Appeal, No. 324, Jan. T., 1959, from decree of Orphans' Court of Lancaster County, No. 511 of 1958, in re life insurance trust between Osborn H. Cilley, donor and The Fulton National Bank of Lancaster, Trustee. Decree reversed.
William C. Storb, with him Stein, Storb and Mann, for appellant.
F. Lyman Windolph, with him Windolph, Burkholder & Hartman, for appellee.
Before Jones, C.j., Bell, Musmanno, Jones, Cohen, Bok and Mcbride, JJ.
OPINION BY MR. JUSTICE BENJAMIN R. JONES.
This appeal presents for our determination the question whether the words "lawful issue" in a certain life insurance trust agreement include a child adopted by the settlor's daughter subsequent to the execution of the agreement in 1936 but prior to the settlor's death in 1958.
On May 19, 1936 Osborne H. Cilley (herein called Cilley) was the father of two children, Donald L. Cilley, then aged 24 years, and Ruth E. Cilley, then aged 19 years, both children having been born of a marriage between Cilley and Blanche E. Cilley. The record indicates that Cilley was married twice; first to Blanche E. Cilley, now an incompetent, and later to Frances A. Cilley.*fn1
On May 19, 1936 Cilley turned over to the Fulton National Bank of Lancaster (herein called Bank), under the terms of a written life insurance trust agreement, seven policies of life insurance on his, Cilley's, life with various life insurance companies in the total amount of $36,500.*fn2 This agreement provided, inter alia, that: (1) the Bank was to hold the insurance policies "without any obligation of any nature in respect thereto, other than the safekeeping thereof" until the policies became payable by reason of Cilley's death; (2) on Cilley's death, the Bank was to receive the proceeds of the insurance and divide them into two parts: a one-third part was to be paid outright to Blanche E. Cilley, if she were then living, and a two-thirds part to be held as a trust fund;*fn3 (3) the Bank was to pay the net income from the trust fund in regular installments to
Donald L. Cilley and Ruth E. Cilley until "their arrival at the age of thirty (30) years, respectively", when each child was to be paid one-half of the principal of the fund; (4) in the event that either Donald L. Cilley or Ruth E. Cilley, or both of them, died before the time of distribution of their shares "leaving lawful issue to survive either or both of them", said "lawful issue" would take per stirpes the share of the parent and, if either child died without "lawful issue to survive", then the entire fund would go to the surviving child; (5) if both children died before the time for distribution of this fund without leaving lawful issue to survive, then the balance of the fund was to be distributed "among the lawful heirs of [Cilley], in accordance with the Intestate Laws of the State of Pennsylvania, the same vesting as of the date of the death of Blanche E. Cilley... if she shall survive [Cilley]"; (6) Cilley retained the "full right to exercise any benefit, option or privilege" under the policies except as to Blanche Cilley's share the provision for which was "declared to be irrevocable"; (7) it was "distinctly understood and agreed that [the agreement] shall be revocable at any time during his life by [Cilley], except as to the provision in favor of Blanche E. Cilley..., which shall be irrevocable, and that no interests of any kind shall vest in any parties... until the date of the death of [Cilley]" and Cilley reserved the right to "revoke, alter or modify" the agreement, in whole or in part.
On January 2, 1948, Cilley, in writing, withdrew from the Bank two-thirds of the proceeds of one matured life insurance policy and revoked the agreement insofar as it related to another life insurance policy.
Cilley died April 15, 1958. Donald L. Cilley survived his father, but Ruth E. Cilley (then Ruth C. Baer) predeceased her father, having died on December 28, 1955. Of Ruth E. Cilley's marriage to Kenneth
F. Baer no children were born, but on November 13, 1953 - approximately two years prior to her death and approximately four and one-half years prior to Cilley's death, she and her husband adopted a child, known now as Kenneth L. Baer and now aged approximately seven years. Subsequent to his daughter's death Cilley made no change whatsoever in the trust agreement but did make a new will the effect of which was to exclude the adopted child from sharing in that portion of his estate which would pass by will.
The Bank filed its First and Final Account on June 5, 1958 and the Orphans' Court of Lancaster County appointed the appellant as guardian ad litem to protect the interests of the adopted child. The court, at audit, held that the adopted child did not take the share which his adopted mother, Ruth Baer, would have taken had she survived her father. Exceptions to this decree nisi were dismissed and a final decree was entered from which this appeal was taken.
The court below considered that the agreement between Cilley and the Bank became effective on May 19, 1936, and, therefore, the Intestate, Wills and Estates Acts of 1947*fn4 (which, in the words of the court below, completed "the grafting of adopted person upon the family tree of adopting parent and parents") were inapplicable in the construction of the agreement and that, at the time the agreement became effective, the law was settled that the word "issue" did not include an "adopted child": Howlett Estate, 366 Pa. 293, 297, 77 A.2d 290.
Prior to the passage of the Acts of 1947, supra, an adopted child was not considered to be embraced within
the word "issue".*fn5 In Howlett Estate, supra, the testator died in 1921 and, under his will - executed in 1907 -, he created a trust with life estates to his children and then to a child's issue, or, in default of issue, to surviving children and the issue of deceased children. During the term of the trust a son died leaving no natural born children but a daughter who had been adopted in 1897. Ruling that this adopted daughter of the deceased son was not entitled to take as "issue", this Court stated (p. 297): "'Issue' is not synonymous with 'children'. 'Issue' means issue of the body, offspring, progeny, natural children, physically born or begotten by the person named as parent: [citing cases]. An adopted child is issue of his natural parents and not of his adopted ones: [citing cases]".*fn6 If the effective ...