Christian Science Benevolent Ass'n v. Palmer

168 P.2d 669, 28 Cal. 2d 69, 1946 Cal. LEXIS 196

• Court: California Supreme Court
• Decided: April 30, 1946
• Docket: L. A. 19201
• Status: Published

Opinions

CARTER, J.

William F. Markham died in 1930. By his will admitted to probate in that year, he named his wife executrix thereof, and trustee of a trust created thereby. The will devised the home property and furnishings to his wife for life, remainder to the children of Mr. and Mrs. Harlan G. Palmer, Sr., and the residue to his wife in trust as follows: “From the gross income received or derived from the trust estate, or from the principal thereof, if the Trustee deem that necessary or advisable, there shall first be paid and discharged all taxes, assessments, costs, attorney fees, charges and expenses incurred in the care, administration, distribution and protection of the trust estate and the protection of this trust and its defense against legal or equitable attack by any person, both during and after probate administration upon my estate.

From the net income of said estate, shall be by said Trustee paid, the following: (1) To my daughter, Maud L. O’Brien . . . ($250.00) a month during her natural life. (2) To my son, Leigh H. Markham, . . . ($250.00) a month during his natural life. (3) To my sister, Louise Markham, . . . ($100.00) a month during her natural life. (4) To my friend and chum, Ben S. Sprague, . . . ($250.00) a month during his natural life. (5) To my gardener, Ed. Jenkins, the sum of One Hundred Fifty Dollars ($150.00) a month, during such time as he is employed by my Executrix or Trustee for work in connection with the estate hereby left by me. (6) To my niece, Isa Markham,. . . ($150.00) a month during her natural life. (7) To my friend and foreman, E. S. Roe, . . . ($150.00) a month during his natural life. (8) To my wife, Blanche C. Markham, such part of the remaining income as she may desire to use for any or all of the following purposes: for the maintenance, care and protection of the homestead; for her personal pleasure, support, maintenance and enjoyment of the best of clothing, automobiles, travel and luxuries contributing to her happiness and comfort.

“All of the above bequests are payable as soon after my death as funds are available.

“I direct that my said Trustee shall accumulate, during her natural life, any income from trust moneys or trust property not applicable under any of the trusts, powers, or provisions herein contained, by investing the same, and all the resulting income thereof, from time to time, in or upon any such stocks, funds or securities as are hereinbefore authorized for investments, for the benefit of the children of the union of Harlan G. Palmer, Sr., and Ethelyn Hunkins Palmer, share and share alike.

“Upon the death of my wife and Trustee, ... I direct that Harlan G. Palmer, Sr., shall succeed her as trustee and that he shall hold of my estate such part as may be approved by court as ample to provide income for the payments directed in subdivisions one (1) to seven (7) in this ‘Fourth’ clause, and shall distribute, free from this trust, the balance of the estate, together with any undistributed net income, to the children of the union of Harlan G. Palmer, Sr., and Ethelyn Hunkins Palmer, share and share alike.

“Upon the completion of all the trusts mentioned in clauses one (1) to eight (8) in this ‘Fourth’ clause, I direct that the remainder of my estate, together with any undistributed net income thereon, be given free from this trust, to the said Palmer children, share and share alike.

“Each and every beneficiary under this trust is hereby restrained from and is and shall be without right, power or authority to sell, transfer, pledge, mortgage, hypothecate, alienate, anticipate, or in any manner affect or impair his, her or their beneficial and/or legal rights, titles, interests, claims or estates in or to the income and/or principal of the trust estate during the entire term hereof, nor shall the rights, titles, interests or estates of any beneficiary hereunder be subject to the rights or claims of creditors of any beneficiary nor subject nor liable to any process or law or court, and all of the income and/or principal under this trust shall be transferable, payable and deliverable only, solely and exclusively and personally to the above designated beneficiaries hereunder at the time entitled to take the same under the terms of this trust, and the personal receipt of the designated beneficiary hereunder shall be a condition precedent to the payment or delivery of the same by said Trustee to such beneficiary.”

Mr. Palmer, mentioned in the will, was the testator’s friend and personal attorney for many years. The corpus of the trust had a value of over a million and a half dollars. Mand L. O’Brien, was eliminated from the rights granted her by the first clause of the trust listing the beneficiaries by reason of her contest of the will. (See Estate of Markham, 46 Cal.App.2d 307 [115 P.2d 866].)

