## Facts

- Two inter vivos trusts created by Martin Jr.’s parents gave Martin Jr. a life interest and a limited (special) testamentary power of appointment over the remainder.
- The donor instruments restricted permissible appointees to a specified class (including spouse and certain descendants/relatives) and excluded Martin Jr.’s estate.
- Each parental trust contained a taker-in-default provision directing distribution per stirpes to Martin Jr.’s descendants if the power was not validly exercised.
- Martin Jr. executed a will purporting to exercise both powers by appointing the parental trust assets to his own revocable living trust.
- Martin Jr.’s revocable trust provided a life interest to his wife and then remainder to one child (Harry) and three grandchildren; it intentionally excluded two children (Martin III and Dagmar) from remainder.
- The revocable trust authorized payment of Martin Jr.’s debts and estate expenses from trust assets, making trust property available to satisfy estate obligations.
- The bank trustee petitioned for instructions on the validity of the attempted exercises of the powers; certain beneficiaries and the successor trustee of Martin Jr.’s trust counterpetitioned, alleging validity and fiduciary breach.
- The trial court ruled the exercise invalid, ordered distribution per stirpes to all four children, entered judgment on the pleadings against the counterpetition, and awarded attorney’s fees to Dagmar; the adverse parties appealed.

## Issues

1. Whether appointing property subject to a limited testamentary power into a revocable trust that authorizes payment of the donee’s estate debts and expenses is an invalid exercise because it indirectly benefits the donee’s estate, an impermissible appointee.
2. Whether the validity of the exercise turns on what the governing instruments authorize, rather than whether the appointed assets were actually used to pay estate obligations.
3. Whether the trustee bank breached fiduciary duties by petitioning the court for instructions, and whether judgment on the pleadings dismissing the counterpetition was proper.
4. Whether the attorney’s fee award to Dagmar was proper in the trust construction dispute.

## Decision

- The appellate court affirmed.
- The court held Martin Jr. did not validly exercise the limited testamentary powers because the appointment into his revocable trust authorized a benefit to his estate, which was outside the permissible class of appointees.
- The court held actual non-use of the parental trust assets to pay estate debts did not cure the defect; the legal effect of the instruments controlled.
- The court enforced the donors’ taker-in-default provisions and affirmed instructions to distribute the parental trust assets per stirpes to all four children.
- The court affirmed judgment on the pleadings dismissing the counterpetition alleging fiduciary breach.
- The court affirmed the award of attorney’s fees to Dagmar.

## Legal Principles

- A limited (special) testamentary power of appointment must be exercised strictly within the donor-imposed limits; an attempt exceeding those limits is ineffective.
- A donee may not do indirectly what the power forbids directly; an appointment that authorizes satisfaction of the donee’s estate obligations improperly benefits an impermissible appointee (the estate).
- Validity of an exercise is determined by the rights and uses authorized by the governing instruments, not by later administrative choices about whether to use the property for prohibited purposes.
- When an attempted exercise is ineffective, the appointive property passes under the donor instrument’s default (taker-in-default) distribution scheme.
- A trustee’s petition for judicial instructions in the face of genuine uncertainty and conflicting beneficiary positions is consistent with fiduciary duties.
- Attorney’s fees may be awarded in trust litigation where the proceedings resolve instrument construction and proper administration affecting the beneficiaries.

## Conclusion

The court held that a limited testamentary power of appointment is invalidly exercised when the appointment places the property into a trust that can be used to pay the donee’s estate obligations, because the estate is an impermissible beneficiary; the parental trusts therefore distributed under their default provisions, and the trustee’s request for instructions and the fee award were upheld.


BMO Harris Bank N.A. v. Towers, 43 N.E.3d 1131 (Ill. App. Ct. 2015)