Newman v. Dore Case Brief
Summary of Newman v. Dore, 275 N.Y. 371, 9 N.E.2d 966 (1937)
Facts: Mr. Straus died leaving a will containing a trust provision for his wife, for her life a one-third interest in all his property. She would therefore receive income for life from the trust fund of the amount of the intestate share, but she would not take a share of the estate. Mr. Straus executed his trust agreement three days before his death, and transferred to the trustees all his real and personal property. If the agreements are effective, then he left no estate.
Issue: Whether a valid inter vivos transfer of property may follow where the settler has retained power to revoke the trust, retained right to derive income from trust, and power over the administration of the trust?
Procedure: The named beneficiary brought the action to compel execution by the trustees. Trial ct found that the trust agreements were executed for the purpose of evading and circumventing the law.
Rule: If gifts constitute the principal part of the husband’s estate and were made without the wife’s knowledge, a presumption of fraud arises, and it rest on the beneficiaries to explain away the presumption.
Rationale: Motive or intent is an unsatisfactory test of the validity of a transfer of property–rejected by most states. Since the law gives the wife ONLY an expectant interest in the property of the husband which becomes part of the estate, and since the law does not restrict transfers of property by the husband during his lifetime, the ONLY sound test of the validity of a challenged transfer is whether it is real or illusory.
Most jurisdictions ask whether the husband has in GOOD FAITH divested himself of ownership of his property or if he has made an illusory transfer. In this case the deceased retained not only the income for life and the power to revoke the trust, but also the right to control the trustees.
Where the settler has transferred property in trust and reserves not only a power to revoke and modify the trust, but also such power to control the trustee in the administration of the trust, the disposition after his death is testamentary. Judged by the substance and not the form, the testator’s conveyance is illusory, intended ONLY as a mask for the effective retention by the settler of the property from the property in form he had conveyed. The settler never intended to divest himself of his property. That is enough to render the invasion an unlawful intrusion of the expectancy interest of the wife.