Decedent’s wife served as executrix and trustee until her death in 1937, when she was succeeded by the public administrator, and in 1941, the decree of distribution was entered distributing the trust property to Palmer in trust “upon the conditions and directions set out in the will of the decedent.” Payments were made in full to the beneficiaries from the date of decedent’s death until the end of 1932. In the years 1933-1936, the payments to the beneficiaries were less than the amounts specified in the will, resulting in a deficiency as to Louise Markham of $1,420. During the years thereafter the beneficiaries were paid in full. Louise Markham died in 1940, leaving her claim to that deficiency to petitioner and appellant.

On May 4, 1944, petitioner filed a petition for an order directing the trustee to pay it the deficiency claimed to be payable to its predecessor, Louise Markham. The court denied the petition on all grounds raised in objection thereto, namely, that the claim was barred by the statute of limitation, that pursuant to the spendthrift provisions of the trust the amount of the deficit could not pass by will to petitioner from the beneficiary, that it was not the intent of the testator that either future net income or the corpus of the trust could be used to make up deficiencies, and that the orders settling the annual accounts of the trustee were res judicata on the last-mentioned issue.

In ascertaining whether or not the corpus of a testamentary trust or the excess income in future years may be used to pay the amount specified in the trust as payable to the beneficiary, it has been customary to state the issue in terms of whether the instrument established an annuity or a trust to pay income. An annuity is a periodic payment which is payable unconditionally, there being no contingency present. If the fund or property out of which the annuity is payable fails, in whole or in part, resort may be had to the general assets of the estate. (Prob. Code, § 161(3).) On the other hand the beneficiary of a trust to pay income or the legatee of an income is ordinarily dependent upon the existence of income, the amount received by him fluctuating with the income. The rule is and should he that a provision that payments shall be made from the net income of the trust property compels the conclusion that neither the corpus nor income in future years may be used unless there is a clear expression to the contrary in the trust instrument. (See Estate of Platt, 21 Cal.2d 343 [131 P.2d 825]; Estate of Phelps, 179 Cal. 703 [178 P. 846]; Estate of Brown, 143 Cal. 450 [77 P. 160]; In re Mackay, 107 Cal. 303 [40 P. 558]; Estate of Lockhart, 21 Cal.App.2d 574 [69 P.2d 1001] ; Clayes v. Nutter, 49 Cal.App. 148 [192 P. 870] ; cf. Estate of Roberts, 27 Cal.2d 70 [162 P.2d 461] ; Crew v. Pratt, 119 Cal. 131 [51 P.44]; Estate of Watson, 32 Cal.App.2d 594 [90 P.2d 349] ; Estate of Bourn, 25 Cal.App.2d 590, 600-601 [78 P.2d 193] ; Estate of Oliver, 21 Cal.App.2d 106 [68 P.2d 735]; see 2 Am.Jur., Annuities, §19; cases collected L.R.A. 1917E 580; 136 A.L.R. 69.) The will must be taken as it was executed, and when it provides that the periodic payments are to be made from income, and the annual income is insufficient to meet such payments, there must be a strong and express indication that it was the intention of the testator in such event to authorize an invasion of the corpus and use of future income. The testator was free to provide for a resort to the principal and future income if he so desired. In the instant case he made no such provision. To read such a provision into the will would require a clear indication from other terms of the will compelling such interpretation. As stated in Estate of Platt, supra, 351, where the issue was whether or not income for other years could be used to make up past deficiencies, we said: "The plan of the testator undoubtedly contemplated an accounting period, at which time the income of the estate, less the cost of administering the trust, would be computed and distributed. In a provision of the will which authorizes advances to either beneficiary-in the event of illness or other emergency, the testator refers to the source of the monthly payments to them as ‘net income.’ In accordance with common business practice, the inference may properly be drawn that the testator, unquestionably an experienced business man, contemplated an annual period in which the expenses of administration would be deducted from the gross income received from the principal of the trust and the balance, the net income, paid to the beneficiaries. And as he disposed of all income with no provision to meet any deficiency in the stated monthly payments to the wife, each accounting period must be regarded separately and the net amount earned by the trust property in each year paid to the beneficiaries as provided by the will. Any other interpretation would require the court to write into the will provisions which the testator did not make either expressly or by implication.

