Donovan v. NAT. BANK OF DETROIT

185 N.W.2d 354, 384 Mich. 595, 1971 Mich. LEXIS 247

• Court: Michigan Supreme Court
• Decided: April 6, 1971
• Docket: 23 October Term 1970, Docket No. 52,741
• Status: Published

Opinions

T. E. Brennan, J.

I cannot agree with our distinguished brother and former colleague.

He holds that the language of the codicil was clear and unambiguous. Then he cites Industrial Trust Company v. Winslow (1938), 60 RI 61 (197 A 185), and United States Trust Company of New York v. Jones (1953), 414 Ill 265 (111 NE2d 144), for the proposition that the words “all taxes”, though clear. and unambiguous, do not include capital gains taxes because the result of such an interpretation would be “incongruous.”

The language used by the settlors in both the Winslow and Jones cases was stronger than the phrase “all taxes” used by the testatrix in this litigation,¹ yet in both of those cases, the courts held the language to be ambiguous, and looked for other indicia in the trust instruments to determine the settlor’s intent.

It cannot be of much guidance to trustees for this Court to hold that the phrase “all taxes” clearly and unambiguously includes some taxes and clearly and unambiguously excludes others.

Nor is my brother’s characterization of a capital gains tax as a “governmental exaction” a useful device for distinguishing between includable and excludable taxes. In the Jones case, the settlor used the term “other governmental charges.” Still, the court there held the capital gains tax excluded.

Appellees argue that the will is silent on the fund out of which the trustee is directed to pay taxes and expenses. Appellant points out that the direction to pay taxes and expenses is inserted between the direction to collect income and the command to pay net income; and claims that this positioning of the tax and expense directive evidences an intent that these things be paid ont of gross income, and that their payment will leave net income to be distributed.

Appellant’s position has some merit. Certainly plaintiff would not claim that he is entitled to a distribution of gross income, with no expenses deducted therefrom.

But the conclusion that the testatrix intended some taxes and some expenses to be deducted from income does not negative the possibility that other taxes and other expenses were intended to be charged to principal.

The real difficulty is that we are not so much trying to find the testatrix’s actual intent, as we are trying to opine as to what the testatrix’s intent would have been had she ever thought about the problem.

The commissioners on Uniform State Laws have stated the problem in their prefatory note to the 1962 act, adopted by Michigan in 1965:

“Request for revision of the old Act came from several sources, particularly from trustees who found it difficult to administer trusts under the older Act due to the development of new forms of investment property for trustees. This new development was especially true in the field of corporate distributions and also in the holding of mineral resources as a trust investment. The revised Act provides as did the original Act that the settlor’s intent is the guiding principle which should control the disposition of all receipts. But settlors have not always foreseen the multitude of problems which may have to be faced and even draftsmen have found it difficult to foresee all the possible hinds of receipts and disbursements. It is important, therefore, to set forth some clear and uniform standards to assist those to whom the power of decision has been committed, that is, the trustees, and this Act attempts to provide these standards.” (Emphasis added.)

The commissioners concluded:

“The Act, therefore, sets forth simple and workable rules of administration which are believed to be consistent with the wishes of settlors upon the subject treated unless the settlor specifically provides for a different treatment in his own trust instrument.” (Emphasis added.) Vol 9B TILA 569-571.

I conclude that the language in the trust instrument here involved does not contain a clear expression of contrary intent, such as to remove this trust from the operation of the Uniform Act.

RETROACTIVITY

My brother has concluded his opinion with language suggesting that the appellants here were possessed of some vested right as of the date of the testatrix’s death, which right cannot be taken away by the subsequently adopted Uniform Act.

Such reasoning begs the question. If it be true that the trust is ambiguous upon the question of apportionment, then it was ambiguous on the date of the testatrix’s death.

Prior to the adoption of the Revised Uniform Principal and Income Act, there was no appellate decision in Michigan establishing any general rule with respect to the apportionment of taxes and expenses as between principal and income accounts.

ALR Annotations dealing with compensation of trustees, 117 ALR 1154; attorney fees and court costs, 124 ALR 1183; taxes, 17 ALR 1384, 94 ALR 311; repairs, 101 ALR 681; insurance, 47 ALR 519, are helpful, but demonstrate two major propositions :

(1) That the intention of the settlor, while theoretically controlling is rarely so clearly expressed as to be dispositive,

(2) Courts of equity have jurisdiction to determine the apportionment of expenses as the equities may appear.

Generally, courts which have considered particular expenses and expenditures have directed that the ordinary expenses of the administration of a trust be charged against income, and extraordinary expenses which benefit the remainderman be charged against the principal.

Since Michigan had no ease law on the subject, prior to the adoption of the Uniform Act, it cannot be said that the Uniform Act abrogated our equity jurisprudence; nor ousted any Michigan beneficiary from vested rights.

Being free as chancellors to adopt for Michigan that view which most nearly effectuates the 'presumed intent of the settlor, and which at the same time, makes convenient and reasonably certain the administration of trusts in our state, we should hold in this case that taxes and expenses of the administration of the instant trust be apportioned between income and principal in accordance with the specific provisions of Act 340, PA 1965.

Adams and T. G. Kavanagh, JJ., concurred with T. E. Brennan, J. T. M. Kavanagh, C. J., concurred in the result.

1 “ ‘Article Sixth. Out of the income of the principal of the trust estate the Trustee shall pay all taxes, assessments or other governmental charges which it may be required to pay or to retain because or in respect of any part of the principal of the trust estate or the income therefrom or the interest of the Trustee therein or the interest of any beneficiary or other person therein, under any present or future law of the United States, or of any state, county, municipality, or other taxing authority therein, any and all such taxes, assessments or other governmental charges lawfully imposed being charged as a lien upon the said income, and in the case of deficiency of said income upon the principal of the trust estate.’ ” United States Trust New York v. 267.

“ ‘ * * * and to pay from said income all taxes, assessments, ordinary and extraordinary, and other expenses and charges incident to the care, management and protection of said trust estate, including a reasonable compensation to said trustees.’ ” Industrial Trust Company v. Winslow, supra, p 65.