The Illinois case, In re Estate of Max Feinberg, 2009 Ill. Slip Op. 106982 (Ill. Supreme Court 9/24/09) has drawn national attention and raises thorny issues, including how an individual’s testamentary freedoms should be interpreted in a post-civil rights world. The Illinois Supreme Court upheld the validity of a clause that disinherited any grandchild who married outside the Jewish faith or whose non-Jewish spouse did not convert to Judaism within one year of marriage. Although this clause was arguably defective, the settlor’s spouse exercised her power of appointment and reformed the bequest thereby making it a valid condition to receipt of the bequest.
FACTS: Max Feinberg died in 1986. He was survived by his wife, Erla, two adult children, Michael and Leila, and five grandchildren. Prior to his death, Max executed a will and created a trust. Max’s will provided that upon his death, all of his assets were to pour over into the trust.
Upon Erla’s death, the assets in the trust were to be distributed to Max’s descendants in accordance with a provision the court called the “beneficiary restriction clause.” This clause directed that 50% of the assets be held in trust for the benefit of the then-living descendants of Michael and Leila during their lifetimes. However, any such descendant who married outside the Jewish faith or whose non-Jewish spouse did not convert to Judaism within one year of marriage would be “deemed deceased for all purposes of this instrument as of the date of such marriage” and that descendant’s share of the trust would revert to Michael or Leila.
The trust instrument gave Erla a limited testamentary power of appointment over the trust assets. Erla exercised the power of appointment by directing that, upon her death, each of her two children and any of her grandchildren who were not deemed deceased under Max’s beneficiary restriction clause receive $250,000. In keeping with Max’s original plan, if any grandchild was deemed deceased under the beneficiary restriction clause, Erla directed that his or her share be paid to Michael or Leila. By exercising her power of appointment in this manner, Erla revoked the original distribution provision and replaced it with her own plan.
ANALYSIS: The Court found that the grandchildren did not receive a vested interest in the trust upon Max’s death. By creating a power of appointment in Erla, Max created a situation in which the interests of the grandchildren were contingent on whether and in what manner she would exercise her lifetime and testamentary powers of appointment. Thus, the grandchildren had a mere expectancy that they might receive some portion of the remainder at the conclusion of Erla’s life estate. No one had a vested interest in the remainder of the trust assets until Erla’s death resolved all contingencies.
Under Max’s plan, the grandchildren who were not “deemed deceased” at the time of Erla’s death would receive distributions from the trust for life, subject to termination if they should violate the marriage restriction (i.e., a condition subsequent). Erla’s scheme, however, does not operate prospectively to encourage the grandchildren to make certain choices regarding marriage. It operated on the date of her death to determine which, if any, of the grandchildren qualified for distribution on that date. The condition was either met or it was not met. There was nothing any of the grandchildren could have done at that time to make themselves eligible or ineligible for the distribution (i.e., a condition precedent).
Because no interest vested in any of the grandchildren until Erla’s death, her appointment created a condition precedent. Thus, the Court held, this is not a case in which a donee, will retain benefits under a trust only so long as he continues to comply with the wishes of a deceased donor. As such, there is no “dead hand” control or attempt to control the future conduct of the potential beneficiaries. Whatever the effect of Max’s original trust provision might have been, Erla did not impose a condition intended to control future decisions of their grandchildren regarding marriage or the practice of Judaism; rather, she made a bequest to reward, at the time of her death, those grandchildren whose lives most closely embraced the values she and Max cherished.
HOLDING: The Court held that the beneficiary restriction clause does not violate public policy because no grandchild had a vested interest in the trust assets and because the distribution plan adopted by Erla has no prospective application.