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Johnson v. Lagrange State Bank

OPINION FILED JULY 7, 1977.

H. FRANKLIN JOHNSON, PLAINTIFF-APPELLANT,

v.

LAGRANGE STATE BANK ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. NATHAN M. COHEN, Judge, presiding.

MR. JUSTICE LINN DELIVERED THE OPINION OF THE COURT:

Plaintiff, H. Franklin Johnson, commenced an action in the circuit court of Cook County to set aside an inter vivos trust established by his late wife, Eleanor Johnson (decedent), insofar as it deprived him of his marital rights. By his suit, plaintiff sought to impose a constructive trust, on the trust assets, to the extent of his claim. In his amended complaint, plaintiff contended that, as the surviving spouse, the trust was illusory, colorable and fraudulent as to him and thus he was entitled to receive a statutory one-half share of the original corpus of the trust (Ill. Rev. Stat. 1971, ch. 3, par. 16). The corpus of the trust had an approximate value of $200,000 at the time of decedent's death. Judgment was entered for defendants and plaintiff was assessed costs and attorneys' fees under section 41 of the Civil Practice Act (Ill. Rev. Stat. 1975, ch. 110, par. 41).

The principal defendants are the successor trustee, LaGrange State Bank, and trust beneficiaries Libby Matousek, decedent's mother, decedent's sister, Helen Holmes, and decedent's niece, Catherine Reed. *fn1 The court appointed a guardian ad litem for the unborn children of Catherine Reed.

Plaintiff's amended complaint was in three counts. Count I alleged, inter alia, the trust to be an illusory and colorable transfer of the trust property and a fraud upon his marital rights. Count II alleged that the decedent established the trust with the intention of defeating plaintiff's marital interest in the settlor's personal estate. Count III, in addition to the previous allegations, averred the decedent acted in an intentional, deliberate and fraudulent manner for the purpose of denying plaintiff his statutory share of the decedent's estate.

Defendants filed a motion to dismiss the amended complaint based upon plaintiff's failure to renounce his wife's will as required by applicable statutes (although allegations contained in each count of the amended complaint asserted a proper renunciation was accomplished), and further for plaintiff's failure to allege specific acts of fraud on the part of his deceased wife. The court dismissed counts I and II of the amended complaint, but allowed count III to stand.

Trial was held without a jury. At the conclusion of plaintiff's case, judgment was entered for the defendants. The trial court found that the allegations that the decedent committed a fraud upon plaintiff were untrue, made in bad faith and without reasonable cause, and assessed attorneys' fees and costs against plaintiff. Plaintiff contests the correctness of these dispositions.

We reverse the trial court and remand with directions.

I

The record discloses that at the time of her death on September 18, 1972, decedent had been married to plaintiff for 35 years. No children were born of the marriage. Plaintiff was an exceptionally generous husband. A very wealthy man, he frequently gave decedent substantial gifts of money and securities. Plaintiff was the source of substantially all of the trust assets involved herein, which consist of negotiable instruments. No real estate is involved. In addition, he provided her with a regular liberal cash allowance and continued to do so until her death. Plaintiff also provided a monthly allowance for Mrs. Johnson's aged and dependent mother.

It appears Mrs. Johnson recognized and appreciated plaintiff's business acumen and relied upon his advice in making investments as well as in managing the accumulated gifts which he gave her. As the the trial court found, the record shows "there was no estrangement or feeling of antipathy of one spouse to the other."

In 1966, Mrs. Johnson, learning that she had cancer, underwent surgery. She later discovered her illness was terminal. In 1969, the Johnsons had new wills prepared, which provided for the contingency that the spouse might not survive the testator. In Mr. Johnson's will, 20% of his estate was left to Mrs. Johnson's relatives if she did not survive him. In Mrs. Johnson's will, her entire estate was left to her family, if Mr. Johnson did not survive her. On September 24, 1970, Mrs. Johnson had her attorney prepare a new will for her, which she executed. This will provided for the creation of a testamentary trust containing substantially the same provisions set forth in the inter vivos trust which is the subject of this proceeding.

On February 11, 1972, about seven months prior to her death and while domiciled in Illinois, decedent executed a revocable inter vivos trust. In it she named herself trustee. The trust provided that the entire income would be payable to decedent during her lifetime. Further, decedent reserved the power to invade the principal of the trust corpus as she, in her sole discretion, saw fit. As trustee, she retained broad powers to invest, reinvest, divide, and distribute the trust property. She retained the right to revoke the trust or to alter, amend or modify the trust provisions in any manner. Upon her death, the trust designated defendant LaGrange State Bank as successor trustee and provided for a system of distribution of the assets of the trust to Eleanor Johnson's mother, sister, niece and various charities. Upon the happening of certain contingencies, the unborn descendants of decedent's niece were to take a share. The sole provision in the trust instrument benefitting plaintiff was a direction to the successor trustee to pay so much of the income and principal of the trust estate to "meet any emergency situation for the reasonable support, medical and burial expense of my husband, H. FRANKLIN JOHNSON. * * * However, the trustee, before making such payment of income and/or principal to or for the benefit of my husband * * *, shall consider the other resources available to [him] and the present and prospective needs of my mother and sister."

On the same day that the trust instrument was executed by her, decedent also executed a will specifically revoking all prior wills. Under the terms of the will, decedent left her apparel and jewelry to her sister and her personal effects and any real estate to plaintiff. The residuary clause of the will poured over the balance of her estate into the trust, to be administered by the successor trustee in the manner set forth in the trust instrument. Subsequent to executing these documents, decedent sold her Illinois home and went to Florida where she continued to reside until her death.

The gravamen of plaintiff's case is that, by its terms, the trust declared by his wife is illusory and colorable as to him and constitutes a fraud on his marital rights. Plaintiff argues that the holding of the Illinois Supreme Court in Montgomery v. Michaels (1973), 54 Ill.2d 532, 301 N.E.2d 465, dictates that the trust be found invalid insofar as it defeats the one-half statutory share to which he would have been entitled had the same property passed under the February 11, 1972, will. Before reaching this contention, however, there are several preliminary matters to be considered.

II

The record in this case contains an order of the Florida circuit court that Mrs. Johnson was domiciled in Florida at the time of her death and plaintiff was domiciled in Illinois. This order was affirmed on appeal. (In re Estate of Johnson (Fla. App. 1975), 312 So.2d 268 (per curiam) (mem.).) Plaintiff does not question the the propriety of that determination. The record also shows that probate proceedings were instituted in Florida, and plaintiff sought to renounce the will and obtain a statutory share in lieu thereof in those proceedings. During oral argument of this cause, counsel for defendants and the guardian ad litem indicated that the Florida probate proceedings had been terminated after plaintiff's attempt to renounce the will was rejected. It is also clear from the record that the will in question has been filed in Illinois. By agreement, the parties have not sought to admit this will to probate although plaintiff indicates that he has attempted to renounce the will in Illinois.

• 1 The interest of the surviving spouse in personal property of the deceased, which is gained by renunciation of the will, is governed by the law of the domicile of deceased at the time of death. (Restatement (Second of Conflict of Laws § 265 (1971).) The question is whether such principle should be applied to this case, thereby relegating plaintiff to reliance on Florida law, where his claim had been previously rejected.

• 2 We conclude that decedent's domicile at the time of death is not controlling in determining the threshold consideration of whether Illinois law should be applied. The inter vivos trust was created in this State, the trust corpus remains in this State, plaintiff was domiciled here at the time of decedent's death, and the principal defendants are also located in this State. National Shawmut Bank ...


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