Thursday, January 7, 2010

The Supreme Court of Virginia's Decision in Harbour v. Suntrust Bank

In Harbour v. Suntrust Bank, the Supreme Court of Virginia held that the interests of the beneficiaries of an inter vivos trust vested at the time of the grantor's death in accordance with the plain language of the trust document.

Harbour was decided on November 5, 2009, and you can read the full opinion by Justice Keenan here.
Mollie Boaz Johnson (the Grantor) executed an inter vivos trust that included the following disposition:
"Upon the death of the Grantor's spouse, the Trustee shall divide the trust res, including any undistributed income and the remaining principal, into four equal shares, to be distributed as follows:

One such share shall be paid and delivered to my brother James Clayton Boaz; the second such share shall be paid and delivered to my brother Herbert Alan Boaz; and the third such share shall be paid and delivered to my sister Hazel Boaz Harbour.

The fourth such shall shall be delivered to the Stuart Baptist Church to be kept in a separate trust account entitled "Mollie Boaz Johnson Educational Fund," to be used for scholarships for deserving students from Patrick County in accordance with ... my Last Will and Testament.

If any or my brothers or sister shall fail to survive me, his or her share shall lapse and such shall shall be added to the trust fund for Stuart Baptist Church, previously mentioned."
Two of Mrs. Johnson's siblings survived her but did not survive Mr. Johnson, leading to a dispute as to whether those siblings' trust interests had vested at the time of Mrs. Johnson's death. The signficance of whether the interests had vested is this: once the interests vested, the beneficiaries' successors-in-interest would have become legally entitled to them, even if the beneficiaries did not themselves survive until they were entitled to possession.

The children of the now-deceased siblings argued that the interests had vested at the time of Mrs. Johnson's death and that following her husband's death they were entitled to the trust shares. Stuart Baptist Church contended that vesting of the trust interests did not occur until Mr. Johnson's death and that therefore the siblings' shares should pass to the church.

The Patrick County Circuit Court held that the siblings' shares had lapsed, notwithstanding the plain language of Mrs. Johnson's trust. In a letter opinion, the Circuit Court stated that the Stuart Baptist Church's position was "more compelling [from] review [of] the instrument in its entirety."

The Supreme Court reversed, and Justice Keenan's opinion relies entirely on the language of Mrs. Johnson's trust agreement:

"In examining the language before us, we conclude that the language employed by the grantor ... is unambiguous... The language chosen by the grantor referenced her own death, not the death of the husband, as the event determining whether the share of a sibling would lapse.

Thus, under this language, a sibling's death would lapse only if that sibling failed to survive the grantor... The church's contrary position would require us to add the phrase "and my husband" to the grantor's directive that "[i]f any of my brothers and sisters fail to survive me ..."

A court has no authority, however, to insert words into a trust document."

The Court's decision seems fairly self-evident in light of the facts of this case. As such, aside from reiterating Virginia's deference to a grantor's intent -- so long as that intent is communicated in plain language on the face of a document -- there does not appear to be any major new legal ground broken in Harbour.