“A somewhat similar situation was presented in Estate of Chapin, 47 Cal.App.2d 605 [118 P.2d 499], ... In answer to the wife’s contention that any arrearages should be paid to her before the three children, other than the son, received any payments, the court held that since the will itself did not make provision for a reserve to pay a minimum amount, the court would not provide one by interpretation.” [Emphasis added.] (See, also, Estate of Roberts, 27 Cal.2d 70 [162 P.2d 461].) In the instant case the trustee is to pay the expenses of administering the trust from the gross income or from the principal if he deems it necessary, indicating that the testator had in mind a situation where the principal might be used. However, when he came to provide for the beneficiaries, he expressly states that they be paid “from the net income of said (trust) estate.” In the 8th beneficiary clause reference is again made to “remaining income” as being payable to his wife. Again reference is made to accumulation of “income from trust” property not applicable under any of the terms of the trust. Income is later referred to in speaking of the amount to be held by Palmer, the successor trustee of his wife, that amount being enough to provide income to pay the beneficiaries.

Moreover, in the present ease there are factors supporting rather than negating the foregoing conclusion drawn from the provision in the will limiting the payments to the annual net income. A factor indicating that the corpus is not to be subject to the claim of the beneficiaries to the stipulated amounts is a gift over of the corpus upon the death of the beneficiaries. (See Estate of Platt, 21 Cal.2d 343 [131 P.2d 825]; Lynn Safe Deposit & T. Co. v. Martin, 308 Mass. 443 [32 N.E.2d 247] ; First Nat. Bank of Toms River v. Levy, 123 N.J.Eq. 21 [195 A. 820]; cases collected 136 A.L.R 69.) The gift of the corpus and accumulated income to another on the death of the beneficiary indicates that the testator desired to benefit the remaindermen, and if the corpus or future excess income is consumed in making the periodic payments to the beneficiary, the remaindermen will receive that much less. The will under consideration stipulates that any remaining income after the first seven beneficiaries, including Louise Markham, have been paid, shall be given to the testator’s wife, implying that a surplus was contemplated and that no recourse to the principal would be necessary. His wife, the natural object of his bounty, received nothing else under the will except the home property. The trustee-wife was directed to accumulate during her life any income not applicable to the trust for the benefit of Palmer’s children, thus indicating that rather than have the corpus invaded or future income used, the excess income was to be accumulated for the benefit of those persons. Palmer, the successor trustee, was directed to “hold” sufficient of the trust property to provide “income” to make the payments to the beneficiaries, distributing the balance of principal and accumulated income to the Palmer children, thus contemplating that the remaindermen should commence to share in the trust before the beneficiaries’ rights had ceased by reason of their deaths. The Palmer children were not required to wait until the beneficiaries were all satisfied and then receive what was left of the remainder, if any. If the sum set aside by Palmer for the trust was insufficient to raise the income necessary, the beneficiaries would be the sufferers inasmuch as the balance would have been paid to the Palmer children. Finally, upon the completion of the trust, which, must mean upon the death of the beneficiaries, the remainder including accumulated income was given absolutely to the Palmer children. It is true the testator refers to the “remainder” of the estate passing to the Palmer children, but the use of that term does not require the conclusion that the principal was to be used to pay the beneficiaries or destroy the efficacy of the gift over by implying that the corpus or future income was to be used. By referring to any undistributed income as well as the remainder of the principal, it appears that he intended the remaindermen to have the principal intact. In view of the heretofore discussed reference to net income, and the solicitude for the Palmer children as shown by the fact that they were the chief objects of his bounty, and were to receive some benefits even during the life of the other beneficiaries, we do not believe that the use of the term “remainder” should be construed to mean that the remaindermen were to receive only what was left after the beneficiaries had been paid by resorting to the principal.

Appellant relies upon Estate of Emerson, 139 Cal.App. 571 [34 P.2d 800], but in that case the will provided that the real property, which formed the bulk of the estate, should be sold and government bonds bought instead, and the deficiency of income arose out of the fact that this provision of the will was not followed and the income of the real property was decreased to an extent that the bequests of income could not be met although they could have been met had the will been properly executed. Thus the question was whether the beneficiaries of the income or the remaindermen should be affected by the deficiency which arose from improper execution of the will and the court solved that question by concluding from the will “that the testatrix was more solicitous about the welfare of the two annuitants than she was of the remaindermen.” Moreover, the court in the Emerson case failed to give due consideration to the source of the payment as being the net income, the importance of which we have mentioned above.

