Boilerplate Wills and Trusts Can Cause Unintended Consequences

October 5, 2011, 2:22 PM

As the variety of trust instruments available to estate planners increases, the amount of boilerplate or form language in such instruments seems to increase as well. When representing fiduciaries in trust and estate litigation, I see a surprising number of disagreements that arise from language no one likely gave much thought to when the document was drafted. A recent Virginia Supreme Court case reinforces why it is so important to review even the most mundane language of each and every instrument to make sure it accurately portrays the wishes and desires of each client.

The case of Dolby v. Dolby involved a parcel of property with a large mortgage. Under Virginia law, property specifically devised in a Will passes subject to the mortgage. In this case, however, the property passed outside of probate, and whether the mortgage ran with the land or stayed with the Estate was a question that required more detailed analysis of the language of the Will. The language focused on by both the trial court and the Virginia Supreme Court, in reaching different opinions, was not language specifically drafted for Mr. Dolby to address his specific situation, but instead was form language similar to that found in almost every Will.

Five years before his death, Cornelius Dolby, a commercial real estate developer, bought a house secured by a mortgage of more than $1.5 million. Originally, he purchased it in his own name, and lived there with his girlfriend and longtime employee. Almost four years later, the couple married. Mr. Dolby then executed a deed of gift transferring the property from him alone, to him and his new wife as tenants by the entireties, with the right of survivorship. Upon the death of Mr. Dolby, by operation of law, the widow Dolby became the sole owner of the property in fee simple.

Mr. Dolby also had a Will and a Revocable Inter Vivos Trust. The Will left all of Mr. Dolbys personal property to his wife, and directed that the residuary pour over into the Trust. The Trust had a series of complicated disbursement instructions.

Because of the ownership as tenants by the entirety, the property was not included in Mr. Dolbys Estate. Trouble arose, however, because of the mortgage encumbering the property. After the deed of gift was recorded, Mrs. Dolby was never added to the loan, which remained Mr. Dolbys sole obligation. After Mr. Dolbys death, Mrs. Dolby took title to the property, but asserted that the mortgage was an obligation of the Estate. Mr. Dolbys three adult daughters by his first marriage, who were beneficiaries of the Estate, disagreed. Seeking an answer to whether the mortgage should become the obligation of the wife or the Estate, the co-executors, Mrs. Dolby and two brothers of Mr. Dolby, filed a petition for aid and direction with the local circuit court.

Noting that the intent of the testator is always the most important factor in interpreting Wills, the circuit court judge relied upon language stating that the executors "shall not be required to pay prior to maturity any debt secured by mortgage, lien or pledge of real or personal property owned by me at my death, and such property shall pass subject to such mortgage, lien or pledge." The attorney who drafted the Will testified that this language was "boilerplate" language he placed in every Will. Nevertheless, the judge decided that it indicated an intent to have the property pass subject to the mortgage, and Mrs. Dolby was obliged to pay the debt. Noting that Mrs. Dolby had received $3 million in life insurance proceeds as well as the property (which was valued at almost $2.9 million at the time of death) while the children had received no distribution from the Estate, the judge held there was no evidence that Mr. Dolby intended to leave his widow almost $6 million in assets, while forcing the Estate to pay off his mortgage and leaving his children essentially nothing from an otherwise substantial estate. The judge therefore ordered Mrs. Dolby to pay the mortgage.

The Virginia Supreme Court disagreed. In doing so, it focused on a completely different portion of the same "boilerplate" language. The Supreme Court focused on the portion of the same sentence that relieved the Estate of the obligation to pay debts secured by property held "at my death." Finding that Mr. Dolby did not own the property at his death, because it had passed to his widow at the moment of death, the Supreme Court held that the Estate was obligated to pay the mortgage.

This result highlights the dangers of inserting seemingly innocuous, boilerplate language into any testamentary instrument, without first considering its effect on the intent of the person for whom it is drafted. Oftentimes, such language is glossed over by both the drafter and the client, only to rear its head in later litigation. It is important to remember a court will assume such language embodies the specific clients intent. In this case, as pointed out by the circuit court judge, there was no evidence Mr. Dolby intended to leave his widow the house and the substantial life insurance proceeds, while leaving his children essentially nothing from an otherwise substantial estate after the mortgage was paid. Yet, because the boilerplate language inserted in the instrument did not make clear any intent to the contrary, this was the final result. --W. Hunter Old