A Strong Offense
A Stronger Defense
Bill and Vieve Gore founded a manufacturing company best known for its GORE-TEX fabric. Having become considerably wealthy with more wealth anticipated, they undertook efforts to transfer that wealth without incurring significant estate taxes. Through this process, they signed two separate trust instruments during 1972 – the “May Instrument” and the “October Instrument” – both purporting to transfer the same property into the “Pokeberry Trust.”
One of their daughters claimed that the early May instrument controlled, while the other four children claimed that Bill and Vieve never intended for the May Instrument to be final and enforceable. Litigation ensued . . .
The factual background to this case is straight out of Hollywood – one of Bill and Vieve’s kids adopts her ex-husband, a grandson presents the family with a paper in which he argues that the family’s commitment to a middle-class lifestyle violates the birthright of wealth, a big confrontation at Vieve’s birthday party that “almost killed [her],” and so on.
As salacious as all of this is, we’re focused on the Delaware Supreme Court’s examination of what conduct establishes an enforceable trust. The unique aspect of Otto v. Gore is that – unlike just about every other case where a party asserts the existence of a trust – the extrinsic evidence here contradicts the written manifestation of intent.
For there to be an enforceable trust, the settlor must form an intent to create a trust. Under Delaware law, a party seeking to prove an express trust must demonstrate an intent to establish such a trust. Under the Restatement, the required manifestation of intent may be expressed in writing or in conduct. The Delaware Supreme Court found that the Gores did not form the intent to create a final, enforceable trust when they signed the May Instrument, and here’s why:
Generally, courts cannot consider extrinsic evidence (evidence relating to a contract but not appearing on the face of the contract because it comes from other sources) relating to the meaning of specific terms in a written trust instrument to interpret those terms. The court is generally bound by the words of the trust instrument itself; it can’t look beyond the four corners of the trust instrument. Extrinsic evidence, however, is properly considered to determine the issue of intent to create a trust.
Evidence of Intent To Create a Trust
Bill and Vieve’s signatures on the May Instrument were evidence that they intended to create a trust. Actually, signing a trust instrument is pretty strong evidence of an intent to create a trust. The May Instrument was even witnesses and notarized. The document was entitled “Trust,” contained a statement that Bill and Vieve were transferring property to themselves as trust fiduciaries, and contained a schedule of property to be transferred in to trust.
Evidence of No Intent To Create a Trust
Bill and Vieve, however, never told anyone about the May Instrument. Choosing not to communicate the existence of a trust is evidence that the settlor has not formed a intention to create a trust.
As we mentioned, Bill and Vieve undertook a lot of estate planning (they executed 27 other trusts during their lifetime). With respect to the May Instrument, they did not use the same formal procedures they used when signing other irrevocable trusts both before and after the May Instrument. With respect to the other trust instruments, the Gores signed two originals and not just one; placed a colored backer on the signed originals; initialed the schedule of property attached to the trust instrument; sent a conformed copy to their lawyer; and requested a taxpayer identification number from the IRS. None of these procedures was followed with the May Instrument.
There was evidence that the May Instrument was merely a ‘placeholder,’ in case Bill and Vieve died before finalizing this large transfer of wealth. A placeholder, by definition, cannot establish a settlor’s intent to create a trust.
There was also evidence that before and after execution of the May Instrument, the Gores maintained a view that their assets should be distributed according to a formula that would account for stock the grandchildren were presumed to receive from their parents and other sources. The May Instrument, however, would simply distribute the trust assets per stirpes.
Looking at all this evidence together, the Delaware Supreme Court determined that the Gores never intended to create a final and enforceable trust through the May Instrument.