The Supreme Court of Kansas rules that a constructive trust is appropriate where a surviving spouse breached an antenuptial agreement by placing the majority of her assets into irrevocable trusts instead of devising them to her stepsons as she had agreed. Estate of Draper v. Bank of America (Kan., No. 96,060, April 17, 2009).
Clark Draper and Ethel Catlin executed an antenuptial agreement in 1967. Ms. Catlin agreed to maintain a will devising at least one-fourth of her estate to each of Mr. Draper's three sons from a previous marriage and Mr. Draper executed a will leaving a substantial portion of his estate to Ms. Catlin. Mr. Draper died testate in 1977. Prior to executing a will naming Mr. Draper's sons as equal beneficiaries of her estate, Ms. Catlin used the majority of her assets to fund two irrevocable trusts. When she died in October 2002, she left a probate estate worth less than $10,000, while the assets in the trusts exceeded $1 million.
The executor of Ms. Catlin's estate sued Bank of America and UMB Bank, the trustees of the irrevocable trusts, to compel the return of the trust assets to the probate estate. The executor alleged that the constraints imposed on Ms. Catlin by the antenuptial agreement rendered her transfers to the trusts void and that the assets properly belonged in the probate estate. The district court determined that Ms. Catlin's transfers to the trusts were void because they exceeded her authority under the antenuptial agreement and ordered that a constructive trust be imposed on the assets for the benefit of Mr. Draper's sons.
The trustees and beneficiaries of the trusts appealed, arguing that the district court erred by imposing a constructive trust without having made a finding of fraud and that the action was time-barred. In a split decision, an appeals court reversed, concluding that the antenuptial agreement did not restrict Ms. Catlin with respect to gifting or inter vivos transfers of her property and that no language in the agreement restricted her from creating irrevocable trusts. The estate appealed.
The Supreme Court of Kansas reverses and affirms the district court, holding that Ms. Catlin breached the antenuptial agreement's implied duty of good faith by placing almost all her assets into irrevocable trusts. In addition, because this was an action brought by the executor to marshal estate assets as opposed to a claim made by a creditor against the estate, it is not time-barred. In Nelson v. Nelson (Kan., No. 97,664, April 17, 2009), a case involving similar issues and decided on the same day, the court determined that neither actual nor constructive fraud needs to be established before a constructive trust can be imposed. Instead, the court ruled that it is sufficient to establish that a person holding title to the property while subject to an equitable duty to convey it would be unjustly enriched if allowed to keep the property. However, the court dismissed the Nelson case because it was bought by the estate's creditors outside of the time for filing claims.
For the full text of the Draper decision, go to: https://www.kscourts.org/Cases-and-Opinions/opinions/supct/2009/20090417/96060.htm.
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