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Ruby v. Ruby: Joint Tenancy Does Not Mean Joint Trust

By March 22, 2012No Comments

In Ruby v. Ruby, the First District Appellate Court ruled that the doctrine of ademption, which previously had only applied to wills, applied to trusts. The court additionally continued to strictly construe in terrorem clauses similar to most courts and, finally, continued to follow the pro “freedom to contract” position Illinois courts take.

Ademption means that the person making the gift – testator or grantor – does something during his or her lifetime to make giving the gift impossible, such as destroying it or selling it. An in terrorem clause is the “contest this will or trust and you lose your bequest” provision.

The facts of Ruby are interesting but the way the court reached its conclusion is even more interesting. It got it right, but using a quirky, off-the-mark analysis.  A brother and sister – Irwin and Bernice – owned a condo together and a brokerage account at David A. Noyes & Company in joint tenancy.  Exactly how they owned the condo together is not provided in the facts.  In 2002, when Noyes changed clearing houses, Irwin and Bernice executed a medallion agreement for their brokerage account.  In 2004, the 2 hired one attorney to do their estate planning. The attorney created a revocable living trust for Irwin naming Bernice as successor trustee.  According to the terms of the trust, 100% of the contents of the brokerage account were to be distributed among 3 couples and 1 person (25% each); another provision provided for specific bequests totaling $255,000; and another provision provided that the residue of Irwin’s estate was to go to Bernice. So we can see where there could already be a little hiccup if the brokerage account and other assets in Irwin’s estate were insufficient to fulfill the specific bequests.

Moving right along, in July 2004, Irwin transfers the assets from the brokerage account into another account.  The following month, Irwin also transferred the condo to the trust account with Bernice’s consent and signature. However, Bernice later stated she didn’t understand what she was doing. Irwin passed away in 2006 and Bernice paid out the specific bequests, withdrew funds from the account for attorneys’ fees and funeral expenses, and then told the 3 couples and the individual that the gift had adeemed and there wasn’t enough in the original account to pay them all, but she kindly sent them, via her attorney, a check for $30,000. At that time, the size of the second account that the assets from the original account were transferred was about $1.4 million. So the beneficiaries sued for an accounting. Ya think?  Bernice countered using the theory of ademption, the in terrorem clause, and joint tenancy.

The lower court ruled in favor of Bernice on the theory of ademption but ruled the in terrorem clause inapplicable. The First District Appellate Court determined that the term “contents” was ambiguous because it didn’t foresee any additions or deductions from the assets in the trust, and so looked to extrinsic evidence to clear the ambiguity. Well, that’s a tad quirky because Irwin’s provision named the account and defined the account’s contents as “including cash and securities.” A few lines later, the court agreed with yours truly but continued analyzing extrinsic evidence for the meaning of “contents”; the court reversed the lower court’s ruling on ademption. Courts don’t like in terrorem clauses unless there’s a good reason, and this court found no good reason to change the lower court’s ruling. The beneficiaries were named as such in the trust and had a right to question Bernice’s actions. Finally, joint tenancy was implicitly severed when Bernice signed the medallion agreement titling the assets to the trust.

The lesson learned is found in the second paragraph: Even if a party owns something in joint tenancy, their interest should be secured in a trust of their own and not the other co-tenant’s trust.

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