Appellant urges that the sentence: “All of the above bequests are payable as soon after my death as funds are available,” requires a resort to the corpus and future income. That is not sufficient basis for overcoming the clear meaning of the direction that the beneficiaries be paid out of net income. The meaning of funds available must be found by reference back to what funds are to be used. Those funds are the net annual income and hence are not the corpus or future income. Moreover, it relates to the time that the trustee’s duty arises to pay the income—that he may be compelled to pay it rather than specifying the source of payment, and, as said in Estate of Platt, supra, at p. 346 : “In a majority of cases it has been held that, unless the testamentary trust was created for the support or maintenance of the beneficiary, the income accrues from the date of distribution.... Apparently the controlling factor in the decision of these cases was the inability of the beneficiary to compel the payment of any income prior to the distribution of the trust property to the trustees. That fact, however, is not determinative of the question for, as has been recently stated, the rule which precludes a beneficiary from suing to recover income during the period of administration relates only to the time at which the trustees may be compelled to make payment, and does not determine the date at which the right to income commences. (Estate of Marré, 18 Cal.2d 184, 190 [114 P.2d 586].)”

The argument is made that by reason of the kinship of Louise Markham, the sister of the testator, it is to be assumed that she would be preferred by the testator to the Palmer children, strangers in blood; that the existence of the spendthrift provisions are a basis for inferring that the payments to the beneficiaries were for their support and maintenance; and that therefore the testator intended the use of the corpus and future income where the annual income was insufficient. In our discussion heretofore we have shown that the testator expressed a primary regard for the Palmer children rather than his sister. Assuming the spendthrift provision in the will is a basis for concluding that the allowances to the beneficiaries was for maintenance, it does not follow that the corpus or future income may be reached oil their behalf. If the testator had wished to insure their support he could have authorized resort to those sources. He did not do that. He showed a concern for the Palmer children. There is no compelling public policy that requires that we write into the will such a clause. If he had been so solicitous of his sister, as contended by appellant, he could have expressed himself clearly to that effect. To arrive at the result that the corpus and future income are subject to the beneficiaries ’ claim, it must first be inferred from the spendthrift provision that the trust was for support and maintenance. From that it must be inferred that the testator intended that these sources be used. There is no compelling policy requiring such intricate deduction to escape the plain language of the will directing the payment from net income. It is insufficient to defeat that language.

We conclude therefore that the corpus may not be invaded, that the net income is to be computed on an annual basis, and’ resort may not be had to income in future years to make up past deficiencies.

Appellant earnestly contends that Estate of Platt, supra, is distinguishable from the case at bar. It refers to the clauses in the instant will specifying that payments are to be made as soon as funds are available, that the trustee is to accumulate income not applicable under the trust, and the gift over of remainder in trust on completion of it. Those matters have been discussed above. Reference is made to the much greater value of the trust estate and income in the instant case as contrasted with the Platt case. But that should not compel the interpretation sought by appellant. As above seen, there is nothing' to overcome the requirement that payment be made from net income.

It cannot be said that Estate of Platt, supra, is distinguishable on the ground that there was a disposition of all of the income each year or that those who were to receive the excess income were strangers to the testator. While it is true in the instant ease that the accumulated income would go to the Palmer children, still, like Estate of Platt, clause (8) of the trust, provides that testator's wife shall receive such part of the “remaining” income as she may “desire” to use. The preceding clauses give a certain amount to each beneficiary. If for several years the income was insufficient, the wife might not receive anything if the income in future years were used to pay past deficiencies in the payments to the first seven beneficiaries. We do not believe the testator had any such intention.

Finally, it appears that appellant claims there was error in the computation of the net income for the years 1933-1936 (when the payments to the beneficiaries were deficient) in that expenses were charged against the gross income which should have been charged against the corpus; that properly computed there would have been a net income for those years from which to pay the beneficiaries in full, and that subsequent excess income or the corpus should be used to make up those arrearages. However that contention was raised for the first time on this appeal. Indeed it was not raised until the brief was filed in this court on hearing granted after decision by the District Court of Appeal. The appellant’s petition in the court below, while asserting there is presently excess income to meet prior deficiencies, does not allege that there was sufficient income during the years of deficiency, 1933-1936. Also it must be remembered that many years have passed since the alleged deficiencies, the executrix is dead, the estate is distributed, and diligence has not been shown in attempting to correct the asserted error in computation of the income. For those reasons the point will not be considered.

The judgment is affirmed.

Gibson, C. J., Shenk, J., Traynor, J., and Peters, J. pro tern., concurred.