in the trust, and thus legal standing to pursue the breach of trust claim. The Master held that the widow, as the donee of the limited testamentary power of appointment, could not irrevocably, immediately and effectively exercise the limited power of appointment inter vivos by a binding contract. It had to be by her Will, which would only be effective upon her death.

Not Presently Exercisable: The Master noted that the power of appointment was not presently exercisable; rather, it was only exercisable on the widow’s death.
Fraud on the Power of Appointment: In addition, in this case, enforcement of the widow’s ‘contract’ would constitute a ‘fraud on the power’ as the widow, though not a permissible appointee under the limited testamentary power of appointment, would nonetheless benefit from the power’s exercise, since the two other children had agreed as consideration for the widow’s exercise of the limited testamentary power of appointment in their favor to assist the widow for her lifetime with her care and maintenance expenses.
Contract to Make a Devise: The Master did not address in this decision, though, whether the contract-to-exercise the limited testamentary power of appointment might ultimately be enforceable by the two children with whom she contracted.

Contract to Make a Will: The Estates and Protected Individual’s Code (EPIC) contains a section that deals with contracts that pertain to succession, or more practically speaking, a contract to leave assets to individuals when the asset ‘owner’ or perhaps the donee of a limited power of appointment, dies. The Michigan statute provides in relevant part:

“(1) If executed after July 1, 1979, a contract to make a will or devise, not to revoke a will or devise, or to die intestate may be established only by 1 or more of the following:

Provisions of a will stating material provisions of the contract.
An express reference in a will to a contract and extrinsic evidence proving the terms of the contract.
A writing signed by the decedent evidencing the contract.

[MCL 700.2514.]

Devise: A devise is defined to mean when used as a noun, a testamentary disposition of real or personal property, and when used as a verb, to dispose of real or personal property by will. [MCL 700.1103(l).]
Scope: This EPIC section that deals with ‘contracts to make a will’ has been cited frequently with regard joint or mutual wills, and less frequently with regard to contracts to dispose of property at death. This section would cover: (i) a contract to make a gift by Will; (ii) joint and mutual Wills; (iii) a contract to not revoke a Will or a provision in a Will; or (iv) a contract to not make a Will at all.
Expanded Scope: However, the Michigan Court of Appeals held that MCL 700.2514 covers ‘any alleged contract to leave property at death’, whether in a Will or otherwise. In re Arbib Estate, No. 282004, Michigan Court of Appeals, September 8, 2009. More recently, this section was held to apply to a contract to leave assets to a companion and caregiver because those services continued to be rendered after the July 1. 1979 effective date of the statute, where there was found to be detrimental reliance on which those services continued to be rendered; while the agreement did not expressly mention leaving assets by a Will to the caregiver, the court felt that the contract for continued services came within the scope of MCL 700.2514 as a ‘promise that was related to the distribution of assets at death.’ Norton-Candrell v. Anthony Bzura Trust Agreement Under Agreement dated March 11, 2011, Michigan Court of Appeals No. 339305, October 23, 2018. Accordingly, a contract to make a provision in a trust, or to exercise a power of appointment in a certain way contained in a trust, would be binding and enforceable if in writing.
Contract: What is important to remember is that this provision is governed by the law of contracts, not the law of Wills. For there to be a binding contract to make a devise there must be: (i) an offer; (ii) acceptance of the offer; (iii) binding consideration furnished; and (iv) capacity to enter into a contract.
Remedy: All of which then leads to the question what would be the remedy for a breach of a ‘contract to make a Will?’ Sometimes a money award as damages will be sufficient. Sometimes the court may be in a position to specifically enforce the terms of the contract by court order. On other occasions a court may impose an equitable constructive trust on the asset that should have be devised consistent with the terms of the contract. What is important to remember is that the Will (or Trust) is not per se invalid because it does not carry out the terms of the contract entered into by the testator or settlor. The testamentary instrument may still be valid and enforceable according to its terms, but the may be claims against the decedent’s estate for breach of contract.

Practice Tip: If there have been discussions by a testator or settlor on how they might leave their estate or assets at death, but there is no intent to enter into a binding contract to implement those earlier discussions, a Will or Trust might contain the following statement: “I have not entered into any contract, actual or implied, to make a Will (or a Trust.)”

Conclusion: The Tigani case is interesting from the perspective of a litigation strategy in an attempt to preclude one remainder beneficiary from having legal standing to bring a breach of trust claim. It is more of a helpful reminder that a ‘contract to make a Will, or a testamentary devise’ can be applied across a broad range of legal devices to transfer wealth on death to include powers of appointment, trusts, and probably transfer-on-death beneficiary designations.