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In Re Estate of Peterson





APPEAL from the Circuit Court of Winnebago County; the Hon. ALFORD R. PENNIMAN, Judge, presiding.


This is an appeal from a portion of an order closing a conservator's estate. The trial court ruled that the beneficiary of three "Totten Trust" accounts was not entitled to the interest earned on these accounts during the period of the settlor's incompetency where the interest was expended by the conservator for the upkeep and maintenance of the incompetent even though there were other cash assets of the incompetent from which those expenses might have been paid. Carol Wilson, the beneficiary of these accounts, has appealed.

During 1973, Frank Rudolph Peterson opened a savings account in each of the following Rockford, Illinois, institutions: Loves Park Savings & Loan Association, American National Bank & Trust Co., and First Federal Savings & Loan Association. All three accounts named Mr. Peterson as the trustee and his niece, Carol Wilson, as beneficiary of the accounts at his death.

On June 17, 1977, letters of office for conservator to collect for the estate of Frank Rudolph Peterson, incompetent, were issued to the Illinois National Bank & Trust Co. of Rockford (hereinafter Bank). On May 19, 1978, Mr. Peterson was adjudged incompetent and the Bank was named as conservator of his estate. The incompetent died on June 25, 1980. The conservatorship was continued until January 22, 1981, when it was closed.

In its January 22, 1981, order, the trial court authorized distribution of the balances in the trust accounts in question as of the date of the settlor's death, along with interest earned on said accounts subsequent to the settlor's death, to the appellant. The order authorized a similar distribution to the beneficiary of another Totten trust account. That beneficiary is not a party to this action. The remaining assets of the conservatorship, after payment of approved fees, were ordered transferred to the estate of Frank Rudolph Peterson, deceased.

During the administration of the conservatorship the Bank established a single checking account into which it deposited all of the income, the rents and the interest from all of the assets of the incompetent. All of the expenses for the maintenance and support of the incompetent and his estate were paid from this account. Although the Bank left undisturbed the principal of the three savings accounts in question, the Bank requested that the interest payments from the trust accounts be made to it as the conservator, and the accrued interest from these accounts was deposited in the single checking account.

There is no dispute that the conservator bank expended funds out of the single conservatorship checking account for the incompetent's maintenance and support and costs of the administration of the incompetent's estate. It is clear that these expenses exceeded the interest and other income of the estate during the period of incompetency so that it was necessary for the conservator to expend some principal (other than that of the three savings account trusts) for these purposes. It is also apparent from the evidence that the incompetent's assets, excluding the trust accounts in question (including interest), were at all times sufficient to pay the expenses of the incompetent's estate.

On December 16, 1980, the trial court ruled that the conservator bank had properly collected the income from the trust accounts in question, deposited that income into the conservatorship checking account and paid the expenses for the settlor out of that account. The trial court did grant the trust beneficiary, Carol Wilson, the balance of the three accounts as of the date of Peterson's death, which included the unimpaired principal. The court also granted Carol Wilson interest earned subsequent to the settlor's death, but did not grant her the interest which had accrued during the settlor's incompetency and had been withdrawn by the conservator and expended for the care and maintenance of the incompetent-settlor.

The single issue posed in this appeal is whether the interest earned on a Totten trust, during the settlor's incompetency, is entitled to a priority which would require the conservator to expend all other assets of the incompetent's estate before expending this interest.

• 1 The Illinois Supreme Court has addressed the nature and validity of Totten trusts and accepted the position adopted by the American Law Institute in section 58 of the Restatement (Second) of Trusts (1959):

"`Where a person makes a deposit in a savings account in a bank or other savings organization in his own name as trustee for another person intending to reserve a power to withdraw the whole or any part of the deposit at any time during his lifetime and use as his own whatever he may withdraw, or otherwise to revoke the trust, the intended trust is enforceable by the beneficiary upon the death of the depositor as to any part remaining on deposit on his death if he has not revoked the trust.'" (In re Estate of Petralia (1965), 32 Ill.2d 134, 138.)

The declaration of trust immediately creates an equitable interest in the beneficiaries although the enjoyment of that interest is postponed until the death of the settlor regardless of the fact that the interest is highly destructible because the settlor retains power of revocation. (32 Ill.2d 134, 137-38.) The beneficiary of a Totten trust holds a present, although defeasible, interest therein contemporaneous with the settlor's superior rights; the settlor's death, however, terminates his right and renders the beneficiary's indefeasible. (In re Estate of Wright (1974), 17 Ill. App.3d 894, 900.) Because Carol Wilson became entitled to the trust accounts by reason of having survived Frank Rudolph Peterson, who held a superior interest in the accounts during his lifetime, her interest as Totten trust beneficiary may properly be characterized as a survivorship interest. See Black's Law Dictionary 1297 (5th ed. 1979); Ill. Rev. Stat. 1979, ch. 32, par. 770(d).

Appellant cites In re Estate of Lastick (1975), 28 Ill. App.3d 303, to support the position that her survivorship interest in the Totten trust accounts could not be destroyed or altered by the conservator in the absence of a showing that Peterson's other assets were insufficient to provide for his support and maintenance. The appellant insists that interest on Totten trusts may be expended for the settlor's support and maintenance, but only after other assets of the estate are depleted.

In Lastick, the incompetent owned a two-thirds interest in a land trust; her son owned the other one-third interest. By the terms of the land trust, the two-thirds beneficial interest of the incompetent would pass to her son on the incompetent's death if no other disposition had been made of the interest. No other disposition of the beneficial interest was made during the incompetent's life. After her death, her daughter, who was the sole devisee under her will, petitioned the court to cause the two-thirds beneficial interest owned by the incompetent in her lifetime to be sold to defray a pro rata share of the incompetent's expenses, which apparently remained unpaid. The liquid assets in the incompetent's estate had a value of $56,000; the land in the trust had a value of $50,000. The trial court denied the petition and directed that the probatable assets of the estate had to be first exhausted before charging the ...

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