4.

Newman vs Dore

FACTS:

Ferdinand Straus died on July 1, 1934, leaving a last will and testament dated May 5, 1934,
which contained a provision for a trust for his wife for her life of one-third of the decedent's property
both real and personal. In such case the statute did not give the wife a right of election to take her share
of the estate as in intestacy. She receives the income for life from a trust fund of the amount of the
intestate share, but does not take the share. That share is one-third of the decedent's estate. It includes
no property which does not form part of the estate at the decedent's death.

The testator on June 28, 1934, three days before his death, executed trust agreements by
which, in form at least, he transferred to trustees all his real and personal property. If the agreements
effectively divested the settlor of title to his property, then the decedent left no estate and the widow
takes nothing. The widow has challenged the validity of the transfer to the trustees. The beneficiary
named in the trust agreement has brought this action to compel the trustees to carry out its terms.

ISSUE:

WON the trust agreements transferring all his real and personal properties to trustees is valid

HELD:

The New York Supreme Court affirmed the trial court’s decision that the inter vivos gift to the
trust was not valid.

The New York Supreme Court found that the law does not restrict property transfers while the
person is alive, so, if the property transfer was valid, then Strauss died with no estate and the wife gets
one-third of nothing. However, if the transfer of property was only illusory and Strauss still retained the
property in some form, then the transfer is not valid and the property is still part of the estate.

The New York Supreme Court found that the transfer was illusory. Strauss retained not only the
income for life and the power to revoke the trust, but also the right to control the trustees. Basically if
you transfer property to a trust but reserve the power to revoke and modify the trust, and also the
power to control the trustee in the administration of the trust, then the trust remains part of
your augmented estate and can be taken as an elective share by the surviving spouse.

This case said that the surviving spouse can't get a trust invalidated because the decedent was
trying to diminish the spouse's elective share. However, the surviving spouse can get a trust invalidated
because the wealth wasn't really transferred to the trust, it was just a sham.