Sale of Property Subject to Specific Devise
A mini-feature on classifying and balancing specific language with boilerplate
Intro
While it is difficult to capture the laws and exceptions in all 50 states, this article examines some of the drafting implications inherent in a trust that appears to provide for a specific bequest of real or personal property. While this analysis is based on a narrow set of facts and circumstances, some broader theory will be mixed in.
Wynn v. Crumm
A recent decision of the Ohio Court of Appeals, which you can read below, highlighted some unanticipated issues in drafting trusts or wills.
At issue was the following language in a trust:
Real Estate Division into Shares. Trustee shall divide all real estate then remaining in the Trust Estate into fourteen shares. Trustee shall distribute one such share, outright and free of trust, to each of Frank L. Wynn's children.
Prior to distribution of real estate subject to this trust provision, the trustee sought to sell the real estate and distribute the proceeds to the 14 beneficiaries. However, one of the beneficiaries filed an action to prevent the sale and compel in-kind distribution of the real estate.
The magistrate at the trial court level ordered that the real estate must be distributed in-kind according to this express provision of the trust. The trustee filed an objection, which the magistrate overruled, and this appeal followed.
On appeal, the trustee argued that the terms of the trust as a whole, which were unambiguous, gave the trustee the power to sell the real estate and distribute the proceeds. In support of this conclusion, the trustee cited the following trust provisions:
In-Kind Division or Distribution. Upon any division, distribution, allocation or apportionment of any assets, Trustee may make such division, distribution, allocation or apportionment in money or in kind, or partly in money and partly in kind.
Disposition of Assets. Trustee may sell, lease, exchange or grant options to purchase, publicly or privately, any asset, real or personal, and any right appurtenant thereto, for cash or upon credit, with or without security.
The Court agreed with the trustee, finding that these terms when read as a whole were unambiguous and gave the trustee the discretion to distribute real estate, or the proceeds thereof, in-kind.
(What was not expressly cited in the Court’s opinion was whether or not the Court agreed with the trustee’s position on settlor’s intent. Generally, the settlor’s intent is to be derived from the four corners of the trust. The trustee argued that “bestowing such power[s] upon the trustee demonstrates that the settlor did not intend for the trustee to be limited to an in-kind distribution of the shares of real estate to the beneficiaries." I found this to be telling about the broader issue at stake.)
Key Drafting Lesson
There is a tension here unaddressed by the Court about whether this is a specific devise of real property, or instead a division of the remainder.
In isolation, this looks and smells like it was intended to be a specific devise. If so, this generally means that the real estate cannot be sold without the consent of all beneficiaries entitled to distribution - which is what the beneficiary who initiated this action argued for.
But, this clause also has an appearance of the division of the residuary trust estate. Without context, especially on whether the trust held other assets, it is hard to tip the scales either way. In this case, however, the facts imply that the real estate might have been the sole or significant trust asset because it was transferred to the settlor of the trust by the decedent for Medicaid spend-down purposes. This may be why it was treated more like a general trust asset, being disposed of under a remainder disposition clause, instead of a specifically-devised asset.
Whatever was intended, we see a conflict of this intent with (what were likely) boilerplate provisions of the trust itself. It is routine to find these general powers, such as the authority to divide assets in-kind and sell assets. This language is often ignored in the drafting process. And, this language usually gives way to more specific language preceding it under the principle of ejusdem generis. But, this principle usually looks to defined terms and not to separately-stated powers and obligations.
Given this background, the key drafting lesson here is to make sure specific and general powers are balanced as well. If a specific devise or bequest is intended, it should be stated as such. Otherwise, you run the risk that fiduciary discretion could fully override this intent. (Note, however, that a sale may be required regardless of specific intent in a situation where cash is needed to pay claims, taxes, or expenses - that did not appear to be the case here. Nonetheless, clarity about this intent can create a priority of sale under principles of abatement by which the residuary is disposed of before specifically-devised property.)
So, if you remember nothing else, remember that powers of sale may or may not be absolute depending on the jurisdiction. If there is an intent not to sell property, more detailed language may be needed. Likewise, if there is an intent to actually sell property and distribute the proceeds, detailed language may also be necessary.