October 27, 2009
Previously published on October 22, 2009
Max Feinberg died in 1986, leaving a pour-over will and a revocable trust. Under his trust, he established Trust A and Trust B for the lifetime benefit of his wife, Erla Feinberg. He also granted his wife lifetime and testamentary limited powers of appointment over the trust assets.
To the extent his wife did not exercise her powers of appointment, he directed the distribution of the trust assets to his descendants, but subject to what the court called a "beneficiary restriction clause." The beneficiary restriction clause directed that 50% of the trust assets be held in separate trusts for his grandchildren, but provided that any 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 and lose their share of the trust, with any forfeited share paid to Mr. Feinberg's children.
Mrs. Feinberg exercised her lifetime power of appointment to direct the distribution at her death of $250,000 outright and free of trust to each child and grandchild who would not be deemed deceased under Mr. Feinberg's beneficiary restriction clause. At the time of Mrs. Feinberg's death in 2003, all five grandchildren had been married for more than one year, but only one met the conditions of the beneficiary restriction clause and was entitled to receive $250,000. One of the disinherited grandchildren sued Mr. Feinberg's children (including her father) as co-executors challenging the validity of the beneficiary restriction clause.
The trial court invalidated the beneficiary restriction clause on public policy grounds for interfering with the right to marry a person of one's own choosing, and the court of appeals affirmed relying on prior decisions of the Illinois Supreme Court and the Restatement (Third) of Trusts. The Illinois Supreme Court granted an appeal, and received amicus curiae briefs from Agudath Israel of America, the National Council of Young Israel, and the Union of Orthodox Jewish Congregations of America.
The Illinois Supreme Court refused to consider whether Mr. Feinberg's original disposition under his will violated public policy and dismissed arguments that related to the continuing trusts provided for under the will. Because Mrs. Feinberg exercised her power of appointment to provide outright distributions, the Illinois Supreme Court only considered whether her exercise of the power of appointment violated public policy by disqualifying any descendant who married outside the Jewish faith from receiving a $250,000 distribution. The court held that determinations of public policy are conclusions of law, and reviewed the decisions of the trial court and the court of appeals de novo.
The Illinois Supreme Court reviewed the state's public policy in support of broad testamentary freedom, observing that state law only placed two limits on a testator's freedom to leave property as he or she desired – the spouse's ability to renounce and protections for pretermitted heirs. The court noted that there is no forced heirship for descendants.
In support of this policy, the court noted the broad purposes for trusts under state trust statutes, the repeal of the common law rule against perpetuities and the Rule in Shelley's Case, and the focus in case law on determining the intent of the testator. The factual record indicated Mr. Feinberg's intent to benefit those of his descendants who furthered his commitment to Judaism by marrying within the faith and his concern with the dilution of the Jewish people by intermarriage. The court observed that Mr. Feinberg would be free during his lifetime to attempt to influence his grandchildren to marry within the faith, even by financial incentives.
The court acknowledged the long-standing rule that trust provisions that encourage divorce violate public policy. However, the court distinguished its prior decisions on the grounds that: (1) because of Mrs. Feinberg's power of appointment, the grandchildren never received a vested interest in the trust upon Mr. Feinberg's death; (2) because they had no vested interest that could be divested by noncompliance with the condition precedent, the grandchildren were not entitled to notice of the existence of the beneficiary restriction clause; and (3) the grandchildren, since they were not heirs at law, had at most a mere expectancy that failed to materialize.
The court refused to consider whether to adopt the rule of the Restatement (Third) of Trusts on the basis that exercise of the power of appointment was not in trust and was in the manner of a testamentary disposition. The court held that Mrs. Feinberg's distribution scheme did not operate prospectively to encourage the grandchildren to make choices about marriage, since the condition precedent (marriage within the faith) was either met or not met at the moment of Mrs. Feinberg's death, and observed the distinction between conditions precedent (which might be effective even if a complete restraint on marriage) and conditions subsequent (which may not). The court observed that because there were no continuing trusts under Mrs. Feinberg's distribution scheme, there was no "dead hand control" or attempt to control the future conduct of the beneficiaries, and therefore no violation of public policy. Accordingly, the court reversed the court of appeals and the trial court.
The Illinois Supreme Court rejected the grandchild's other arguments, including her claim that the beneficiary restriction clause violated the constitutional right to marry because of the absence of a governmental actor. The court summarized its holding as follows: "Although those plans might be offensive to individual family members or to outside observers, Max and Erla were free to distribute their bounty as they saw fit, and to favor grandchildren of whose life choices they approved over other grandchildren who made choices of which they disapproved, so long as they did not convey a vested interest that was subject to divestment by a condition subsequent that tended to unreasonably restrict marriage or encourage divorce."
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