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Mutual will contains embedded contract, which could govern conduct of surviving spouse.

Ernest v Chumley, No. 4-09-0663, 2010 WL 3331465 (4th D 2010)

On August 10, 2010, the Appellate Court of Illinois, Fourth District, determined that a third-party beneficiary is entitled to enforce a contract embedded in a mutual will before the death of the surviving spouse. The court interpreted a mutual will to include an embedded contract that could govern some conduct of the surviving spouse.

In 1989, Robert and Dorothy Sonnenborn married. Each had two children from a previous relationship, and they did not have any children together in the course of their marriage. In 2000, the couple executed mutual, identical wills. The wills transferred all of the deceased spouse's assets to the survivor on death and provided no inheritance for any of the couple's four children. However, they did contain language directing any assets remaining after the second spouse's death to be split evenly between the four children. To protect this intent, the wills contained a provision making the surviving spouse's will irrevocable when the first died.

In 2003, three years after the mutual wills were executed, Robert died. At the time, he and Dorothy owned assets worth $200,000. In 2006, Dorothy, now remarried, sold those assets for a profit of $100,000 and deposited that money into three accounts held in joint tenancy with her new husband Thomas. She also executed a new will splitting her assets between her and Thomas's children without any inheritance for Robert's children. Robert's children sued, claiming they were entitled to half of Dorothy and Robert's former estate on her death because the mutual wills were irrevocable and split Dorothy's remaining estate between Dorothy's two children and them.

The Morgan County Circuit Court determined Dorothy and Robert's wills were identical with the exception that Dorothy's will left her estate to Robert and vice-versa. The trial court also found there was no requirement, explicit or implied, that Dorothy use her estate in any particular manner after Robert's death. The wills clearly allowed her to use the assets for her support and enjoyment with no regard to preserving any inheritance for their children. Thus, she was free to sell the home she owned with Robert. In addition, she was under no obligation to deposit the proceeds from those sales into a trust for her or Robert's children.

While the appellate court agreed with the trial judge's findings, its analysis did not end there. The court reasoned that the existence of mutual wills gives rise to a presumption of a contract. Dorothy's transfer of funds from the sale of her home into three accounts held in joint tenancy with Thomas violated the contract embedded in her mutual will with Robert. Since the defining characteristic of an account in joint tenancy is the immediate right of survivorship, Thomas would have the right to all of the money in the joint accounts immediately on Dorothy's death. This would deprive Dorothy and Robert's children of the estate left to them in Dorothy and Robert's mutual wills.

The mutual wills unambiguously divided any remaining estate among the four children after both Robert and Dorothy's death, and it was specifically irrevocable. Thus, there was an embedded contract that the surviving spouse would not alter his or her will to deprive any of their four children of whatever estate remained. Thomas's ability to claim the funds in the three joint accounts upon Dorothy's death was clearly at odds with this contract. The court concluded that the four children have the right to enforce the terms of the embedded contract as third party beneficiaries, and it remanded the case so the trial court could instruct Dorothy to terminate Thomas's interest in the accounts.
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Title Annotation:cases
Publication:Illinois Bar Journal
Date:Nov 1, 2010
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